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Reasons why 2021 saw an increase in global cooperation

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After a trend towards regionalisation last year, global cooperation increased in 2021

Vaccine cooperation and financial assistance helped meet pandemic challenges

Major economies announced the launch or extension of global infrastructure plans

COP26 and the global tax rate were examples of successful global diplomacy

Following on from a year in which supply chains and international travel were severely disrupted, 2021 saw an increase in global cooperation, as institutions, businesses and governments alike sought to work together to find solutions to some of the world’s major challenges.

The onset of the Covid-19 pandemic in early 2020 had a dramatic effect on global connectivity. The implementation of border restrictions greatly disrupted the provision of goods and made cross-border travel extremely difficult.

In order to adapt to these challenges, many governments, businesses and institutions moved towards a strategy of regionalisation.

For example, in April last year the foreign ministers of ASEAN’s 10 member states endorsed several collective initiatives to fight the pandemic, including the establishment of a common Covid-19 fund to enable a rapid response to medical emergencies.

In the same month, the GCC agreed to establish a food supply network to safeguard the region from food insecurity.

Vaccine cooperation

However, while 2020 was marked by a trend towards regional solutions, 2021 has witnessed expanded global cooperation, as governments and international institutions collaborated on initiatives designed to help countries recover from the impacts of Covid-19.

Foremost among these was the Covax initiative. A collaboration between Gavi, the Vaccine Alliance, the Coalition for Epidemic Preparedness Innovations and the World Health Organisation, Covax is designed to coordinate international resources to ensure that developing countries have affordable access to Covid-19 tests, therapies and, above all, vaccines.

Since beginning to distribute vaccines in February, the programme has helped ship more than 610m vaccine doses to 144 predominantly low and middle-income countries.

Despite such efforts, however, Covax has not been enough to bridge the vaccination gap between developed and emerging markets.

To take an example, while more than 90m doses have been delivered to Africa through Covax and the African Vaccine Acquisition Trust, only four of the continent’s 54 countries are on track to meet a WHO target of fully vaccinating 40% of the population by the end of the year, according to a recent report from the Mo Ibrahim Foundation.

This has led to calls for greater global coordination with regard to vaccine distribution, particularly in light of the discovery of the Omicron variant in southern Africa. Indeed, leading officials from the WHO, UN High Commission for Refugees and the International Organisation for Migration recently called on G20 governments to provide greater assistance to lower-income countries.

Providing financial assistance

While Covax has aimed to address the medical impact of the pandemic, other collaborative measures have sought to provide financial assistance to offset the worst of the economic fallout.

One such was the Debt Service Suspension Initiative (DSSI), a G20-run scheme that offers a moratorium on bilateral loan repayments owed to G20 members and their policy banks.

Initially rolled out in June 2020, the DSSI, which is available to 73 low-income nations, was extended until the end of this year.

Complementing that initiative is the G20 Common Framework for Debt Treatments Beyond the DSSI.

Established in November last year by the G20 and the Paris Club – a 22-strong informal group of mainly Western creditors – the Common Framework applies to the same 73 countries that are eligible for support under the DSSI.

It differs from the former in that it provides relief on a case-by-case basis, with assistance ranging from complete debt restructuring or reduction to the longer-term deferral of debt payments.

Another move designed to ease fiscal concerns was the increased allocation of special drawing rights (SDRs). Managed by the IMF, SDRs are international reserve assets defined by a basket of five currencies – the US dollar, Japanese yen, euro, UK pound and Chinese yuan – which are used by member countries to supplement their own reserves.

On August 2 the IMF’s Board of Governors approved the allocation of $650bn worth of SDRs to bolster global economic recovery. This was the first new allocation since 2009 and by far the largest of its kind, doubling the $318bn in SDRs previously released by the IMF.

While not considered blanket solutions to Covid-19-related economic problems, these measures are expected to help emerging markets address any liquidity squeezes they may be facing, which in many cases have become more critical on the back of reduced bilateral aid last year.

Global infrastructure expansion

International institutions were not the only ones who took a global approach in 2021, with a number of the world’s largest economies reaffirming their commitment to globalisation over the course of the past year.

