Spotlight: Econ Op-eds in Summary (Week ended 16th June '21)
1. GSP+ and European Parliament’s Resolutions on Sri Lanka
By: Gomi Senadhira
The recent resolution adopted by the European Parliament inviting the European Commission to consider temporarily withdrawing Sri Lanka’s access to the Generalised Scheme of Preferences Plus (GSP+) concession has started an interesting discussion on the impact of the resolution on Sri Lanka. This however overlooks the fact that the power to initiate action on such resolution lies solely on the EU Commission and that this was the third such resolution passed within the last 10 months.
Last September the European Parliament adopted a similar resolution against the Philippines. The country responded that the European Commission, which has a mechanism to verify issues before sanctions are imposed would allow the country to explain their side of the story and hence has no reason to fear the loss of GSP+. In April, a similar resolution was adopted against Pakistan which responded highlighting that the country had already taken steps to solve its issues.
Despite calling for immediate action, the commission is yet to remove Philippines GSP+ privileges. When compared to the resolutions on the Philippines and Pakistan the resolution on Sri Lanka is less harsh. It only calls the EEAS to use the GSP+ as a leverage to push for advancement on Sri Lanka’s human rights obligations and, as a last resort, to initiate a procedure for the temporary withdrawal of Sri Lanka’s GSP+ status.
2. Pandemic’s new normal has changed the toolkit of bank regulators
By: Dr. W.A Wijewardena
Central Banks have responded to the hindrance caused to economic activity as a result of the pandemic and its impact on human interactions by printing money, maintaining low rates, offering debt moratoriums to customers among other measures. The use of debt moratoriums will eventually lead to a rise in non-performing loans.
This can result in a situation where state banks capital bases are eroded, and they are unable to go to capital markets to raise capital due to various objections from stakeholders. To avoid a distressed banking sector, banking regulators follow micro and macroprudential regulations. Regulators in specific, are concerned about the collapse of systematically important banks, as they could have far-reaching consequences on the financial system.
Regulators use on-site and off-site bank examinations to assess the soundness of banks. However, with social distancing guidelines, on-site examinations are now less effective than before. This has sparked the need for digital monitoring, where an early warning system should be set up. This would be where the bank’s records are directly plugged into the regulators network, enabling real-time monitoring of data to better aid in preventing a collapse of the banking sector.
3. Exports threatened by resurgence of COVID
By: Nimal Sanderatne
Despite the recent increase in demand for exported goods from Sri Lanka, the country may not be able to reach its targets due to the resurgence of Covid-19 and the associated travel restrictions. Due to this, Sri Lanka will not be able to get the fully advantage of the increase in global demand.
The country also experienced a huge revival of export apparel orders from countries the US, UK and the European (EU) countries. This demand might not be met as most apparel factories are not functioning at full capacity. Delay of orders are inevitable and there is a possibility that this might cause the cancellation of the next season’s orders. Reduction of exports as well as increase in import expenditure on fuel, food and other essentials will negatively affect the balance of payments this year.
Government’s efforts to keep economic activities such as export manufacturing running will not be successful without significant curtailment of the pandemic in Sri Lanka. Early relaxation of health restrictions and permitting tourist could make matters worse. As such the best option would be to speed up the vaccine process and control the Covid situation, which would automatically revive economic activity.
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
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