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Thursday Apr 25, 2024
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By Uditha Jayasinghe
As the Government begins rolling back COVID-19 countering measures in earnest, Sri Lanka will have to find ways to build resilience while implementing recovery strategies, two experts said yesterday.
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| Prime Minister’s Senior Advisor on Economic Affairs Ajith Nivard Cabraal |
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| Business leader Dhammika Perera
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Prime Minister’s Senior Advisor on Economic Affairs Ajith Nivard Cabraal and business leader Dhammika Perera spoke of the impact of the COVID-19 outbreak on the economy yesterday in a SC Securities Ltd. and Daily FT organised webinar titled “Post COVID 19 Impact on the Economy and CSE,” which drew record attendance.
Cabraal acknowledged the initial impact of the virus on the economy was serious and opined that even though the Government and private sector would work to eke out even the smallest return from the challenging situation it was unlikely they will see significant growth this year. However, he argued that if the Government planned judiciously and businesses were nimble they could position the economy to do better next year when the global situation is expected to become more stable.
“The way I look at it is, we need to understand how we can live with risks. Every day there are new risks, internal and external. Once you get shocked on the level of COVID-19, it is hard to be hopeful but the world will find ways to deal with the shock. Even with the global financial crisis initially there was shock but the world found ways to live with it.
“In the first quarter there was deep shock and everyone panicked but now we are coming to the beginning of the stage where people are finding how to deal with it. The world will move to a new normal, that process has started, there may be some adjustments needed, and there will be tough calls, but in the next few weeks and months the world will start coping with it,” he said.
Discussing possible areas for growth, Perera pointed out that fast-tracking growth in Sri Lanka’s economy in the short-term would be challenging as the majority of the country’s workforce has low skill levels and were more concentrated in the agriculture sector.
Therefore, increasing the efficiency, productivity and competitiveness of the agriculture sector would be challenging as the Government would have to ramp up the skill levels of about 27% of the workforce engaged in agriculture. He therefore recommended that the Government should focus more on the manufacturing and services sector as they already had the scale and made a bigger contribution to overall GDP to warrant priority support from the State.
Prime Ministerial Advisor Cabraal responding to a question on whether the Government would focus on a more inward economic policy, said it was possible that some aspects of the economy could change in response to challenges created by COVID-19. However, he acknowledged that export sectors would be supported by the Government and encouraged to expand when better times return.
Cabraal while conceding to some points made by Perera on agriculture, nonetheless focused on the need to provide Government support to some sectors, either in the form of the moratorium that has already been announced or the other policies.
“We have to hold the affected areas. If you damage them beyond a certain point it is difficult for them to get back. This is why some sectors want some level of protection and the Government will have to step in, find means and take it forward so that when the good times come they are able to take advantage of them. The world will definitely change so we will have to mirror that.
“We will have to help some sectors but at the same time make use of the changes and reposition our businesses so we can make use of the new normal. Both of these things need to happen together. This year will be a very challenging year, even a small growth would be a great thing but I think that will be very difficult. Having said that I think if we can protect ourselves and keep ourselves in a position so we can take advantage of next year, then I think we will do better.”
Responding to a question on whether President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa as well as other policymakers were painting too glossy a picture for the masses, Perera stated it was important for the leaders of a country to look at the positive side.
“We cannot always live on negativity. The President and the PM have to look at the positive side. There have been positives due to COVID-19. Education has been digitised as never before. Even old people are now doing online banking transactions. We need to focus on the positive things that happened during this time as well and make the best of them.
“The Government has also lost a large amount of revenue during the curfew, they now have to pay public sector salaries and interest on debt. The Government is also in trouble. If we are hoping for money from the Government we will be waiting for a long time. It is better for the private sector to rely on itself. My biggest concern is that if there is another COVID-19 spike and we have to close the districts that will be very problematic.”
Cabraal also echoed Perera, insisting that Sri Lanka’s leaders have to stay positive to keep hope alive and encourage the private sector to keep reaching for solutions.
“When you are the leader you have to also fashion the future. If the leader says this year is bad then nothing will happen. Firstly leaders have to articulate what future they want. If they say we will have negative growth everyone will just get used to it. So I think they are on the right track by pushing for growth and encouraging other stakeholders to join in.”
Cabraal accepted that rolling out the moratorium for the private sector had not gone smoothly and lessons needed to be learnt from the implementation process. In addition he also claimed that the problematic implementation was due to the postponement of elections, which in his view should be held as soon as possible not just to give confidence to the public sector and policy direction to the private sector but also to attract global investors and engage with multilateral organisations for support, all of which would boost economic activity.
“I’m also not happy with the moratorium, they took too long to get it off the ground, it was not clear enough, it did not get down to the banks and finance companies. So we have to learn those lessons and become better. We have to ensure the next stage is implemented fast, whether it is the moratorium or another directive.
“This is also why I think there should be a strong mandate. For the banks and others the Government must have the capacity to give a strong edict. This is why I think we should have elections, we need a strong Government to ensure that the public sector, businesses, investors and others can have conviction and confidence in Sri Lanka. We need a Government, whatever that Government is can be decided by the people.”
He likened Sri Lanka’s current situation to that of the inauspicious period during the Sinhala and Tamil New Year referred to as “Nonagathe” when the planets are transitioning and the old year has ended but the new one has not yet begun.
“The ‘Nonagathe’ is not a good time to do anything. There are certain periods of time when there is no clarity. We need clarity and certainty. Then the businesses are also clear on policies and there can be clear strategies given by the Government.
“If we can have this established as fast as possible there will be responses as well. Other proposals such as the COVID-19 equity fund needs strong Government. Directives will not have the same impact when there is an interim Government. There is a huge necessity and it will enable the Government and the country.”
Cabraal noted Sri Lanka has sufficient reserves to pay the $ 1 billion bond in October. “The bigger challenge is the dearth in revenue. The Government needs rupees to purchase dollars and repay debt.
“If there is a stable Government the investors will be reassured. We need the support of the investor community, we have to make sure our confidence levels are maintained and so this bond has to be paid. Sri Lanka has never defaulted and they will make sure payments are met at the right time.”
Both Cabraal and Perera were positive that companies could not be burdened with taxes at this point and should ideally have more extensive support to recuperate from COVID-19 impact.
“We now need to stop burdening companies with more debt or taxes. They need to be supported by some kind of equity infusion. Rs. 200 billion new cash infusion is needed so new instruments are being considered. Many institutions in the world specialised in venture capital and equity investments and I am confident if we do this right we can attract them to Sri Lanka. This will also support banks and it will be beneficial to everyone.”
Cabraal also defended large amounts of money printing by the Government and said that the Central Bank and the Finance Ministry will have to work together to ensure there will be no spill over effects to the larger economy from the move.
“Money printing is sometimes necessary in difficult situations. This is like an overdraft that individuals will ask from a bank to increase their liquidity in the short-term. Now its about Rs. 300 billion but this happened in late 2016 as well. I don’t think this is alarming. You need to have an idea of when this will be settled by the Government.
“When I was Central Bank Governor, we always received an assurance of when this would be settled and they were settled on the date. It’s like a good bank management. Here the onus is on the Government to settle the amount and I hope there is a good relationship between the Governor and the Treasury Secretary so the adverse impact will not spill over into the larger economy.”
