Spotlight: Econ Op-eds in Summary (Week ended 6th October '21)

21-10-7

Snapshots


1. Central Bank’s Road Map lacks monetary policy framework, avoids IMF bailout

By: Professor Sirimevan Colombage


  • The recently      presented CBSL Roadmap does not provide a coherent monetary policy      framework, which could lead to surges in market liquidity and exert severe      pressure on the external sector and inflation.

  • The roadmap      forces exporters to convert the required levels of foreign exchange within      a stipulated time frame. While exporters have denied claims of hoarding      foreign currency, it is natural for exporters to expect the rupee to      depreciate and to borrow locally to ensure forex earnings are stable under      given circumstances.

  • The      negotiation of an IMF program would mean that Sri Lanka would adopt      necessary structural reforms as part of the program, which would allow for      greater foreign investor credibility in the country allowing it to attract      more FDI. However, the Roadmap rules out IMF support, and in doing so,      would incur enormous adjustment costs on the public.


For the full article – Refer Daily FT


2. Severe shortages of external finances leading to economic deprivations

By Nimal Sanderatne


  • Shortages      of foreign currency and inappropriate policies seems to have created      shortages in necessities in Sri Lanka, with large amounts of essential      imports being stuck at ports. While the Central Bank had intervened and      cleared part of these goods, this might not be a permanent solution for      the shortage in essential items.

  • On      the other hand, the Lack of fertilizer may decrease Maha harvest as well      as tea and rubber production in Sri Lanka. Further, the inability to      import raw materials will decrease the export capacity of the country. The      lack of foreign currency is exacerbated by a decrease in remittances, due to      the considerable gap between the official and black market rate.

  • The      solution for the problem lies with addressing the fundamental problem in      the external finances. This can be done in three steps. Abandoning the      administered exchange rate, seeking emergency foreign assistance from      friendly countries and asking for emergency balance of payments support      from the International Monetary Fund (IMF).


For full article – Refer The Sunday Times


(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)

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