{"id":105343,"date":"2020-08-10T03:29:31","date_gmt":"2020-08-10T10:29:31","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=105343"},"modified":"2020-08-10T03:29:31","modified_gmt":"2020-08-10T10:29:31","slug":"a-pathfinder-agenda-for-urgent-economic-action-for-the-new-cabinet","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/08\/10\/a-pathfinder-agenda-for-urgent-economic-action-for-the-new-cabinet\/","title":{"rendered":"A PATHFINDER AGENDA For Urgent Economic Action for the New Cabinet"},"content":{"rendered":"

Pathfinder Foundation <\/em><\/span><\/h2>\n\n\n

Now\nthat the parliamentary elections are concluded, the focus of the new government\nshould shift to the serious business of fixing the economy. COVID-19 has hit\nSri Lanka\u2019s economic outlook harder than expected. A gloomy prognosis suggests\na scenario of negative economic growth, high unemployment and rising foreign\ndebt in 2020 and 2021. Revenue from tourism, remittances and foreign investment\nare all down. At all costs, one should guard against a pandemic induced\neconomic crisis from turning into a crisis in the financial system which would\nbe a double whammy for an already debellated economy. Although good weather may\nhelp revive the agricultural sector, the economy faces a slower and longer road\nto recovery from COVID-19. <\/p>\n\n\n\n

The new government\u2019s election\nplatform over the past few weeks put forward several useful policies to aid\neconomy recovery in Sri Lanka. The President\u2019s proposal for accelerating\nregional economic development through four multi-dimensional commercial cities\n\u2013 Colombo, Hambantota, Jaffna and Trincomalee \u2013 will help spread the benefits\nof economic development throughout Sri Lanka. The emphasis on improving\ndomestic agricultural production and reducing post-harvest losses will support\nfood security for the people in difficult times. Planned investments in\ntertiary education and primary schooling will improve the quality of human\ncapital. Promoting digitisation and e-commerce can support dynamism in business\nand government. Of course, economic recovery will be dependent on continuing\nthe success in combating the pandemic. <\/p>\n\n\n\n

But, to ensure a sporting chance of\nachieving economic success in a slower growing global economy beset by risks,\nthe Pathfinder Foundation recommends that three other things should be done by\nthe new government.  <\/p>\n\n\n\n

First, Sri Lanka needs to find\nthe resources to pay for the government\u2019s agenda<\/strong>. Mobilising a large volume\nof external financing is crucial to create the necessary fiscal space. So far\nSri Lanka\u2019s fiscal stimulus has amounted to under 0.5% of GDP while the figures\nin Malaysia and Thailand is between 12-15% of GDP and in advanced countries\nbetween 15-20%. This means sorting out legacy issues which have clouded the\nmacroeconomy over decades. A coherent and predictable medium-term\nfiscal-monetary policy framework needs to be adopted to ensure macroeconomic\nstability. This has the advantage of giving confidence to investors, both\ndomestic and foreign; creditors; and rating agencies. Such a framework can also\nserve as a basis for negotiating an agreement with the IMF. An IMF programme would\nalso unlock substantial multilateral and bilateral financing (possibly debt\nrelief as well); increase the prospects of improving the sovereign rating; and\nopen up the possibility of accessing international capital markets which would\nbe necessary to secure the debt roll-over which Sri Lanka requires until it\nbuilds up capacity to earn and save sufficient foreign exchange to service its\ndebt on a sustainable basis. <\/p>\n\n\n\n

Partnerships with the European\nUnion, India, Japan and the US should be looked at dispassionately and in\nnon-ideological terms. Accordingly, early decisions on bilateral agreements\nwith global and regional economies can provide clarity that will assist in\nmaximising international support and foreign direct investment for Sri Lanka\u2019s\nrecovery. Furthermore, efforts to mobilise bilateral and multilateral financing\nshould be supported by leveraging government to government relations to attract\nequity rather than debt. Public private partnerships for infrastructure\ninvestment should be looked at seriously. <\/p>\n\n\n\n

