Spotlight: Econ Op-eds in Summary (Week ended 16th September '20)
1. The fuss about money printing: How far is this charge valid?
By: W.A. Wijewardena
· Increasing the stock of money is necessary as long as it is in line with economic growth, and does not lead to an increase in the general price level. However, in Sri Lanka’s case, while the real economy grew by 310% between 1950 and 2019, the stock of money increased by 706%. The total money stock has grown by Rs. 838 Bn in the first 7 months of 2020.
· The first determinant of the money stock- net foreign exchange holdings by the banking system has declined by Rs. 130 Bn during the first 7 months of 2020. However, the second – credit extended by the banking system has ballooned, with net government borrowings growing to Rs. 1.4 Tn within the same period.
· This is due to the massive drop in government revenue as a result of the heavy tax concessions that have been granted. As Sri Lanka’s economy is forecasted to contract by 4-6% in 2020, the increased money stock could lead to inflationary pressures unless a programme to increase revenue and reduce bank borrowings is put in place immediately.
2. Protecting Sri Lankan MSMEs during a pandemic A need for innovative solutions
By: Kithmina V. Hewage
· Sri Lanka’s micro, small and medium scale enterprises performs an important role in the country’s growth and development. However, the current pandemic had intensified some of the traditional vulnerabilities amongst MSMEs, creating a unique set of associated policy challenges.
· One of the main challenges these firms face is the lack of liquidity to weather shocks. While the government had implemented some measures such as debt moratoriums and loan guarantee schemes to cover working capital expenses of MSMEs, the benefits of the schemes have not fully flown through to MSMEs due to structural issues.
· As such, given the tight fiscal space of the government, traditional methods to support MSMEs may not be fully in the best interest of all parties. Instead more modern methods in the likes of measures to develop effective supply chains and to develop technology should be implemented which are less costly for the government but can provide immense support to these businesses.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara & Eshan de Mel)
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