Having weathered a challenging period marked by a deep economic crisis, Sri Lanka is now demonstrating positive signs of an economic upturn. Still, amidst limited homefront policy alternatives against an unfavourable global backdrop, a critical question arises: how will Sri Lanka’s external sector cope in the face of these challenges?
Notably, import controls, initially imposed in response to the dearth of foreign exchange liquidity in the domestic market, are being largely eased. The government is actively seeking to forge partnerships with regional giants, aiming to strengthen trade relations through Free Trade Agreements (FTAs). Nevertheless, in the broader global context, the rise of geopolitical rivalries, slow growth and contracting demand in key markets create multiple uncertainties for Sri Lanka’s external sector recovery.
The palm oil industry in Sri Lanka has been a vital policy initiative aimed at reducing palm oil imports and boosting the economy. Oil palm cultivation was allowed initially to reduce reliance on imported palm oil, but concerns over environmental and health impacts led to a decision to phase out cultivation within ten years. In this Q&A Explainer with Author, Dr Erandathie Pathiraja, Research Fellow at the Institute of Policy Studies of Sri Lanka (IPS), provides valuable insights into the recently published IPS study, ‘Palm Oil Industry in Sri Lanka: An Economic Analysis’. Dr Pathiraja shares her perspectives on the reasons behind the ban on oil palm cultivation, the potential impact on the economy and environment, the industry’s economic contributions, environmental concerns and their mitigation, health issues related to edible oil consumption, and alternative solutions to meet the local edible oil demand. The study authored by Dr. Erandathie Pathiraja, Ruwan Samaraweera, Hiruni Fernando, and Jaan Bogodage, offers a comprehensive analysis of the economic and environmental impacts of the palm oil industry in Sri Lanka.
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.
Ceylon Cinnamon is now in the register of Protected Designations of Origin and Protected Geographical Indications (PGI) and it was published in the Official Journal of the European Union. Can we similarly market and protect distinctive Sri Lankan products such as Ceylon Tea, Ceylon Blue Sapphire, Ruhunu Curd, Dumbara Mats, Ambalangoda Masks and so on? Yes, marketing and protecting geographically unique products are possible by implementing a robust GI system with local registration to support obtaining international registration and protection.
The ongoing Bangladesh-Sri Lanka discussions on a preferential trade agreement (PTA) will benefit from knowing the potential gains from reducing bilateral trade costs. Ex-ante estimates predict modest gains for Sri Lanka and Bangladesh in absolute terms, even after completely removing the sensitive list. Given that the estimated modest economic gains of a Bangladesh-Sri Lanka PTA do not justify a trade deal that requires substantial resources for negotiations, the PTA should have fewer regulatory measures and tariff concessions for the products on the offensive lists to maximise the economic benefits of a PTA.