It also means stopping\nhaemorrhaging losses from state-owned enterprises (SOEs) and strengthening the\noperations of others through better management. For instance, the cash\nrequirements of several hundred million US dollars for Sri Lankan Airlines is\nunsustainable. <\/p>\n\n\n\n

In addition, as the World Bank has\nidentified Sri Lanka as one of the countries that is most vulnerable to the\neffects of climate change, attention should also be paid to tapping into\nfinancing, both conventional and unconventional, to support the integration of\nsustainability into the planning and budgeting processes. <\/p>\n\n\n\n

Second, Sri Lanka needs to\ncontinue to be linked to the rest of the world<\/strong>. As a small low\nmiddle-income economy of only 22 million people, Sri Lanka lacks adequate domestic\ndemand, production capacity and home-grown technology to erect protectionist\nwalls and completely turn inwards for its development momentum. Doing so also\nmeans squandering a strategic geographical location in the centre of the Indian\nOcean on the main East-West trade route. Naively opening up the economy to\nforeign trade and investment may not be an answer either due to potentially\nlarge trade adjustment costs. Instead, Sri Lanka could follow a managed opening\nup strategy pioneered by China, Korea and Viet Nam other high-performing East\nAsian economies. This means significantly cutting red tape affecting investors,\nboth local and foreign, as well as digitising all government services. It means\na joined-up approach to economic diplomacy by Sri Lanka\u2019s overseas missions in\npartnership with the EDB and the BOI. Building up trade negotiating capacity to\npursue Sri Lanka\u2019s commercial interests in free trade agreements (FTAs) with\nAsian countries like China, India and Thailand is another important area. The relaxing\nof import restrictions should be calibrated to the recovery in foreign exchange\navailability, business performance, and the country\u2019s supply capacity. Economic\nhistory suggests that gradual moves away from autarky to greater openness\nprovide significant economic benefits to small economies like Sri Lanka. <\/p>\n\n\n\n

Third, Sri Lanka needs to set up\nan inter-disciplinary group of experts to develop a recovery strategy<\/strong>.\nThese should be qualified and credible experts, with international experience,\nwho can provide the government with independent advice on formulating an\neconomic recovery strategy, monitor outcomes and suggest mid-course policy\ncorrections if needed. To be meaningful, discussions between these experts and\nhigh-level policy makers should take place behind closed doors. Successful East\nAsian and advanced countries continuously seek policy advice from such\nindependent experts to manage economic crises and formulate recovery\nstrategies. <\/p>\n\n\n\n

The Pathfinder Foundation believes\nthat initial months of a new government offer the best possible opportunities\nfor serious policies to stabilize the economy and strengthen its growth\npotential by increasing its productivity. The on-going pandemic and its impact\non the global and domestic economies constrain the options open to the new\ncabinet. However, the government needs to formulate a bold package of measures\nwhich combines the continuation of its success in containing the pandemic with\npolicies and programmes which focus both on stabilizing the economy and putting\nin place frameworks which will stimulate sustainable and inclusive growth over\nthe medium term. <\/p>\n\n\n\n

In April 2020, The Pathfinder\nFoundation set up a study group of eminent persons from academia, research and\nthe private sector to examine the implications of COVID-19 for the Sri Lankan\neconomy. In May 2020, the Pathfinder study group presented President Gotabaya\nRajapaksa with a report containing a set of action-oriented recommendations\naimed at steering Sri Lanka into a post-COVID-19 era of economic recovery recently.<\/p>\n","protected":false},"excerpt":{"rendered":"

Pathfinder Foundation Now that the parliamentary elections are concluded, the focus of the new government should shift to the serious business of fixing the economy. COVID-19 has hit Sri Lanka\u2019s economic outlook harder than expected. A gloomy prognosis suggests a scenario of negative economic growth, high unemployment and rising foreign debt in 2020 and 2021. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102,6],"tags":[],"class_list":["post-105343","post","type-post","status-publish","format-standard","hentry","category-economy","category-politics"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/105343","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=105343"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/105343\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=105343"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=105343"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=105343"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}