Spotlight: Econ Op-eds in Summary (Week ended 15th December '21)
1. Falling forex reserves and policy errors when will our policy leaders come to their senses
By W. A. Wijewardena
Sri Lanka reserves has fallen to US$ 1.6 bn by end of November with liquid reserves being only US$ 1.1 bn. With a massive debt obligation to be met within the next 12 months, economists have urged the government to go for an IMF bailout package. The Government however had strongly denied the assistance of the IMF and expect to rely on a more home-grown solution.
Under these circumstances, similar to 2008, India has issued a statement showing its willingness to help Sri Lanka, which include various credit facilities for essential foods, medicine and refined oil as well as SWAPs and FDIs in Sri Lanka. However, these have not materialized so far.
The expected inflows in governments’ road map have also been unsuccessful due to overestimation and focusing on gross flows instead of net flows. The government is already late in reaching the IMF as it may take months to finalize the bailout package.
2. Will Indian assistance resolve Lanka’s balance of payments crisis?
The outcomes of the finance ministers recent visit to India are still unclear. Despite the government indicating a possible currency swap and several credit lines, these may require Sri Lanka to seek the assistance of the IMF as well as to agree to conditions such as investments by India in strategic local industry and services.
These conditions could be the reason for the currency swap not materializing. The Indian aid remains a shorter-term anesthetic for the weak external finance situation and resolving of current shortages. Sri Lanka needs to look for medium or longer-term solutions.
According to many economists the IMF programme would be the least painful solution which would also result in support from organizations such as the World Bank, IDB, ADB and bilateral donors, as it makes Sri Lanka more creditworthy.
(Compiled by: Promodhya Abeysekara, Malik Nazahim & Mariyan Perera)
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