Foreign Minister Ravi Karunanayake speaking at the FT forum – ‘Grow with Giants’ – said Sri Lanka’s exports have dwindled due a lack of competitiveness over the years, from US $ 17 billion to US $ 11 billion and that there is an urgent need for export diversification. Already for the first five months we have seen a negative growth of 2.5 percent.
Now to improve our competitiveness, we need to focus on educating our young people, keep our cost down and increase the availability of technology. At the same time, Sri Lanka’s debt has increased to Rs.9.4 trillion in the last two years, with domestic rates moving up from 6 percent to
On a domestic portfolio of Rs.4277.8 billion, there would be an additional cost of around Rs.202.1 billion and for the new borrowings the total cost would be Rs.113.25 billion. An amount of more than Rs.315 billion would be required to pay back interest. Repayment of the foreign debt as at January 1, 2015 was Rs.3132 billion; this has now moved up to Rs.4070 billion.
Furthermore, US dollar to Sri Lankan rupee in January 2015 was 131.00 and by April-May 2017, US dollar to Sri Lankan rupee was around 152.50. This Fx depreciation of around 16 percent is now having huge implications in all sectors.
Furthermore, downward performances of equity markets with foreigners exiting both equity and debt securities have negatively impacted the Sri Lankan rupee. We cannot allow the interest rates to move up and the Sri Lankan rupee to depreciate without understanding what we want to achieve by 2020.
The Central Bank should ideally come under the purview of the Finance Ministry like in the past 50 years to ensure both the treasury and Central Bank sing from the same hymn sheet; secondly to get out of this FX crisis, it is best that we start focusing on increasing our export and tourism incomes using the 60+ embassies oversees. The government has aggressively looked to sign up free trade agreements (FTAs) with China, India and Singapore to boost our export growth and foreign direct investments.
In fact, Prime Minister Ranil Wickremesinghe speaking at the World Export Development Forum (WEDF) sessions at the BMICH some time back said that the Economic Cooperation and Technical Agreement (ETCA) with India that would be signed soon would enable Sri Lanka to have closer engagement with India, especially the five southern states, which together with India are the fastest growing segment of the Indian subcontinent and at the moment has a combined gross domestic product (GDP) of US $ 500 billion.
He also said Sri Lanka is negotiating another FTA with Singapore and they are very receptive because they believe that the Bay of Bengal countries will be fast-growing countries with fast-growing incomes in the next 20-30 years. Under the Chinese One Belt Initiative, with China Sri Lanka is also negotiating an FTA and a comprehensive economic partnership dialogue with Japan.
The prime minister’s move to fast track the FTAs with Singapore and China and the ETCA with India is with a view to generate new investments and jobs. He knows we cannot protect our economy by stagnating behind tariff walls. The best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from the free flow of goods. Increased economic activity resulting from increased trade will provide more job opportunities for our young workers.
Our industry, our agriculture and our services will benefit from increased export opportunities as other nations agree to lower their tariffs. Increased exports and imports will benefit our ports, steamship lines and airlines as they handle an increased amount of trade. Lowering our tariffs will provide an increased flow of goods for our consumers.
Our industries will be stimulated by increased export opportunities and because of the competition from other nations we will be forced to develop an efficient, economic and productive system. This can usher in a dynamic new era of export growth unlike in the past, where exports dwindled and Sri Lanka had to rely more on remittances and foreign loans.
Exports are probably part of the answer of where we will find job growth. However, the issue of exporting our way to job growth is harder than it appears despite the GSP Plus concessions. When a country exports goods, it sells them to a foreign market, that is, to consumers, businesses or governments in another country. Those exports create opportunities and bring foreign money into the country, which increases the exporting nation’s GDP.
So, at a time when good jobs are in short supply, building exports is an imperative. But as we boost our exports we will have to start producing more goods that are more labour intensive; that way, as exports grow, it will become a more productive engine. Therefore, job growth isn’t just about where jobs are today; this is where jobs for our young Sri Lankans will be tomorrow. They need to be job ready.
Today the world’s powerful customers and fastest growing markets are beyond our borders. So if we want to find new growth opportunities, if we want to find new markets and new business opportunities, we’ve got to compete for those new customers—because other nations are competing for those customers day and night.
Free trade arrangements
More compelling for free trade is the dramatic upturn in GDP growth rates in India and China after they turned strongly towards dismantling trade barriers in the early 1990s. In both countries, the decision to reverse protectionist policies was not the only reform undertaken but it was an important component. In developed countries, trade liberalization, which started earlier in the post-war period, was accompanied by other forms of economic opportunities, for example, a return to currency convertibility, resulting in rapid GDP growth.
Moreover, the argument that historical experience supports the case for protectionism is now flawed. The economic historian Douglas Irwin has challenged the argument that 19th century protectionist policy aided the growth of infant industries in the United States. Nor should the promoters of free trade worry that trade openness results is chaos for some developing countries.
Trade is only a facilitating device. If a country’s infrastructure is bad or has domestic policies that prevent investors from responding to market opportunities such as corrupt practices and licensing restrictions, very little progress can be achieved. Critics of free trade also argue that trade-driven growth benefits only the rich and not the poor.
In India, for example, after the economic and education reforms nearly 200 million people have come out of poverty. In China, which grew faster, it is estimated that more than 300 million people have moved out of the poverty line since the reforms were initiated. Every major trading nation today is actively negotiating bilateral and regional FTAs.
However for FTAs to work for Sri Lanka, we need someone with a strong backbone in the government to give leadership to this effort and supported by a predictable government.
(Dinesh Weerakkody is a