{"id":121293,"date":"2021-12-18T17:15:43","date_gmt":"2021-12-19T00:15:43","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=121293"},"modified":"2021-12-18T17:15:43","modified_gmt":"2021-12-19T00:15:43","slug":"a-practical-way-out-of-economic-crisis","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2021\/12\/18\/a-practical-way-out-of-economic-crisis\/","title":{"rendered":"A Practical Way Out of Economic Crisis"},"content":{"rendered":"

Kumar Moses<\/em><\/span><\/h2>\n\n\n

Latest CBSL data shows Sri Lanka’s GDP contracted by negative 1.9% in the last quarter (quarter 3) of 2021. However, the worst is yet to come when $1.5 billion has to be repaid in a month on top of existing problems. Another further $5.7 billion has to be settled next year in loan repayments and interest on them. This means 2022 will be a worse year than 2021 which is already the worst in history.<\/p>\n\n\n\n

Sadly, economic problems are a precursor to military, terrorism, extremism related problems.<\/p>\n\n\n\n

The sudden collapse of the northern economy post-1977 contributed heavily to radicalization of Tamil youth in the north.<\/p>\n\n\n\n

Extremism thrived in Sri Lanka firstly among poorer sections in eastern Sri Lanka before spreading to richer sections leading to 4\/21.<\/p>\n\n\n\n

This is why national economic problems must be overcome as soon as possible.<\/p>\n\n\n\n

So what is the way out?<\/p>\n\n\n\n

IMF?<\/strong><\/p>\n\n\n\n

UNP\/SJB love the IMF. Ever since the crisis broke out UNP\/SJB has been clamoring to got to the IMF for a bail out. IMF can only postpone the problem, not resolve it. IMF is another lender, the lender of last resort! If Perkin’s Confessions of an Economic Hitman is anything to go by, the IMF solution is hardly a solution. Sri Lanka must avoid the IMF trap.<\/p>\n\n\n\n

Many have forgotten the gas related problems have their roots in IMF dictated in the late 1990s. Sri Lanka sought IMF assistance in post Operation Riviresa (1995) reconstruction of the north. IMF was happy to help but imposed conditions. One of these was to recognize the private sector as the engine of economic growth which the CBK regime did. In order to make it meaningful, Lanka Gas had to be privatized. The rest is known.<\/p>\n\n\n\n

Further, going to the IMF accepts bankruptcy and thereafter Sri Lanka will not be able to borrow from commercial lenders like the bond markets of Europe and USA. Since IMF conditions are not acceptable to them, bilateral lenders (like China, India, etc.) will be reluctant to lend too. That will perpetually tie Sri Lanka to the IMF!<\/p>\n\n\n\n

India, China, etc.?<\/strong><\/p>\n\n\n\n

Another suggested approach is to borrow from India, China or any other and resettle existing loans. This too is not a solution. It only postpones the problem to the future. Both options come with geopolitical costs and the cost of interfering in domestic affairs.<\/p>\n\n\n\n

This option too requires accepting bankruptcy which denies further loans from other lenders.<\/p>\n\n\n\n

Default SLDBs and SLSBs?<\/strong><\/p>\n\n\n\n

Sri Lanka development and sovereign bonds are the bulk of Sri Lanka’s foreign loans accounting for 50%. They are commercial loans and carry very high market interest rates. Defaulting on these bonds is a clear winner. Of course, Sri Lanka will not be able to borrow from them thereafter. However, bilateral lenders will still lend to Sri Lanka. Unavailability of bond loans is a blessing in disguise as these easily obtained loans led to Sri Lankan politicians borrowing at will landing the country in a debt trap.<\/p>\n\n\n\n

It will also bring sustainable economic discipline to Sri Lanka knowing they have to plan their finances. It can save Sri Lanka over $5.2 billion next year and over $30 billion in the next 5 years in repayments and interest. This massive saving is sufficient to propel Sri Lanka’s economy to a very strong recovery and build foreign reserves quickly.<\/p>\n\n\n\n

Sadly, it will also affect foreign investors who relay on rating agencies. However, all rating agencies have already ranked Sri Lanka at the very bottom. Therefore, there is no additional impact of defaulting bond repayments.<\/p>\n\n\n\n

Large Investments in Agriculture, Local Manufacturing, Food Security and Foreign Employment<\/strong><\/p>\n\n\n\n

The first thing Sri Lanka must do after overcoming from the crisis is to invest heavily in local food production and manufacturing. A dollar saved is a dollar earned. The default will save $5.2 billion in 2022 alone! That can be invested in these priority sectors. Foreign languages that create employment opportunities like Japanese, Korean, English and German must be taught to school children.<\/p>\n\n\n\n

This will ensure Sri Lanka will never again fall into a foreign currency crisis again.<\/p>\n\n\n\n

The new year will bring new hope. But it requires bold decisions from the government. Bold decisions are all about saving people and the nation from Shylock lenders. Remember, Sri Lanka is not the only country in debt ridden economic crisis. A number of developing countries face this dilemma.<\/p>\n","protected":false},"excerpt":{"rendered":"

Kumar Moses Latest CBSL data shows Sri Lanka’s GDP contracted by negative 1.9% in the last quarter (quarter 3) of 2021. However, the worst is yet to come when $1.5 billion has to be repaid in a month on top of existing problems. Another further $5.7 billion has to be settled next year in loan […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[70],"tags":[],"class_list":["post-121293","post","type-post","status-publish","format-standard","hentry","category-kumar-moses"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/121293","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=121293"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/121293\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=121293"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=121293"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=121293"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}