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Sri Lanka Development Update 2021 – World Bank Report

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Amid the COVID-19 pandemic, Sri Lanka’s economy contracted by 3.6 per cent in 2020, the worst growth performance on record, as is the case in many countries fighting the pandemic. Swift measures enacted by the government in the second quarter helped contain the first wave of COVID-19 successfully, but these measures hit sectors like tourism, construction, and transport especially hard, while collapsing global demand impacted the textile industry.

Job and earning losses disrupted private consumption and uncertainty impeded investment. As a result, the economy contracted by 16.4 per cent (y-o-y) in the second quarter. The economy began to recover in the third quarter as the first wave was brought under control and containment measures were relaxed. The momentum continued in the fourth quarter as the economy was broadly kept open despite a second wave of COVID-19 infections.

The government took proactive measures to mitigate the impact of the pandemic. Despite limited fiscal space, resources were allocated (approximately 0.7 per cent of GDP) for health measures, cash transfers, and postponed tax payments. While public expenditures increased, revenues declined, resulting in a widening of the fiscal deficit in 2020. Due to the economic contraction and the elevated fiscal deficit amid COVID-19, public and publicly guaranteed debt is estimated to have increased to 109.7 percent of GDP. In line with the government strategy to reduce external debt over the medi- um-term, debt financing relied increasingly on domestic sources.

The Central Bank of Sri Lanka (CBSL) significantly contributed to the crisis response. It undertook considerable monetary policy easing, for which there was room given benign inflation, and additional measures to increase liquidity in the market and support businesses. It also introduced financial sector regulatory measures, like a debt moratorium for COVID-19 affected businesses and individuals.

However, despite these efforts, bank lending to the private sector remained low. By contrast, credit to the government and state-owned enterprises surged and accounted for 80 per cent of the total credit in 2020.

The pandemic likely exacerbated pre-existing financial sector vulnerabilities, although the full impact of COVID-19 cannot yet be observed. An improved trade balance and strong remittance inflows narrowed the current account deficit. A sharp drop in imports in 2020 more than offset the decline in exports. However, with financial inflows insufficient to meet external liabilities, reserves declined to an 11-year low in February 2021, before a currency swap worth US$ 1.5 billion with the People’s Bank of China was approved in March 2021. Due to a shortage of foreign currency, the exchange rate depreciated by 6.5 per cent from January through March 17, 2021.

The CBSL took several measures to preserve foreign exchange reserves and reduce pressures on the exchange rate. Growth is expected to recover to 3.4 per cent in 2021, mainly reflecting a base effect and FDI inflows. Gradually normalizing tourism and other economic activities as well as already signed investments will support growth. However, the subdued global recovery may dampen export demand. Over the medium-term, continued trade restrictions, economic scarring from the slowdown and the high debt burden may weigh on growth prospects.

Through an enhanced focus on an export-oriented growth model that taps the full potential of private investment, the country could realize its ambitions to increase its competitiveness and raise growth in a sustainable manner. The forecast is subject to both upside and downside risks. If the global economy recovers faster than expected and the global tourism industry rebounds more quickly with the progress on vaccination programs, the growth outlook could become more favorable.

On the other hand, downward risks persist, pertaining to debt and external sustainability given high debt and low external buffers, especially because the repayment profile requires accessing financial markets frequently. Given large refinancing requirements, constrained market access amid rating downgrades is a challenge. Thus, striking a balance between supporting the economy amid COVID-19 and ensuring fiscal sustainability is key. A reform program to provide a fiscal anchor could help Sri Lanka to reduce debt vulnerabilities and lower sovereign risk.

The COVID-19 impact on employment and poverty

The economic contraction in the wake of COVID-19 has reversed past progress, at least temporarily. Poverty is expected to have risen since the onset of the pandemic mostly due to widespread job and earning losses. Simulations suggest that job losses were more likely to occur in urban areas and among private sector and own-account workers. Job losses were concentrated in the lower-middle of the income distribution: workers most vulnerable to job loss are located between the 20th and 40th percentiles of the pre-pandemic earnings distribution.

Temporary absence from work and job losses occurred less frequently than declines in earnings. While informal workers are more likely to suffer earnings losses, formal workers have been affected as well, for example in the export-oriented apparel industry. With jobs lost and earnings reduced, the $3.20 poverty rate is projected to have increased from 9.2 per cent in 2019 to 11.7 per cent in 2020.

The poorest experienced the largest proportionate earnings shock while the smallest proportionate income losses were suffered by the richest. The latter tend to have formal, secure jobs and better access to digital technology that allows them to conduct wage work or business operations remotely. To mitigate the impact of the economic hardship on the poor and vulnerable, the government implemented several livelihood support programs, which helped to soften the labor market shock and the impact on poverty.

