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Saturday May 25th, 2024

Sri Lanka free trade agreements generate three times more exports than imports

ECONOMYNEXT – Several free trade deals with Asia and Pacific has generated sharply more exports than imports in the first six months of 2020, with the Indo – Lanka Free Trade Agreement bringing most of the results, official data shows.

In the six months to June 2020 Sri Lanka had exported 93.7 billion rupees under several trade agreements and imported 26.64 billion rupees of goods or three and a half times the imports.

One Way Street?

Sri Lanka had exported 52.3 billion rupees of goods or 239 percent of imports of 21.8 billion rupees to India via 4,883 goods under concessions, data from the finance ministry showed.

Sri Lanka has a trade deficit with India, with most of the imports coming from heavily taxed items such as cars, which are not included in the Indo – Lanka Free Trade deal.

But the trade deficit has been used by Mercantilists to discredit free trade deals.

Current Account and trade account deficits are an outcome of a savings-investment gap where the government borrows abroad to finance deficits or foreign direct investment comes in or expatriate savings in the form of remittances come in to create import demand when spent within the economy.

Sri Lanka had exported 7.46 billion rupees of goods to Pakistan under a free trade deal, or more than five times the imports of 1.33 billion rupees.

A South Asia Free Trade Agreement (SAFTA) had generated 2.72 billion rupees of exports or 381 percent of the imports of 715 million rupees.

An Asia – Pacific Trade Agreement (APTA) had generated over 10 times the imports with 28.5 billion rupees of exports and 715 million rupees of imports.

It is not clear what role import controls, imposed in April 2020, played in the trade.

But exports to India had grown rapidly under the free trade agreement with the country becoming the third largest export destination after the UK.

In the first eight months of 2020, India had bought 396 million dollars of Sri Lankan goods, (about 73 billion rupees), behind UK’s 552 million dollars.

In 2019, India had bought 768 million US dollars of goods, behind UK’s 998 million dollars and US’s 3.14 billion dollars.

Items under Indo Lanka concessions had generated more exports than imports consistently, though Mercantilists (crony-capitalists) who want to force-sell overpriced goods to consumers cornered by import duties had opposed it and funded a campaign against free trade.

A budget for 2021 had revised duties of a number of items, which may benefit the country, though over 2,500 items remain under very high protectionist duties.

Related

Sri Lanka publishes trade taxes for import substitution economy, new duty list

The Indo-Lanka Fee Trade Agreement was the brainchild of Saman Kelegama, one of the top economists produced by South Asia.

He was attacked by Mercantilists, despite Sri Lanka having a large negative list (items which are not given tariff concessions) than India. While India had 429 tariff lines under a negative list Sri Lanka had 1,180 items under a negative list.

The Institute of Policy Studies, a think tank he used to head had shown that the Indo Lanka Free Trade Deal had consistently brought in more exports than imports.

However trade deficits, deficits of with individual countries current account deficits are also neither neither good nor bad, but is a consequence of having a savings – investment gap.

Remittances (foreign savings of expatriate workers) and tourism recoipts, triggers a trade deficit as the recipients spend the money, while government foreign borrowings for deficit financing and foreign direct investment will trigger a current account deficit.

Imports are vital to keep economies ticking, generate revenue for public services (exports are postponed consumption) keep monopolies in check, get people out of poverty by lowering the cost of goods and services, and make economies competitive and efficient.

Related Stories

Sri Lanka imports from India mostly outside free trade deal, 70-pct of exports from FTA

Related Link

India-Sri Lanka Free Trade Agreement: Sri Lanka Reaping the Benefits from Preferential Trade

Interest of the dealers

Before Adam Smith helped educate people on economics, Mercantilist exploitation was the driving philosophy of business in most of the world, with corporations such as the Dutch East India Company and British East India Company playing a key role.

He had warned that the public can be easily duped into believing that extra profits of businesses were in the country’s or public’s interest.

But the general public, especially low income earners, who pay the highest price for restricted competition, are still deceived in the 20th century.

“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public,” explained Smith in Wealth of Nations.

“To widen the market and to narrow the competition, is always the interest of the dealers.

“To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.

“The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

“It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” (Colombo/Nov25/2020)

Comments (3)

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  1. Piyadasa Godellewatte says:

    Glad to see hard core evidence stand as proof of effectiveness of sound policy options available for Sri Lanka. My enquiry and research, as ex-Director – Industry Trade and Technology in the then Ministry of Finance & Planning, always revealed that the vast Indian market is a gold-mine for Sri Lanka. But, the stronger mercantilist ghosts had the day.

