Sri Lanka must take steps to boost export competitiveness in order to maintain sustainable debt to GDP levels over the medium-long term, according to International Monetary Fund (IMF) Resident Representative, Dr Koshy Mathai.

Whilst taking note of the country’s downward trend in debt to GDP over the last three years, Dr Mathai stated that Sri Lanka would find it challenging to indefinitely roll over debt without generating meaningful increases export earnings.

“While it is completely natural for countries to borrow and then roll over their debts, exports are definitely an issue at the moment. Sri Lanka cannot afford to postpone measures to boost export competitiveness for much longer,” Dr Mathai stressed.

Despite significant borrowings, Dr Mathai stated the Sri Lanka’s Debt to GDP is still trending steadily downwards due to improvements made in the country’s overall Gross Domestic Product. Nevertheless, he warned that a diversification in exports and export markets must take place in the near term.

“There are significant opportunities that are available for Sri Lankan exporters, particularly due to its proximity to emerging markets like India and China.

Exporters must find ways to get into these markets and I don’t see why this is not possible because the composition of Indian markets is too similar to Sri Lanka’s.” Dr Mathai said.

He further stated that the government is only capable of providing a conducive policy framework in order to boost exports, with the burden ultimately resting on the shoulders of the private sector.

“When it comes to policy, there is a real commitment from the government towards policy flexibility and this means that we won’t see any large shocks or fluctuations when it comes to policy or rate changes. There should be clear symbols in the market that the private sector can read when it comes to policy changes which means that they should have adequate notice to respond, So, the private sector needs to be a bit bolder rather than relying on the government any longer.”

Meanwhile, with regard to state-owned enterprises, Dr Mathai stated that innovative measures may be needed in order to tackle extremely high debt levels, particularly in the Ceylon Electricity Board and the Ceylon Petroleum Corporation.

“There were benchmarks the government set for the CEB and CPC that would have meant these companies would have been at breakeven levels by now. Unfortunately with the drought, Sri Lanka’s power generation mix, these levels are not possible. “

“We can only hope that the government will put adequate reforms into place as soon as possible to address this situation. One possible solution may be to broad base the ownership of these organizations. Not a privatization but a peoplization so to speak,” he said.

Dr Mathai made the comments during a prebudget panel discussion organized by the Import Section of the Ceylon Chamber of Commerce.