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SL can speed up economic recovery by bolstering its democratic institutions: US Ambassador

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‘US has provided SL more than US$26 million for health and US$2 billion in aid’

The U.S. Ambassador to Sri Lanka and Maldives Alaina B. Teplitz in a wide ranging interview on Sri Lanka – United States relations says; “Unfortunately, there has been a lot of misinformation surrounding our engagement and several of our programs in recent times, but none of our programs infringe upon Sri Lanka’s sovereignty and we are very transparent in their design and implementation”.

At one point of the interview she says,” By relying on your long history of democracy and continuing to bolster your democratic institutions, you can speed up your recovery and be a leader in the region”.

Below you find some excerpts from the interview with Ambassador Teplitz.

 

By Dinesh Weerakkody

 

Q: Given the Covid-19 global pandemic and the challenging economic backdrop what do you see as the key priorities for US-SL relations in 2020 and in 2021?

  Sri Lankans have done a tremendous job managing the COVID-19 pandemic. As the country continues to take measures to prevent community transmission, it must also consider the economic recovery from the pandemic. The combination of economic shocks that have impacted the country in deep ways over the past two years are cumulative. It’s challenging, and of course the U.S supports a strong and sustainable recovery for Sri Lanka. We remain a steadfast partner to Sri Lanka, contributing over $5.8 million to Sri Lanka’s COVID-19 management efforts. That’s on top of the $26 million over the last couple decades devoted solely to health. And we anticipate we’ll be a strong partners not only around this particular crisis but around many issues to come in the future. We look forward to continuing to work together to bolster the bilateral relationship and address regional and global issues.

Q: The U.S. committed US$ 5.8 million in Covid-19 assistance to Sri Lanka reinforcing its long tradition of support for Sri Lanka’s security and sovereignty. Could you shed some light on which development areas, services and programs these funds have been channeled into?

The $5.8 million in assistance to Sri Lanka was channeled through USAID to partners such as UNICEF to directly address the needs of the Sri Lankan people. It includes $2 million to increase social services for areas and populations most impacted by the crisis, and support for activities that build social cohesion. Another $2 million will strengthen small and medium enterprises and increase women’s economic participation. As part of the newly-announced assistance, the U.S. is also providing $590,000 in humanitarian assistance through the International Red Cross that will support vulnerable people during the pandemic.

This assistance builds on the $1.3 million in health assistance the U.S. Embassy announced in April, which is helping the government prepare laboratory systems, activate case-finding and event-based surveillance, and support technical experts for response and preparedness. U.S. assistance is also enabling Sri Lanka to conduct communicate more effectively about the risk of infection and prevent and control infectious diseases in health facilities. As part of this $5.8 million, Deputy Chief of Mission, Martin Kelly recently joined with UNICEF to hand over U.S.-funded medical equipment to the Ministry of Health.These supplies will equip four COVID-19 isolation and treatment units specialized in maternal and neonatal care. In addition to this $5.8 million, we recently provided PPE to eight health care facilities across Sri Lanka and we are gifting Sri Lanka 200 brand-new ventilators in the coming days. Over the years, we’ve provided Sri Lanka more than $26 million for health and $2 billion in aid.

Q: U.S. influence in Sri Lanka has been hotly debated in recent times on matters ranging from military co-operation to development to wider assertions that the U.S. is seeking to undermine Sri Lanka’s sovereignty. What will the future look like?

The strongest partnerships are those that respect and protect one another’s sovereignty. Unfortunately, there has been a lot of misinformation surrounding our engagement and several of our programs in recent times, but none of our programs infringe upon Sri Lanka’s sovereignty and we are very transparent in their design and implementation. Our two countries share a strong and resilient relationship. We will continue to work with the Sri Lankan government to promote Sri Lanka’s prosperity and uphold its sovereignty.

Q: What do you see as Sri Lanka’s medium-term opportunities in terms of bilateral, political and economic co-operation?

  COVID-19 could really be a game changer in terms of both opportunities and challenges in the short and medium term. We don’t yet know the extent of the damage to the global economy or what the road to recovery will look like. The pandemic underscored how susceptible we are to global problems beyond our control and how we work more effectively in solving those problems when we work together. Strong international cooperation was required in addressing the crisis and it will be imperative in working towards recovery. Countries that adhere to democratic values, that respect rule of law, that have open and honest communications and provide credible information to protect their citizens will recover faster and be well staged to seize opportunities as they arise. The challenge for Sri Lanka will be continuing to provide the assistance your citizens require while you jump start your economy, attract foreign investment and repair the economic damage caused by the pandemic. But by relying on your long history of democracy and continuing to bolster your democratic institutions, you can speed your recovery and be a leader in the region.

