Uncertainties, constraints and impediments to economic recovery this yearView(s):
The uncertainties, constraints, impediments and obstacles to the country’s economic recovery are numerous. Whether the country could emerge with some degree of economic revival remains uncertain, perhaps even unlikely.
Uncertainties and impediments
The uncertainty of obtaining the much awaited International Monetary Fund’s (IMF) Extended Finance Facility (EFF), the adverse impact of the global recession on exports and tourism, financial constraints of the government, political confusion about the local government elections, strikes and social unrest, administrative ineffectiveness and inefficiencies are among the impediments to an economic recovery.
These factors may contract the economy even more than the currently projected contraction of two percent. The country’s economic constraints and socio-political conditions too are by no means conducive to an economic recovery. In fact, they are serious impediments.
Much of the recent discussion of the country’s economy has been around the possibility of obtaining the IMF’s EFF of US$ 2.9 billion to salvage the country’s precarious external finances that are a severe impediment to an economic recovery and availability of essential imports. Unfortunately, this remains elusive, in spite of official optimism. It is like waiting for Godot.
China and India
The visit of a high level Chinese delegation and the Indian Foreign Minister recently has raised fresh hopes and expectations of being able to meet the IMF’s condition of demonstrating foreign debt sustainability. We can only hope that somehow the issue of debt sustainability will be resolved soon and that first of the four tranches of the EFF would be forthcoming.
Alternately, we could wish that the international community would find a different resolution to our external finances. The stance of these two countries would be vital in obtaining such financial assistance.
Meanwhile, the growing global economic recession is hurting our ailing economy, like the proverbial bull attacking the man fallen from the coconut tree. The global recession will undoubtedly aggravate the precarious external finance; exports would decline and tourism will decrease.
Our manufactured exports have already declined in the last quarter of 2022. Orders for garments have fallen for the first half of this year. Orders for other manufactured exports too are also likely to fall this year. The global recession will undoubtedly aggravate the precarious external finances of the country.
Our manufactured exports have already declined in the last quarter of 2022. Orders for garments fell in the last quarter of 2022 and orders for manufactured exports have also dropped drastically.
The global recession will increase the trade deficit further. Although there may be a decrease in raw material imports, the much higher decrease in manufactured exports would widen the trade deficit.
Balance of payments
There are expectations of an improvement in the balance of payments owing to higher tourist earnings and increased remittances. Remittances are likely to increase owing to the narrowing of the official and unofficial exchange rates. However, earnings from tourism are uncertain owing to the global recession curtailing travel, the spread of another strain of COVID and economic crisis in China. As many as 900 million Chinese are with COVID. Our chaotic political, social and financial conditions too are a threat to the country being one to visit.
The prevailing climate of political unrest and social discontent is hardly conducive to attracting foreign investment. In fact, there are reports of Sri Lankan firms, big and small, relocating in other countries in the region.
Furthermore, the nation’s development capacity is being eroded by the exodus of skilled personnel. Doctors, engineers, nurses, scientists, skilled Information communication technicians (ICT), those trained in hospitality and educated youth are fleeing the country.
The impact of this wave of skilled workers exciting the country would be to impair the country’s development capacity and education, health and the hospitality trade, among others.
The country’s proud record of social development has already received a setback. This retrogression will no doubt gain in momentum as the capacity of the health, education and social services weaken.
The Institute of Policy Studies (IPS) has warned of the country not achieving the set Social Development Goals (SDGs).
At the time of writing the prospect of obtaining the IMF bailout is uncertain. The government is however quite optimistic of resolving the obstacles and receiving it in the next few months.
Hopefully the high level Chinese delegation’s visit to Colombo and the Indian Foreign Minister’s visit would resolve some of the issues in respect of their debt to enable the IMF facility.
An economic recovery is bleak. International, as well as the country’s socio-political situation, makes an economic recovery difficult.
If, however, the international community is able to find a means of either granting the IMF credit facility or find some other means to resolve the country’s precarious external finances, there is some prospect of an economic recovery.
The country’s economic recovery would be dependent on global conditions, and importantly, the capacity to pursue prudent and correct economic policies and a measure of political and social stability. The current situation will not only make an economic recovery unlikely, but also adversely impact the country’s economic growth and social development.
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