Spotlight: Econ Op-eds in Summary (Week ended 27th November '19)
1. Sri Lanka needs monetary discipline to avoid further downgrades
· All credit rating downgrades since Sri Lanka got its BB- credit rating from Fitch in 2005, had resulted from monetary indiscipline. In turn, this indiscipline, has triggered balance of payment crises due to the interest rate targeting monetary policy by the CBSL as well as sterilizing of forex interventions.
· Another downgrade would take Sri Lanka to B-, and rating agencies have been been negative in their language about Sri Lanka. While we’ll still be able to access capital markets, Sri Lanka will only be one rating notch above ‘CCC’, which is a distressed debt level. This will not allow any space for risky monetary policy.
· As such, 2020 would be a crucial year for the country. The country could recover as the credit contraction from the 2018 currency crisis end, given the authorities decide not to have further rate cuts or money printing. However, continued monetary indiscipline could lead to depreciation and high nominal rates, ultimately resulting in dollarization.
2. Gotanomics: Can it turn around the ailing Sri Lanka’s economy?
By: W.A Wijewardena
· The economic policy package of the new president (Gotanomics) should be properly assessed when implementing. Despite having some modest economic goals, targets such as reducing lending rates and stabilizing exchange rates are market determined and are beyond powers of the president. Attempts at influencing the market could have harmful consequences, making central bank consultation a priority.
· A National Policy and Planning Commission should assess Gotanomics, in consultation with the Central Bank and design detailed work programmes during implementation. Since privatisation of state-owned enterprises (SOEs) is discouraged, competent managers should be hired. SOEs can also be reformed under state ownership to assure their profitability and viability. Overly focusing on financial audits should be replaced with much needed enterprise audits.
· The proposed simple tax system with higher tax bases, reduced tax rates, and discontinuation of advanced tax collection and ancillary taxes is a gamble with high risks on widening the current budget deficit. Proposed measures to introduce new technology should coincide with the generation of the required talent pool, especially via privately owned higher educational institutions, in order to successfully equip Sri Lanka with such technologies.
3. Entrepreneurship key to economic development
By: Talal Rafi
· Entrepreneurship is one of the most important means of improving a nation’s prospects and growing it’s economy. Entrepreneurs do so by solving problems within a society and hence, creating new value. This also helps the government by increasing tax revenue.
· Entrepreneurship also improves job prospects for many within a society. Not only do new products mean that there is a greater demand for more labour, but the training provided to people means that they remain skilled for other jobs as well. This is especially helpful when entrepreneurs move to rural areas, since it can help lift people out of poverty.
· The economy of a country benefits further when entrepreneurship increases industries that can export to foreign markets. Hence, entrepreneurship often ends up driving important sources of foreign earnings. Therefore, it is in any government’s best interest to improve entrepreneurship due to the beneficial impacts on the country’s overall economy.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara & Asel Hettiarachchi)