After four years, Sri Lankans have eagerly and peacefully celebrated the Sinhala and Tamil New Year festivals without any external disruptions in 2023. The last time the country celebrated New Year’s festivals without hindrance was in 2018.
The year 2019 was marred by the Covid-19 pandemic that started at the end of March that year with the identification of the first patient, and subsequent pandemic restrictions created a challenging environment throughout the next two years.
Similarly, in 2022, the social discontent that prevailed in society spoilt the festive mood of the citizenry.
Because of some of the timely, bold, and meticulous decisions of the present administration, the dire situation in the country with shortages of many essentials such as fuel, LP gas, and vital food imports was resolved to a creditable level.
The Wickremesinghe administration was able to manage all such critically pressing issues and defuse the tensions that prevailed then extremely effectively. Nevertheless, the country’s external finances diminished drastically, limiting much-needed foreign exchange.
First quota
The approval and receipt of the first quota of the extended fund facility of the IMF have given Sri Lanka the deeply needed breathing space on the dire external finance crisis. However, due to various urgent steps taken by the Government, the foreign reserves by the end of March stood at around US$ 3 billion, including the Chinese credit line, a substantial improvement comparatively.
However, the salient factor that the entire citizenry must understand is that the IMF facility is a tiny fraction of the solution, considering the current overall debt pile and the ongoing trade deficit. Sri Lanka has been facing an enormous trade deficit for many years, which has put pressure on its external finances. This situation intensified enormously starting with the Covid-19 pandemic, followed by other negativities that have taken place during the past three years.
Although expat remittances and tourism showed a significant improvement during the past few months, the crisis is far from over unless all possible resources are utilised to improve foreign earnings without delay. There are only a few pathways available for the country to earn foreign exchange profitably. All such segments have tremendous and perhaps unlimited potential in the global markets. Improving export markets and developing tourism are two of the most prominent ways for Sri Lanka to increase foreign earnings.
It is a universally known fact that Sri Lanka has a great potential for exports, thanks to its strategic location, limitless natural resources, and effective human capital. The agriculture sector is one of the main contributors to Sri Lanka’s exports. The country is well-known for its high-quality tea, which is one of the most popular beverages in the world. Sri Lanka is the fourth largest tea exporter in the world, accounting for around 13 percent (approximately US$ 1.3 billion per year) of the country’s total export earnings.
Meanwhile, initiatives must be taken by the authorities to promote the production and export of other agricultural products, such as fruits and vegetables, spices, and rubber. These initiatives could help increase the diversification of Sri Lanka’s export base.
In particular, minor export crops like cinnamon, cloves, pepper, sesame seed, cocoa, cashew nuts, and cardamom, which contributed around 14.5 percent of export earnings, have enormous growth potential internationally.
In the emerging global competitive environment, Sri Lankan minor export crops, especially cinnamon, cloves, and pepper, have experienced competitive positions in the world market. The opinion of industry veterans is that the support of consecutive governments for the minor export crop industry was somewhat lackluster compared to other major export products. Hence, it is time for the Government to pay undivided attention to this sector, which also has unlimited growth potential.
Apparel industry
Sri Lanka’s apparel industry has been a significant contributor to the country’s economy for several decades. Although the industry is experiencing a downward trend currently due to a few negative global market factors, apparel exports have seen considerable growth in recent years.
Sri Lanka’s apparel industry has significant opportunities for growth. The industry has a skilled workforce and a reputation for producing high-quality garments at competitive prices.
The industry has also been proactive in adopting new technologies and improving manufacturing processes. With the right investments and policies, Sri Lanka’s apparel industry can continue to grow and earn more foreign exchange. The industry can also explore new product categories and diversify its product portfolio.
However, in recent years, there have been significant threats of intensified competition emerging from countries such as Bangladesh, Vietnam, Cambodia, and a few others. Particularly, more relaxed, and investor-friendly employment regulations and low production and labour costs in such countries have had a large impact on Sri Lankan exporters.
Therefore, the authorities, in collaboration with industry stalwarts, should collectively address as many issues as possible to find the best solutions, simply because apparel exports can also contribute immensely to the improvement of Sri Lanka’s foreign exchange earnings.
Like exports, Sri Lanka has a significant potential for tourism-related industry growth. The country’s natural beauty, cultural heritage, niche tourism products, and sustainable tourism practices offer unique experiences for tourists.
Since the Easter Sunday incidents, followed by the pandemic and the country’s volatile political situation, the industry lost its momentum. The tourism sector was one of the hardest hit segments from incessant disruptions.
Given the right marketing strategies and investments in infrastructure, Sri Lanka perhaps has the best growth potential for tourism in the region.
The country has several unique offerings, such as ayurveda and wellness tourism, adventure tourism, and eco-tourism. The Government has launched initiatives to promote these niche tourism products and attract high-end travelers who are willing to spend more on unique experiences.
Drawback
With US$ 4.3 billion in earnings and a 4.3 percent direct contribution to the country’s GDP, the tourism industry became the third highest foreign exchange earner in 2018. Despite the near three-year drawback, tourist arrivals in 2023 have shown a significant spike, delivering a positive message to the industry. According to industry experts, there is no doubt that tourism can be brought back to its previous level in a short period of time and even go beyond it if the political situation does not hamper the ongoing momentum.
Unceasing political protests, strikes, and demonstrations, some of them intentionally aimed at international media, can obstruct the positive progress the tourism industry is currently experiencing.
The improvement in external finances for the first three months will improve the balance of payments with the possible increase in external reserves.
The relief given by the IMF will enhance confidence in international lending institutions and friendly countries. Despite the vehement criticism by the opposition, the country needs continuous financial assistance from the world, regardless of which political party governs.
Regrettably, however, a major faction of the political opposition completely ignores this salient factor and launches scathing attacks on the Government for cheap, short-term political gains.
The saddest part of the Opposition exercise is that none of them offer an acceptable proposal, let alone a concrete solution. They merely create animosity among the masses by condemning any move by the Government, even when those are visibly beneficial to the country.
The political parties that are making a big uproar on public welfare must understand that the prospects of an improvement in the external finances this year could be undermined by strikes, political protests, demonstrations, and other disruptive acts.
Inflows of project loans from international organisations such as the World Bank, the Asian Development Bank (ADB), and friendly countries are projected to bolster external reserves.
However, the important factor is that all those will be loans that must be paid back. In contrast, if the country’s own earning resources, such as exports and tourism, can be exploited and have substantial potential, the burden on the country’s foreign reserves will be decreased.