Spotlight: Econ Op-eds in Summary (Week ended 15th April'20)
1. Sri Lanka faces uphill task to revive post-COVID-19 economy
By: Shihar Aneez
· Sri Lanka’s economy faces major challenges following the impact of COVID-19, with deficit financing, dealing with job losses and boosting the economy being top priorities. The slowdown in the global economy compounds the situation with a decline in revenue from key industries (including apparel and tourism) and remittances.
· With growth prospects for 2020 looking grim, the government has announced a number of stimulus measures. These are yet to reach businesses and consumers, in part due a reluctance to comply by banks and financial institutions and in part due to a lack of confidence. External financing avenues are also stunted, as evidenced by the latest SLDB auction only meeting 5% of its target.
· Against this backdrop, Sri Lanka faces a somewhat desperate policy situation, needing to pay down loans of US$ 5.89 Bn by end-2021. Sri Lankan political leaders have called for lending nations to extend debt moratoriums to ease pressure on the economy, and discussions are underway with China for a further loan of USD 2 Bn.
2. Sri Lanka’s weak public finances will exacerbate COVID-19 economic shocks
By: Fellows of the Advocata Institute
· Unlike the financial crisis, Covid-19 will impact the domestic markets of developing countries. In Sri Lanka, tourism, agriculture, exports and even local factories sourcing overseas inputs are likely to suffer a slowdown in growth. Public finances could take a double hit from falling revenues due to low economic activity and increased expenditure due to the proposed health and relief measures.
· Improvement in public finances over the past few years was mainly due to increasing taxes rather than limiting expenditure. Fiscal slippage since 2019 and recent tax cuts further threatened the fiscal outlook. Covid-19, has precipitated this existing policy weaknesses. In such a context, managing foreign debt will be challenging. Billions of dollars would have to be raised to repay the existing debt without impacting reserves.
· Heightened sovereign yields have made market borrowing less attractive. Defaulting on debt can have severe repercussions. Bailouts will be a temporary solution and bi-lateral aid may not be a realistic option. A new IMF program is the most likely realistic alternative available. The economy should be carefully managed as further mistakes could turn COVID-19 from a public health crisis into an economic crisis.
3. Managing business through COVID-19 pandemic to transform from a global to a local economy
By: Prof. Lakshman R. Watawala
· Sri Lanka has taken corrective measures early to prevent the spread of the virus. These, however, also mean that normal life is disrupted, economy and business come to a standstill, with many losing jobs. An early and coordinated national action plan would be needed for economic revival.
· Such an action plan could focus on moving the economy away from the global economy and focusing more on the local economy. This also means that greater prominence should be given to the local agricultural sector, not only to ensure food security, but also to reduce imports. In that context, local industries should also be encouraged to minimize imports as much as possible.
· A large part of this plan depends on the revolution of work mechanisms across industries. While the government could learn important lessons of management through our current response to the pandemic, the management of public corporations should also be geared towards improving profitability and accountability. Beyond that, now would be a good time for the government to push towards a tech-forward economy, beginning with a focus on technological education.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara, Asel Hettiarachchi & Eshan de Mel)
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