“I think a lot of things are unravelling as we speak right now,” said the Chief Economist of the Ceylon Chamber of Commerce Shiran Fernando, in reference to the state of the economy. Speaking on LMDtv, he elaborated that the fiscal climate reflects slow, low growth and high inflation.
While reiterating that much of this has to do with how Sri Lanka countenances the sovereign debt crisis and liquidity situation – so that things don’t get much worse than they are at present – Fernando also held out hope for a way out of the economic crunch.
“We may already be looking at some of the indicators such as the purchasing managers’ index, which examines activity in the manufacturing and service sectors. These indices are also showing signs of slowing. In addition, inflation is rapidly increasing. Despite this, I believe we saw a slight slowing in growth last month,” he said, providing a summary analysis of the state of the economy.
The chamber’s chief economist went on to say that “there are not many expectations from the interim budget other than maybe a realignment of expenditure.”
And he speculated that expense items at the provincial level in the 2021 budget could be reallocated to provide some relief, perhaps to fund initiatives and programmes such as Samurdhi or provide direct assistance to marginalised communities. “If you look at [cooking] gas in particular, towards the end of June we saw close to about 100,000 metric tonnes being ordered, which accounts for about four months’ supply,” he surmised, and continued that “it was overall a US$ 90 million purchase or import expenditure for which the World Bank contributed close to 70 million dollars by repurposing existing funds, which had been allocated for other projects.”
On the fuel front, Fernando asserted: “It’ll be very much a monthly exercise because there don’t seem to be announcements of fresh credit lines or assistance from bilateral or multilateral lenders.”
“Exports or tourism remittances could improve, provided there is conditional financing. Otherwise, it’ll be about managing with what we’re getting from exports, from remittances and from tourism, to meet monthly expenditure,” he said, drawing attention to the existing sources of funding.
Fernando continued: “One of the key reasons we had a trade surplus was because in June, fuel imports fell from about US$ 400 million to 200 million dollars, and that’s how this surplus came about.”
However, according to him, “the worry here is less domestic but more external. Right now, there is a lot of concern about whether there would be a global recession.”
“Suppose there is an escalation of geopolitical tensions and concerns about some level of conflict ensuing as we saw with the Russia-Ukraine conflict, then commodities could also pick up based on this level of volatility,” he cautioned.
On the likelihood of an IMF bailout in the form of bridging finance, Fernando explained: “When it comes to the IMF, one has to perceive it in two different timelines. The Central Bank, the Ministry of Finance, the Treasury and the IMF have to agree on specific benchmarks and the way forward, in terms of the critical reforms needed and debt sustainability.”
It was his perspective at the time that “a strong staff level agreement might send out the right signals that could give some confidence to possible bilateral or multilevel partners to think of new financing mechanisms.” But he qualified this by saying it is merely a hypothesis.
Concluding his interview, Fernando shared this final insight – that to secure stability, a common framework needs to come into fruition because it’s not only the next six months that needs to be considered.
With or without an IMF programme, there will be key changes that the economy will have to go through for the reform that needs to take place. Otherwise, the economist warned, “we will be in the same spot without moving forward.”