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“Export or perish.” Never has this economic advice been more relevant and appropriate to Sri Lanka than today.

Challenging environment

Amidst the raging spread of COVID-19 and the extended lockdown, the Government is doing its best to ensure that the country’s export capacity is not hampered. However, a sustainable growth in exports requires a change in mind set that will adopt economic reforms that will enhance export competitiveness.

COVID restrictions

The need to ensure that the country’s export growth is not hampered by the spread of COVID-19 and the restrictions placed by lockdowns and on travel is self-evident. In as much as it is vital that production is not hindered by the prevailing conditions, it is imperative that trade policies are reformed to encourage and provide incentives for sustained export growth. The plethora of difficulties and disincentives for export growth must be addressed.

Importance of exports

Export growth has gained a special importance owing to the low level of the country’s reserves, foreign debt repayments, increasing import expenditure and negligible tourist earnings.

In fact, even with a satisfactory performance of exports, it would be difficult to cope with the current requirements of foreign currency. While foreign assistance is vital to cope with the current economic difficulties, economic reforms are needed to develop an export competitive economy.

Containing COVID

As the international experience has demonstrated containing COVID is enormously difficult. Furthermore, it requires a vast amount of foreign expenditure on medical equipment and vaccines.

Import expenditure

Sri Lanka can hardly meet its essential import expenditure. Foreign reserves have dropped to a perilously less than US$ three billion. Furthermore, COVID is reducing economic output.

Export manufactures

This is especially so with respect to the danger of COVID controls restricting export manufactures. The loss of production in economic activities implies the loss of employment and incomes. This has already happened and unemployment and poverty has increased significantly.

Developed countries can afford to shut down their economies to some extent and ensure the livelihoods of their people by providing income support for livelihoods. They could also forego production of goods and services as they have financial resources and foreign currency reserves.

Sri Lanka’s economy

The Sri Lankan economy does not have these resources. The public finances are in a parlous state with the entire revenue being absorbed by debt servicing and salaries of public servants and foreign currency reserves are at a nadir of about US$ three billion.

Lockdown

The perilous state of the Sri Lankan economy makes lockdowns a danger to the livelihoods of people and the stability of the economy. The fragile state of the country’s foreign currency reserves makes it expedient to ensure the production of the country’s exports.

Critical issue

The critical issue is that the lockdown to contain COVID should not jeopardise vital economic activities such as export production. Hence a lockdown while “essential economic activities” were permitted. These included export manufactures and suppliers of essential items such as food, medicines and services such as banking. Only time will tell whether such a lockdown will contain COVID-19.

Threats

Threats to the country’s export growth do not come from COVID alone. The difficulties posed by COVID will pass away in the fullness of time. However, the spectrum of disincentives and difficulties that exporters have to face need to be addressed.

These include the possible withdrawal of the GSP plus concession. The Government must understand and appreciate that its withdrawal will confer serious disadvantages disincentives to several categories of exports. These include apparel, sea fish, ceramics and other industrial exports.

Diplomacy

The cavalier manner in which this issue has been handled is disappointing. More conciliatory and diplomatic approaches are needed to resolve this threat.

In the first instance the several breeches in the WTO agreements must be corrected. This includes the need to inform the WTO of import policies and get permission for their waiver. A more conciliatory approach to the issues of human rights rather than further violations is needed to convince the international community of the country’s respect for human rights.

Import policies

Apart from the breeches of WTO regulations, the current import controls pose serious difficulties. There are shortages of raw materials and inputs and uncertainties in their availability and increasing costs. There is a dire need to reform trade policies.

Performance

Despite the challenging environment, fortunately, or fortuitously, export manufacturing has displayed a strong resilience amidst difficult conditions of the spreading COVID and country-wide lockdowns. Export have increased in the first half of the year, and in the months of June and July this year, exports reached US$ one billion.

Longer view

Sri Lanka has been, is and will be an export-import economy.  Like other small countries, our survival and prosperity depends on the growth of our exports. This in turn requires economic policies that are conducive to making the country’s economic environment and policies conducive to export competitiveness.

The first step is a change in the mind-set that the country’s economic future lies in import substitution. There must be significant economic and trade reforms to make the country’s exports competitive internationally.

Trade policy reform

The rationale for trade reforms appear to be little understood. In fact, even the economic truism that exports and imports are two sides of a coin is hardly understood by well- meaning policy makers. They are also blind to the fact that successful exporting countries are those with the least tariffs on imports. Singapore is the prime example.

Recapitulation

Increasing exports is imperative. At the best of times, the country’s export performance is vital for the external finances, employment, incomes and livelihoods of a significant proportion of the population. In the present economic bind when reserves are below US$ three billion, the economy cannot bear an increasing trade deficit.

Further, reduction of imports is not feasible. In fact, import restrictions have affected exports adversely as exports have high import content.

While the containment of COVID is a necessary condition, it is not sufficient. In as much as possible COVID restrictions and lockdowns should not hamper production of export manufacture. That alone would not suffice. Trade policies have to be conducive for export expansion.

Import restrictions should not deprive import of raw materials for industry as it appears to be the case at present. High direct and indirect tariffs or para-tariffs should not increase costs of imported raw materials that would increase costs of manufactures and reduce their international competitiveness.

Final word

Export growth requires a whole thrust of policies that would ensure competitiveness in price and quality in international markets. Ensuring the least disruption of industry by the current COVID restrictions alone will not suffice.