Further progress in restoring livelihoods and making them more resilient could help Sri Lanka to continue its path of poverty reduction and shared prosperity. The current social protection system could support the reintegration of those who lost their jobs. In the medium term, social safety nets could be better targeted toward the poor and vulnerable, and adjusted to allow for support to be scaled up quickly and effectively in times of crises. Unequal opportunities to work from home have introduced new economic and spatial divides as working remotely is nearly exclusively an option for high income earners, and small and medium-sized enterprises were unlikely to adopt digital technologies.

In the medium to long-term, digital technologies could become an important engine for job growth. However, despite wide scale ownership of cellphones in Sri Lanka, the digital revolution will fall short of expectations without expansion of high-speed networks and accessible data on the whole island. Sri Lanka could provide new opportunities for economic mobility through policies that expand or universalize access to digital infrastructure.

Investments in digital literacy are a prerequisite for widely shared benefits from these new opportunities.

Growth should recover gradually in 2021. The economy is expected to grow by 3.4 per cent in 2021, from a low base, as vaccination programs progress in Sri Lanka and its major trading partners.

Already-signed investments into the Colombo Port City and Hambantota Industrial Zone and gradually normalizing domestic economic activities should provide an impetus to growth. However, the momentum of the recovery is expected to be constrained due to: (i) subdued export demand and tourism, as well as lower remittances growth amidst the sluggish global recovery; and (ii) the challenging domestic macroeconomic situation. Continued import restrictions and the high debt bur- den will adversely affect growth and poverty reduction over the medium-term. Inflationary pressure is expected to materialize in 2021-2023 due to the partial monetization of large fiscal deficits. External buffers are expected to remain low, with subdued financial inflows and significant financing needs. The current account deficit is projected to remain low in 2021, with strict import restrictions largely offsetting relatively low garment exports and tourism receipts.

Courtesy – Sri Lanka

Financial Chronicle



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Sri Lanka Tourism returns to Spanish market after pandemic

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Spain is one of the fastest recovery markets for Sri Lanka Tourism after the pandemic and participation in FITUR argues well for the much-needed exposure for Sri Lanka as an attractive tourism destination for Spanish-speaking countries, contributing in a substantive manner to its overall growth strategy. Sri Lanka Tourism made the presence with the 28 private sector companies at 43rd edition of FITUR International Travel Mart which was held from 18- 22 January 2023, Madrid, Spain. FITUR is the largest tourism event in the Spanish Market where all the sectors leisure, business and MICE tourism meet under one roof.

Sri Lanka Tourism stall was ceremonially opened by Mr.Chalaka Gajabahu ,Chairman of Sri Lanka Tourism Promotion Bureau and Honorary Consul of Sri Lanka in Barcelona, Mr. Agustin Llana and representatives of the leading private sector members of Sri Lanka.

Sri Lanka was able to attract high level of attention from the trade and travel visitors attended at the event. The Sri Lanka pavilion highlighted many aspects of its potential culture, beauty, Ayurveda and many more which Sri Lanka would offer as a tourism destination. Sri Lanka stand optimized the “So Sri Lanka” and “Visit Sri Lanka” vivid sights to attract the potential visitor segments. At the Sri Lanka pavilion, Ceylon tea was served for the visitors with a view of promoting Ceylon tea in the Spanish market.

On the sideline of the FITUR travel fair, Sri Lanka Tourism Promotion Burau officials participated at the events organized by the UNWTO. During the events, SLTPB officials met with the Mr.Harry Hwang , Director of Regional Department for Asia and the Pacific, UNWTO.As a result of discussions, Mr.Harry Hwang has shown the interest to hold the UNWTO Joint commission in Sri Lanka in 2024.

Meantime, the SLTPB and Sri Lanka Embassy of France also took steps to arrange Business Meetings, exclusive media interviews, Air Line meetings at the FITUR 2023. The Media gathering conducted during the fair created the great opportunity to highlight the updates on the destination and create awareness on the destination.

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Airtel enhances its most popular unlimited offering with the launch of Rs. 888 Freedom Plus

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Building on its promise to continuously add value for its customers, Airtel Sri Lanka unveiled the latest in its range of prepaid Unlimited Freedom Packs, delivering more value, more freedom and unlimited access to 6 of the most popular social media platforms among Sri Lankan youth.

The newly introduced freedom unlimited pack, priced at just Rs. 888 – offers consumers complete unlimited access to an even larger selection of social media apps, including TikTok, Instagram, Facebook, YouTube, Messenger and WhatsApp.

The pack also comes with all the perks of Airtel’s popular Freedom packages, including 30GB data (1GB/day), unlimited calls to any network as well as 1,000 Airtel-Airtel SMSs and 50 local SMSs for a validity period of 30 days.

