Two major events happened during the past few days in regard to possible changes in the country’s macroeconomic fundamentals in the near future.

(1) Market based rate or managed float
This is what the private sector players have been asking. It’s not clear whether the rupee is floated based on market forces or managed float. It has increased and traded around Rs.260 per US dollar on day two. 

As we know, it was Rs.203 for the last six months and on March 9, with a major shift in the exchange rate policy by the Central Bank, the official exchange rate went to Rs.230 and the following day, it was Rs.260.

In my view, the guided exchange rate system managed by the commercial banks would be more prudent, better to keep a close tab without allowing 100 percent free float based on market sentiments. 

a. This external value of the rupee is good for exporters and inward remittances. On the other hand, the import of non-essential items is now discouraged through market forces and certain regulations imposed. The challenge is how to mitigate the increased expenditure on the fuel bill and cost of other essential food items, which are going up at a faster rate and whether the losses of SOEs will be passed on to the consumers or not.

b. The government budget deficit will go up. On the other hand, the government revenue from taxes and the collection of import duty could increase. The SOE restructuring is inevitable and foreign JVs to infuse FDIs and reduce government expenditure can be explored.

c. The private businesses need to walk the talk and focus on increasing local production, value-added agricultural products (a proper land use plan for optimum utilisation of land and human capital is needed), start import substitution industries and manufacture, software development for export markets and improve their BOP/ICT businesses – this is the way forward for economic development as long as the benefits would be trickled down to the bottom of the pyramid people.

d. Can we afford excessive use of imported goods, including crude oil, gas, chemical fertiliser, etc.? It’s high time we put a stop to blame culture – instead, serious R&D work has to come in. The entrepreneurs should be able to compete globally, if other factors are put into good use together with improvements in doing business index.

e. However, the banks have to closely monitor and manage the rate, otherwise the dollar might go up further in rupee terms. At the same time, the social security network systems to protect the middle class and such vulnerabilities need to be carefully assessed in order to put in place a system and implementation programmes by the government.

(2) Discussions of World Bank/IFC and ADB with president and government
Numerous meetings were held with the three institutions during the last two years. We understand that the president has very well articulated the government policy framework to these high-level delegations from the three multilateral agencies recently. 

Apparently, the government has critically reviewed the progress of such discussions prior to this recent meeting. It goes without saying that any new projects undertaken should be for prioritised areas under the president’s policy statement. The following salient points are worth mentioning here.

a. This is the time the country needs the support from the above institutions to the most, as a member country. It is the difficult times the support is most needed in keeping with the mandate of these institutions – “support member countries as a development partner”.

b. The World Bank country manager has recently pointed out the importance of agribusiness, dairy and fisheries sectors for Sri Lanka’s green, resilient and inclusive recovery. It is logical that Sri Lanka would ask the World Bank to ‘walk the talk’ and support us with funding and expertise consultancy assignments, where they could support us in the transformation from conventional agriculture to a more sustainable green agriculture.

c. Modernised green agri sector thorough study of reducing the post-harvest losses and involve the private sector in such loss reduction strategies.

d. Private sector investments to scale up operations to ensure at least US $ 500 million per year by end-2023. We need to invest in the export agri businesses, value-added agriculture, new technology transformation, support high value-added export industries.

e. Support the banking sector with additional credit lines of US $ 1 billion to:
i. Finance SMEs to recover from the impact of COVID.
ii. The sustainable development projects in keeping with the government’s policy such as renewable energy, green agriculture.
iii. Additional trade finance facilities to facilitate essential imports.

f. We need their inputs to develop the industrial parks, cold storage and processing facilities to minimise agri waste and structure them as PPP projects and support us attracting investors using their global network.

g. Investment in the East Terminal: we hope the discussions between the SLPA and multilateral agencies will conclude successfully.

h. Knowledge management – we would request for the existing programme to include sustainable agriculture practices and train the farmer programmes, knowledge transfer on use of research and development facilities to innovate and improve our products and services.

i. The World Bank could provide assistance under institutional development to study the possibility of introducing key performance indicators (KPIs) to the strategic public sector entities and develop a high-level dashboard.

Conclusion
The positive feature would be: there will be a centralised economic policymaking and ‘one voiced’ communication channel to avoid any confusion if any. The name of the game is export-led growth strategy through FDIs and domestic capital formation.

To me, this is the beginning of another major transformation – at least a mind-set change towards changing consumption patterns and a strategic shift to use renewable energy and focus on green agricultural farming systems, etc. These are few areas that could be exploited to gain economic benefits. 

Either we can make it or break it.
(Jayampathy Molligoda is Chairman of 
Sri Lanka Tea Board)