Political upheaval can derail development of the country
Owing to the political turmoil that prevailed in the country during the past two months, potential lending agencies were reluctant to lend any money to Sri Lanka.
The Staff level Agreement that was reached with the IMF on October 26 last year fell apart due to political upheavals in Sri Lanka and the Minister of Finance on the following day tabled a motion in parliament to raise US$310 million to circumvent the problem, said the Governor Central Bank of Sri Lanka Dr. Indrajit Coomaraswamy.
He was speaking as Guest of honour at the opening annual sessions of the Sri Lanka Economic Association (SLEA) held at the Central Bank auditorium Rajagiriya last week. He spoke on the “Impact of Globalisation on the Sri Lankan economy”.
He said: “We have to be grateful to our friends such as the Reserve Bank of India for giving us $400 million to a SARRAC nation and agreeing to give a further $1 billion. The Bank of China which has an office in Sri Lanka also agreed to give $300 million at the end of the month. The Bank of China also agreed to give a further $1 billion later over a three year period on favourable conditions. There is another $500 million loan from the China Development Bank in the pipeline. State banks such as the National Savings Bank are also negotiating a credit line of $750 million and the Bank of Ceylon and the People’s Bank too are negotiating a credit line.”
The Governor said that Sri Lanka is relatively a low tax economy where more taxes have to be collected. Produce such as tea, rubber and coconut cannot be further taxed as it had reached the maximum limit but other sectors in the emerging economy that had enjoyed many tax holidays are not paying taxes and need to taxed.
Referring to the budget deficit, the Governor said that in the past many commercial borrowings were taken but allowed exports revenue to fall into an abysmal low. “It is alright making commercial borrowings as long as it is not used for non -tradable goods or projects that do not give high returns.”
Referring the IMF, he said it was essential to have their seal of approval to lure investor confidence and raise further foreign borrowings again when there is insurmountable foreign debt payment which the country faces.
He said they are racing against time to borrow all what they could from lending agencies to settle debts they owe to these agencies before another political upheaval hits the country like the one that happened on October 26.
Dr. Gabriel Fernando, Senior Economist –World Bank, said that globalisation has far reaching implications on the lives of people engaged in trade, financial flows, taxation and exchange of ideas when world trade has become more integrated than ever before.
During the last 20 years there has been a remarkable increase in trade and financial integration of many developing countries. Much of the technological transfers to developing countries take place through globalisation and Foreign Direct Investment (FDI). Sri Lanka has been fostering integration in the recent past although it remains a close economy where many sectors need to be opened for competition.
SLEA President Dr. Upananda Vidanapathirana said the world is becoming more integrated and interconnected, economically, socially, politically and culturally than ever before.
The rapid development of communication and transport technology has facilitated the free flow of goods, services and people across national boundaries. The volume of international trade has risen sharply since 1990. The ratio of world trade to its GDP had increased rapidly. The cross border capital flows too have soared from the 1990-2017 period. “This shows the globalisation process is non-stoppable and irreversible and Sri Lanka’s policy is heading towards globalisation.”
However policies of some Western nations are not in line with the globalization process, he said. Prof. Sirimal Abeyratne of the University of Colombo also spoke.