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IPS sees path ahead for Sri Lanka even as economic challenges mount

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by Sanath Nanayakkare

Even though macroeconomic pressures and external challenges are weighing on Sri Lanka’s fiscal situation, the country has a path ahead for growth and sustainability if it puts its fiscal house in order over the next three years, Dr. Dushni Weerakoon, Executive Director of the Institute of Policy Studies of Sri Lanka (IPS) said last week.

She made this remark while speaking at an online seminar after launching the State of the Economy- 2020 Report compiled by the IPS titled “Pandemics and Disruptions: Reviving Sri Lanka’s Economy COVID-19 and Beyond.”

Elaborating further she said, “Policy environment is critical to achieving resilient growth and economic stability in order to position Sri Lanka as a middle income country in the next 2-3 years”.

“Prevailing macroeconomic conditions in Sri Lanka are challenging. The debt overhang is the prime concern. This debt situation didn’t happen overnight, It crept up over the past decade or so. It hasn’t left room for more robust support packages for people and businesses affected by the COVID-19 pandemic. We need to rethink our policies not only to achieve a sustainable growth path, but we need to build a firewall to withstand any external shocks in the future”.

“Sound fiscal policy in order to put the public finances in order should be the focus of the upcoming budget and government policy in the coming years”.

“If a sovereign rating assessment goes against Sri Lanka in the offing, it could cause a sudden devaluation of the rupee and as a result of it, the size of our foreign currency loans will balloon”.

“The pressure on our forex reserves needs to be eased. FDIs need to be attracted to the construction and real estate sector to ease the immediate pressure and thereafter move on to a growth strategy driven by productivity and technology to become a middle-income country”.

“The minimizing of wasteful expenditure in the public sector won’t make much of a difference. The government will have to lead social welfare. We will have to spend more on health, education and social protection in the recovery phase”.

“The debt stock will persist in the next decade albeit a brief break in between. So, we need to shore up our forex buffers – not with borrowed funds but with investments that bring in manufacturing and services with knowledge transfer on technology”.

“The government has decided not to obtain large loans for infrastructure projects in the next 2-3 years to control the debt stock. Fiscal re-balancing and ensuring systematic tax revenue would be vital for medium-term stability”.

“We needed certain monetary policy stances and import restrictions to face the current situation, but we should see them as necessary short term measures only. Beyond recovery, we need a new system which is agile enough to integrate with the global supply chain and be part of that success as they jump start their economies”.

“We need to raise funds through international sovereign bonds, foreign term deposits etc. For the past one and a half decades, Sri Lanka has had experience on foreign funded projects. We have experience on capital spending, converting debt to equity in infrastructure development projects etc. We can learn from them and seek funding on our terms”.

“Wider fiscal space will also assist the government to provide better social welfare support to the poor. Sri Lanka’s budget deficit is estimated to be between 9-11% in 2020, and public revenue streams remain uncertain even in 2021, according to analysts. This together with low debt sustainability was partly why Sri Lanka’s sovereign rating was downgraded earlier this month by international rating agency Moody’s”.”Sri Lanka cannot afford to lose out by holding onto protectionist measures. A seamless tariff regime is needed to join international value chains, and as the world recovers, we must rethink our approach to trade”.

“On the back of Sri Lanka’s political stability, the country can rethink its economic policies and come through its macroeconomic challenges,” Dr. Dushni Weerakoon noted.

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realme dares to leap into Sri Lankan youth market with cutting edge devices

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realme, the world’s fastest-growing smartphone brand, launched its products in Sri Lanka on the November 23. The virtual launch event took place with the participation of Chanux bro and realme Sri Lanka team where benchmark, trendsetting realme products were introduced to the Sri Lankan market.

The launch expands the reach of the fastest smartphone brand to reach 50 million product sales worldwide, to a brand new market with young users looking for the very best in technology and smart devices. Ranked among the Top 5 brands in over 13 markets globally in just two years of operation, realme is ranked seventh globally. Proclaiming it will ‘dare to leap’, realme identifies with young people who are willing to take a risk, and has launched four cutting edge products to the Sri Lanka market, set to exceed expectations.

realme 7 – sharper captures and cooler gaming with faster charges

realme 7 grabs the imagination of the youth with a 64MP Quad Camera with Sony IMX682 sensor for sharper captures, the World’s First MediaTek Helio G95 Gaming Processor for cool gaming and a 30W Dart Charge, taking just 26 mins to get 5000mAh battery 50% Charged. The sleek smartphone comes with a 6.5-inch 90Hz Ultra Smooth Display with a 16MP In-display Selfie Camera and Starry Mode.

