Business
‘A coupon system that enforces quotas and rationing will not solve the balance of payments problem’
The media has reported that the government intends to implement a system of quotas for imports and the rationing of food and fuel. This is the latest in the long list of interventions over the last two years to address the growing balance of payments problems. Similar to previous measures this too only addresses the outward manifestation of a larger problem in the economy, but not its origin. Therefore, this policy measure too will ultimately prove futile.
The government took the right step a couple of months ago when they withdrew price controls on a few selected goods in the markets. Instead of further quotas and controls, what is needed now is to withdraw from further interventions in the financial and foreign exchange markets.
Sri Lanka has imposed an ever increasing web of controls on imports since April of 2020 but the trade deficit remains stubbornly high. In the period January-October 2021 imports rose by 26.5% and the overall trade balance grew by 34% to $-6,498m. This is despite a strong performance by exports, which rose 22.1%. The issue is not with exports but with imports caused by excess demand within the economy.
The government is running an extremely loose monetary policy, artificially holding down interest rates through interventions by the Central Bank. They are also running a large fiscal deficit, financed by Central bank credit or money printing. It is these two factors that are fueling domestic demand and as a result the spiral in imports. Curing the malady requires addressing its root, any other solution will at best only provide temporary relief.
Quotas and rationing – this is what a coupon system entails are cumbersome and costly to implement. They are also prone to corruption. Rationing will inevitably create black markets as coupons obtained by those best placed to acquire them are traded.
Existing import restrictions are hurting domestic trade, exports and consumers who face rising prices as a result of the shortages. People often characterise movement towards a larger trade deficit as “worsening,” this terminology is flawed and reflects a failure to appreciate that both imports and exports are beneficial for the smooth function of an economy.
Buying goods and services more cheaply than it costs to produce them at home, the nation benefits from imports. By selling goods and services in world markets, at higher prices for them than it could earn by selling only at home it benefits from exports.
What a country can produce is determined by the available resources. This also determines the standard of living of a country. Given the limitation of a fixed set of resources, if a country attempts to produce every single item that it needs it may not be very efficient in the way it utilises scarce resources. Shutting itself off from imports restricts the available inputs to local production.
There may be some things that can be produced efficiently while there may be others that do less well. It makes sense to allow a country to produce the things that it has a relative advantage at producing, and import what it does not. Thus imports are necessary for the growth of exports.
The proposed imposition of quotas will damage the economy even further and increase the suffering of citizens. The government needs to address the fundamental problem; tighten monetary and fiscal policy, free the currency and draw up a proper recovery plan that can prevent even further deterioration.
This will undoubtedly cause a shock – but will then allow trade and economic activity to resume. The alternative however is far worse; suppressing the symptoms of the disease will also stifle economic activity resulting in a slow, certain impoverishment with no hope of growth.
Advocata is an independent policy think tank based in Colombo, Sri Lanka. We conduct research, provide commentary and hold events to promote sound policy ideas compatible with a free society in Sri Lanka. Visit advocata.org for more information.
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Yasodhara Kariyawasam
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Email: yasodhara@advocata.org
The Delegation of German Industry and Commerce in Sri Lanka (AHK Sri Lanka) proudly facilitated the first-ever Sri Lankan delegation’s participation at Drupa 2024, the world’s largest trade fair for the printing industry and technology. Held after an eight-year hiatus, Drupa 2024 was a landmark event, marking significant advancements and opportunities in the global printing industry.
AHK Sri Lanka played a pivotal role in organising and supporting the delegation, which comprised 17 members from the Sri Lanka Association for Printers (SLAP), representing eight companies from the commercial, newspaper, stationery printing, and packaging industries. This pioneering effort by AHK Sri Lanka not only showcased the diverse capabilities of Sri Lanka’s printing sector but also facilitated vital bilateral discussions with key stakeholders from the German printing industry.
Business
Unveiling Ayugiri: Browns Hotels & Resorts sets the stage for a new era in luxury Ayurveda Wellness
In a captivating reimagining of luxury wellness tourism, Browns Hotels & Resorts proudly unveiled the exquisite Ayugiri Ayurveda Wellness Resort Sigiriya. This momentous occasion, celebrated amidst a vibrant and serene grand opening on the 6th of June, heralds a new chapter in the Ayurveda wellness tourism landscape in Sri Lanka. Nestled amidst 54 acres of unspoiled natural splendour, Ayugiri features 22 exclusive suites and stands out as the only luxury Ayurveda wellness resort in the country offering plunge pools in every room, rendering it truly one-of-a-kind.
The grand opening of Ayugiri Ayurveda Wellness Resort was an enchanting event, where guests were captivated by the melodies of flutists and violinists resonating through Sigiriya’s lush landscapes. As traditional drummers and dancers infused the air with vibrant energy, Browns Hotels & Resorts’ CEO, Eksath Wijeratne, Kotaro Katsuki, Acting Ambassador for the Embassy of Japan and General Manager, Buwaneka Bandara, unveiled the resort’s new logo, marking a significant moment witnessed by distinguished guests from the French Embassy, Ayurveda and wellness enthusiasts along with officials from the Sigiriya area, LOLC Holdings and Browns Group.
“Our strategic expansion into wellness tourism with Ayugiri Ayurveda Wellness Resort Sigiriya symbolises a significant milestone for Browns Hotels & Resorts. Wellness tourism has consistently outperformed the overall tourism industry for over a decade, reflecting a growing global interest in travel that goes beyond leisure to offer rejuvenation and holistic well-being. By integrating the timeless wisdom of Ayurveda with modern luxury, we aim to set a new standard in luxury wellness tourism in Sri Lanka. Whether your goal is prevention, healing, or a deeper connection to inner harmony, Ayugiri offers a sanctuary for holistic well-being” stated Eksath Wijeratne.
Ayugiri encapsulates the essence of life, inspired by the lotus flower held by the graceful queens of the infamous Sigiriya frescoes. Just as the lotus emerges from the murky depths, untainted and serene,
Ayugiri invites guests on a journey of purity and rejuvenation, harmonised with a balance of mind, body and spirit, the essence of nature, echoes of culture and the wisdom of ancient Ayurvedic healing.
HNB General Insurance, one of Sri Lanka’s leading general insurance providers, has been honored as the Best General Bancassurance Provider in Sri Lanka 2024 by the prestigious Global Banking and Finance Review – UK.
The esteemed accolade underscores HNB General Insurance’s unwavering commitment to excellence and its outstanding performance in the field of bancassurance. Through dedication and hard work, the HNB General Insurance team has continuously endeavored to deliver innovative insurance solutions, cultivate strong relationships with banking partners, and provide unparalleled service to customers nationwide. This recognition is a testament to the team’s dedication and relentless pursuit of excellence in the bancassurance business.
“We are honored to receive this prestigious award, which reflects our team’s tireless efforts and dedication to delivering value-added insurance solutions and exceptional service through our bancassurance partnerships,” said Sithumina Jayasundara, CEO of HNB General Insurance. “This recognition reaffirms our position as a trusted insurance provider in Sri Lanka and motivates us to continue striving for excellence in serving our customers and communities.”
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