Isolation is not the best path 

At a time when countries are receding into themselves, it is tempting to embrace self-sufficiency as an economic principle. Already Cabinet members have announced that strengthening agriculture, including home gardens, beefing up manufacture of essential goods and depending less on imports should be promoted by the Government. This is an understandable stance given the current global environment created by COVID-19 but such a move requires deeper thinking.

For starters, no country can exist on its own. The uneven spread of resources, technology and human capital means that different countries have to leverage on their respective strengths to develop. Sri Lanka does not currently have an economy that is deeply linked to global value chains and has followed inward looking economic policies for decades and as a result has struggled to attract investment and increase exports for the past decade, if not longer.

One consequence of this is that Sri Lanka borrowed heavily for infrastructure development and now accumulated debt up to about 80% of Sri Lanka’s GDP. Last year it repaid $5.6 billion in debt and has to repay $4.8 billion this year. The debt burden is not going to reduce much in the coming decade and therefore a healthy global economy is intrinsic to Sri Lanka. The only way out of this mound of debt is growth and Sri Lanka cannot grow sustainably if it cannot attract investment and increase exports. Developing local industries also means that Sri Lanka needs capital, resources and expertise from outside of the country and that requires reliance on the global economy.

Remittances, apparel, tourism and tea, Sri Lanka’s four largest foreign exchange earners are also among the most crucial job creators and thousands of families depend on other countries doing well to exist and do better themselves. Even IT fall into this category. If all these Sri Lankans were to give up their jobs and return not only would they not find sufficient employment but find their pay is much less as well. Industries such as apparel in particular are struggling on multiple fronts, partly due to raw material shortages but also because crucial exports markets are badly hit. The US, UK and European Union remain Sri Lanka’s largest export markets and the consequences of a prolonged COVID-19 crisis will be strongly felt at home with many jobs being endangered.

The largest contribution to Sri Lanka’s GDP is from services and then manufacturing. Agriculture is essential and important but its productivity has been low for a long time. Agriculture contributes about 7% to GDP but employs about 27% of Sri Lanka’s workforce. It is positive that the Government is paying attention to boosting productivity but this cannot be done overnight and will require support externally. Challenges such as climate change and limited education and skills of agriculture employees will also make scaling up agriculture even more difficult.

Sri Lanka has a history of protecting industries that fail to become internationally competitive. The consequence of this is that consumers end up having to pay through their noses for basic goods and services. Sri Lanka’s sanitary wear and tile industry is an example of this, where a monopoly has been given tax protection for an extended period of time but has failed to become competitive. Creating a closed economy could see an increase in these kinds of instances where consumers end up the loser.

Therefore, policymakers have to put aside their fears and look beyond just the current situation when they are making decisions for they are creating a future we are all part of.