Dynamics of economy and managing threats versus opportunities

With the world struggling to overcome the impacts of the Economic and Financial crisis, Sri Lanka, given its own exposure to global order or disorder, also faces challenging times.
Sri Lanka was fortunate enough to shield itself from the early impact of the global crisis in 2008, and thereby, managed to post a 6% Economic growth. However, the country had begun to experience the true cost of the international meltdown.
Though the country’s financial system may not be overly exposed to its volatile global peers, the Recession in Sri Lanka’s Exports markets has had checked a robust performance in Exports.
For example, export earnings dropped by 28% in April 2009, to US$ 438 million, reflecting reductions in all major sectors, while cumulative earnings declined by 16% to US$ 2 billion. The Apparel Sector, which was the silver lining in the first three months, saw its fortunes reversed in April, with earnings declining by 10% to US$ 227 million in April 2009.
The Apparel Industry remains “cautiously optimistic” about prospects for Exports during rest of 2009, but uneasy signs are growing. A ray of hope is the forecast that the Recession in the US is almost over, though problems within EU markets remain a concern. Most exporters pin their hopes that consumer purchasing power would improve in latter months of 2009, arising out of the respective stimulus packages in the US and EU.
The decline in Imports, by 37% to US$ 2.89 billion is also reflective of the impact of the global crisis. What is of concern is the 23% dip in Import of investment goods and 45% plunge in intermediate goods in the first four months. This points to a likely subdued scenario for Economic and Exports activity in the months to come. A redeeming feature, however, is the contraction in Trade Deficit by 61% to US$ 806 million during the first four months of 2009, in comparison with a high US$ 2 billion for the corresponding period of 2008. Economists have warned that, though this may be a temporary cushion, the real comfort would be an improvement in Exports, as well as a pick up in receipts in Tourism earnings.
The Government has set in motion a stimulus package for Exports, while last week, the country saw the launch of a new Tourism push branded “Small Miracle.” These are welcome initiatives. However, given the existing challenges, as well as those future ones that will emerge in tandem with global and domestic developments, all relevant stakeholders need to remain focused in revitalising the engines or avenues of Economic activity.
The first quarter GDP growth of 1.5%, though very low, has been described as satisfactory, given the global contraction. Second quarter is forecast to be much better. Most multilateral agencies have painted a better growth scenario for developing countries including Sri Lanka. This view was further reinforced yesterday when a senior economist from HSBC Singapore, predicted a welcome 4% GDP growth for Sri Lanka.
Optimism stems from the hope that rebuilding North and East will be a natural stimulus for Sri Lanka. An overall resurgence in domestic demand is a key driver for turning around the Economy. This is certainly true, provided Sri Lanka Inc gets its act together and pursue that goal relentlessly as well as sincerely. After all, the much feared war is over and guns are silent. The regular Private Sector argument that, their own cash flows are under stress is valid, though finding financial space to make prudent, timely and early Investments is a basic norm in professionally run Businesses.
In times of Economic crisis, flexibility in complying with stringent Labour laws must be considered as well. For example, last week, Employer’s Federation of Ceylon Director General Ravi Pieris noted that, while Sri Lanka has a Social policy of a developed country, the Economic policy, on the other hand, is of a developing country, in terms of its Labour laws. On the other hand, in times of crisis, the Private Sector must shed excess fat as well.
The Financial Sector needs to be proactive as well, in supporting willing Businesses to expand. The Government, despite its own fiscal constraints, need to cut down unnecessary and wasteful expenditure, and focus on a greater degree of Public Investment. Sri Lanka also must strike greater success in wooing Foreign Direct Investment, considering the fact that Vietnam, in 2008, drew a massive US$ 11.5 billion, as opposed to our figure of US$ 1 billion.
Midst slowdown in External Trade, depressed Domestic Demand and Job Losses, thereby, a much poorer populace, Sri Lanka, as one nation, can ill afford to sink in deeper, but wake up, be proactive and, as the saying goes, ‘make things happen, rather than wait till things happen.” Failure will only aggravate the existing challenges, and the country, as a whole, losing the immediate post-war opportunity.