Sri Lanka’s Debt Restructuring Roadmap: Following the Evidence
Sri Lanka’s recently gazetted domestic debt restructuring (DDR) exercise has drawn expressions of both support and criticism. Overall, negotiations have to be framed within certain desired outcomes to minimise costs to the economy. To this end, Sri Lanka’s negotiating stance dovetails neatly with crucial research evidence.
Has Sri Lanka’s Crisis-driven Import Controls Incentivised Import Substitution?
In response to the economic crisis, Sri Lanka implemented import controls that expanded significantly by the end of 2022, accounting for approximately 30% of the country’s total import value. But were they necessary or the easiest option? Were they applied optimally to limit damage on growth? Did they distort incentives, thereby promoting domestic production of substitutable products? To shed light on these questions, a comprehensive analysis was conducted using eight waves of import controls. The government’s objectives varied, ranging from curbing currency outflows to promoting domestic production as import substitutes. It is crucial to assess the long-term impact on incentive structures. In this blog, the authors delve into the complexities of Sri Lanka’s import controls, providing insights into their necessity, optimal application, and unintended consequences.
Overcoming Obstacles: The Economic Case for a Sri Lanka-Thailand FTA
In 2019, only 6% of tea imported by Thailand was from Sri Lanka. This low percentage can be attributed to the difference in preferences and Thailand’s high tariffs of 90% on imported tea, which act as barriers to Sri Lanka’s tea exports. Additionally, Thailand imposes up to 30% tariffs on nearly 120 product lines of wearing apparel. These high tariffs for products with a comparative advantage are not exclusive to Sri Lanka. Thailand also faces higher tariffs for vehicles, rubber, and light-electronics exports which Thailand exports competitively. This tariff structure hampers the bilateral trade of products with a higher comparative advantage for both countries. Despite these challenges, Sri Lanka and Thailand have expedited the process of signing a free trade agreement (FTA) to boost bilateral trade by threefold to USD 1.5 billion. This article discusses the trade effect of an FTA and a way forward to maximise the gains from an FTA.
Taxing Tobacco: Why the 2023 Budget Should Increase Tobacco Taxes
Sri Lanka’s economy is at a critical juncture where urgent steps are needed to improve the country’s fiscal position. The Institute of Policy Studies of Sri Lanka (IPS) has maintained that increasing tobacco taxation has undeniable health and fiscal benefits. Among the benefits of increasing tobacco taxes are the generation of additional revenue for the government, widespread support among the public for an increase in tobacco taxation, and the reduced burden on Sri Lanka’s struggling health system. In this context, policy solutions, such as taxing tobacco which can be leveraged to boost government revenue without threatening economic growth, are essential. This blog argues that the 2023 Budget should introduce a model of indexation which automatically links tobacco taxation rises with the size of the economy and inflation. This would raise substantial additional revenue from the excise tax on cigarettes.
Driving Policy Action in Sri Lanka from Economic Crisis to Recovery
The Institute of Policy Studies of Sri Lanka (IPS) held a seminar on 25 October 2022 to coincide with the release of the Institute’s annual flagship report, Sri Lanka: State of the Economy 2022, on the theme Driving Policy Action from Crisis to Recovery. Dr Nandalal Weerasinghe, Governor, Central Bank of Sri Lanka and Mr K M Mahinda Siriwardana, Secretary to the Treasury/Ministry of Finance, Economic Stabilisation and National Policies, delivered the keynote addresses. Dr Dushni Weerakoon, Executive Director, IPS, made a presentation to mark the release of the Sri Lanka: State of the Economy 2022 report. Mr R H W A Kumarasiri, Director-General, Department of National Planning and Mr E A Rathnaseela, Addl. Director-General, Department of National Planning chaired/moderated a session on ‘Policy Action for Shared Sustainable Growth: A National Policy Framework’. Under this theme, senior IPS researchers Dr Nisha Arunatilake, Director of Research, Dr Ganga Tilakaratna, Research Fellow and Dr Manoj Thibbotuwawa, Research Fellow, made presentations.
Demystifying Hawala/Undiyal – The Not So Dismal Science:[…] believed that informal fund transfer operations in Sri Lanka have expanded considerably due to the wide gap between the…