Following a fall in spending in 2020 across many of the projects tied to its Belt and Road Initiative (BRI), China sketched a reformed vision for the programme’s future, focusing on three aspects: the Green Silk Road, the Health Silk Road and the Digital Silk Road.

As the names suggest, the strategy will focus on developing environmentally sustainable projects, with a particular focus on those in the health and ICT sectors, across various emerging markets.

Meanwhile, in June the G7 announced the launch of its own global infrastructure development plan to rival the BRI, called Build Back Better World.

While specific details of the programme have not yet been released, G7 officials said the programme aims to close the $40trn infrastructure gap in the developing world, thus strengthening some of the connections between high-income and emerging markets.

Elsewhere, on December 1 the EU launched Global Gateway, its own international infrastructure strategy, which aims to mobilise €300bn in investments through to 2027 to help with the global recovery from the pandemic.

The launch or continuation of these initiatives comes as a number of emerging markets are turning towards infrastructure projects to help stimulate their economic recoveries from the coronavirus, with many placing a focus on green or sustainable developments.

Increased diplomacy

Aside from coronavirus recovery-related issues, there was also a higher degree of global cooperation with regard to some longer-term themes throughout 2021.

After a decade of talks and months of negotiation, 136 countries signed up to an agreement to implement a global corporate tax rate of 15%.

The landmark deal aims to limit aggressive tax competition, and could bring in an estimated $150bn in extra tax revenue each year, according to the Organisation for Economic Cooperation and Development.

The agreement was seen as a triumph for global diplomacy, particularly given that a number of emerging markets use low tax rates as an incentive to attract foreign investment. However, some emerging markets ­– namely Kenya, Nigeria, Pakistan and Sri Lanka – have not yet signed up to the plan.

Meanwhile, perhaps the largest diplomatic event of the year was the UN Climate Change Convention (COP26). Representatives from more than 200 countries gathered at the event, held in Glasgow between October 31 and November 12, to discuss ways in which they could reduce global emissions.

The outcomes included pledges to “phase down” the use of coal-fired power and reduce deforestation, while more than 100 countries signed up to the US- and EU-led Global Methane Pledge, which aims to reduce methane emissions by 30% by 2030.

In addition, the parties also agreed on a landmark deal to reform global carbon markets and improve rules about carbon trading, seen as key tools in the transition towards decarbonisation.

However, COP26 was weakened by the absence of China’s President Xi Jinping and Russia’s President Vladimir Putin, the leaders of two of the world’s leading polluters. In addition, a number of emerging markets criticised some of the proposals put forward by developed nations.

-Oxford Business Group



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Conclusion of phase 1 of private placement of Ordinary Shares of JKH to ADB

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Krishan Balendra Chairman JKH

Following is the text of a letter addressed by JKH Deputy Chairman/Group Finance Director Gihan Cooray to the CSE’s Chief Regulatory Officer Renuke Wijayawardhana.

Further to the announcements to the Colombo Stock Exchange on 22 November 2021 and 22 December 2021 regarding the Private Placement of up to a maximum cumulative amount of the Sri Lankan Rupee (“LKR”) equivalent of USD 80 million to Asian Development Bank (“ADB”), through the issuance of up to a maximum of 122,500,000 new ordinary shares of the Company in two phases (Phase 1 & Phase 2), we wish to inform that Phase 1 of the Private Placement of ordinary shares of the Company to ADB was concluded on 19 January 2022.

Accordingly, 65,042,006 ordinary shares (“Initial Placement Shares”) of the Company were allotted to ADB at a price of LKR 154.50 per share on 19 January 2022 for a consideration of the LKR equivalent of USD 50 million. The Initial Placement Shares results in a post-issue dilution of 4.70 per cent in Phase 1 of the transaction.

Additionally, in terms of Phase 2, the Company has issued 39,025,204 non-tradable/non-transferable options (“Options”), which will entitle ADB to subscribe for additional new ordinary shares of the Company (“Option Shares”), for an investment amount of up to a maximum of the LKR equivalent of USD 30 million.

