Spotlight: Econ Op-eds in Summary (Week ended 8th January '20)
1. Gota’s economic war: Ferocity of the enemy makes the challenge frightening
By: W.A. Wijewardena
· President Gotabaya Rajapaksa inherited an economy that has been weakening since 2013. Economic growth for 2019 might even fall below 3%, and except for the manufacturing sector, all other parts of the economy have been slowing down. Tourism and remittances, 2 key parts of the country’s foreign income, have even declined in the past year.
· Another major concern will the country’s large debt obligations, which total up to US$ 6 bn in 2020. However, due to the country’s foreign reserves being relatively weak, and the need for the administration to spend on popular measures in an attempt to secure a two-thirds majority in the upcoming parliamentary election, further borrowings might end up being the only solution to 2020’s debt levels.
· Strengthening the country’s growth will therefore need to be a key policy focus for the new administration. Given that most local sectors have reached a saturation point, the development and use of new technologies will be essential to achieving success. The country can partner with foreign universities and companies similar to what East Asian economies have done. However, Sri Lanka cannot afford to lose any time, and measures to stabilize the economy need to be carried out very soon.
2. Infrastructure: Enabling economic growth
By: Lahiru Karunathilaka
· Infrastructure development is vital in achieving inclusive economic growth. Many such projects are subjected to economic challenges. Despite alarming debt levels, most such projects will have to rely on borrowed funds. While infrastructure investments provide employment and increase long term production capacity it can cause pressures on trade balance through increased import expenditures.
· Establishing a national unit with a long-term vision for infrastructure investment is vital to prioritise infrastructure projects. The persistent budget deficits and loss-making state-owned enterprises have limited capacity for capital expenditures of the government. This indicates that public sector reforms reducing government expenditure is required in releasing finances for infrastructure investment.
· A national infrastructure unit will improve productivity and affordability in designing infrastructure projects. This can reinforce social progress and create the required regulatory background with relevant power and interconnectivity. Also, such a unit should have audit functions with adequate resources to maintain integrity. Thus, having a national strategy with an efficient regulatory design on infrastructure is key.
(Compiled by: Chayu Damsinghe & Asel Hettiarachchi)