“The Airtel team has been continuously challenging itself to find new and innovative ways of unlocking more value for our customers. The launch of our Rs. 888 Freedom Plus pack, and the major expansion in social media that it enables is another powerful example of our value-driven, customer-centric approach in action.

“With the launch of Airtel Freedom Plus 888, we are now offering by far the best deal in the Sri Lankan prepaid market in terms of pricing and unlimited access to the most popular social media platforms.

We also continue to hold up our promise of a simple and streamlined experience by offering all of these values in a single yet most affordable pack that can easily cover consumer’s monthly mobile needs while continuing their usage habits, instead of managing the complexity of separate purchases for different apps. That is why no other product in the market can match the value of the Airtel Freedom packs,” Airtel Sri Lanka MD/CEO Ashish Chandra said.

Airtel’s rollout of groundbreaking value-focused products follows on the telco’s substantial investments into further enhancing its 4G experience. Through the installation of state-of-the-art infrastructure and continuous efforts in boosting mobile-broadband network, Airtel now offers coverage to more than 90% of Sri Lankan telco users island-wide.

Following the completion of its nationwide 4G rollout to provide island-wide coverage, initiating a series of industry-firsts such as data-rollover facilities and unlimited calls to any network, the telco has received a strong positive response from Sri Lankan mobile users. With unprecedented numbers now signing up for Airtel Freedom packs, the telco now has one of the fastest growing user-bases in Sri Lanka.

Drawing on its extensive global presence and expertise, Airtel has been steadily consolidating its presence in Sri Lanka over recent years, launching a flurry of market-disrupting products, engaging in socially-driven partnerships aimed at empowering Sri Lanka’s youth, and advocating for progressive industry policies to ensure a more vibrant future for the Sri Lankan telco sector.

To activate the Rs.888 package, customers have the option to either directly reload Rs.888, activate through the My Airtel App, recharge via recharge portal / https://recharge.airtel.lk / Airtel Sri Lanka Flagship Store.

About Airtel:

Airtel Sri Lanka commenced commercial operations of services in Sri Lanka in 2009 and was the fastest operator to reach 1 million customers. The Airtel Sri Lanka offering of technology innovation and service excellence has driven rapid adoption rates among the Sri Lankan youth. Today Airtel has established its state-of-the-art 5G-ready 4G network across all parts of Sri Lanka, and is continuously boosting its network capacity to deliver maximum value.

For more information, connect with Airtel on social media, check the MyAirtel App, or visit www.airtel.lk

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‘Upholding the spirit of privatization essential to unlocking the true potential of RPCs’

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By Planters’ Association of Ceylon Chairman,
Senaka Alawattegama

Despite the remarkable resilience of our people, industries and enterprises, Sri Lanka’s economic outlook in 2023 – along with approximately 1/3rd of all countries according to the IMF – appears bleak. Worse yet is the fact that this economic fall from grace was entirely predicted for many years, even prior to the onset of the COVID pandemic.

The fact that Sri Lanka’s policy makers chose to do nothing to avoid economic catastrophe despite being clearly, forcefully and repeatedly warned about this inevitable outcome has been a source of shock to many.

But to those in the plantation industry who have been grappling with systematic ineptitude from policymakers for decades, their consistency in making the wrong decisions is an all too familiar pattern that only helps to illustrate the root cause of these issues, namely the absence of credible and informed stakeholder consultation in policy making.

One of the best examples of this dynamic has been the disastrous decision to convert Sri Lanka into 100% organic agriculture overnight. Implemented with zero consultation or consideration of the interests of the industry and its stakeholders, almost every expert agrees that this decision was the proverbial straw that broke this nation’s back.

Nearly 500 million missed opportunities

From the time it was first announced, the plantation and agriculture sector, including tea smallholders and Regional Plantation Companies (RPC) alike were unanimous in their opposition and scientific criticism of this policy.

Yet instead of taking these accurate perspectives into account, logic was discarded in favour of agri-policy derived from election podiums, leading to a total ban on the importation of all synthetic agri-chemicals. Based on the performance of Sri Lankan tea alone, we now have a minimum dollar value to illustrate the size of that mistake.

Today the Sri Lankan tea industry has been set a target of US$ 1.5 billion in precious export revenue. A shortage in supply of quality Greenleaf means that Sri Lankan tea has also benefited from some of the highest dollar prices on tea exports since 2017. Coincidentally, Sri Lanka’s export earnings from tea at that time stood at approximately US$ 1.5 billion, meaning that our current target is simply to do as well as we did in 2017.

However, despite having regained the same favourable prices that we enjoyed in 2017, in 2022, our nation was only able to produce approximately 250 million kg of tea, where in 2017, we had produced 307 million kgs. The result is that we only generated just under US$ 1.1 billion in tea exports last year, as compared with US$ 1.5 billion in 2017. The shortfall was worth approximately US$ 466 million – funds that could have been utilized for the purchase of fuel, gas, and medicines and other essential items.