Therefore, the maximum number of ordinary shares that would potentially be issued under the entire transaction, assuming all Option Shares are subscribed for, will be 104,067,210, thereby capping the post-issue dilution on the conclusion of both phases to a maximum of 7.31 per cent.

The salient details of the Options are as morefully detailed in the Shareholder Circular dated 29 November 2021. Based on the subscription date of the Initial Placement Shares, the Option Exercise Period will be from 19 October 2022 to 18 January 2023.

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Bangladesh – Sri Lanka Preferential Trade Agreement: Gains and policy challenges

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By Asanka Wijesinghe and Chathurrdhika Yogarajah

0espite enhanced trade partnerships in South Asia, intra-regional trade is far from reaching its theoretical potential. Similar production patterns and competitive sectors can be the causes. However, bilateral discussions to further lower trade costs continue. The ongoing Bangladesh-Sri Lanka discussions on a preferential trade agreement (PTA) will benefit from knowing the potential gains from reducing bilateral trade costs. In addition, knowledge of products with higher potential for export gains will help optimise the economic benefits from a trade deal.

Bangladesh – Sri Lanka Trade:
The Current Status

In 2018, when discussions on a PTA began to firm up, Sri Lanka’s exports to Bangladesh were USD 133 million, while imports from Bangladesh were USD 37 million. Despite the low trade volume, Sri Lanka’s exports to Bangladesh have grown (Figure 1). In addition, Sri Lanka records a bilateral trade surplus with Bangladesh, which is encouraging given the country’s trade deficit concerns. However, weak growth of exports from Bangladesh to Sri Lanka can be seen from 2001 to 2016 (Figure 1).

The current trade deals between the two countries are still partially restrictive. Both countries keep a sensitive list of products that are not eligible for tariff cuts. Sri Lanka maintains a list of 925 products sanctioned by SAFTA (South Asian Free Trade Area) while Bangladesh keeps 993 products. Sri Lanka’s sensitive list covers USD 6.2 million or 23.8% of imports from Bangladesh. The sensitive list of Bangladesh covers USD 77.6 million or 62% of imports from Sri Lanka. Thus, the elimination of sensitive lists may benefit Sri Lanka more.

Figure 1: Trade Intensity between Bangladesh and Sri Lanka

Source: Authors’ Illustration using Trademap Data.

Theoretically, bilateral alliances deepen trade by removing weaknesses in existing multilateral trade arrangements. A trade deal between Bangladesh and Sri Lanka can simplify trade regulations further. In addition, Bangladesh needs alternative preferential access as graduation from Least Developed Country (LDC) status will take away preferential access to its key markets. For Sri Lanka, increasing bilateral participation in production value chains, especially in the textiles sector, might be an economic motivation. Financial support extended by Bangladesh to manage Sri Lanka’s foreign currency pressures might be a political motivation for a trade deal.

Eliminating sensitive lists can lead to trade creation, although it may not happen due to political and economic reasons. When it comes to tariff cuts, both countries will act defensively as certain products in the sensitive lists are vital for employment and revenue generation. Thus, the success of a trade deal depends on how many products with high export potential are under its purview. In this direction, a group of products with specific characteristics can be identified as an offensive list. For example, Sri Lanka’s offensive list includes products that Bangladesh imports from anywhere in the world, produced by Sri Lanka with a capacity for expansion. Sri Lanka has a comparative advantage in exporting that good, and Bangladesh already has a tariff on the product.

Export Gains from Tariff Elimination

If tariffs on the sensitive lists are eliminated, there will be modest export gains for Bangladesh and Sri Lanka in absolute terms. Sri Lanka will gain USD 24.7 to 49.7 million of exports to Bangladesh, while Bangladesh will gain USD 2.1 to 4.5 million of exports to Sri Lanka. Potential export gains are given in a range due to assumptions on elasticity values used in the partial equilibrium model. Elimination of sensitive lists will generate a higher tariff revenue loss to Bangladesh, ranging between USD 13.5 million to USD 19.1 million. By contrast, Sri Lanka’s revenue loss will be slight at USD 1.4 million to USD 1.9 million.

