Spotlight: Econ Op-eds in Summary (Week ended 13th January '21)

Snapshots

1. Would lower interest rates spread perform favourably to recuperate the Sri Lankan economy

By: W.N.P. Surawimala

· Given the economic crisis brought on by the pandemic many big players in the global economy had resorted to reducing interest rates in order to create liquidity and induce a recovery. Sri Lanka too had promptly followed these countries and had reduced interest rates of the country throughout 2020.

· However, the policy is faced by few barriers given that the economic crisis is brought forward by a pandemic. Firstly, it is unlikely that rate cuts will generate productive investments at a time when business entities prefer to save rather than to invest not due to high costs of borrowing but because of the uncertainty associated with the pandemic.

· On the other hand, low interest rates, by spurring the growth in consumption, reduces national savings. In turn, in the long run the reductions in national savings directly root to the current account imbalances. However, in this circumstance, lower interest rates would be a favorable factor in improving bank balance sheets and banks’ capacity to lend, but should be implemented with thorough monitoring.

For the full article - Refer Daily FT

2. Containing COVID a pre-condition for economic revival in 2021

By: Nimal Sanderatne

· Sri Lanka faces numerous economic problems in 2021, primarily around its balance of payments and debt repayments. However, the immediate problem around Covid needs to be handled first and successfully in order to meet the issues surrounding the country’s finances.

· With an economic recovery across the world, boosted by vaccines globally, there could be positive signs for our BOP that could surface later in the year. Exports and tourism could do well, although the markets that matter to Sri Lanka could shift away from the West and towards China and India.

· However, immediate problems still remain. Oil prices have already begun to rise, and would be detrimental to the country’s import bill. The new strain of Covid will bring additional worries. Unless the immediate threat of Covid can be managed, the short-term negatives will outweigh the latter positives, and make the economic situation much harder to manage.

For the full article - Refer The Sunday Times

(Compiled by: Chayu Damsinghe & Promodhya Abeysekara)