29 October 2024 03:00 am Views - 2121
By Nuzla Rizkiya
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Prof. Premachandra Athukorala
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As Sri Lanka prepares to resume repayment of its significant sovereign debt by 2028, a leading economist has called for a strategic shift towards trade-oriented production, to secure a primary surplus essential for debt management, once the International Monetary Fund (IMF) programme concludes.
Speaking at a public lecture hosted by the Centre for Banking Studies, Emeritus Professor of Economics Premachandra Athukorala emphasised the need for economic restructuring. He cited the IMF estimates indicating that Sri Lanka’s foreign debt is nearing US $ 70 billion, with total debt expected to reach 104-105 percent of GDP.
“Nearly all of this debt is denominated in foreign currency, which severely limits Sri Lanka’s monetary flexibility,” Athukorala said.
“The only way to secure a primary surplus needed to manage both our debt and current account is to restructure the economy from its non-tradeable bias to a tradable one. We must develop a tradable sector, particularly in export-oriented manufacturing as the dynamic sector of the economy,” he added during the event at the Central Bank of Sri Lanka last week.
According to Athukorala’s calculations, Sri Lanka will need to allocate at least 5 percent of its GDP annually to cover interest payments alone, excluding the principal, once the IMF programme ends. This fiscal pressure, he argued, would significantly limit government spending on non-tradable production and infrastructure projects.
“In this context, the government’s hands are tied, especially when it comes to its non-tradable production and infrastructure projects. There will be so little room for the government to do these things,” Athukorala said.
Drawing from his extensive research on around 60 countries that successfully navigated debt crises, he pointed out that a common factor in their recoveries was a decisive shift in the GDP allocation towards tradable production.
Athukorala also critiqued the lack of attention to the changing global trade landscape in recent presidential election manifestos. While many candidates proposed policies aimed at supporting export-oriented industrialisation, he said they failed to address the shift in the global economy.
“People always speak about export orientation in a conventional way of specialising in individual products. I think we are locked in this idea of horizontal specialisation,” he said.
“But today, the most dynamic feature of global trade is vertical specialisation — focusing on tasks and components within products. Currently, about two-thirds of global manufacturing occurs within global value chains.”
Athukorala stressed the importance of aligning Sri Lanka’s economic strategy with this trend to remain competitive on the global stage.