IMF Extends Sri Lanka’s Fund Facility 0 668

Manuela Goretti

Ms. Manuels Goretti who has almost 13 years of work experience in the International Monetary Fund currently is a Deputy Division Chief and Asia and Pacific Department and has held this position from February 2018 to date. Prior to this position Ms. Goretti was the Advisor to the 1st Deputy Managing Director for a little over two years.

She has served as Deputy Chief in the office of Risk Management Senior Economist European Department and Economist in Emerging Markets. She has experience in country assignments in Haiti, Romania and Bulgaria, Greece, Turkey, Poland, Peru and Portugal.  She led the IMF staff Mission to Sri Lanka in February 14- 28, 2019 to undertake Fifth Review of Extended Fund Facility (EFF) supported Economic Reform Program of Sri Lanka in February 2019.

The IMF mission expressed optimism and predicted that economy is gradually stabilizing, however had to re-calibrate their own projections in two instances on the back of poor economic data and fiscal slippage from its original targets. Economic growth outlook for 2019 is expected to improve to about 3.5 percent from 3 percent in 2018. Inflation has regained in January and is projected to reach 4.5 percent in 2019. The current account deficit widened to 3.2 percent in 2018 but is expected to narrow in 2019 benefiting from the recent exchange rate correction.

The Mission noted that the primary surplus in the Budget in 2018 fell short of the program target due to weak revenue mobilization.  The mission further noted foreign exchange reserves target missed by sizable margins.

The staff mission also observed that sustain fiscal consolidation through revenue effort and prudent spending is priority and welcomed government commitment to raise primary fiscal surplus to 1.5 percent of GDP in 2019 and reduce the budget deficit to 3.5 percent of GDP in 2020 and 2 percent of GDP over the medium term by adopting sound fiscal rules and new medium term debt strategies.

The Mission emphasized the need for a concerted effort by all stakeholders to preserve the gains of the economic reform program, support macro-economic stability and strengthen the economic resilience considering the high level of public debt and low international reserve buffers.

The Mission highlighted the need for an improved transparency, accountability and cost efficiently of large state owned enterprises. It also advised government to move forward with plans to bring Sri Lankan Airlines on sound commercial and financial footings and has insisted upon completing energy pricing reforms in order to address fiscal risks.

The staff team endorsed the commitment of the Central Bank to rebuild international reserve buffers and allow exchange rate flexibility. However, rapid slippage in the rupee and cost escalations has pushed the government to reign back the free fall with new fiscal measures on consumer imports.

It advised the Central Bank of Sri Lanka to continue to maintain a prudent and data dependent monetary policy, and stands ready to tighten policy rate inflationary pressures which re-emerged.

The team also emphasized the need for the government’s consistent implementation of the Inland Revenue Act and the modernization of the Inland Revenue and Customs Departments.

The Mission in its deliberation left three messages with the Government

  1. Revenue based fiscal consolidation and state enterprise reforms are needed.
  2. A prudent policy mix and exchange rate flexibility to rebuilt foreign exchange reserves are critical to strengthen resilience and market confidence.
  3. Strengthening institutions and fast tracking structural reforms can lay the foundation for strong sustainable and inclusive growth in Sri Lanka.

The IMF staff mission agreed to the government’s request to extend the EFF arrangement for an additional year to allow more time for the completion of the economic reform agenda. The IMF Board of Directors is expected to consider Sri Lanka’s request favorably in 2019.

By: BiZnomics Special Economic Correspondent

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The Price We Pay For Not Understanding The ‘Price’ 0 798

In the book titled ‘Marx’s ‘Theory of price and its Modern Rivals’, Sri Lankan born and educated Prof. Howard Nicholas exposes the flaws in the many theoretical debates in money, price and inflation. This he does by revealing the inconsistencies and contradictions in economic theories submitted to explain price. This is nothing new in Sri Lanka and many developed countries attributable to the fact the certain economists, due to a false understanding, are misled on what price is all about. Therefore, let us examine this false interpretation and try to understand the real parts that from PRICE which we play in commerce.

