Spotlight: Econ Op-eds in Summary (Week ended 13th October '21)
1. Economic instability likely to prevail despite Central Bank’s Road Map
By: Professor Sirimevan Colombage
The 6-month Road Map presented by the CBSL goes beyond a monetary policy framework. However, it fails to address concerns about the fiscal sector. The rate of money printing has also continued to rise, despite yield caps being removed in the face of undersubscribed T-bill auctions. The roadmap also points to maintaining the exchange rate stable at the current rate, despite a fall in foreign reserves.
Banks are seemingly complying with the stipulated exchange rate, although foreign currency problems in the sector still persist. However, a higher Real Effective Exchange has been recorded given higher inflation, disadvantaging exporters. As such, certain exporters have opted to not convert export proceeds in the stipulated time frame, as they believe the current exchange rate is not sustainable, which the road map tries to address through a higher tax.
Given macroeconomic concerns, Citibank believes that there is higher risk that Sri Lanka would need to restructure its debt with IMF assistance. Given this, Sri Lanka needs to take measures to bolster its debt sustainability before it is too late.
2. Are we at a turning point in economic diplomacy and economic policies
By Nimal Sanderatne
Visit of Indian Foreign Secretary, Japanese war ships in Colombo Port, review by EU team on country’s effort to improve human rights, all seems to indicate a shift in Sri Lanka’s foreign policy. Further with Adani group’s investment in Colombo Port and New fortress investment in LNG gas project, Sri Lanka seems to be deviating from its dependence on China towards the west.
It is vital that Sri Lanka is able to obtain foreign assistance and investments for economic sustainability. Thus, despite objections from the opposition and trade unions the government had moved to have agreements with these countries.
Despite the assurance given to China that recent diplomatic developments will not be a threat to China, Sino-Sri Lankan economic dependence seems to be weakening. This is mainly due the developing financial crisis in China which limits its capacity to assist Sri Lanka and Sri Lanka’s significant dependence on Europe and North America as key export markets.
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. The bullet points provided for each summarised opinion article is written by Frontier Research and has no connection to the respective author. Furthermore, the information contained in these reports/emails are confidential and should not be shared publicly. Disclosure, copying and distribution is strictly prohibited.