Q: What are your thoughts on the current investment environment in Sri Lanka? Has the ease of doing business improved?  

The government needs to consider comprehensive policy reforms to improve the ease of doing business if it’s going to be in a position to attract foreign investment and take advantage of some of the supply chain changes that are going to come as many countries and companies seek to diversify their investments from China. Companies are actively looking to ensure they have some diversification in location and redundancy in that supply chain. So it’s an opportune moment for Sri Lanka. Major U.S. firms such as Microsoft, Oracle, IBM, Virtusa, Dell, and others are here and looking to develop and invest in the IT sector. An investment climate that is predictable and transparent will attract top international firms to invest in the country, not just in IT but other sectors as well. Additionally, continuing to build strong intellectual property rights protections will make Sri Lanka a competitively attractive destination in the region for IT investment.

Q: What do you see as the biggest opportunities for U.S. investors in Sri Lanka? Which sectors? And, what more needs to be done on the regulatory front to attract investment?

The pandemic has forced U.S. manufacturers to reevaluate their supply chains and figure out how to diversify suppliers to avoid disruptions.  Sri Lanka is well positioned to benefit from this. For U.S. buyers looking at potential suppliers from any country, including Sri Lanka, the key factors are quality, price, and the ability to deliver on time. So is predictability, as well as fair and transparent bidding opportunities and contract enforcement.  Apparel is a prime example: U.S. buyers associate a Sri Lankan product with high quality and dependable product delivery. Tea is another product that has gained the confidence of U.S. consumers. Sri Lankan products generally are viewed as manufactured under conditions that adhere to international labour regulations and proper quality standards.

Q: President Donald Trump is seen as a key promoter for protectionism and to only buy made in America products. How would you justify some of the trade measures introduced by the Trump administration, in the context of recommending greater inter-regional trade within South Asia?  

The  U.S. is the number one destination for Sri Lankan exports. Bilateral trade is heavily weighted in Sri Lanka’s favor: the United States imports around $2.9 billion worth of products from Sri Lanka and only exports around $390 million. Sri Lankan companies have benefited from friendly U.S. trade policies, such as the General System of Preferences (GSP), that encourage fair and competitive trade. In these difficult times, our trade relationship has only grown stronger to our mutual benefit, as Sri Lanka has stepped up to manufacture masks for the U.S., production that has kept factories running and workers in jobs. The GSP program promotes economic growth in the developing world by providing duty-free entry to the U.S. market for goods imported from specific developing countries. As a GSP beneficiary, Sri Lanka may export more than 3,500 different products to the U.S. duty-free. This is in addition to the 3,800 products that are duty-free for all countries. In the Indo-Pacific region, the U.S.  remains deeply engaged and committed to its prosperity. With $1.9 trillion in two-way trade, our futures are intertwined.

Q: Given that you are a very seasoned diplomat with good connections to the Trump Administration, what are your aspirations for United States-Sri Lanka relations during your tenure?  

The U.S. and Sri Lanka share common goals as fellow democracies working to promote and protect human rights and the rule of law. We continue to urge the government of Sri Lanka to take concrete steps to respond to the concerns of all its people. The  U.S. is also Sri Lanka’s single largest export market and Sri Lanka’s largest trading partner. In 2017, Sri Lanka exported over $2.9 billion of goods to the US, $2.1 billion of which were ready-made garments. The U.S. also views Sri Lanka as a great customer for American-made goods. The U.S. exports into many sectors of the Sri Lankan economy from advanced machinery to agricultural products. Building upon these powerful economic ties, we aspire for expanded growth and prosperity for the citizens of Sri Lanka and the U.S.  

Ambassador Teplitz is a senior member of the US Foreign Service, she joined the State Department in 1991 and is the recipient of numerous Awards. Ambassordor Teplitz also held the Assistant-Secretary ranked position of Director of the Under Secretary for Management’s Office of Policy, Rightsizing, and Innovation (M/PRI) at the Department of State from 2012-2015. She holds a Bachelor of Science in Foreign Service from the Georgetown University School of Foreign Service.



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Spotlight on ‘Emerging Issues for Macroeconomic Stability’

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The Central Bank of Sri Lanka co-hosted the CBSL-ADBI-APAEA Online Macroeconomics Conference for the third consecutive year, in collaboration with the Asian Development Bank Institute (ADBI) and the Asia-Pacific Applied Economics Association (APAEA), on 23 September 2022. This year’s theme remained same as the previous year; ‘Emerging Issues for Macroeconomic Stability’.

