An economic model that ensures a fair distribution of vital benefits – Economist


A pragmatic alternative economic model that promotes sustainable growth and ensures an equitable distribution of economic benefits to people should be implemented to overcome the recurring debt crisis triggered by a lack of foreign exchange reserves, said Senior Professor, Department of accounting, University of Sri Jayawardenepura, Prof. Anil Fernando.

He said that although some try to pretend that our economy is on the right direction, it is currently facing a major external debt crisis.

The perpetual practice of successive governments of borrowing to repay loans, unnecessary and unproductive investments in the name of development projects, corruption, sluggish economic growth and insufficient foreign exchange earnings have led to a gradual deflation of the status of foreign exchange reserves. .

According to Central Bank statistics, the country needs USD 8,745.4 million to settle foreign loans and interest within one year from 1.2.2021 to 31.1.2022.

The total official foreign reserve assets available at the end of February 2021 was only $ 4,555.7 million. This is a high risk situation which has led the international debt rating agencies to lower Sri Lanka’s external debt repayment capacity to CCC +, which is just above the default level.

“Foreign investors withdrawing their money from the Colombo Stock Exchange are another indication that Sri Lanka does not have sufficient foreign exchange reserves to manage the external sector and therefore there is a great risk that the exchange rate will start. to fly away soon when the ability to maintain it reaches its tolerable limit, ”said Professor Fernando.

Another indication of this crisis, he said, is the low quoted prices for Sri Lanka International Sovereign Bonds (ISBs) traded on the secondary bond market. For example, a Sri Lankan ISB with a face value of $ 100 that matures in January 2022 is only trading at $ 74.25, providing investors with a return of over 50%. Therefore, the government cannot even think of raising dollars by issuing new ISBs at such a cost.

If policy makers are not keen to solve the problem with popular support at this point, they will not have many options, other than to submit to countries offering bailouts for their own economic and geopolitical strategies. or to sell domestic resources to foreigners for dollars. Even though policymakers claim that foreign investment can be attracted, a conducive environment for foreign investment to boost investor confidence is not seen in Sri Lanka.

“Merely dismissing economic realities through the media and hiding the real issues will not solve the problem,” said Professor Fernando, adding that the strategy of financialization coupled with modern monetary theory (MMT) by policymakers policies is not conducive to the economy. when there is no comprehensive master economic plan implemented to stimulate local production and aggregate demand in the country, subject to other limitations of MMT. The excess money injected into the economy could sooner or later trigger inflation and even create a financial bubble in the future.

“Therefore, it is of paramount importance for the government to face this reality and seek the cooperation of every citizen to solve this problem through an economic plan and a model that encourages people to engage in the production, optimally uses technology and ensures a fair distribution of economic benefits instead of opening the way for crooks and reds to rob the nation, ”said Professor Fernando.

He said implementing autonomous strategies to manage day-to-day affairs would be counterproductive. There are no short and quick answers to the eternal problem that prevails due to the bad economic policies adopted by successive governments.

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