Given the rapidly deteriorating global economic climate that we all face in 2023, all Sri Lankans must now appreciate that as a nation, we have no margin of error left. In that spirit, on behalf of all RPCs, we wish to once again reiterate our industry’s core policy priorities over the coming year.

Wage reform towards productivity-linked earnings

The debate surrounding wages has been a longstanding one, and has once again come under the spotlight with the increase in the cost of living. Two years ago, our industry was compelled for the first time since 1992 to enter into litigation as a result of the ill-advised decision on the part of Trade Unions to abandon the terms of the Collective Bargaining Agreement by involving the Wages Board to pay a daily wage of Rs. 1000 per day.

Despite challenges faced within the industry, we must reiterate that we have been able to honour our commitment even at present, to pay the said amount amidst certain factions having falsely accused RPCs for not doing so.

While certain parties demand limiting the pay to Rs. 1,000, The Planters’ Association of Ceylon have time and again advocated for a model that will allow a worker to earn beyond this. We believe it is long past time to move away from the archaic colonial era daily wage model and into a system that will incentivize workers based on performance. A productivity linked wage model has seen a positive impact on many estates and has proven its effectiveness among tea-small holders who contribute to 70% of the tea production in the country.

Typically on estates where it has been tested, harvesters have, on average, increased their output from 18kg to 24kg and have earned over Rs. 65,000. While some trade unions and other groups continue to offer knee-jerk opposition to these reforms, workers with actual first-hand experience with the productivity linked wages are overwhelmingly in support of them.

This is because, on average, they have the potential to increase their earnings by 80% -100% relative to the current fixed daily wage of Rs. 1,000 that was forced on the sector through the Wages Board. Moreover, productivity-linked wages offer flexibility to harvesters in the time spent on the fields and are incentivized based solely on performance and output.

We believe this could also provide a solution to the shortage of labour experienced in the industry at present. For the RPC sector, our workforce has reduced from 300,000 down to approximately 100,000 to date, and shows no signs of stopping. Especially if Sri Lanka is to achieve its national production targets our first priority is to implement every viable measure to reverse the migration of labour out of the plantation sector.

Land use policies and diversification – our way forward

While tea and rubber have put Sri Lanka on the map, we believe it is an opportune time for Sri Lanka’s plantation sector to diversify its product offerings to the world. It is absolutely critical for Sri Lanka to harness its resources and assets in the most optimum level possible, however to do this RPCs need to be given a free hand to determine its own land use policies should it be beneficial for the economy.

In instances where the land has become unsuitable for crops like tea or rubber, plantations should be looking to instead produce other valuable crops like coffee and spices which most of our RPCs have been successful in doing so, however, there is more that can be done. Companies are already experimenting with crops like avocado and berries which have yielded successful results, and valuable new export opportunities.

In that regard, another crop with strong export earning potential is Oil Palm. We cannot overlook the economic benefits this golden crop could offer Sri Lanka, especially at a time when the country requires dollars to purchase essentials like fuel, medicines and gas. At present Sri Lanka produces approximately 25,000 MT, where Sri Lanka imports 200,000 MT of palm oil for domestic usage. The value of those imports is now over Rs. 24Bn.

Like the 100% organic strategy before it, the campaign against oil palm cultivation has long been proven to be completely lacking scientific facts, and PA has since the beginning provided evidence as to how this crop can be grown in an ethical and sustainable manner without causing harm to the environment.

Diversification is not merely a revenue growth strategy – it is a de-risking strategy, which ensures that even when one industry experiences a downturn, others may be able to continue, ensuring the financial viability of the whole. However to do this successfully, RPCs require support from the government by enabling and providing the necessary assistance to grow crops that are financially viable and freedom to utilize the land in the best possible way.

Crisis as an opportunity for greater collaboration

Since the privatization of the plantation sector in 1992, RPCs have come a long way, with the past two years being incredibly challenging for all. This has pushed the sector become innovative and use technology to unlock new potentials in the industry – an example to this is the online auction system which was implemented during a short period of time.

RPCs have also been experimenting with precision agriculture, in order to optimize plant nutrition and effective utilization of agri-chemicals following the ban with some even going into producing their own fertilizer to cut down on cost and to be able to meet their requirement.

These promising advancements are a testament to the plantation sector’s ability to adapt and find innovative methods amidst crisis. However if we are to unlock the full potential of this billion US dollar industry it is imperative that we learn from the mistakes of the past, and work together to prevent any further repetitions of the kinds of policies that got us to this point.

Privatisation in its true form is therefore the only way forward, to allow business to do business, while the government should stay focused on policy that is led by individuals who understand and are focused on commercial realities. It is safe to say that the spirit of privatization is the spirit of democracy where collaboration is essential to securing the best outcome for all.

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