Spotlight: Econ Op-eds in Summary (Week ended 23rd September '20)
1. Debt servicing challenges for LDCs and the way forward
By: Dinesh Weerakkody
· As at August 2020, emerging markets and developing countries are burdened with a significant amount of external debt and debt servicing obligations due in 2020. A failure to address the debt and financing needs of developing countries could result in a fundamental collapse of social and economic systems, in addition to large scale loss of livelihoods, which increases the risk of major setbacks in the country’s development.
· In the wake of the pandemic, developing countries with high debt burdens would require fresh credit to finance emergency measures. With such further rises in debt, these countries are experiencing large capital outflows due to a fall in market sentiment with investors fearing defaults. Such a situation could lead to a significant economic crisis in those countries.
· Multilateral institutions therefore need to rise up to this challenge to give life support to those countries which are already suffering from a high debt burden. While institutions such as the IMF and the G20 countries have already provided relief to a number of LDCs, the institutions are encouraged to do more.
2. Balance of payments deficit increases despite lower trade deficit
By: Nimal Sanderatne
· Both Sri Lanka’s exports and imports fell in the first seven months of 2020, compared to a similar period in 2019. While the net effect was a reduction in the trade deficit, the decline in worker remittances and tourism earnings had a far greater impact on the BOP.
· The BOP deficit for the first 7 months of 2020 stands at USD 939 Mn. compared to a BOP surplus of USD 1.4 Bn for the same period of 2019. Additionally, this has led to an erosion of foreign currency reserves, increasing the nation’s external financing vulnerability given large debt service obligations.
· While the trade deficit may be contained to around USD 6 Bn, provided there is continued trade performance and foreign inflows, it is imperative to obtain international assistance for debt relief in the near term to cushion the impact. However, the longer-term solution to Sri Lanka’s BOP issues lies in increasing exports.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara, & Eshan de Mel)
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