Spotlight: Econ Op-eds in Summary (Week ended 08th April'20)
1. Curfew, Lock down and Economic Livelihoods
By: Sharhan Muhseen
· Measures taken to combat the virus outbreak has an economic fallout. Sri Lanka has opted for a stronger form of lockdown to combat the Covid-19 outbreak. Success of such a prolonged lockdown would depend on the ability to deliver essential supplies. Sri Lanka may need to gradually phase out of the curfew and transition to an intensive testing-based approach.
· Sri Lanka needs a comprehensive targeted strategy that addresses the supply side issues. Sri Lanka’s macro-economic fundamentals and several key sectors of the economy remain threatened. Whilst the monetary initiatives deployed would typically lead to higher inflation and Rupee depreciation, low demand amidst the economic woes may work in our favour.
· Fiscal measures should be more far-sighted. Using the already struggling banking sector as the first line of defense will make it a huge challenge to engineer the post crisis economic recovery. Direct pay outs from the EPF is thinking in the right direction. Some other options available are partially offsetting of wages, provide unpaid leave and work insurance cover for vulnerable segments.
2. Funding a fiscal stimulus - How to borrow a bazooka
By: Daniel Alphonsus
· As the economy comes to a standstill due to the current lockdown, demand will fall significantly across the economy for a sustained period of time. The only means of helping the economy is for the government to provide a considerable stimulus. This, however, is also an issue given the country’s very large debt-to-GDP ratio and the high fiscal deficit due to tax reliefs.
· The depreciation of the rupee is only exacerbating the issue. Central Bank’s money printing to finance the fiscal deficit also adds pressure on the rupee. In such an instance the government should use a tripartite toolkit. Firstly, the government should secure the best bailout packages available. Secondly, the Central Bank and Foreign Ministry should be working hard to expand existing foreign currency swap lines.
· Finally, the parliament must also be convened to place revenue and borrowing measures on a legal footing. Apart from these, non-conventional methods such as the issuance of collateralized bonds backed by state-owned assets can be implemented to raise borrowings amidst investor fears of default. In turn, such new borrowings should be directed to new public investments that can provide employment and boost demand conditions.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara & Asel Hettiarachchi)
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