Spotlight: Econ Op-eds in Summary (Week ended 15th September '21)
1. A reset of economic fundamentals in Sri Lanka: Is IMF the only hope?
By: Raj Gonsalkorale
Sri Lanka is currently facing an insurmountable level of foreign debt, with International Sovereign Bonds (ISBs) accounting for 47% of it. These ISBs carry higher interest rates with shorter maturity periods in comparison to concessional financing offered by multilateral institutions and Sri Lanka would have no choice but to opt for such loans if there isn’t a strong economic recovery which takes place, given its stance on avoiding the IMF.
Mismanagement of economic policies by governments in the past are to blame for the current situation, with the COVID-19 pandemic exacerbating economic problems which already exist. The first step to recover from this situation is to take acknowledge that such an issue exists, and then Sri Lanka should negotiate an IMF bailout, which would offer low interest loans and a grace period.
The money the IMF lends out is conditional on Sri Lanka agreeing to undergo major structural reforms, which can be painful to bear in the short term. However, negotiating such a program would help boost foreign investor sentiment and bring about political stability, a key driver in bringing in FDI’s into the country. This would ultimately pave the way for future economic stability for the generations of successive governments to follow.
2. Policy changes vital for export growth in a challenging environment
By Nimal Sanderatne
Extreme low levels of foreign reserves, high foreign debt, increasing import expenditure and negligeable levels of tourism earnings are forcing the government to continue the activities related to the export industry despite the risk posed by the ongoing pandemic, as export earnings now play a major role in the country facing external crisis.
However, in order to further develop the export industry, a change in mindset is crucial. The country will need to adopt economic reforms and enhance export competitiveness. These reforms include providing incentives for export industry as well as addressing the difficulties that exporters have to face. Import restrictions have a negative effect towards export growth as it has limited raw materials that are much needed for the export growth.
To do so, the current issues such as the possible withdrawal of GSP plus needs to be handled diplomatically. Further the current breeches of WTO agreements must be corrected, by informing the WTO of import policies and getting their permission for their waiver. Alongside these measures export growth requires a whole thrust of policies that would ensure competitiveness in price and quality in international markets.
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. The bullet points provided for each summarised opinion article is written by Frontier Research and has no connection to the respective author. Furthermore, the information contained in these reports/emails are confidential and should not be shared publicly. Disclosure, copying and distribution is strictly prohibited.