Spotlight: Econ Op-eds in Summary (Week ended 9th February '21)

Snapshots

1. Current food inflation in Sri Lanka Causes and consequences

By Dr. Faheema Saheed

• There has been continuous rise in food inflation globally. High food inflation has negative consequences for the people living in poverty and to middle income groups who earns a fixed income as most of their income is spent on food.

• Sri Lanka’s food inflation was mainly attributed to a rise in global community prices, dependency on imports, currency depreciation, dollar shortage as well as supply chain disruptions and high transport costs. However, there are other factors such as hoarding by producers and traders as well as production disruptions due government ban on agro chemicals which have exacerbated the impacts.

• To solve the issue, an effective food management strategy is required. The Rupee value needs to stabilize, and targeted intervention should be prioritized over price control. Further encouraging people to earn foreign currency, promote domestic production, give incentives to growers, and encourage substitutes for imported items must be explored.

For full article – Refer Daily FT

2. The consequences of sovereign default

By: Devaka Gunawardena, Ahilan Kadirgamar

• In recent history, sovereign defaults have become a rarer occurrence due to groups of international creditors becoming smaller, the accessibility of IMF programs for countries with debt issues and a focus on countries for a production-based economy. However, international capital markets play an important role in rolling over and refinancing debt, as well as provide access to trade credit for debtor countries.

• A sovereign default can result in ripple effects across the economy, including a stock market crash, capital flight and a collapse in pension funds. Furthermore, importers and exporters could lose access to trade credit and wide-spread panic could lead to a bank run. The state would then be prompted to impose capital controls resulting in the country losing its ability to attract investments giving way for unemployment to rise, with general demand in the economy falling.

• Sri Lanka needs to undergo strong reforms to ensure its survival, including prioritizing essential imports, investments in domestic food production and the distribution of subsidies for it. Moving to an IMF program in general, involves a country giving up control of its policies. For Sri Lanka, this would also mean a removal of import restrictions currently in place alongside other measures.

For the full article – Refer Daily FT

(Compiled by: Promodhya Abeysekara, Mariyan Perera & Malitha Goonaratne)