Whatever the arrangement, it is crucial to include the products with high export potential in the offensive lists (See Table 1 for the major products). Out of 39 products in Bangladesh’s offensive list, 21 are intermediate goods, while 18 are consumption goods. Similarly, 75 out of 115 products in Sri Lanka’s offensive list are intermediate goods. Tariff cuts on intermediate products may induce fragmented production between two countries, which would harness country-specific comparative advantages. Major intermediate goods in the offensive lists are dyed cotton fabrics, cartons, boxes, and cases, plain woven fabrics of cotton, denim, natural rubber, and smoked sheets of natural rubber (Table 1).

The ex-ante estimates predict modest gains for Sri Lanka and Bangladesh in absolute terms, even after completely removing the sensitive list. But complete removal is politically challenging for both countries. Moreover, Bangladesh as an LDC may expect special and differential (S&D) treatment. Thus, the outcome can be a limited PTA in line with weaknesses in existing trade agreements governing South Asian trade. The impact on trade of regional trade agreements in force is negative primarily due to stringent general regulatory measures, including rules of origin (ROO), sensitive lists, and prolonged phasing-in. Given that the estimated modest economic gains of a Bangladesh-Sri Lanka PTA do not justify a trade deal that requires substantial resources for negotiations,the PTA should have fewer regulatory measures and tariff concessions for the products on the offensive lists to maximise the economic benefits of a PTA between the two countries.

Link to the full Talking Economics blog: https://www.ips.lk/talkingeconomics/2022/01/20/bangladesh-sri-lanka-preferential-trade-agreement-gains-and-policy-challenges/

Asanka Wijesinghe is a Research Economist at IPS with research interests in macroeconomic policy, international trade, labour and health economics. He holds a BSc in Agricultural Technology and Management from the University of Peradeniya, an MS in Agribusiness and Applied Economics from North Dakota State University, and an MS and PhD in Agricultural, Environmental and Development Economics from The Ohio State University. (Talk with Asanka – asanka@ips.lk)

Chathurrdhika Yogarajah is a Research Assistant at IPS with research interests in macroeconomics and trade policy. She holds a BSc (Hons) in Agricultural Technology and Management, specialised in Applied Economics and Business Management from the University of Peradeniya with First Class Honours. She is currently reading for her Master’s in Agricultural Economics at the Postgraduate Institute of Agriculture, Peradeniya. (Talk with Chathurrdhika: chathurrdhika@ips.lk)

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Expolanka boosts bourse by adding 21.7 points to ASPI

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By Hiran H.Senewiratne

CSE trading started in negative territory yesterday due to heavy profit- takings but after 1 pm the market began to recover, triggered by index heavy counter Expolanka, which gained by adding 21.7 points to the All-Share Price Index. The stock market yesterday produced a creditable recovery to finish on a positive note after early losses amid a relatively low but healthy turnover level. The Expolanka share price appreciated by 2.5 per cent or Rs 9.50. Its shares started trading at Rs 386 and at the end of the day they shot up by Rs 9.50.

Amid those developments both indices moved upwards. The All -Share Price Index went up by 42.8 points and S and P SL20 rose by 7 points. Turnover stood at Rs 4.9 billion with a single crossing. The crossing was reported in Expolanka, which crossed 100,000 shares to the tune of Rs 39.5 million and its shares traded at Rs 395.

In the retail market, top seven companies that mainly contributed to the turnover were, Expolanka Rs 715 million (1.8 million shares traded), Browns Investments Rs 336 million (19.9 million shares traded), ACL Cables Rs 261 million (2.1 million shares traded), LOLC Finance Rs 231 million (8.1 million shares traded), JKH Rs 193 million (1.2 million shares traded), Expack Corrugated Cartons Rs 162 million (seven million shares traded) and  Softlogic Capital Rs 161 million (11.3 million shares traded). During the day 154 million share volumes changed hands in 37000 transactions.

Yesterday, the US dollar was quoted at Rs 202.91, which was the controlled price of the Central Bank. The actual price would be more than Rs 250, market sources said.

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