Sri Lanka

A Fiscal Council for Sri Lanka: Pathway to Regaining Fiscal Credibility

Sri Lanka was once considered a development success story. But within the last few decades, this legacy was lost to governance failures and economic mismanagement. In recent years, the country has been characterised by a glaring lack of fiscal discipline reflected in the inability to raise sufficient revenue even to cover current spending. In this context, institutions have a major role to play in ensuring that governments do not fail. Effective institutions can (1) assure the provision of quality services which is essential for eradicating poverty and promote shared prosperity; (2) guarantee high-quality public spending and minimise corruption; and (3) ensure that all citizens benefit from economic growth and that development is not lop-sided. With this understanding, this blog discusses how a Fiscal Council (FC) can help Sri Lanka regain fiscal credibility and improve its overall economic performance.

Sri Lanka’s Runaway Inflation and the Limits of Monetary Policy

Having kept monetary policy too loose for too long, Sri Lanka started its tightening cycle in August 2021. It signalled firm intentions to regain the Central Bank of Sri Lanka’s (CBSL) focus on price stability by engineering a reduction in demand through high interest rates and withdrawing liquidity from the economy. Effectively, in the current dire growth outlook for Sri Lanka, the policy intention means forcing a recession to tame inflation. In choosing between the options of an aggressive hike that will lead to a recession or tolerating a prolonged inflationary spiral bordering on hyperinflation, the former is preferable. Once inflation takes hold, the damage can be corrosive, especially its deeply regressive impacts on lower income households. But a contractionary strategy to suppress demand will not achieve the desired outcomes if (a) inflation expectations are not well anchored and people expect rapid price increases to continue, and (b) supply side factors remain unaddressed.

Sri Lanka’s Deepening Economic Crisis: The Plight of the Poor

Empty supermarket shelves, endless queues to buy essentials and overnight camping around fuel stations are now regular sights in Sri Lanka. As the economy continues to plummet with no viable short-term solutions in sight, levels of frustration among the citizens continue to rise. The country’s worst economic crisis since independence has battered Sri Lankans from all walks of life but the fallouts are impacting the poor with greater intensity. If urgent measures are not taken to support the most vulnerable at this time, more Sri Lankans will slip into poverty thus increasing intergenerational poverty in the long term. This blog identifies some of the most pressing challenges faced by the poor and vulnerable amidst the prevailing crisis and outlines policy options to safeguard their well-being.

Good Riddance to the FBR: What Next to Increase Migrant Remittances to Sri Lanka?

The decision by the Cabinet to partially lift the Family Background Report (FBR) requirement for female migrants is long overdue and a welcome move to promote female labour migration from Sri Lanka. The FBR policy was introduced in June 2013 to restrict females with children under the age of five and to discourage females with older children from taking up foreign employment. The FBR initially covered only female domestic worker departures but in August 2015, this was expanded to cover all females. As a result, from 2013 onwards the dominance of women among worker departures declined significantly. The partial removal of this discriminatory requirement is likely to increase female departures by enabling women to decide independent of their maternal status while minimising delays and vulnerability in the recruitment process. However, to reap the desired outcome of more remittances, the new stock of females departing for foreign employment in the absence of the FBR must be convinced to remit through formal channels.

Sri Lanka’s Food Crisis: What is the Role of Imports?

Food security has become a pressing concern for many Sri Lankans amidst a deepening domestic economic crisis, drastic loss of rice production, and post-Ukraine crisis commodity price surge in the world market. International organisations have started humanitarian programmes targeting the country’s most vulnerable citizens, while policymakers are pushing for increased domestic food production. Meanwhile, Sri Lankan households are bracing for a looming food crisis. Google search data shows a renewed interest in food security and home gardening-related search terms by Sri Lankans. Against this backdrop, this article assesses the role of imports and trade policy in safeguarding the food security of Sri Lanka.

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