Sri Lanka has experienced perhaps the most demanding and exhausting two years since its independence. The national revenue from both external and domestic sources has suffered by an unprecedented magnitude, placing the country in an extremely awkward position.
Not only has the impact of the gruesome pandemic created numerous hardships for the citizenry, but it has also given a sucker punch to the foreign reserves.
Considering the current financial crisis, particularly the crunch in foreign currency, 2022 will be an extremely challenging year. The trajectory in Sri Lanka will also be heavily influenced by global headwinds such as elevated commodity prices, increasing global logistics, an enormous rise in shipping costs, supply bottlenecks, and high raw material prices.
The total debt pile due this year is a staggering US $6.2 billion.
This is one of the biggest challenges due to the reduction or loss of foreign earnings. One consolation is that the Central Bank keeps reiterating that they have viable plans to meet all due loan instalments this year.
The Sri Lankan economy is currently faced with nerve-wracking trends of financial pressure fuelled by the rampant rise in the cost of living, exorbitantly high food prices, an increasing shortage of foreign currency for essential imports and many other negative factors.
Falling
The Government continues to apply many tactics towards economic revival to buffer the falling fiscal situation of the country. Also, increasing inflationary pressures adversely affect the Government’s efforts.
Although the country is currently recognised as one of the best in the Covid-19 vaccination administration, the threat has not been completely annihilated as yet. The World Health Organization (WHO) has declared that the newest variant, “Omicron,” spreads much faster than any of the previous variants and called on all member states to take precautionary measures as the new variant could fuel future surges with severe consequences.
However, despite continuous warnings from the health authorities, displaying typical Sri Lankan behaviour, people have almost completely forgotten the ghastly experience they underwent for nearly two years. Except for wearing the face mask, the general public does not show any concern about other pandemic prevention methods.
The danger is that the country will not be able to withstand another restricted period with lockdowns again from an economic perspective. Covid-19 is perhaps the most relevant reason for the ongoing economic crisis.
Regardless of the vaccine, unless otherwise, the entire citizenry does not fall in line with health guidelines, the consequences will be irrevocable. Hence, preventing a wave of Omicron-related Covid-19 is one of the highest priorities for the economic revival.
The Central Bank forecasts that GDP growth will be 5.5 percent in 2022. However, given the present situation, the prediction seems extremely ambitious.
Criteria
Nevertheless, the Central Bank Governor himself confidently states that they have arrived at the figure considering all relevant criteria based on numerous inputs from the best available veteran economists in the country.
Even a layman understands that the biggest burden on the country today is the staggering debt pile and its repayment. It is common knowledge that borrowing foreign currency from external sources to pay the annual loan instalments is not a solution in the long term.
However, the biggest obstacle and the biggest challenge the Government faces now is the speculation of misinformation by Opposition politicians and so-called solutions by “social media” economists.
The critics belonging to the “Yahapalana” era keep instigating the general public by creating various unsubstantiated pieces of information. Almost all of them have completely ignored that during their own ruling period, the GDP dropped from 4.7 percent in 2015 to 2.3 percent in 2019.
As Prime Minister Mahinda Rajapaksa rightly said, the past has value only to the Opposition, and the country must always embrace the future, not the past. In essence, it is time to collectively concentrate on how to revive the ailing economy. Typically, politicians in Sri Lanka make plans during the first two years in power and the balance of three years’ work on the next election, most often without concentrating on what was planned.
The foremost solution to most of the current foreign currency-related issues lies in exports, foreign investments, tourism, and expatriate remittances.
Performance
Despite all the global crises, the export sector has shown an extremely creditable performance during the past two years.
From January to November 2021, merchandise export earnings were US $11.1 billion, marking an impressive increase of 22.3 percent compared to the corresponding period in 2020. All major product sectors, such as apparel, tea, rubber, coconut, spices, seafood, ornamental fish, and other products and services, have shown admirable growth. The message given to the country by this result is that the global potential for exports of any Sri Lankan-based product is immense.
Information and communication technology (ICT) services, considered the fourth largest export earner, are an industry that must be given the highest priority by the Government. According to the Export Development Board (EDB) data, the ICT industry contributed US $1.0 billion (8.1 percent of total export earnings) to the economy in 2020.
A report by a reputed global company, JLL, in partnership with the Information and Communication Technology Agency (ICTA) of Sri Lanka, highlighted the immense capability and growth potential for Sri Lanka in outsourcing and offshoring markets.
Several industry experts this writer has had discussions with have revealed that with the high literacy rate of the Sri Lankan youth and the vast talent pool, the ICT/ITeS sector can be developed to even reach US $5 billion in revenue in a few years with the right approach by the authorities.
In terms of attracting foreign investment, Sri Lanka is currently in an unenviable situation. The downgrading of Fitch and Moody’s credit ratings has placed the country in an exceedingly awkward position with regard to investors. Even with the vast number of opportunities available in the country, particularly in the export sector, investors are reluctant to invest in Sri Lanka for this reason, which must be corrected as early as possible. Statements or criticisms by the Central Bank will not help improve the ranking.
Lenders
However, the Central Bank is confident that the instalments due to the lenders this year will be paid on time. Responding to the critics, the Governor of the Central Bank reassured the public that they have viable plans for debt repayment. He said that despite the huge trade deficit, the country’s general economic situation will improve this year.
Currently, similar to export performance, the tourism industry is also displaying signs of rapid recovery after a lapse of nearly two years.
Tourism, the third-highest foreign exchange contributor to the economy with nearly US $4 billion before the pandemic outbreak, is a specific and enormously important sector that must be given the utmost priority. In particular, unlike apparel, well over 80 percent of the income received from the industry is retained inside the country.
The Sri Lanka Tourism Development Authority recently announced that the World Tourism Council (WTC) has named Sri Lanka as the safest country in which to travel in the Asian region. This certainly is a silver lining and a huge opportunity for Sri Lankan tourism amidst all the turmoil currently experienced.
The authorities are expecting to reach 50 percent of arrivals and revenue in the best year yet, 2018. Hence, the goal is to earn $2 billion in 2022, which will be a huge consolation to the diminishing foreign earnings.
The country is currently going through an enormously difficult period. The Government is between the devil and the deep blue sea, where the space available to move freely is extremely narrow. The only solution is to strike a critical balance between expenditure and income and manage the gap efficiently.
The Government has imposed many regulatory measures to control state sector expenditure and to control the outflow of foreign currency. However, in order to achieve the goals in 2022, a consensus among the Government, opposition, and the general public is a dire necessity.