Three percent - 4% Growth in 2020-2021 - Economist | Sunday Observer

Three percent - 4% Growth in 2020-2021 - Economist

27 December, 2020
Dr. Ganeshan Wignaraja?
Dr. Ganeshan Wignaraja?

Sri Lanka’s growth will return to medium term trend levels of +3% to 4% in 2020-2021 weighing up the various?risks and the government’s economic response to the pandemic, said Senior Research Associate at the Overseas Development Institute in London Dr. Ganeshan Wignaraja.?

He said there seems a consensus among?forecasters that?Sri Lanka’s growth in 2020 will be negative and one of the worst years on record since 2000. Projections indicate that the country’s growth will?return to?positive?territory?in 2021, but there are disagreements between official and other?forecasts?on the figure. This reflects different views on domestic and?international risks, such as an emerging market debt crisis, trade tensions between the US and China, and the duration of the pandemic.

However, he said reforms in Sri Lanka should focus on pro-poor growth. The closure of manufacturing and services activities in Sri Lanka means rising job loss and pay cuts for workers. Household income of the poorest households, linked to tourism, remittances and informal sector activity, will be hard hit. A protracted Covid-19-driven crisis may threaten food security, particularly for the most vulnerable populations and regions. After tackling the immediate pandemic threat, attention should focus on reforms for pro-poor growth in Sri Lanka. Such reforms should tackle the challenging issues of food security, targeted social safety nets, women’s empowerment and small enterprises.

Efforts should also continue to improve the investment climate, including cutting red tape affecting business and digitisation of public services. On import controls, he said in late April 2020, Sri Lanka banned most non-essential imports as a part of its policy package to deal with the economic fallout from the Covid-19 pandemic.

Two motives seem to underpin the shift in policy. One is to tackle a macroeconomic issue of a worsening balance of payments deficit due to fall in foreign receipts from exports, FDI and tourism.

The other is a longer-term structural issue of inadequate domestic production in agriculture and manufacturing which has led to high import dependence. More support to domestic food production to foster food security is critical?for Sri Lanka. Temporary import protection measures are a standard policy response to a possible balance of payments crisis and permitted under the rules of the World Trade Organisation (WTO).?

“Sri Lanka should engage in international trade according to comparative?advantage while developing a production oriented economy.

This was the approach followed by successful East Asian countries, such as Korea, Taiwan,

Thailand and Malaysia. The key is that import control measures are seen as time-bound and that a gradual exit strategy from import controls is developed once the problem abates,” Dr. Wignaraja said, adding that in the next couple of years, a more sustainable approach to tackling the country’s foreign debt,?agriculture?and other development challenges requires a combination of macroeconomic measures, economic reforms and international assistance.?