Spotlight: Econ Op-eds in Summary (Week ended 16th October '19)
1. Formidable economic challenges in 2020
By: Nimal Sanderatne
· The economic future of the country in 2020 is likely to be fraught with risks. The impact of political considerations, and the need for candidates in both presidential and parliamentary elections to win voters, are likely to both put economic considerations aside and add more fuel to the underlying economic troubles of the country.
· The key problem facing Sri Lanka’s economy, is the country’s high debt profile. With total public debt above 80% of GDP and foreign debt above 60% of GDP, the country’s external financial position is filled with vulnerability. Fiscal pressures from elections are only likely to aggravate this, raising the cost of servicing the country’s debt.
· All this is likely to play into Sri Lanka’s slowing economic growth. Compared to an average annual growth of 4.5% in the post-independence period, the post-2015 years have seen average growth rates of less than 4%. With the continued impacts of political uncertainty, the Easter Sunday attacks, and a failure to revive investor confidence, this is likely to severely impact the future growth of Sri Lanka.
2. Bankrupt Sri Lanka Incorporated: Prospective rescuers should come up with a common policy
By: W.A. Wijewardena
· Presently, the annual debt repayment obligations of Sri Lanka are almost equal to the total Government revenue. To complicate the economic situation, the growth of the economy has been falling for the past few years making it difficult to repay the debt. In such an environment, two methods of debt repayment are widely considered.
· First of such methods is to borrow from cheaper sources and repay the existing debt. However, this has an issue given that this could only be applied to maturing debt of the Government and not the public sector, since such arrangements for the public sector require extensive negotiations and penalties to be paid at times. The alternative is for the central bank to print money and lend to the government to settle the debt.
· One issue with this method is its assumption that debt can be settled permanently by the transfer of mere financial funds to creditors. Another concern is how the government would repay the central bank thereafter. In lights of these concerns, Sri Lanka needs to run a surplus in the budget and strengthen the country’s foreign exchange earning capacity by promoting exports.
3. Human capital agenda for Sri Lanka
By: Dinesh Weerakkody
· While education is often taken to be a direct road to development, the truth of the matter isn’t as simple. A more important question is making sure more and better jobs get created in an economy, so that proper specialization can develop and drive a country towards positive economic activity.
· Education remains a key component of this, but countries like Sri Lanka need to look at a range of factors in making sure education results in proper growth of the economy. Focusing on the growth of new sectors and establishing vibrant professionals need to be key components of this goal.
· Beyond education, the requirements of supply chains and other networks within an industry need to be considered. This will include strengthening labour laws and reforms and ensuring policy movements are in line with the country’s future requirements. This will be crucial to ensuring the country develops its human capital in order to avoid being stuck as a middle-income country.
(Compiled by: Chayu Damsinghe & Promodhya Abeysekara)