Spotlight: Econ Op-eds in Summary (Week ended 11th September '19)
1. Sri Lanka’s challenging debt outlook
By: Prof. Lalith Samarakoon
· Public debt in Sri Lanka has been rising over the past years to 83% of GDP in 2018. This is even more alarming because around 50% of this debt is foreign debt, requiring Sri Lanka to either earn foreign currency or borrow more from abroad to finance the payment of interest and principal obligations, making the country more vulnerable to external shocks.
· Such a rise in debt could be a huge burden on the budget balance as it limits fiscal space and flexibility for development, while lowering the resources available for fiscal stimulus. It also risks deteriorating the country’s credit quality resulting in a higher risk premium being required by investors. This could increase an already high borrowing cost.
· Ultimately, the country could fall into debt distress, if public debt continues to grow unguarded at the current rate. Thus, the country would require a strong policy framework for fiscal consolidation and achieving sustained economic growth in high single digits to mitigate the risks created by the country’s debt.
2. A weakening global economy calls for a consensus on Sri Lanka’s priorities
By: Dr. Ganeshan Wignaraja
· Weaknesses in the global economy are weighing down on the strength of markets all over the world. Slowing economic growth in China, India, and the US are combining with global recession worries to cause high levels of economic uncertainty. While central banks are looking more ready to ease monetary policy in response, it remains to be seen how effective and practical this would be.
· The precarious state of the global economy is likely to add risks to Sri Lanka as well. Sri Lanka is tied to the health of the global economy, with factors such as tourism and remittances facing possible risks from a global economic downturn. These external factors would be especially problematic given the country’s issues with foreign debt.
· On the other hand, there are a few opportunities on the horizon as well. The global economic downturn could improve some business opportunities, with budget tourism being a prime example. Moreover, following the 2019/20 election cycle, the country could look towards a more stable economic outlook. Managing these possibilities will be crucial to the country’s economic health.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara & Asel Hettiarachchi)
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