Power outages or load shedding; some confusion – The Island
Two major events have occurred over the past few days regarding possible developments in the country’s macroeconomic fundamentals in the near future.
(1) Market-based or managed floating rate:
This is what private sector players are asking for. It is unclear whether the rupiah is floating, based on market forces or a managed float. It rose and traded around Rs 260/- per $ on the second day. As we know, it was Rs 203 for the last six months, and on March 9, with a major change in the Central Bank’s exchange rate policy, the official exchange rate changed to Rs 230/-, and the next day it was Rs 260. In my opinion, the guided exchange rate system run by commercial banks would be more cautious, better to keep a tight tab without allowing 100% free floating, based on the sentiments of the Marlet.
a. This external value of the rupee is good for exporters and inbound remittances. On the other hand, the importation of non-essential items is now discouraged by market forces and some regulations are imposed. The challenge is how to mitigate the increased expenditure on fuel bills and the cost of other essential food items, which are rising at a faster rate and whether the losses of public enterprises will be passed on to consumers or not.
b. The government’s budget deficit will increase. On the other hand, government revenue from taxes and the collection of import duties could increase. Restructuring of state-owned enterprises is inevitable, and foreign joint ventures to inject FDI and reduce public spending can be explored.
vs. Private companies should follow the word and focus on increasing local production, value-added agricultural products (proper land use plan for optimal use of land and human capital is needed), start import-substituting industries and manufacturing, developing software for export markets and improving their BOP/ICT activities – this is the way forward for economic development, as long as the benefits trickle down to the bottom of the the pyramid.
D. Can we afford excessive use of imported goods including crude oil, gas, chemical fertilizers, etc. ? It’s high time to stop blaming the culture – instead, some serious R&D work needs to take place. Entrepreneurs should be able to compete globally, if other factors are taken advantage of, as well as improvements in the Doing Business index.
e. However, banks need to closely monitor and manage the rate otherwise the dollar could appreciate further in terms of the rupee. At the same time, social safety network systems, to protect the middle class and these vulnerabilities, should be carefully assessed, in order to establish a system and programs for government implementation.
(2) World Bank/IFC and AfDB Discussions with President and Government:
Many meetings have taken place with the three institutions over the past two years. We understand that the president explained the policy framework of the government very well to these high-level delegations from the three multilateral agencies recently. Apparently, the government critically reviewed the progress of these talks ahead of this recent meeting. It goes without saying that any new projects undertaken should relate to priority areas within the framework of the President’s policy statement. The following highlights are worth mentioning here.
a. This is the time when the country most needs the support of the above institutions, as a member country. It is in difficult times that support is most needed, in line with the mandate of these institutions – “to support member countries as partners in development”
b. The World Bank Country Manager recently highlighted the importance of the agribusiness, dairy and fisheries sectors to Sri Lanka’s green, resilient and inclusive recovery. It makes sense that Sri Lanka would ask the WB to ‘follow the word’ and support us with funding and expertise consultancy assignments, where they could support us in transforming conventional agriculture into more green agriculture. sustainable.
vs. Modernization of the in-depth study of the green agricultural sector on the reduction of post-harvest losses and the involvement of the private sector in these loss reduction strategies.
D. Private sector investments to scale up operations to ensure at least $500 million per year by the end of 2023. We need to invest in agricultural enterprise export, value-added agriculture and new technology transformation , and supporting high value-added export industries.
e. Support the banking sector with additional credit lines of $1 billion to:
I. Financing SMEs to recover from the impact of COVID.
ii. Sustainable development projects, consistent with Government policy – such as renewable energy, green agriculture.
iii. additional trade finance facilities to facilitate essential imports.
F. We need their input to develop industrial parks, cold storage and processing facilities to minimize agricultural waste, structure them into PPP projects and help us attract investors using their global network.
g. Investment in the East Terminal: We hope that the discussions between the SLPA and the multilateral agencies will be successful.
h. Knowledge Management – we would require existing curriculum to include sustainable agricultural practices and train farmer programs, knowledge transfer on the use of research and development facilities, to innovate and improve our products and services.
I. The World Bank could provide assistance within the framework of institutional development, to study the possibility of introducing key performance indicators (KPIs) in strategic public sector entities and to develop a high-level dashboard.
The positive feature would be; there will be a centralized economic policy and a “one voice” communication channel to avoid confusion, should it arise. The name of the game is an export-led growth strategy through FDI and domestic capital formation.
For me, this is the start of another major transformation – at least a mindset shift towards changing consumption patterns, and a strategic shift to use renewable energy and focus on green farming systems, etc. . These are a few areas that could be exploited for economic benefits.
Either we can make it or break it.