Spotlight: Econ Op-eds in Summary (Week ended 20th August '21)
1. Rupee under stress as trade deficit expands
By: Professor Sirimevan Colombage
The country’s trade deficit expanded in 1H2021 despite a recovery in exports as the import bill surged. In conjunction to this, a sharp reduction in foreign reserves has put increased pressure for the currency to depreciate. Despite moral suasion efforts by the CBSL, banks have reported buying dollars from exporters at Rs. 210 while selling to importers at Rs. 215, with the black-market rate being even higher.
Currency depreciation can have significant impacts on worsening the country’s debt burden as the CBSL is unable to maintain the rupee at a desired level due to a lack of foreign reserves, which currently only provide an import cover of 2½ months. Excessive borrowings by the government has resulted in a sharp increase in money supply, putting pressure on wages and currency depreciation.
Money printing can be counterproductive for an economy as it can lead to accelerating levels of inflation and a wider trade deficit. Several policy adjustments are necessary to correct macroeconomic imbalances prevailing in the economy. To this end, the rupee should be allowed to float freely and an inflation targeting policy framework should be set up alongside the maintenance of fiscal discipline.
2. Confusion and uncertainty on banning chemical fertilizer
By Nimal Sanderatne
There is a considerable confusion whether the ban on chemical fertilizer is lifted or not. Mostly this is due to contradictory statements issued by Finance Minister, Secretary to the Finance Ministry and Secretary to the Treasury as well as President’s office. Finally, basic elements of fertilizer Nitrogen, Phosphorus and Potassium with mixtures of fertilizer are permitted.
In nation’s Agriculture perspective the priority is to increase the production as well as the livelihood of the farmers and country’s economy. Lack of fertilizer will affect negatively towards Sri Lanka’s external finances. It will also decrease food availability, increase food prices and food import expenditure. Decrease in Tea production will affect the export earnings.
Scientists, agronomists, crop and soil scientists and economists all have pointed out that a sudden fertilizer ban would overall do more harm than good for the country. Rather, a phased substitution of organic is much suited. Finally, it would be better if Sri Lanka could achieve the necessary agricultural production next year to feed the population, if not the outcome will be adverse towards the economy.
(Compiled by: Chayu Damsinghe, Malitha Goonerathne & Mariyan Perera)
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