Compiled by Avanti Samarasekera

THE HARD YARDS TO RECOVERY

Rajendra Theagarajah ponders about resuscitating the ‘economic patient’

Q: What role can corporates play in boosting business confidence among external investors?

A: Amid the current challenges, opportunities lie with those who can invest in export focussed ventures with foreign currency denominated revenue against rupee-based cost structures.

Local corporates can contribute by sharing how their business models have benefitted from good governance frameworks, understanding key compliance requirements to enter export markets, knowledge of bilateral trade agreements such as GSP+, investing in long-term supply chain or buyback relationships, and reinvesting profits in R&D and innovation. They also need to clarify myths about the quality and productivity of the domestic workforce while underscoring how the current political leadership is embracing climate risk resilience. This will benefit the long-term adaptation of environmental, social and corporate governance (ESG) principles.

Q: How have investments in new technologies contributed to the advancement of the banking sector?

A: This can be addressed in three verticals.

Firstly, we have vibrant youth who can absorb and adopt new technologies better than others – as evidenced by many in and outside the banking sector who are securing employment here and overseas.

Secondly, investments in new technologies in banking have been minimal. This is either due to senior management’s limited understanding of emerging tech and its positive impacts or a slower appreciation of the need for shorter IT life cycles and faster replacement.

Thirdly, there’s a need for a regulatory understanding of the evolution of technology to improve user experiences and competitiveness in banking.

Q: How can the financial services industry assist in accelerating digital transformation?

A: Non-bank financial institutions (NBFIs), capital market players, insurance companies and the tech ecosystem are equally responsible for contributing to this transformation.

Tech includes fintech, technology focussed startups and new generation solution providers who can play a role in stimulating digital transformation.

Q: From a global perspective, what role can bankers play in supporting policy makers to shape a better future?

A: International banks here in Sri Lanka have a unique opportunity of having their eyes on the ground and providing objective feedback overseas, which will enable a better understanding of government policy and structured paths to economic recovery.

They can also share invaluable insights into regional and global challenges to economic growth.

Three areas where these insights can contribute positively are new trends in financing renewable energy; the relevance of ESG principles in supply chain financing, which is critical for Sri Lanka’s trade policy efforts; and increased awareness about the metaverse and how conventional economies or businesses can generate value.

Q: What are the challenges faced by the banking profession and potential growth areas?

A: Digital transformation, increased demand for better user experiences, improved reliance on online payments and the emergence of a metaverse ecosystem are some of the challenges.

For the profession, I see emerging growth opportunities in cybersecurity, information security management, data analytics and AI driven offerings with risk management.

Q: And what recommendations would you make to overcome the macroeconomic challenges?

A: A consistent current account deficit, poor fiscal management, inadequate public revenue generation and inadequate expenditure rationalisation have all resulted in the country’s debt growing to be unsustainable, and the nation becoming an economic patient.

We now need to win external investor and public confidence. If the ongoing debt restructuring discussions result in an extended fund facility (EFF) from the IMF, the country will obtain some additional finance. But we will need to be economically frugal for an agreed period and this has to be subject to strict monitoring.

Expenditure rationalisation, protecting vulnerable segments of society and substantial taxation linked revenue collection have to be managed while the nation focusses on improving the ease of doing business, export focussed value added agriculture, upskilling and improving the productivity of the workforce, and encouraging sustainable tourism as economic catalysts.

Since our capital market isn’t liquid, the banking sector needs to play a meaningful role in supporting inclusivity and eventual economic growth. However, we need at least three or four large banks to play this catalytic role – so consolidation is a must.

We must also improve our international trade through innovation and competitiveness rather than hiding behind a depreciating rupee.

Of course, there is an untapped national asset that we should monetise in parallel with current debt restructuring efforts – and that’s the opportunity to mobilise climate or nature linked financing. We shouldn’t fear the unknown or be shy about exploring this opportunity.

Meanwhile, we’ll need to swallow the bitter pill and embrace an element of domestic austerity for the next three to five years.

The interviewee is a Senior Visiting Fellow of the Pathfinder Foundation.