Spotlight: Econ Op-eds in Summary (Week ended 11th March'20)
1. Countering coronavirus
· The fallout of the coronavirus could be serious for Sri Lanka given the slow growth, high debt and other structural challenges. Export sector is particular will suffer loss of revenues. Recovery of the tourism industry after Easter Sunday is also threatened. While the government could step in, the fiscal support may not be viable in long run.
· The apparel industry faces a dual shock due to supply chain disruptions and slowdown of the export markets. If such disruptions are prolonged, layoffs in the industry maybe inevitable. Construction industry also saw some delays. While being a major growth contributor, it is also highly dependent on imports. So, this slowdown can impact positively on the trade deficit.
· Sri Lanka also has significant debt repayments due this year. Slashing of rates by the US Federal Reserve due to the virus, could help Sri Lanka in raising cheaper debt repayment funds. While Sri Lanka’s economy is positioned to combat the virus better, the virus has managed to take the lustre off the expected growth turnaround.
2. Only small balance of payments surplus despite significant decrease in trade deficit
By Nimal Sanderatne
· While the trade deficit in 2019 improved by USD 2.3 bn due to a contraction in import expenditure, the Balance of Payments (BOP) surplus was only USD 337 mn due to the effects of lower earnings from tourism, a dip in workers’ remittances and large capital outflows.
· Exports grew slowly in 2019 as well, rising only 0.4% for the year. Therefore, it was clearly seen that the trade deficit only contracted due to a slowdown of imports, which would be unsustainable in the long run. Weak economic conditions globally in 2020 could mean that exports remain weak as well.
· However, an export-growth driven BOP improvement is vital to reduce the country’s external vulnerability. This is especially important in the wake of the coronavirus, which could have damaging impacts on our tourist sector, further reducing the support on the BOP. Hence, targeting action to improve our trade deficit will be vital.
(Compiled by: Chayu Damsinghe & Asel Hettiarachchi)