Inaugurating the Conference, Dr. Nandalal Weerasinghe, the Governor of the Central Bank, elaborated on some key challenges faced by many countries over the world, mainly driven by the COVID-19 pandemic and geo-political tensions, driving most central banks to prioritise on stabilising their corresponding economies. He highlighted the increasing concern faced by both advanced and emerging market economies alike, in the balancing act between supporting economic growth on the one hand, and maintaining overall macroeconomic stability on the other, amidst varying levels of macroeconomic buffers. He also noted the importance of research collaborations between the academia and policymakers to address various issues faced by the economies amidst the prevailing high volatility in the global economic landscape.

The Governor highlighted that although the applicability and validity of findings of certain models and theories presented in theoretical academic research could be somewhat limited amidst crisis situations like the one Sri Lanka is facing at present, ongoing effort to study the dynamics of emerging market economies is an essential element in the recovery process. Professor Tetsushi Sonobe, Dean and Chief Executive Officer (CEO) of ADBI delivered opening remarks and noted the heterogeneity among different regions in terms of the exposure to inflation pressures, available policy space and the soundness of macro-fundamentals. He emphasized that workshops of this nature would help stimulating a dialogue among academia and policymakers and support further development of policy research.

The Conference comprised two sessions of research paper presentations by authors from the Central Bank of Sri Lanka, ADBI and APAEA. The sessions were chaired by Dr. John Beirne, Vice-Chair of Research at ADBI, and Mrs. Yvette Fernando, Deputy Governor of the Central Bank.

The proceedings of the conference can be accessed via the Central Bank Website in the ‘Conferences, Seminars and Workshops’ section (https://www.cbsl.gov.lk/sites/ default/files/cbslweb_documents/research/CBSL_ADBI_APAEA_Workshop_Sep2022_Agenda.pdf).

Collaborative Research Conference by CBSL-ADBI-APAEA – 23 September 2022.

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A compelling value proposition for investing in SL in the context of Port City Colombo

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On the heels of the interim budget speech and a Staff Level agreement on an Extended Fund Facility with the IMF, the Ceylon Chamber of Commerce hosted a virtual session on the 01st of September 2022 to discuss, ‘How can Sri Lanka compete for investment amidst turbulence times: Economic growth vs Fiscal consolidation’.

Joining the discussion were Natarajan Sankar, Managing Director and Partner at Boston Consulting Group (BCG), Dr Dushni Weerakoon, Executive Director at the Institute of Policy Studies, Ashique Ali, chairman of SLASSCOM, and Thulci Aluwihare, Deputy Managing Director of CHEC Port City Colombo. The session was moderated by Shiran Fernando, Chief Economist at the Ceylon Chamber of Commerce.

During the discussion, Natarajan Sankar highlighted how the development of economic clusters could be an important policy tool to activate growth in new sectors, similar to Dubai, Singapore and Malaysia. The presentation demonstrated that Sri Lanka is now at an inflection point, where bold reforms must be implemented to enhance export competitiveness and FDI attraction, similar to major South Asian Economies following the 1997 Asian Financial Crisis.

Discussing these ideas further in the context of Port City Colombo, where BCG has been engaged as the International Strategy Consultant, Sankar stressed that the structural advantages offered by Sri Lanka need to be augmented by strengthening the country’s brand as a destination for investment, as well as by improving the ease, risks and costs of doing business. As many SEZs have failed due to poor conceptualization and implementation, he emphasized the need to form a compelling value proposition through a comprehensive package of fiscal incentives, infrastructure support, talent pool and a conducive legal/ regulatory framework.

Sankar also discussed the vast potential that exists in the IT, Digital Education and Professional Services segments, where Sri Lanka could position for an India+1 strategy, on the back of lower cost of operations, good quality talent pool and robust connectivity. In the context of IT companies, he pointed out that businesses consider a multitude of factors in their international location decisions, as they take a long-term view on graduating from Outposts to Satellites, and eventually, Hub operations. Hence, a precise overarching narrative and investor pitches, tailored for sectors and sub-sectors, should be set out to appeal for international investment, he explained.

Adding to the discussion, Dr Dushni Weerakoon, Executive Director of the Institute of Policy Studies, referred to the World Bank’s Global Investment Competitiveness Report, which points out the top 3 factors for investment decisions as: supportive political environment, macroeconomic stability and a supportive regulatory regime. Sri Lanka’s poor performance across these pillars, coupled with the ongoing economic crisis, could cause investors to generally steer away from long term investments and consider opportunistic/portfolio investments where exit is relatively easier.

