Spotlight: Econ Op-eds in Summary (Week ended 1st September '21)

Snapshots

1. Dwindling worker remittance inflow tightens foreign exchange market

By: Prof. Sirimevan Colombage

• Remittance inflows is a key source of foreign exchange earnings for Sri Lanka, accounting for 25% of total foreign exchange earnings. Though remittances broke its downward trend in 2020, it returned to this trend in 2021, putting pressure on the rupee to depreciate. The CBSL’s attempt to prevent the LKR from depreciating has failed, with the black-market exchange rate being significantly higher than the official CBSL rate.

• This divergence in rates between the CBSL and the black-market has incentivized migrant workers to channel their remittances through informal channels instead of through banks. This is a reason for concern as past governments have postponed adjustments required to improve the external sector competitiveness, as worker remittances have helped mitigate external sector pressure to an extent.

• In fact, there hasn’t been any significant progress to ensure that the export sector benefits from utilizing modern technological inputs, in contrast to countries like South Korea. Thus, a shift away from the overdependence on remittance inflows and policy implementation aimed at promoting export-led growth is key for addressing external sector imbalances.

For the full article – Refer Daily FT

2. Addressing fundamental economic issues is imperative

By Nimal Sanderatne

• Sri Lanka’s critically low foreign reserves had recently resulted in restrictions in importation of essential items, burdening people with shortages and soaring prices of goods. Core structural weaknesses as well as fragile state of the economy can be highlighted as the root causes of the present foreign currency crisis.

• To overcome this crisis, a sound long term strategy based on an economic analysis is a must. This needs to be a public backed plan that could regain the lost credibility of Sri Lanka. Regaining credibility will allow Sri Lanka to raise funds at international markets at reasonable rates. It is also imperative that the Government’s policies remain consistent in order to resolve the current economic issues.

• Recently the government has initiated measures to increase its reserves through currency swaps, lines of credit, and loans. However, in order to recover the economy in a sustainable manner, the country will have to develop a long term vision on economic and social development, make decisions on the basis of economic development rather than social interest and make bold and logical decisions based on scientific facts.

For the Full Article – Refer The Sunday Times

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