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The conditions in the external financial restructuring would be vitally important for the stabilisation of the country’s external finances. The restructuring of external finances by September 30 will hopefully have terms and conditions for foreign debt repayment favourable to the country.

The extent to which foreign debt is reduced and the relief in interest rates and repayment periods will determine the stability of the country’s external finances.

Restructuring

Hopefully, there would be a large reduction in the capital repayment (haircuts) and the rates of interest.

At the time of writing, there are no indications as to how the restructuring will be completed. The domestic debt restructuring (DDR) did create much criticism and protest. However, the significant fact is that it avoided the collapse of the financial system.

Those who suffered a loss, especially the EPF (Employees’ Provident Fund) and the ETF (Employees’ Trust Fund) should recognise that if the financial system had collapsed, the losses that they and the entire population suffered would be horrendous.

Foreign debt

As far as the foreign debt is concerned, we hope that the favourable announcements made by Paris Club members would prevail. It was recognised that the global debt problem was of a magnitude that creditors should bare a substantial reduction in their debts. We have to await whether this rhetoric is transformed into reality.

Interest rates

Apart from the reduction in capital repayments, we hope creditors would be agreeable to lowering the interest payments to a minimum and the periods of repayment extended to a long one.

Long run

While the conditions of the foreign debt restructuring are a vital factor in reducing foreign debt liability, the long-run stability in external finances can be achieved by an improvement in the balance of trade.

Balance of trade

Sri Lanka’s economic and trade structures have been such that the country has had a persistent balance of trade deficit. There have been only about four years since independence when the country had a trade surplus.

The last trade surplus in 1977 was achieved with very stringent import controls that led to the stifling of production and immense hardships in the availability of goods.

We must attempt to at least reduce the trade deficit significantly. This can be achieved mainly by an increase in exports. Regrettably, in recent years despite the curtailment of imports, the trade deficit was not reduced by much. The reason for this is that both manufactured exports and agricultural exports fell.

Manufactured exports

There has been a steep fall in manufactured exports since the third quarter of last year and this continues. The main reason for this decline has been the global recession.

The recessionary conditions in Western countries have resulted in a decline in the exports of apparel, rubber goods and other manufactured exports.

While the revival of the country’s manufactured exports can be expected only with a global recovery, it is vitally important to seek diversification of exports that would increase export earnings. There are some attempts to do this at present.  While these efforts are admirable, their overall trust is inadequate.

Current crisis

Apart from the current crisis that may recur in the future as well, we hope this situation will bring about a restructuring of exports. The export structure of the country must be diversified to enable an increase in exports in the long run.

Agricultural exports

The crisis in agricultural exports is due to an inability to increase production which would enable a higher export surplus. This is particularly so in the case of the country’s main agricultural export – tea.

Tea

Everyone is aware that tea production fell in recent years owing to the unavailability of fertiliser and weedicides. Although this has been corrected and these vital inputs are readily available, tea production is taking time to recover. We can expect an increase in tea production and consequently exports only next year.

While an immediate increase in tea production to the levels of a few years back could be expected, a long-run increase in tea production could be expected only by the resolution of structural problems in the tea plantations. Tea production can only be increased by replanting the senile tea bushes and refilling vacancies on tea estates with vegetatively propagated (VP) teas.

Rubber

Similarly, there is a need to increase rubber production. The country’s natural rubber exports have disappeared owing to rubber being entirely used for domestic manufacturing. In fact, the country is now importing natural rubber.

Tyres

An enormous achievement in export has been the production and export of heavy-duty tyres. A little advertised fact is that Sri Lanka is the largest producer of heavy-duty tyres in the world. This underscores the need for a huge thrust to increase rubber production.

Other crops

The story with respect to many other exportable crops such as spices, fruits and vegetables is that there has been an inadequate increase in their production.

The country has the world’s best quality pepper, cashew, and cinnamon but the export volumes of these are small to make a dent in our export volumes.

Conclusion

The vital message of the proceeding discussion is that the country’s external finances could be healthy only if its production of exportable commodities is enhanced by fundamental changes. A huge thrust in agricultural production will not only enhance exports, it could reduce imports as well.

The current improvement in external finances is due to increase remittances and tourist earnings. The long-run growth in exports would have to be placed on an increase in the production of exportable products as well. The ‘export or perish’ slogan is particularly relevant to Sri Lanka.