However, to attract “efficiency seeking FDIs”, which are the conduit for new technology, management know-how and business networks, the long-term reform agenda plays a crucial role. Amidst an economic crisis and an era of fiscal consolidation, there is a case to be made for strategically considering tax incentives to attract investment in sectors such as IT, construction and exports. This could also position Sri Lanka competitively amongst the 50-70% of developing countries that offer fiscal incentives to attract investment.

Providing an insight from an IT/BPM perspective, Ashique Ali, chairman of SLASSCOM, underscored the importance of developing globally relevant skills to benefit from the vast opportunity within the IT/BPM sector, which remained resilient globally even during the pandemic, due to the rising demand for digitalization. He stressed that Sri Lanka continues to remain attractive for global clientele despite the disruptions to business activity that the industry experienced over the recent couple of months.

Discussing the matter from the point of view of the Port City Colombo development, Thulci Aluwihare, Deputy Managing Director at CHEC Port City Colombo explained the significance of strong economic growth in achieving long term debt sustainability, notwithstanding fiscal consolidation. Whilst agreeing that efficiency of the workforce, quality of infrastructure, political stability etc. take precedence over fiscal incentives in the context of investment decisions, Aluwihare revealed a comparative analysis of regional peers, which highlights Sri Lanka’s poor ranking in these aspects. Furthermore, Sri Lanka is also a relatively high tax jurisdiction, where taxes were second to India despite the lack of a vast domestic market. On the other hand, even developed jurisdictions such as Singapore and Dubai, UAE provide targeted tax incentives for as long as 40-50 years.

He also further explained that the hurdle return rates expected by international investors, commensurate with country risks, is significantly higher than in the region, which in turn makes large-scale development projects relatively unattractive. Aluwihare concluded by stressing that targeted incentives should be offered by considering a cost benefit analysis where the wider economic impact outweighs the cost of such incentives.

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External and internal factors set stage for CSE revival

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By Hiran H. Senewiratne

The CSE rose over 1 per cent within the first hour of trading yesterday, continuing the momentum from the previous day, unfolding a stock market driven by retail investors. The reasons for the market to bounce back were external and internal factors, stock market analysts said.

One external factor that propelled the market was the Asian Development Bank (ADB) reassurance of further support for crisis-hit Sri Lanka once the International Monetary Fund Board approves the US $ 2.9 billion four-year Extended Fund Facility program.

ADB President Masatsugu Asakawa told journalists that reaching the Staff Level Agreement by Sri Lanka with the IMF earlier this month was a positive development and expressed confidence in the government receiving “financing assurances” from relevant creditors leading up to the IMF Executive Board approving the new support program for Sri Lanka.

A further factor that positively impacted the market was the Export Development Board report that our export earnings from the beginning of the year to August this year reached more than US $ 8 billion, which was a 12 per cent increase, stock market analysts said.

Amid those developments both indices moved upwards. All Share Price Index went up by 97.25 points (0.99 per cent) to end of the day at 9958.87 and S and P SL20 gained 22.71 points (0.72 per cent) to end of the day at 3187.22. Turnover stood at Rs 3.1 billion without a crossing.

In the retail market top seven companies that mainly contributed to the turnover were, ACL Cables Rs 458 million (3.8 million shares traded), Lanka IOC Rs 299 million (one million shares traded), Expolanka Holdings Rs 198 million (890,000 shares traded), Lanka Wall Tiles Rs 169 million (2.2 million shares traded), First Capital Holdings Rs 121 million (6.2 million shares traded), Royal Ceramic Rs 106 million (2.5 million shares traded) and First Capital Treasuries Rs 101 million (4.4 million shares traded). During the day 181 million shares changed hands in 33000 transactions.

Between early August and yesterday, SG Holdings is estimated to have acquired 67 million shares or a 3.7 per cent stake in Expolanka at a price range of Rs. 200 and Rs. 230 per share.

It is said buying in September alone resulted in a net inflow of Rs. 14.6 billion to the stock market and more importantly boosted liquidity of those who sold out of Expolanka. On the previous day Expolanka saw 11.6 million of its shares change hands via 883 trades for Rs. 2.65 billion. It closed at Rs. 224.75, up by one rupee. Expolanka’s market value was Rs. 439.3 billion as of yesterday accounting for 10 per cent of CSE’s total.

Yesterday the Central Bank- announced US dollar buying rate was Rs 359.18 and the selling rate Rs 369.93.

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