Spotlight: Econ Op-eds in Summary (Week ended 21st October'20)
1. Understanding the Indo-Lanka economic relationship
By: Pathfinder Economic Alert
· Indo-Sri Lanka trade relationships carry a number of tailwinds that can be positive for Sri Lanka. India’s regional focus and the willingness of regional firms to partner within the everchanging global supply chain rearrangement are key among these, and Sri Lanka’s integration within these could prove quite helpful for the country.
· Although Sri Lanka does have an existing free trade agreement, the bilateral trade deficit has become a sticking point. However, most of the deficit between the countries come from imports from India falling beyond the scope of the FTA. In fact, Sri Lanka enjoyed a surplus of $ 291 mn on the preferential trade that took place under the FTA in 2019, and even that can improve.
· As such, with Sri Lanka’s exports to India being only a negligible portion of India’s imports, the scope exists for India to show great flexibility in accommodating Sri Lanka in its bilateral negotiations on the ETCA (Economic and Technology Cooperation Agreement). Sri Lanka, in turn, needs to be sensitive to India’s strategic interests, so as to further develop the Indo-Lanka relationship.
2. Moving towards a more sustainable foreign debt
By: Nimal Sanderatne
· As Sri Lanka is facing a debt trap, it is important to understand the roots of these issues. Right now, reserves are getting low with most of these being borrowed funds. With around US$ 4.5 bn of debt repayments as well as BOP deficits over the next few years, an immediate solution of partnering with the IMF is needed.
· However, no immediate solution can fully deal with the longer term issues of debt sustainability that Sri Lanka faces. These issues are exacerbated by a greater expense bill in terms of imports compared to the smaller income bill of exports that Sri Lanka holds. Addressing these areas will be crucial.
· Therefore, governments need to take targeted action to diversify and grow our exports, and look at more sustainable ways to handle our import bill. Import controls can’t be sustained and have failed in other countries, and export inputs must be allowed in. It is only through combining responsible financing with export growth can Sri Lanka leave the current debt trap.
(Compiled by: Chayu Damsinghe & Promodhya Abeysekara)
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