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Thursday October 6th, 2022

Losing GSP+ will spell disaster for Sri Lanka’s economy: former PM Wickremesinghe

ECONOMYNEXT – If Sri Lanka loses access to Europe’s Generalised Scheme of Preferences Plus (GSP+) trade concessions, thousands will lose their jobs and the rupee will further depreciate, forcing Sri Lanka to pay around 300 rupees per US dollar, former prime minister Ranil Wickremesinghe said.

“Our government took action to regain the GSP+ from the European Union to assist in developing the country’s economy in 2017. This facility provides Sri Lanka with permission to export goods to Europe without taxation, which led to a boom in the garment and fishing industries. An issue has arisen in the European Parliament this week regarding the GSP+ tax concession. We have been warned that this concession will be revoked,” Wickremesinghe said in the latest of a series of video statements.

The United National Party (UNP) leader was referring to a resolution adopted by the European parliament June 10 calling for the repeal of Sri Lanka’s Prevention of Terrorism Act (PTA) and inviting the European Union (EU) Commission to consider temporarily withdrawing Sri Lanka’s access to GSP+.

Related: EU parliament adopts resolution on Sri Lanka; wants PTA repealed, GSP+ withdrawn

Wickremesinghe said Sri Lanka’s foreign exchange reserves have dropped.

Sri Lanka’s reserves have dropped due to liquidity injections by the central bank. If export revenues fall, salaries will be cut or jobs will be lost and imports will decline by the same volume. However currencies fall and forex shortages occure due to central bank money printing.

When Wickremesinghe was Prime Minister, GSP+ was restored by the rupee collapsed due to central bank money printing mostly to target an ‘output gap’.

The Sirisena-Wickremesinghe administration gave full independence to a central bank that was targeting an output gap, and also a call money rate with printed money, triggering two currency collapses leading to the fall of the rupee from 131 to 151 in the first crises and from 153 to 182 to the US dollar during their period of office.

Wickremesighe himself admitted in parliament in 2016 that they had engaged in a ‘stimulus’ on a claim that ‘aggregate demand had collapsed’.


Rupee, Sri Lanka, in trouble after Keynesian stimulus

“Our tourism industry is at risk at this time due to the COVID-19 pandemic. With the sinking of the X-Press Pearl, issues have arisen for our fishing industry as well. The number of people going abroad for employment has decreased. Therefore, our foreign exchange has fallen.

“Sri Lanka borrowed $200 million from Bangladesh due to the economic crisis caused by the decline in our foreign exchange. At present, only the tea and garment industries are able to earn foreign exchange for our country,” he said.

Given this, said the former PM, the island nation is reliant on GSP+.

“In the face of the danger that has arisen, the GSP+ must not be politicised. The government should take immediate action to protect the concession. Do not add any more weight to the heavy economic burden that the people are carrying. I urge the government not to destroy the country,” he said. (Colombo/June13/2021)

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