Spotlight: Econ Op-eds in Summary (Week ended 26th August'20)
1. Sri Lanka’s triple shackles converge to slam economy in Coronavirus crisis
· Monetary instability through REER targeting has resulted in steep currency depreciation and a trade lockdown. Sri Lanka’s sovereign bonds might not have traded at such a steep discount, had it adhered to a policy corridor and avoided needless liquidity injections.
· Regime uncertainty, especially regarding taxation policy, is also linked to monetary instability. Import and price controls can also be attributed to money printing. Focusing on indirect taxes would be a better source to raise money in contrast to restrictive direct taxation that is also cyclical in nature.
· If Sri Lanka is to progress, it must break free of such shackles. Sound money should replace monetary instability and regime uncertainty should be eliminated and the policy framework should be strengthened in order to avoid an otherwise inevitable sovereign default that would take significantly longer to recover from than a currency crisis.
2. Revival of exports a sign of economic recovery
By: Dr. Nimal Sanderatne
· The rise in exports in July is an indication of the economy’s revival. Maintaining and accelerating this export momentum would ease the country’s balance of payments that has been adversely affected by the shortfall in workers’ remittances and negligible tourist earnings.
· The main sectors that had contributed to this increase are tea, garment and rubber and rubber related products. The tea exports were propped by higher demand while the other sectors were propped up by demand for PPE. Thus, the Sri Lankan industries should take this lesson into mind and should be able to produce to keep up with the demand and should be willing to adopt to new needs in the markets.
· The import restrictions too should be reduced to support these export industries, which would result in a positive impact on the trade balance and the balance of payment. It is also vital that such gains are not frittered away by imprudent public expenditure that increases imports.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara & Eshan de Mel)
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