亚开行-斯里兰卡的宏观经济挑战：两个赤字的故事（英文）-2019.3-49页_1mb

Summary of "Sri Lanka's Macroeconomic Challenges: A Tale of Two Deficits"

Core Content

This working paper by Dushni Weerakoon, Utsav Kumar, and Roselle Dime examines Sri Lanka's macroeconomic challenges, particularly its persistent twin deficits (fiscal and current account deficits) and the resulting economic instability. The paper traces the evolution of Sri Lanka's economic policy regimes and their impact on growth, fiscal management, and external sector balance from 1948 to 2017.

Main Points

1. Fiscal and Current Account Deficits

• Sri Lanka has historically experienced high fiscal deficits and public debt, leading to macroeconomic volatility.
• The twin deficits phenomenon is a key indicator of economic imbalances, where the country's national expenditure exceeds national income.
• A current account deficit signals that the economy is living beyond its means, relying on foreign capital inflows to finance consumption and investment.

2. Economic Volatility and Crises

• Sri Lanka has faced frequent balance of payments (BOP) crises, with only a 9-year period (1992–2000) without such crises.
• The country has had 15 IMF arrangements over 52 years (1965–2016), indicating repeated need for external support.
• Despite a 5% average GDP growth from 1980 to 2016, the economy has struggled to meet its potential growth due to weak public finance management and external vulnerability.

3. Policy Regimes and Reforms

• Post-independence (1948): Sri Lanka had an open, liberal economic policy, but by the 1960s–1970s, it shifted to import substitution and state-led economic policies.
• 1977 Reforms: A major shift toward export promotion, fiscal consolidation, and financial sector liberalization occurred, marking a systemic change in economic policy.
• 1989–1990 Reforms: Further liberalization of trade, FDI promotion, and privatization of state-owned enterprises (SOEs) were introduced, aiming to improve competitiveness and stabilize the economy.

4. Structural Shifts

• The economy has undergone a structural transformation from primary exports to manufacturing (mainly garments) and services.
• Services now dominate GDP and employment, surpassing agriculture as the largest employer.
• However, the savings-investment gap remains a challenge, with national savings consistently below investment.

5. Empirical Findings

• The twin deficits have shown strong correlation until 2000, but the link has weakened in recent years.
• Fiscal consolidation efforts have started to yield improvements in tax revenue-to-GDP ratio, offering hope for debt stabilization.
• Nondebt-creating foreign currency inflows (e.g., remittances, tourism) have helped narrow the current account deficit and increase national savings.

Key Challenges

• Weak public finance management: Excessive government spending and low revenue generation have led to high fiscal deficits.
• Dependence on foreign capital: This has made the economy vulnerable to external shocks.
• Exchange rate instability: A steady depreciation of the Sri Lanka rupee (SLR) and reluctance to allow full depreciation have led to appreciation of the real effective exchange rate (REER), undermining export competitiveness.
• Savings-investment gap: This has persisted due to low foreign exchange earnings and lack of nondebt-creating inflows, forcing the government to rely on borrowing for public investment.

Policy Recommendations

• Revenue-based fiscal consolidation: Needs to be supported by reforms to generate nondebt-creating foreign currency inflows.
• Exchange rate flexibility: Should be allowed to stabilize the external sector and build up foreign exchange reserves.
• Structural reforms: Must focus on diversifying exports, improving competitiveness, and reducing reliance on foreign capital.
• Enhancing public finance management: Requires better control of expenditures and increased domestic revenue mobilization.

Conclusion

Sri Lanka's economic performance has been shaped by policy shifts and external imbalances, leading to periodic crises and reliance on IMF support. While recent reforms show promise, fiscal and external imbalances continue to threaten macroeconomic stability. The paper highlights the importance of structural reforms and improved public finance management to achieve sustainable growth and debt stability.