Spotlight: Econ Op-eds in Summary (Week ended 29th September '21)
1. Sri Lanka’s foreign debt payment challenges in ’22
By: Dinesh Weerakkody
In July, Sri Lanka met its repayment obligation of US$ 1 bn keeping intact its reputation for honouring sovereign debt. Despite this, several downgrades had resulted in pushing the cost of dollar debt higher. Thus, most of the debt is currently financed locally and this is set to rise further given the prolonging of the pandemic with the country unlikely to revert to pre-pandemic levels till mid-2023.
One of the main challenges moving forward is the growing import bill, with analysts expecting a widening of the trade deficit given a surge in pharmaceutical and oil imports. The government faces strong external sector pressure in 2022, with multiple sovereign bond repayments falling next year with certain analysts estimating debt service obligations to be as large as $7 bn.
Although Sri Lanka has received multiple swaps in the past, some of these swaps may not be convertible to USD, adding further pressure to the country’s reserve position. As it is unlikely that the country will be granted a debt cancellation, it must seek debt moratoriums which would offer concessional financing and other forms of fiscal management support to help navigate the way forward.
2. GSP+ withdrawal How will it impact Sri Lanka’s economy
By Asanka Wijesinghe and Eleesha Munasinghe
Sri Lanka’s preferential access to the European Union (EU) market faces fresh challenges after the European Parliament’s special resolution adopted in June 2021, calling for an assessment on “whether there is sufficient reason, as a last resort, to initiate a procedure for the temporary withdrawal of Sri Lanka’s GSP+ status.”
A possible withdrawal of GSP + will reduce export income by around US$ 627 mn, with the apparel, tobacco, seafood and rubber sectors being affected the most. While the apparel sector is relatively resilient to a loss of preference as it’s utilization ration was low in 2019, the recovering seafood sector could face much larger blow.
Even though less dependence on the EU market and more diversification is needed, Sri Lanka should work to secure the GSP+ resolving the current political issues and focus on fully utilising GSP+ preference in the short run. In the long run, as GSP+ is contingent upon income level, Sri Lanka will lose it someday, and as such, Sri Lanka should take steps to enter into reciprocal trade agreements with the EU and other high-end markets.
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
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