Country’s balance of trade looms larger despite CB reasoning - Editorial

26 June 2013 06:30 pm - 0     - {{hitsCtrl.values.hits}}

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It is evident that Sri Lanka needs to focus on significant improvements of her revenue sources. The country’s expenditure has been going up ever since the war was brought to an end disproportionate to the improvements in the income levels. The April external sector performance of the country showed export revenue dipping nearly 7 percent to US $ 697 million. On the contrary the import expenditure rose 5.7 percent to US $ 1.5 billion.





"Meanwhile, if the government continues wasteful expenditure on infrastructure and other kinds of projects that will generate no yield, the dire economic situation the country is currently heading towards is likely to get worse"


The Central Bank attributed the dip in export revenue to “weak global demand” and the rise of import expenditure was defined as an indication of “strengthening of domestic economic activity”.

However, the biggest jump in the import expenditure was with regard to the consumer goods category, which rose over 12 percent of the previous year. Though the Central Bank considers this as an indication of the heightening of economic activity, for some, it will certainly ring alarm bells, provided past experiences of import expenditure going up significantly due to importation of consumer goods, when the policy interest rates were down.

The growth based monetary policy of the government resulted in cutting policy interest rates by 50 basis points in April. The Central Bank is of the opinion that while spurring growth by slashing interest rates and making cheap credit available, it can also contain the Public Enemy No.1;  inflation, at single digit levels.

However, this will be challenging if the revenue sources of the government start to deplete. The government hopes the earnings from tourism and remittances will offset the dearth in export income. But Middle Eastern nations at the moment are contemplating on cutting the number of expatriates working in their countries, which include housemaids. At the same time Sri Lankan hotel operators have been complaining about tourists who don’t spend.

It is true that the slow recovery of the developed world has negatively affected Sri Lankan exports. Hence, it is time that authorities focus their attention to fast growing countries in the Asian region for Sri Lanka’s exports.

Another two key areas where Sri Lanka lags are attracting Foreign Direct Investment (FDI) and collecting enough tax revenue by widening the country’s tax base.
Despite the number of foreign investments that the government is harping on, FDIs to the country stood at 1.5 percent of the country’s GDP in 2011. The FDI targets that were set by the Board of Investments have never been met.

Meanwhile, if the government continues wasteful expenditure on infrastructure and other kinds of projects that will generate no yield, the dire economic situation the country is currently heading towards is likely to get worse.Therefore, we urge the government and the policy makers to choose a sustainable path for economic development to make the ‘Miracle of Asia’ vision a reality rather than shortcuts that will destroy the country’s economic potential in the long run.

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