Spotlight: Econ Op-eds in Summary (Week ended 8th September '21)

Snapshots

1. Avoiding IMF prolongs SL’s macroeconomic instability

By: Professor Sirimevan Colombage

• Sri Lanka has sought IMF assistance multiple times in the past, although opponents of IMF based policies have argued that their program conditionalities constrains the country’s long run growth. Currently, the government and the CBSL are resorting to their own set of economic measures which include import restrictions, excessive money printing and moral suasion amongst other measures.

• However, the lack of an IMF-styled fiscal framework has led to the budget deficit skyrocketing, a growing debt burden, inflationary pressures and persistent pressures for the currency to depreciate. Import restrictions imposed currently are reminiscent to the restrictive trade policies implemented in the country prior to 1977, where policy choices were at the time were based on an import substitution argument.

• Sri Lanka last obtained an IMF program in 2016, with fiscal consolidation being the overall goal under the program. To further help this, the Monetary Law Act was replaced with a Central Bank Act to provide greater independence to the CBSL. However, these reforms since then have been scrapped, and if they were kept in place, the country would not be in such a dire economic position.

For the full article – Refer Daily FT

2. Trade-off between containing COVID and keeping the economy functioning

By Nimal Sanderatne

• Fragile state of Sri Lanka’s economy makes it harder to go for a strict lockdown even when it is essential. Developed countries may have a better edge than developing countries on this front due to strong domestic economic conditions. Lack of strict observation of lockdown by public as well as lack of stringent enforcement could make the lockdown less effective.

• Considering this government imposed a lockdown only allowing essential economic activities. These include exports which is much needed for the government at this moment. Due to the resilient nature of the apparel industry government needed to continue the export industry to maintain a steady flow of foreign revenue.

• Long term mismanagement has resulted in an inability to take correct decisions in a timely manner. Further inappropriate policies on agriculture, trade, monetary and fiscal matters will make the matters worse. Finally, Sri Lanka is left with no option other than to require international assistance to contain the Covid and strengthen the economy.

For the full article – Refer The Sunday Times

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