Spotlight: Econ Op-eds in Summary (Week ended 12th May'21)
1. Investment efficiency crucial for post-pandemic economic recovery
By: Professor Sirimevan Colombage
· COVID-19 led to the country recording its deepest recession since independence and crippling other economic indicators with subsequent lockdowns being implemented. Despite this the real GDP growth is expected to rebound to 6% in 2021 by the CBSL, an optimistic target which could only be achieved through the improvement in investment efficiency which has been low in the country.
· The low investment efficiency is an outcome of several factors. A main reason would be that the rates of return on some of the major infrastructure projects such as highways are not immediately transmitted to production increases. Huge debt-funded investment allocated for certain less-productive public infrastructure projects in the recent past is also a matter of concern.
· However, it is not an easy task to improve investment efficiency at this critical stage, given the country’s long standing less-efficient production structure and the pandemic-hit economic activities. As such companies must invest heavily in R&D in combination to the CBSL maintaining debt sustainability to be able to lift up the economy.
2. Reviewing a lost year and expecting an economic revival
By Nimal Sanderatne
· Last year has been a challenging year for Sri Lanka as the local and global priority was to avoid an economic disaster which seemed inevitable. Manufacturing, construction and agriculture industries were significantly affected in Sri Lanka and its GDP per capita, size of economy and per capita income all fell significantly compared to 2019
· However, the country’s export industry showed resilience through diversifying into PPE, gloves and masks. Import expenditure was reduced due low global oil prices and extreme import restrictions. Despite an improvement in the trade account, the BOP deteriorated mostly due to the net capital outflow.
· Despite these negative indicators the Central Bank seems to have an optimistic outlook on the economy based on the prospect of a global economic recovery that would enhance the country’s exports and revive global travel and tourism. This is unlikely with the increasing spread of the virus in the country as well as its spreading in other parts of the world. As such, appropriate policy responses that should be put in place that would mitigate the global and local setbacks and the economy should find ways and means of increasing production in the country.
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
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