Spotlight: Econ Op-eds in Summary (Week ended 8th December '21)
1. Further on Budget speech Cost of Living, public debt and collective responsibility
By Dr. Laksiri Fernando
Sri Lanka’s cost of living has been increasing continuously, while the budget speech acknowledged the issue, highlighting possible reasons for the recent sharp rise in prices, it offers little solutions to manage the rising prices.
Government debt to GDP has increased considerably, due to the large number of loans and borrowings obtained after the war, to finance large scale infrastructure projects. While such infrastructure is necessary as long-term investments, production should be promoted parallelly to reap the short-term benefits. The lack of which had led to Sri Lanka being driven to a debt trap.
The debt crisis had also been exacerbated by commercial loans obtained through ISBs with high interest rates, most of which are without a concessionary period. In such a situation, the refusal to go to the IMF could make the crisis worse.
2. Do we have a solution to the perilous state of our external finances?
By Nimal Sanderatne
The foreign reserves of Sri Lanka have fallen to dangerously low levels, increasing the possibility of debt default and inability to fulfill import needs. Expectations to overcome this through currency arrangement and trade credit have not materialized, despite the CBSL being optimistic.
While India’s Rupee line of credit to import Indian commodities would be beneficial in the short run it would be inadequate to address the external financial crisis. The more longer-term assistance which could help resolve the crisis may come with the condition that we seek assistance from the IMF to resolve the crisis in external finances.
In such a condition, the oft repeated fact that the country has never defaulted in meeting its obligations is no assurance that we have the capacity to repay current debt obligations. The reserve position and the current performance of the balance of payments indicate the incapacity to repay the debts falling due next year. As such, the best option seems to be the option of obtaining assistance from the IMF.
(Compiled by: Promodhya Abeysekara, Malik Nazahim & Mariyan Perera)
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