The first smartphone to have passed TÜV Rheinland Smartphone Reliability, realme 7 is the first in segment smartphone with the Sony 64MP Quad Camera.

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President to inaugurate CCC Sri Lanka Economic Summit

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Sri Lanka’s foremost economic summit will be inaugurated by Chief Guest Gotabaya Rajapaksa, President of the Democratic Socialist Republic of Sri Lanka on December 1. The summit is themed “Roadmap for Take-off: Driving a People Centric Economic Revival”. The President will also deliver the inaugural address.

Mahinda Rajapaksa, Prime Minister of the Democratic Socialist Republic of Sri Lanka, will launch the second phase of the summit on December 2 and participate in the VVIP session focused on “Empowering Take-off: Efficient Government and Progressive State Enterprises.”

The Inaugural session on December 1, commencing at 8.30am will feature addresses by keynote speaker Nirmala Sitharaman, Minister of Finance and Corporate Affairs of the Republic of India and Guest of Honour Ajith Nivard Cabraal, State Minister of Money and Capital Markets and State Enterprise Reforms. Dr. Hans Wijayasuriya – chairman of the Ceylon Chamber of Commerce will deliver the welcome address.

The flagship summit will be held on a virtual format in compliance with health guidelines and will bring together key policymakers, business leaders as well as the input of top international thought leaders will come together to identify the steps in developing the pathway towards the accelerated and people centric revival of the country’s economy.

Participants may register for the entire two-day virtual summit, or pick the sessions of their choice, an opportunity offered for the first time. Registrations for the event are now open. For further information, please contact Niroshini on niroshini@chamber.lk or 0115588852; or Alikie on alikie@chamber.lk or 0115588805. (CCC)

 

 

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Central Bank’s policy rates decision to be driven by two options

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by Sanath Nanayakkare

The Central Bank will be reviewing its monetary policy stance on November 26. In this context, First Capital Research has put forward strong arguments both for and against an interest rate cut, in its Pre-Policy Analysis.

Making their argument against further relaxation in monetary policy First Capital said, “As a response to the measures taken by the government, private sector credit has improved to Rs. 87.4Bn in September while market liquidity reached Rs. 140 bn by 13th Nov indicating that there is surplus liquidity in the system. Moreover, the unemployment rate, which was at 5.7% in the 1Q2020 has declined to 5.4% in the second quarter. These indicators suggest that economic activity has remained steady without much deterioration in the 2Q. Except the GDP growth numbers, where the 2Q2020 figures are yet to be seen, other indicators are signifying a recovery, inquiring the need of further policy easing at the upcoming review”.

“In response to previous monetary easing measures implemented by CBSL, to bring down costs of borrowing of businesses and households, both market deposit and lending rates adjusted notably so far during the year. AWPR declined to historic lows in recent weeks, while banks’ lending rates also witnessed a downward adjustment in line with CBSL’s expectations. We believe that considering the recovery in the private credit and historic low levels in AWPR, there is no vital requirement for CBSL to provide a rate cut and to further bring down the market lending rates drastically”.

Their arguments for further relaxation in monetary policy was: “A thrust for development is the need of the current government. We estimate that Sri Lanka’s GDP would see its steepest contraction in history of -5.8% in 2020 following the unexpected contraction in 1Q GDP growth of -1.6% while 2Q GDP figures are yet to be seen. However, the government’s key drive is the development oriented economic growth which was spelt out through the budget 2021 as well. Accordingly, the government plans to reach 6% and above GDP growth during the next 5 years commencing from 2021. As we believe, a development-oriented budget coupled with further low interest rate environment can support the government’s medium-term goals. Therefore, the need to accelerate the GDP growth can be considered as a major factor favouring further policy easing at the upcoming review.”

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