Sensible spending

Arguably, the silver lining in the currency depreciation is that Sri Lanka’s exports will grow, or it seems to be that at first glance. Yet, deepening the gloom, there is increasing concern that import-dependent exports such as apparel will take a hit from the plummeting rupee, resulting in the US$ 12 billion target being left unachieved.

Given Sri Lanka’s spiralling debt and oil expenditure, this appears to be a grave situation. The Central Bank has strived to make light of the currency issue by insisting that there are a variety of ways for the country to expect increased inflows over the next few weeks.

The Central Bank in a statement insisted that there were significant inflows to the Colombo Stock Exchange, with the net inflows to the CSE so far in 2012 amounting to $ 164 million. It estimated that US$ 287 million in inflows was expected from banks, development bonds and a new hotel project.

However, it is likely that the currency will not appreciate in the short to medium term, placing more pressure on exporters and not reducing the current deficit at a substantial speed. The Export Development Board has already acknowledged that far from making exports more competitive, the current slump could result in a reverse of the industry, which grew 22% in 2011 and posted more than US$ 4 billion in earnings.

While the EDB is advocating that new markets be found, that is not a very lucrative idea in the short term as more and more Asian countries are moving into intraregional trade. From Thailand to Cambodia, the interest is shifting to finding markets closer to home, while China, an apparel hub that has been suffering from salary rises, actually saw a raise in the investment last year, showing that it is still a strong player.

Given this situation, it would make sense for the Government to consolidate its development on helping beleaguered exporters fight the challenging economic situation. Economic Development Minister Basil Rajapaksa went on record last week insisting that the ‘Divi Neguma’ programme would result in greater fruit, vegetable and ornamental exports, but such programmes, while being popular on the vote front, will not substantially assist the economy in the short term. President Mahinda Rajapaksa had also kicked off a new programme that will bring one development project to each village – in theory at least.

All these projects swallow up billions of rupees in public funds, but do not post equally apparent results in solving the large economic problems plaguing Sri Lanka. High taxes, complicated Customs policies, VAT snarls and other logistic challenges are hampering a variety of exporters who may be better served by Government policies and funds.

When the global financial crisis hit in 2008, the Government introduced incentives of sorts for companies that managed to grow their exports while maintaining their labour contingents intact. However, the actual payments of these incentives took years and eventually came to companies when the time they were most needed had passed. Such questionable actions by the Government cannot be repeated and while around Rs. 150 million is being spent on the upcoming Expo, the infrastructure and logistical environment has to be improved so that a boost in business can be sustainable.

Therefore, it is essential that the Government projects come in line with providing assistance to exporters in a timely and effective manner.