  2. Vajira De Silva Gunasekera says:

    While it is true that the public suffers if the imports are highly taxed, the successive Governments have not followed an export oriented industrial policy with the notable exception of the garment industry. This has led to poor quality of economic development in the country, resulting in low wages – not having high value added export industries as well as persistent deficits in balance of trade. These deficits have lead to impoverishment of the country. The value external of the SL rupee has plummeted over the last 40 years.

  3. IJ says:

    Writer of this article has cherry picked this period of Jan-June 2020 on promote his idea of removing the import restrictions .As there may be 10 odd reasons to show off how SL had benefited from FTA’s with these countries during these 6 months, it would be obvious that FTA with India and others had yielded large deficits as we compare last 3 years .The stuff we export are under FTA’s are mostly Spices and non -value added items whereas these countries export many value added stuff ranging from Automobile to pharmaceuticals .

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Comments (3)

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Your email address will not be published. Required fields are marked *

  1. Piyadasa Godellewatte says:

    Glad to see hard core evidence stand as proof of effectiveness of sound policy options available for Sri Lanka. My enquiry and research, as ex-Director – Industry Trade and Technology in the then Ministry of Finance & Planning, always revealed that the vast Indian market is a gold-mine for Sri Lanka. But, the stronger mercantilist ghosts had the day.

  2. Vajira De Silva Gunasekera says:

    While it is true that the public suffers if the imports are highly taxed, the successive Governments have not followed an export oriented industrial policy with the notable exception of the garment industry. This has led to poor quality of economic development in the country, resulting in low wages – not having high value added export industries as well as persistent deficits in balance of trade. These deficits have lead to impoverishment of the country. The value external of the SL rupee has plummeted over the last 40 years.

  3. IJ says:

    Writer of this article has cherry picked this period of Jan-June 2020 on promote his idea of removing the import restrictions .As there may be 10 odd reasons to show off how SL had benefited from FTA’s with these countries during these 6 months, it would be obvious that FTA with India and others had yielded large deficits as we compare last 3 years .The stuff we export are under FTA’s are mostly Spices and non -value added items whereas these countries export many value added stuff ranging from Automobile to pharmaceuticals .

Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings

(Colombo/May25/2024)

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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.

Related

Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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300 out of 1,200 Sri Lanka central bank staff works on EPF: CB Governor

ECONOMYNEXT – About 300 central bank staff out of 1,200 are employed in the Employees Provident Fund and related work, Governor Nandalal Weerasinghe said, with the function due to be transferred to a separate agency after a revamp of its governing law.

“When it comes to the EPF there is an obvious conflict of interest. We are very happy to take that function out,” Governor Weerasinghe told a forum organized by Colombo-based Advocata Institute.

“We have about 300 staff out of 1,200 including contract staff, almost 150 of permanent staff is employed to run this huge operation. I don’t think the central bank should be doing this business,”

The EPF had come under fire in the past over questionable investments in stocks and also bonds.

In addition, the central bank also faced a conflict of interest because it had another agency function to sell bonds for the Treasury at the lowest possible price, not to mention its monetary policy functions.

“There has been a lot of allegations on the management of this fund. This is the biggest fund of the private sector; about 2.6 million active, I think about 10 million accounts.

“When it comes to EPF, obviously there’s another thing. We obviously have, in terms of resources, on the Central Bank, that has a clear conflict because we are responsible for the members.

“We have to give them a, as a custodian of the fund, we have to give them a maximum return for the members.

“For us to get the maximum return, on one hand, we determine the interest rates as multi-policy. On the other hand, we are managing public debt as a, raising funds for the government.

“And on the third hand, this EPF is investing 90 percent in government securities. And also, interest rates we determine, and they want to get the maximum interest. That’s a clear conflict, obviously, there’s no question.”

A separate agency is to be set up, he said.

“It’s up to the government or the members to determine to establish a new institution that has a trust and credibility and confidence of the members that this institution will be able to manage and secure an interest and give them a reasonable return, good return for their lifetime savings,” Governor Weerasinghe said.

“The question is that how whether we have whether we can develop that institution, whether we have the strong institution with accountability and the proper governance for this thing.

“I don’t think it should be given completely to a private sector business to run that. Because one is that here we have no regulatory institution. Pension funds are not a regulated business.

“First one is we need to establish, government should establish a regulatory agency to regulate not only the EPF business fund, there are several other similar funds are not properly regulated.

“Once we have proper regulations like we regulate banks, then we can have a can ensure proper practices are basically adopted by all these institutions.

“Then you can develop an institution that we who can run this and can be taken back by the Labour Department. I’m not sure Labour Department has the capacity to do all these things.”

While some EPF managers had come under scrutiny during the bondscam and for questionable stock investments, in recent years, it had earned better returns under the central bank management than some private funds that underwent debt restructuring according to capital market analysts with knowledge of he matter. (Colombo/May24/2024)

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