{"id":115427,"date":"2021-06-22T16:52:06","date_gmt":"2021-06-22T23:52:06","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=115427"},"modified":"2021-06-22T16:52:06","modified_gmt":"2021-06-22T23:52:06","slug":"pathfinder-beyond-the-box-a-new-economic-vision-for-post-covid-sri-lanka-time-to-take-stock","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2021\/06\/22\/pathfinder-beyond-the-box-a-new-economic-vision-for-post-covid-sri-lanka-time-to-take-stock\/","title":{"rendered":"Pathfinder Beyond the Box: A New Economic Vision for Post \u2013 COVID Sri Lanka Time to Take Stock?"},"content":{"rendered":"

\u00a0Pathfinder <\/strong><\/em><\/span><\/h2>\n\n\n

The Pathfinder Foundation produced a Report Pathfinder Beyond\nthe Box; a New Economic Vision for post-Covid Sri Lanka,\u201d can read full text on\nhttps:\/\/bit.ly\/3iSRx1L<\/a>\nwhich was presented to senior policy makers and made available to the public in\nMay 2020. 14 months on, it is time to take stock. The Report presented a policy\nmatrix which identified issues and actions in the following areas: Social\nEmpowerment and Safety Nets: Food Security and Agriculture; Macro-Economic\nManagement; Trade and Investment; Infrastructure; Technology; Labour; Finance;\nand Policy Coordination.  Some of the recommendations\nin the Report seem aligned with government policy. However, the Pathfinder\nFoundation is of the view that there are other recommendations in the Report\nwhich merit consideration at this point.<\/p>\n\n\n\n

COVID \u2013 19 and its impact <\/strong><\/p>\n\n\n\n

Sri Lanka, like many countries, has been severely affected by\nboth the medical and the economic consequences of the pandemic. The economic\nimpact has been greatly amplified by the fact that the country entered the\ncrisis with twin deficits (in the budget and in the current account of the balance\nof payments). This has placed Sri Lanka in a category alongside the most\nvulnerable countries, with very limited buffers to absorb the effects of\nexternal and\/or domestic shocks – a predicament which is the result of very\nmany years where politics consistently overwhelmed basic economic principles,\nparticularly in relation to fiscal policy and exchange rate management.<\/p>\n\n\n\n

 The third wave of the pandemic is posing more demanding\nhealth challenges. In addition, the economy has been brought to a precarious state.\nDisruption to economic activities has dealt a blow to the growth momentum. This\nis being compounded by severe dollar illiquidity. Inflation, particularly food\ninflation, is being elevated by supply constraints caused, inter alia, by\nimport restrictions and the ban on chemical fertilisers and pesticides. When\ninflation is caused by supply constraints, it tends to be transitory, unless it\npersists to the point where it affects inflationary expectations.<\/p>\n\n\n\n

 On the external front, gross official reserves have\ndeclined to the point where questions can be raised as to whether the country\u2019s\nexternal debt servicing can be met while sustaining a level of imports which\nwould meet the demand for essentials, like food and pharmaceuticals, as well as\nintermediate and investment goods required to support growth, employment and\nincomes.<\/p>\n\n\n\n

Time for a policy re-set? <\/strong><\/p>\n\n\n\n

Has the time come to consider whether the current policy stance\nshould be reviewed?  It includes, inter alia,\nyield-curve management in monetary policy; control of the exchange rate through\nmoral suasion and administrative measures, including import restrictions; a\nlow-tax regime at a time when it is proving to be problematic to get government\nrevenue above 10% of GDP (peer countries collect 20% of GDP) while expenditure\namounts to 19% -\/20% of GDP; a reliance on SWAPs (bilateral government\narrangements as well as expensive arrangements with private parties) which tend\nto be short term in nature and can contribute to elevating rather than\ncontaining rollover risk.  <\/p>\n\n\n\n

 The effect of the combination of decades of weak economic\nmanagement and the unprecedented adverse impact of the pandemic means that Sri\nLanka does not have any easy options.  Managing the\ncrisis with as little pain as possible needs to be the priority. <\/p>\n\n\n\n

The immediate priority is stabilizing the economy by: 1.\nRestoring fiscal sustainability in the medium term, primarily through revenue\nenhancement, and 2. Restoring debt sustainability by reprofiling debt servicing\nto a level which avoids severe compression of domestic absorption (investment\nplus consumption). <\/p>\n\n\n\n

Choosing the least painful path<\/strong><\/p>\n\n\n\n

If the priority is to limit the pain of the adjustment required\nto stabilize the economy and place it on a path of sustained growth and\ndevelopment, an arrangement with the IMF can facilitate a less painful blend of\nfinancing and adjustment.  It can increase confidence\namong creditors and investors, which in turn would address the current dollar\nilliquidity by unlocking a more diverse range of bilateral, multilateral and\nmarket-based financing sources.  Pain cannot\nbe avoided. The challenge is to choose the least painful path.<\/p>\n","protected":false},"excerpt":{"rendered":"

\u00a0Pathfinder The Pathfinder Foundation produced a Report Pathfinder Beyond the Box; a New Economic Vision for post-Covid Sri Lanka,\u201d can read full text on https:\/\/bit.ly\/3iSRx1L which was presented to senior policy makers and made available to the public in May 2020. 14 months on, it is time to take stock. The Report presented a policy […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[],"class_list":["post-115427","post","type-post","status-publish","format-standard","hentry","category-economy"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/115427","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=115427"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/115427\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=115427"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=115427"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=115427"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}