According to Prof. Nicholas, Orthodox economists starting with David Ricardo have not quite understood the concept of ‘price’ and how it is computed. He argues that the explanation of price by Marx, who had a deep understanding of the capitalist system, is more logical and clear. To understand Price we have to first understand how commodities bearing a price tag are produced and marketed. Prof. Nicholas who refers to this process as the- Production Cycle’ explains that present day economists go astray since at the outset they focus only on the process of exchange, assuming individuals are naturally endowed with commodities. This mistake causes them to ignore cost of production and focus on individuals and their choices when explaining prices.

A second important point made by Prof. Nicholas in his book is that when explaining price, from the outset we need to bring money into the picture. This is, to explain prices as money- prices. When products calculate the values of their commodities, they do so in terms of money thereby setting money prices. Buyers of goods in markets make payment in accordance with these money- prices. According to economic orthodoxy, the prices that matters are relative prices. That is, the price of one product in terms of another and not in terms of money. In fact, although this may not be so apparent when reading standard economics text books, money has no role to play in the basic explanation of prices. It only makes its appearance when macro-economic phenomena, in particular the aggregate level of prices are considered.

The third major argument prof. Nicholas advances is that the basis for explanation of cost of production of the commodity as its money cost of production, needs to be seen as the labour time spent in production. This is what Marx referred to as the value of commodity. Labour time spent in production amounts to money costs, when money represents labour time by itself. This happens when money is used by producers, to depict the value of the product. The importance of explaining prices is perhaps best been by producers, to depict the value of the product. The importance of explaining prices is perhaps best seen by the present downward pressure on global prices, resulting from the massive technological change across the globe. Despite unprecedented levels of printing of currency by Central Bank of major countries, world inflation rate has continued to fall down. This underlines the importance of labour productivity in explaining price, and the incorrect explanation of money and price by economists. It may also be the clearest practical support for Marx’s price theory as seen by Prf. Nicholas

By : Dr Kenneth De Zilwa

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Global-Outfront

President Trump offered to meet North Korean leader Kin Jong Un at the demilitarised zone following the G 20 Summit raised prospects for a third face to face meeting between the two leaders.

G -20 Osaka Summit 

14th G-20 Summit – a forum of 19 member countries and European Union was held in Osaka, Japan 28 -29 June 2019 with the participation of heads of G 20 Governments. International Monetary Fund, Asian Development Bank (ADB), International Labour Organization (ILO), Organization for Economic Corporation and Development (OECD), United Nations (UN), World Bank (WB), World Health Organization (WHO), World Trade Organization (WTO), represented in the summit by their respective heads of Institutions. 

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Collectively G 20 nations represent more than 80 percent of global output and 2/3 of its people. Easing the global tension centred around US – China trade dispute, President Trump announced that he has agreed to allow US companies to sell high tech components to Chinese telecommunication giant Huawei. He also announced that China will buy more US farm goods. US President indicated that US will call off raising tariff on Chinese goods and negotiations to end the trade dispute between two countries will continue.

Prime Minister Abe who hosted the G 20 Summit explained that global leaders have affirmed free and fair and inclusive economy and open competition are the principals to lead the world economy in future.

Global-Outfront
Source: IMF Economic Outlook

 

 

Global Outfront
Source: IMF Economic Outlook

 

As estimated by IMF total GDP of G20 nations of nearly USD 60 trillion account for 78 percent of the world total GDP of USD 88 trillion. In terms of population, G20 nations is estimated to have 4.6 billion people in 2019 accounting for 61 percent of the world total population of 7.5 billion. China takes the lead with 31 percent and India accounts for 29 percent making two emerging nations in Asia having 60 percent of the population of G20 nation.

By: BiZnomics research team

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