In an independent and incisive take on Sri Lanka’s current external stability position, IPS Deputy Director argues that the build-up of external payments stress is a cumulative process, where the lines between external public debt, public-guaranteed external debt, and private sector external debt become blurred, and virtually disappear at times of external payments crises. The most prudent strategy to insulate an economy from rising exposure to foreign debt is to ensure a healthy growth in earnings from exports of goods and services, and build-up a ‘war chest’ of non-borrowed official reserves.

Based on a new Working Paper by IPS researchers titled ‘Incentivizing Foreign Investment in Sri Lanka and the Role of Tax Incentives’, this article argues that a key medium-term challenge facing the country is to find a balance between providing a competitive tax incentives regime to attract FDI and keeping tax foregone to a minimum in order to preserve domestic revenue.

Fiscal consolidation efforts as set out in the Budget 2013 were not entirely unexpected.[1] With revenue collection falling short of the target, adjustments to ensure that the deficit for 2012 remains close to the forecast 6.2% of GDP is to be brought about by a sharp cut back in public investment. Indeed, fiscal consolidation efforts [...]

An e-book of the ‘Sri Lanka: State of the Economy 2012’ containing summary information and visuals of the 7 key chapters is now available for free download. This e-book also contains links to a video presentation of the main highlights of the report.

As the European crisis led by Greece and Spain has significantly worsened over the last few months, the future of Europe seems ever more uncertain. With the decreasing possibility of a favorable outcome coming out of Europe, the impact of this crisis on the United States, China and emerging Asia is steadily increasing. Countries outside of the region have begun to plan ahead for a possible breakup of the European Union and all eyes seem to be on the EU at the moment – waiting to see how the situation will eventually manifest.