How to portray the Sri Lankan economy ? from shattered to just uncanny

The impact of Covid-19 and the man-made economic crisis crashed the Sri Lankan economy three years ago with no plan for the prompt recovery that would follow until President Ranil Wickremesinghe took up the reins ten months ago.

At that time, disease outbreaks and lockdowns disrupted the country’s supply chains, leading to the highest inflation in several decades and eventually to aggressive rate hikes from the central bank.

Sri Lanka, as you know, has been facing a severe crisis because of past policy missteps and back-to-back economic shocks.

The impact of the crisis had been very severe on the Sri Lankan people, particularly the poor and vulnerable groups, and about the economic costs of the delay in the country’s access to external financing.
Economists have forecast for months that a recession is just around the corner but the Sri Lankan economy today is growing, the job market is becoming strong, and the consumer is still spending thanks to President Wickremesinghe’s farsighted vision as well as medium and short term fiscal, monetary and administrative policies being implemented under his personnel supervision.

Now that inflation appears to be going from a boil to a cool condition, it means the money circulation of the public is going to cover higher inflation.

The monetary operations of the central bank influences interest rates in the economy, which in-turn impact the nature and performance of borrowers and lenders, economic activity and ultimately the rate of inflation.

Therefore, it has to be accepted and understood that it is the primary role of the central bank to use monetary policy to control inflation and keep it within a desired path.

Commendably, Sri Lanka has already started implementing many of the challenging policy actions in the IMF suggested five areas of ambitious revenue structural reforms to address corruption vulnerabilities and enhance growth-based fiscal consolidation, public debt sustainability, including debt restructuring.

It is now essential to continue the reform momentum under strong ownership by the authorities, and the Sri Lankan people, more broadly.
The economic impact of the reforms on the poor and vulnerable needs to be mitigated with appropriate measures. In this regard, we welcome the authorities’ firm commitment to strengthen social safety nets, including through a minimum spending floor, well-targeted spending through the new social registry and establishment of objective eligibility criteria.

The IMF supported program is an opportunity for all Sri Lankans to come together to work through this crisis to restore economic stability and put the country on a sustainable growth path. The key is the implementation.

In a latest move towards this end, the finance ministry is considering the relaxation of import restrictions to about 1000 items from 3000 items placed under restriction during Covid-19 period.

But the controls failed to either stop imports, or maintain foreign reserves as money was printed. Now the country is running a balance of payments surplus despite the import controls being brought down to less than 1000 from 3000 items earlier.

Sri Lanka’s economic bureaucrats and their supporters in the private sector and think tanks, misled legislators into enacting the import control law in 1969, taking away economic freedoms of the populace, after the central bank printed money to refinance rural credit.
Under this set up, the finance ministry has devised a comprehensive plan with necessary guidelines to relax import restrictions in a manner that would not be harmful to the government policy framework.

Electronic equipment, including computers, mobile phones, television sets, home appliances, stationery items, food items, clothing material and garments, leather products, cosmetics, medical equipment, spare parts, raw material required for industries, agriculture equipment, bathroom fittings and ceramic tiles are among the items on which import restrictions would be lifted.

Hence a certain component of imports such as raw material would be used to re-export as finished products, the imports shouldn’t be restricted and if we are to develop our economy based on information technology, then all imports required to achieve the objective should be allowed, state minister of finance Shehan Semasinghe recently pointed out.
A report containing this comprehensive plan will be submitted to the IMF in June regarding the relaxation of import restrictions that are currently in effect.

Minister Semasinghe noted that Sri Lanka will have to present the country’s plans based on the staff-level agreement and the approval of the IMF board of directors, adding that any changes can be discussed based on Sri Lanka’s financial progress.

The European Union (EU) has also urged Sri Lanka to lift the import restrictions which prevents many European products from entering its market.

The EU too welcomed Sri Lanka’s intention to present a plan for the lifting of the import restrictions, by June 2023.

Finance ministry officials indicated that the central bank, the ministry of industries along with the treasury would work out the quantity of items on which restrictions would be lifted.
The objective would be to ensure that there would be no black market for the items, one official said.

“However, there will be a strict monitoring mechanism to ensure that the facility is not exploited and the imports do not exceed the required quantities. If the need arises the restrictions could be re-imposed,” he added.

Although the previous administration had considered the appeals of other commodity importers by lifting the import ban on several items necessary for local industry survival, official authorities kept on postponing the pleas of importers, several leading importers and traders complained.

The present administration has removed the import control on 159 items including industrial machinery, a series of building materials, machine parts, tools, ball bearings, and agricultural implements in a gazette notification issued under Sri Lanka’s import control law effective September 09, 2022.

But the suspension on tile and sanitary ware imports still persists and the buyers of those items are being kept in the dark due to non-availability of such items and the high prices of locally manufactured products, several traders alleged.

Representatives of tile and sanitary ware business spearheaded by their association have made submissions and appeals repeatedly but official authorities kept their files under the carpet according the oligopoly to three leading manufacturers.

According to official data, around 45 percent of the tiles were made in Sri Lanka and the balance 55 percent was imported to the country at a high tax of around 100 percent which was imposed to protect the local industry.

The restricting of tile and sanitary ware imports has exerted a direct impact on the construction industry creating cascade effects on the now resurging tourism industry including hotel building and renovations and allied businesses.

The importers have urged the government to create a level playing field for them as three local manufacturers have been allowed to meet the local demand of ceramic products as ceramic imports became zero causing a massive loss of tax revenue in the region of Rs.12 billion annually.

– Carcharodon