According to the Central Bank’s Annual Report, direct impact of the global financial crisis on the country’s financial sector was minimal. However with the intensification of the crisis that has spilled into the real estate sector of the economy the effect of the turmoil is being felt strongly by the country.
It further adds that given the lagged and lingering effects of the slowdown in advanced economies it is widely believed that the severity of the crisis is yet to come.
It was nearly over three decades ago when US based Russian Economist Simon Kuznets was awarded the Nobel Prize in Economics for his empirically founded interpretation of Economic Growth that has now become the global measurement for economic progress.
Past decades since then has seen the shift of importance moving from agriculture to industry and to services. Economic Growth is the final outcome of a series of activities that play an influencing role. Even without these theories and seminars the average man on the street has come to understand the global crisis that’s at their door step. Inability to sell rubber and cinnamon to the local dealer, restriction of the bought leaf intake by the tea factory owner, returning relatives from the once lucrative Arabian Gulf big cities and the visible closure of some of the garment factories, partially completed buildings, high cost borrowing etc have become real life “Indicators “ of the global crisis in the economy. International Monetary Fund (IMF) assistance during a balance of payment crisis is inevitable.
As experienced by Sri Lanka, pressure on the currency is an early signal (that’s noted by the rating agencies) as clearly illustrated by the Zimbabwe currency. The IMF has a well oiled mechanism and a relatively standard prescription to prevent the country’s economic conditions from deteriorating beyond a point. Primarily their task is to restore confidence among the potential lenders to ensure capital flows are not interrupted (Sri Lanka is at the moment feeling the effect of such withdrawals with foreign reserves taking a heavy beating).
The prescription is not harsh but may not be painless, it will focus on fiscal discipline and living within means perhaps not different to what a banker would dictate to a business that’s facing a financial crisis, ie: Capital expenditure controls, terminate loss making ventures, trim the operations, curtail unnecessary spending, in simple words live simply within your means. According to a World Bank economist, similar to loss making businesses governments in financial crisis will find it tough to sustain employment.
One positive factor evident during these present New Year times are the somewhat prosperous conditions in the rural areas where traditional Pola’s packed with people are flourishing with goods of all varieties and the local produce. This is possibly a strange factor that helps to keep the economy going amidst setbacks. Despite what has been said about industrialization agriculture must be encouraged even with subsidies as the potential for food production is immense.