Spotlight: Econ Op-eds in Summary (Week ended 13th May'20)
1. Sri Lanka growth stalls, GDP per capita drops US$200 in 2019 after monetary instability
· Sri Lanka’s 2019 per capita GDP (in USD terms) has seen little improvement over the 2015 figure. The key factors behind the stunted growth is monetary instability and weak policy that led to a vicious cycle amidst external sector developments. On the policy side, a focus on the state sector and fiscal dominance of monetary policy stand out.
· Instability has also come from Sri Lanka’s soft peg commitment, Real Effective Exchange Rate (REER) targeting and call money rate targeting, necessitating IMF assistance. As credibility of the peg deteriorated, there was capital flight considering the depreciatory implications of REER targeting.
· Liquidity shocks from call money rate targeting resulted in a currency collapse since May 2018, with excess liquidity putting depreciation pressure on the LKR. However, a steep LKR depreciation has been held at bay by the collapse of consumption amidst the COVID pandemic.
2. Quo Vadis Sri Lanka’s economy: An appeal to President Rajapaksa
By: Raj Gonsalkorale
· It is clear that Sri Lanka’s economic fundamentals were deteriorating even prior to the pandemic. Thus, it is opportune to discuss whether we travel down the same failed path and fall into the abyss below us or whether we look at fundamentals that might help.
· Sri Lanka’s main issues are broadly related to two main accounts: rupee denominated Fiscal account and largely dollar denominated Balance of Payments. These issues are often related to the inability to maintain a balance in these accounts due to the mismanagement of income and expenditure included in them.
· Thus, the government should look to adopt some underlying principles to manage these accounts. These principals include, adopting policy road maps, providing targets to be achieved by state organizations, having discipline in relation to foreign borrowings and facilitating the growth of the current account and foreign reserves.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekera & Eshan de Mel)
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