Major Current Challenges and Opportunities Faced by Sri Lankan Economy

Sri Lanka has already received the first tranche of IMF loan and currently in the process of finalizing the debt restructuring (International as well as domestic).

When it's come to foreign debt restructuring coming to an agreement with our main bilateral lender China has become a major challenging task and currently officials are working to onboard China to the main discussion forum with Paris Club members as well as with India. However, this will be a challenging process and will be subject to tough negotiations.

However, though we are still in the recovery path , it is safe to say now we have passed the worst period when we compared the current situation with the previous year. However, which does not mean that same thing cannot be repeated again (If we do the same old mistakes).

From the positive side, with the approval of the IMF now we have the option of taking financing from multilateral agencies such as ADB,World Bank as well as from other bi -lateral lenders. Expectation is to get around USD 4.0 Bn - USD 5.0 Bn from these sources.

Also, now the tourism industry is showing a good recovery and during the first three months of the year monthly arrivals have crossed 100,000 mark continuously and also there is a high chance that April arrivals to cross the 100,000 mark (During the first week of April tourist arrivals have crossed 26,000 mark). Currently monthly earning from tourism industry has increased to USD 198 Mn and with this trend, the country is expecting approx. USD 2.0 Bn - USD 2.5 Bn from tourism in this year.

Also, during the past few months our stock market has performed well and this year CSE is among the best performing markets in the region. With the IMF disbursement as well as considering the ongoing fiscal reforms this trend is expected to be continued.

Also, rupee has appreciated against the USD in this year and exchange rate is expected to settle at the current levels in the short run.Also, now almost all the banks have come out with the FX liquidity issue and inter-bank USD liquidity levels have now crossed the per-crisis level.

Furthermore, with the ongoing fiscal reforms (Change in taxes, increased tariff), government revenue is increasing and burden created by SOE's to the economy is being gradually removed.Also, with the proposed divestment of the few SOE's, government is expecting to build up the reserves by USD 2.0 Bn - USD 3.0 Bn,

Inflation has started to come down and CBSL is expecting to have a single digit inflation by the year end. Also, with decreasing inflation as well as increased liquidity in the market, interest rates have started to come down and which is expected to comedown further and AWPLR to be remained around 18% during the second half of the year.

Another major positive factor is the turnaround in the worker remittances figure. March 2023 worker remittance figure has crossed USD 570 Mn mark for the first time since March 2021 and considering the number of people who have left the country for employment in last year (Approx, 300,000) as well as number of people who are currently leaving the country for employment (Approx. 25,000 per a month), this figure is expected to get the momentum to reach the per-crisis level (USD 700 Mn - USD 750 Mn per month)

If we consider the other challenges, slow down in the growth in USA ,UK as well as in the Euro Zone will have a negative impact on our exports as we have already seen a drop in volumes in Apparel exports. Also, as per the predictions made by the World Bank advance economies and emerging economies to maintain the economic growth at 1.3% and 3.9% respectively.

Also from the political front maintaining the political stability and implementing the reforms will be a key challenge in order to come out of this crisis/recovery process by next year.

Also, if we consider the international affairs, maintaining a good relationship with China and India by doing the balancing acts will be a huge challenge.

However, If we optimize the above given opportunities while having a good plan to face the challenges, we can have a good year in 2024 and can have a growth from there on wards.

If we succeed in this challenge by capitalizing our opportunities, we have a very good chance of becoming the first country which has recovered within a short period of time after defaulting foreign debt/ reaching almost bankrupt status.

-Dimuthu Heenpella-