Spotlight: Econ Op-eds in Summary (Week ended 6th October '21)
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.
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).
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
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