By Paneetha Ameresekere
Ceylon Finance Today: Sri Lanka faces four challenges, IMF Country Representative Eteri Kvintradze, speaking at a forum in Colombo yesterday, said.
One was external, related to the fall of the Chinese economy, the possible rise in US interest rates and the flight of capital, leading to a strain in the island's balance of payments (BoP), while the other three were internal.
On the external front, she said, due to the rebalancing of the Chinese economy, the world's second largest, from one of being export driven to that of being consumption (internal) driven, that has slowed down Chinese economic growth, with a knock on effect on commodity exports to China.
In the long term these changes were good, said Kvintradze.
Nonetheless, that in turn has led to a fall in commodity prices, with oil being the forerunner. She further said that the devaluation of the yuan had had a cascading effect on other currencies, leading to their decline. This, also had had a deleterious effect on the Sri Lankan rupee.
China's fall had both regional and global repercussions.
Matters were made worse, where, compared to peer (emerging and frontier) countries, Sri Lanka has consumed a large amount of its foreign reserves for the defence of the rupee, she said. Kvintradze further said that much of the island's foreign reserves are built on borrowed money. It's not built from economic activity, she said.
Sri Lanka's foreign reserves situation is not healthy, said Kvintradze. She also said that situation had become difficult due to capital flight, both from the financial sector and capital markets. And with the Federal Reserve System set to regularize its policy rates, such outflows will continue, causing further downward pressure on the rupee. The Fed.
Open Market Committee is set to finalize this matter when they meet for the last time for the year next week (15-16 December).
She also said that Sri Lanka didn't leverage on the opportunity it got due to falling oil prices. This was due to a rise in non oil imports led by durables, of which the market leader was small vehicles. As a result, a possible saving of some US$ 1-1.5 billion was lost, said Kvintradze.
Sri Lanka has a low reserve coverage and a continuous deficit in the BoP in its current account for an extended period of time, the IMF representative said.
She further said because Sri Lanka was a low value commodity exporter, its economy too took a hit due to the decline in commodity prices globally. There was a need for the country to upscale its exports for which innovation is sine qua non, the IMF representative said.
Kvintradze saw Sri Lanka's low revenue base led by poor tax collection as an opportunity to increase collections. If tax collections are increased, then Sri Lanka needn't borrow to meet its social and physical infrastructure needs. The island's revenue collection is the lowest in the region, she said.
She further said BoP difficulties and fiscal deficits are interconnected. Sri Lanka's fiscal situation has been made worse due to salary increases given in Budget 2015, the IMF Representative said.
On "ease of doing business", she said that though Sri Lanka scores high in the region, the South Asian region is regarded as one of the most difficult regions in the world. Sri Lanka has been at peace for the past five years after suffering from a three decade war.
Post war, she has rapidly developed her physical infrastructure, by telescoping what would have taken to be developed in 15 years to five years, said Kvintradze. With the peace dividend, a seeming luxury in this part of the world, it's up to the people of this country to take Sri Lanka forward, the IMF representative said.
She also bemoaned the fact that though the standard of education among women in the island was high, their labour force participation rate was poor, akin to that of India, where, relatively, the women in Sri Lanka were more educated than their Indian counterparts on a percentage basis.
Due to the poor labour force participation rate of women, productivity has been inured.
Reforms and productivity were the way forward for the country, she said. Kvintradze said that Sri Lanka's economy was to grow by 5.5% this year. The seminar which had a focus on the economy was organized by LBO/LBR.
Ceylon Finance Today: Sri Lanka faces four challenges, IMF Country Representative Eteri Kvintradze, speaking at a forum in Colombo yesterday, said.
One was external, related to the fall of the Chinese economy, the possible rise in US interest rates and the flight of capital, leading to a strain in the island's balance of payments (BoP), while the other three were internal.
One internal matter, which was the second challenge was connected with the fall in government revenue, the third was ease of doing business and the fourth, women's empowerment vis-à-vis labour participation.
On the external front, she said, due to the rebalancing of the Chinese economy, the world's second largest, from one of being export driven to that of being consumption (internal) driven, that has slowed down Chinese economic growth, with a knock on effect on commodity exports to China.
In the long term these changes were good, said Kvintradze.
Nonetheless, that in turn has led to a fall in commodity prices, with oil being the forerunner. She further said that the devaluation of the yuan had had a cascading effect on other currencies, leading to their decline. This, also had had a deleterious effect on the Sri Lankan rupee.
China's fall had both regional and global repercussions.
Matters were made worse, where, compared to peer (emerging and frontier) countries, Sri Lanka has consumed a large amount of its foreign reserves for the defence of the rupee, she said. Kvintradze further said that much of the island's foreign reserves are built on borrowed money. It's not built from economic activity, she said.
Sri Lanka's foreign reserves situation is not healthy, said Kvintradze. She also said that situation had become difficult due to capital flight, both from the financial sector and capital markets. And with the Federal Reserve System set to regularize its policy rates, such outflows will continue, causing further downward pressure on the rupee. The Fed.
Open Market Committee is set to finalize this matter when they meet for the last time for the year next week (15-16 December).
She also said that Sri Lanka didn't leverage on the opportunity it got due to falling oil prices. This was due to a rise in non oil imports led by durables, of which the market leader was small vehicles. As a result, a possible saving of some US$ 1-1.5 billion was lost, said Kvintradze.
Sri Lanka has a low reserve coverage and a continuous deficit in the BoP in its current account for an extended period of time, the IMF representative said.
She further said because Sri Lanka was a low value commodity exporter, its economy too took a hit due to the decline in commodity prices globally. There was a need for the country to upscale its exports for which innovation is sine qua non, the IMF representative said.
Kvintradze saw Sri Lanka's low revenue base led by poor tax collection as an opportunity to increase collections. If tax collections are increased, then Sri Lanka needn't borrow to meet its social and physical infrastructure needs. The island's revenue collection is the lowest in the region, she said.
She further said BoP difficulties and fiscal deficits are interconnected. Sri Lanka's fiscal situation has been made worse due to salary increases given in Budget 2015, the IMF Representative said.
On "ease of doing business", she said that though Sri Lanka scores high in the region, the South Asian region is regarded as one of the most difficult regions in the world. Sri Lanka has been at peace for the past five years after suffering from a three decade war.
Post war, she has rapidly developed her physical infrastructure, by telescoping what would have taken to be developed in 15 years to five years, said Kvintradze. With the peace dividend, a seeming luxury in this part of the world, it's up to the people of this country to take Sri Lanka forward, the IMF representative said.
She also bemoaned the fact that though the standard of education among women in the island was high, their labour force participation rate was poor, akin to that of India, where, relatively, the women in Sri Lanka were more educated than their Indian counterparts on a percentage basis.
Due to the poor labour force participation rate of women, productivity has been inured.
Reforms and productivity were the way forward for the country, she said. Kvintradze said that Sri Lanka's economy was to grow by 5.5% this year. The seminar which had a focus on the economy was organized by LBO/LBR.
www.ceylontoday.lk
No comments:
Post a Comment