Ongoing economic crisis an opportunity for Sri Lanka: IPS

• Crisis offers SL an opportunity to rebalance, rediscover an appetite for export-oriented development
• Says essential to have a development policy focused on export-led growth and greater diversification of external income sources
• SL will feel pain of global external environment in short term
• Stresses quick implementation of an IMF programme, with debt restructuring, imperative

The current situation in Sri Lanka may seem doom and gloom but the ongoing crisis can be used as an opportunity for the island nation to renew its efforts towards development and achieve the much sought-after progression, the latest State of the Economy 2022 revealed.

The Institute of Policy Studies (IPS), in its latest State of the Economy report, asserted that in the medium to long term, the crisis offers the country an opportunity to rebalance and rediscover its appetite for
export-oriented development.

“This opportunity should not be missed. A development policy, which focuses on export-led growth and greater diversification of external income sources, is essential for Sri Lanka to establish a long-term sustainable growth path,” the economic think tank said.

In the short term, Sri Lanka will feel the pain of the global external environment, as higher fuel, food and commodity prices continue to increase inflationary pressure in the economy. Such price increases will lead to a greater scarcity of essential goods, due to the acute lack of foreign exchange in the country, the IPC cautioned.

It elaborated that Sri Lanka is likely to have a significant downgrade in growth expectations, following the expected drop in productivity, due to the lack of essential imports and other disruptions.  The outbound and inbound trade activities are expected to suffer as well.

  The State of the Economy report noted that the quick implementation of an International Monetary Fund (IMF) programme, which includes a debt restructuring component, is imperative, given the precarious economic situation Sri Lanka faces in the short term.

Global growth expectations have been sharply adjusted downwards by the IMF, following the war between Russia and Ukraine. Sri Lanka will not be able to evade the implications of the war, as continued bottlenecks in the supply chain will exert an impact on the Sri Lankan economy. Global economic growth is expected to slump from 6.1 percent in 2021 to 3.6 percent in 2022, as the war disrupts economic activity and spikes inflationary pressures.

The global supply chain disruptions are set to continue, due to the war and China’s zero COVID-19 policy. While global trade is likely to improve, rising fuel prices will increase the price of consumer and merchandise goods, the IPS said.  “Global inflationary pressure has forced countries to adapt monetary tightening policies, further dampening growth expectations.

“Emerging and developing economies will be hit hard by this, with worsening capital flight expected. On a positive note, cross-border service trade, especially tourism will recover in 2022,” the economic think tank pointed out.