Trade and Economic Competitiveness

The need of the hour is not generic SME development/support initiatives, but rather to quickly foster more export-ready or near export-ready firms, from among the SMEs in the country. Amidst the current forex crisis, boosting the cohort of exporting firms and expanding export-earning potential is a top priority. For this, there needs to be a closer link between GoSL institutions/programmes supporting export development and those supporting SME development. For a start, the Government should advise the consolidation of NEDA, IDB and EDB’s Regional Development Division. These entities should become a single agency, that is smaller, sharper, and with a clear and unambiguous mandate. That mandate must be to improve SME competitiveness towards creating more export-ready and near export-ready firms.

CSF Co-founder Anushka Wijesinha was recently invited by the London School of Economics South Asia Centre to speak at a forum on 'Looking Ahead in Sri Lanka', alongside four eminent panelists. This article recaps the key points made in the opening intervention at this event. Wijesinha pointed to four key priorities for the near-term: 1) Looking beyond the macro, to real lives; 2) Looking beyond taxation in fixing the fiscal mess; 3) Looking to build public confidence and trust; 4) Looking at quick wins in trade and exports

In this article on gender considerations in Sri Lanka’s free trade agreements, CSF Visiting Fellow Dr Janaka Wijayasiri argues that as the country begins to explore FTAs once again, it is timely to consider mainstreaming gender into Sri Lanka's trade policy and trade agreements taking into the gender inequality in the country. The article also explores international experiences and practices in gender mainstreaming of trade agreements, identifies ways in which to include gender considerations in trade agreements, and discusses the main problems in effectively mainstreaming gender into trade agreements and how to address them.

In May 2022, the Sri Lanka – Singapore Free Trade Agreement (SLSFTA) marked four years since coming into force - an FTA that was a landmark one for Sri Lanka in many respects. It was the country’s first bilateral free trade agreement (FTA) in over a decade, the first FTA with an ASEAN country, and the first ‘comprehensive FTA’ in the country’s history, which meant that it went beyond goods, to include services, investment, and economic and technology cooperation. This Working Paper reviews bilateral trade performance, explains some of the key domestic economic policy contexts during and after the FTA was signed, discusses some of the key issues that emerged, and takes an initial look at prospects. Research for the paper was drawn not only from published grey material but also from extensive primary interviews with key informants. Insights shared in this paper would be of particular relevance now, following the bilateral meeting between the Sri Lankan President and the Singaporean Prime Minister (on the sidelines of the former's visit to Japan), during which the two leaders recommitted to benefiting from the SLSFTA and advancing its implementation. This Working Paper is produced under the 'Trade and Economic Competitiveness' thematic pillar of CSF, and is co-authored by Anushka Wijesinha (Co-founder, CSF) and Janaka Wijayasiri (Visiting Fellow, CSF).

Earlier this year, Sri Lanka’s census and statistics department released a new version of the country’s Gross Domestic Product (GDP) calculation. The existing National Accounts had been ‘rebased’ from the year 2010 to the year 2015. In explaining the re-basing, the department noted that “a number of improvements” to GDP compilation was done, the first item on the list was ‘Inclusion of generated value addition from the reclaimed land of Colombo Port city project’. The fact that the creation of an 269 hectare artificial land parcel attached to the capital, with sand extracted from nature, materially changed the country’s GDP base was startling. It triggered within us, again, a growing discontent we have felt for a while on how we think about economic growth and an unease with how we assess progress. For some years now, stemming from a love for the natural world, interest in biodiversity, and enthusiasm for photography, we had begun to think about critical issues with our current approach to economic growth. Particularly, there was little appreciation for the value of nature - for instance the emerging agenda of the valuation of natural capital.

Even though much of the recent foreign media coverage of Sri Lanka’s economic crisis and external commentary or analysis of it has focussed rather narrowly on the policy missteps in the last two years, the country’s economic problems have been at least a decade in the making. The debilitating economic collapse Sri Lanka is experiencing today is in no small part due to the flawed economic model followed in the years after the end of the civil war in 2009. This article serves to provide an international reader with a more useful reference point for the recent origins, evolution, and dimensions of Sri Lanka’s economic crisis, and selected perspectives on the policy issues and path ahead. It is written largely from an economics lens, and would need to be read alongside work by others that focuses more closely on human rights, the environment, and social justice issues.

While steady growth in exports was recorded in the year 2021, Sri Lanka’s deepening economic crisis runs the serious risk of impacting the export recovery achieved to date. In March 2022, merchandise exports, consisting largely of industrial and agricultural exports, recorded a decline of 3.4% in earnings, compared to the previous year, due to a reduction in both volume and prices of exports. In addition to this, industry representatives predict a decline of about 20% - 30% in total exports as a result of the current crisis, with tea exports being among the lowest it has been in 23 years, and the apparel sector expecting a 20% - 25% drop in output by August 2022. Latest figures for June indicate that apparel sector has exceeded expectations and pre-Covid export numbers. In the context of the economic crisis, escalating now to a de facto lockdown across the country, understanding the challenges posed to the country’s external sector performance, one of Sri Lanka’s main sources of foreign exchange, is crucial. At present, exports of goods and services, which account for 17.7% of GDP as of 2021, have been adversely affected by several factors including most significantly, the worsening fuel and energy crisis.

Sri Lanka has let public financial management slip dramatically over the last couple of decades, resulting in weak government finances and the lack of fiscal space to support the economy during times of economic downturns and distress. As the ongoing public protests have also shown, people have lost confidence in the ability of successive governments to effectively manage people's money collected via taxes. As an IMF programme agreement draws closer, tax increases and spending cuts have already been implemented, and ad hoc changes to public sector work (like cutting down the working week by 1 day, with no change in pay) are tried out, more sustained and urgent reforms to public finance remain unfinished. In this discussion, an international public financial management (PFM) expert - who has worked in Sri Lanka and in over 14 other countries around the world - shares some insights on the challenge of PFM reform, the imperatives in doing it, and the need to couple it with meaningful civil service reform.

Across the world, the rise of digital technologies has been accompanied by attempts to regulate the use of these applications and their impact on society. The growing salience of cybersecurity and data privacy, alongside concerns over content moderation and facial recognition, have highlighted the need for governments and businesses to adopt stricter regulations to address the ethical, political, and legal issues related to the use of digital technologies, while simultaneously harnessing their social and economic potential. Regulating the digital domain is arguably one of the most important cross-cutting issues facing governments, with wide-ranging implications for businesses, civil society organisations, and the public. In this context, this paper seeks to understand the status of digital governance in South Asia, with a specific focus on Sri Lanka, India, Pakistan, and Bangladesh, which are the key Indian Ocean rim countries in this region. To that end, the research explores four major thematic areas - cybersecurity, data protection, artificial intelligence, and mis/disinformation - the choice of which is informed by their significance for South Asian countries.

Sri Lanka is in the throes of its worst economic crisis in post-independence history. While some reform areas have gained more traction than others (for instance, the debt restructuring), the critical state that the education sector is in has received relatively less attention; and this risks Sri Lanka’s future growth prospects. The government must strive to formulate a comprehensive action plan that is student-centric, in order to revive Sri Lanka’s education system and help students and teachers manage the current crisis. If the government does not address the concerns of its students, and provide immediate solutions to their needs, the country will not only see an entire generation of young people affected by lower educational attainment in crucial development years, but also experience a severe brain drain in the years ahead. While the country tackles macroeconomic stabilisation measures, it is vital to tackle the education crisis as well.