Making strides towards economic recovery

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After a three-month period of foreign exchange scarcity leading to shortages of fuel, gas, and other essential items, now there are positive signs of recovery, much to the satisfaction of the people who were burdened with the need to stay in long queues to obtain gas or fuel.

In the last few weeks, Prime Minister Dinesh Gunawardena met almost all foreign envoys based in Colombo and other visiting dignitaries of United Nations and other agencies and the envoys came up with offers of assistance, while praising the success of early recovery measures to revive the economy that suffered an unprecedented debacle in recent months.

UN Development Coordination Office (UNDCO) Regional Director for Asia and the Pacific David McLachlan-Karr said last week that the UN is highly impressed with Sri Lanka’s resilience and the commitment to work in close cooperation with the UN for the development of the country.

The foreign envoys and visitors expressed satisfaction of early steps to ensure fiscal management and Central Bank Governor, Dr. Nandalal Weerasinghe reaffirmed that the foreign exchange situation has improved and the economy has started to see favourable results due to decisions taken to mitigate the country’s economic crisis. “We have been able to pay for essentials such as petrol, diesel, and medicine,” he said. The foreign exchange shortage that sparked the economic crisis had eased thanks to better currency inflows and lower imports. The success was due to the steps taken to curtail imports expenditure by stopping import of many unessential luxury items. Another good tide came from the export front, where the garment and few other export earnings have recorded a marked increase.

The galloping inflation has also been controlled. Initially it was feared that inflation would rise to more than 70 per cent.”But now we see it won’t go high even with the current hike in electricity rates. We are hopeful it will come down,”the Central Bank Governor said. He, however, added that the current inflation which hovers around 60 per cent needs improving.

The Central Bank announced that the compulsory requirement to convert service export earnings has been removed, lauded as a move in the right direction to do away with the chokehold regulation that deterred foreign currency earned funds from being transferred into the country. Ironically, this was first introduced in a last-ditch attempt to increase foreign exchange reserves, at the expense of export earners.

During the first six months of 2022, USD 1,533 million has been received as service export earnings, from which 26 per cent has been converted to rupees, according to a bank report. CBSL said the service exporters may use their export proceeds for repatriation to Sri Lanka for permitted purposes. The mandatory requirement to receive proceeds of service exports to the country within 180 days from the date of provision of services remains unchanged.

Prime Minister Gunawardena told foreign delegates that with these marginal improvements, Sri Lanka will venture into mid-term and long-term solutions. The International Monetary Fund (IMF) delegation will visit Sri Lanka later this month to finalise the staff-level agreement needed for a bailout package sought by Sri Lanka.Sri Lanka has achieved the policy level targets set out by the IMF and expects to reach a staff-level agreement.

As Prime Minister Gunawardena said in Parliament, Sri Lanka with its strength gained during its long history as a
self-sufficient nation and centre for foreign trade has shown resilience to overcome challenges. Sri Lanka was recognised as the Granary of the East in the past. This is not just a nominal meaning, but the great challenge of today’s era is to convey the message to the world deeply about the situation our country is dealing with in the face of the economic and financial crisis and the food crisis, the Prime Minister said.

It has been specifically pointed out that economic modernisation should be done and to avoid such a crisis in the country in the future, our economy should be turned into an export economy,he said and added that the Government is already preparing the necessary short and long term plans to achieve that.

Another favourable news for Sri Lanka is the newly-introduced Developing Countries Trading Scheme (DCTS) of the United Kingdom.The new scheme is set to be effective from next year and do away with the Generalised Scheme of Preferences (GSP).This will make Sri Lanka and other developing countries eligible for ‘Enhanced Framework/Preferences,’ which offer lower tariffs and simpler rules of origin requirements for exporting to the UK.One satisfactory aspect of DCTS is it’s criteria dependent, and aims to address free and fair trade, without politicising the livelihood of merchants and citizens of a State.

With this beginning of a mild recovery, the time is ripe for implementation of a National Common Programme of Action for economic revival with the support of everybody.

By Sugeeswara Senadhira