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Sri Lanka’s Ceylon Chamber proposes economic recovery plan to President

ECONOMYNEXT – Sri Lanka’s Ceylon Chamber of Commerce has suggested several strategies for an economic recovery to President Gotabaya Rajapaksa.

The suggestions for economy recovery come as the health and military officials are making major progress in containing the disease through aggressive contact tracing.

Before the Coronavirus crisis island’s external sector and state finances were already weakened by fiscal ‘stimulus’ .

Massive liquidity injections had already been made despite having a pegged exchange rate since then.

A Zimbabwe style re-finance fund has also been proposed. On Friday Moody’s put the country on rating watch.

To prevent and external meltdown the IMF has asked central banks of countries on non-internationalized currencies (most soft-pegged currencies) to use their balance sheets to guarantee credit.

“I think many Asian countries will be forced if the situation becomes aggravated first to use large stimulus packages despite their limited policy space and despite that they do not have international currencies,” Changyong Rhee Director, Asia and Pacific Department said.

“So, when they actually rely on large stimulus packages, they have to worry about its possible negative impact on their external sector especially the FX market.”

The full statement is reproduced below:

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The Ceylon Chamber of Commerce, in a communication to His Excellency the President has proposed a Shared Vision, Economic Recovery Strategy and Stimulus Plan targeting an accelerated Post-COVID-19 recovery of the Sri Lankan Economy.

The following sets out the key elements of the proposal addressed to His Excellency the President by the Ceylon Chamber of Commerce:

(1) Primacy for Protection of Livelihoods as an Immediate Exit Priority, where Sri Lanka’s Human Development and Socio-Economic base line indicators are protected as first priority.

(2) Target the achievement of a “U Shaped” Economic Recovery at National Average level where Sri Lanka regains it Economic Growth Rate within 6-8 months of the COVID-19 Exit, while aiming for V shaped recovery in targeted internal sectors culminating in a similar V shaped recovery at National Level in the longer run.

(3) Unequivocal support for strong measures required to establish a foundation for accelerated recovery such as

a. Engagement with multilateral institutions such as the IMF, ADB and World Bank with a view to securing immediate excepting funding support.

b. Continuation of the Crisis Action Plan of the Central Bank of Sri Lanka including but not limited to Maintenance of Liquidity at the potential compromise of external reserves and resorting to quantitative easing in the short run.

(4) Commitment of 2.5% to 3.0% of GDP towards Economic Recovery over a time frame of 12 months, alongside the consequent funding measures and expenditure controls the GoSL will necessarily need to put in place.

(5) Recognition of the role of the private sector in achieving the shared vision of accelerated recovery through:

a. Adjustment of production and service portfolios to meet demand in adjacent sectors thereby achieving employment retention and creation.

b. Re-engineering of Supply & Value chains with primacy for domestic supply eco-systems, central to which will be SME Capacity Building and Financial Support where feasible.

c. Supporting Sri Lanka’s Foreign Exchange Liquidity constraints by adopting aggressive negotiation measures with foreign suppliers to secure preferential credit terms

d. Accelerating the Digitisation of Operations as well as the interfaces to Suppliers, Partners and Domestic and Global customers.

(6) Strong endorsement of immediate term measures adopted by the government with regards to livelihood protection & SME sustenance. These relief include the relief for low income families, relief to the public in terms of loan repayments and Rs 50 billion refinancing facility.

(7) Ceylon Chamber of Commerce Framework fora Comprehensive economic stimulus strategy and action plan.

a. Primacy for the underlying objective of maintaining paid employment both in the formal and informal sectors of the economy including livelihood maintenance for daily income workers and low-income workers.

b. Establishment of a Directional Budgetary Provision of 2.5%-3.0% of GDP (Rs 375-450 Billion) and announce the same as Sri Lanka’s commitment to an accelerated recovery

c. The Establishment of an Economic Recovery Task Force (ERTF) under the Leadership of His Excellency the President and comprising senior government officials and private sector representation through the Chambers of Commerce, supplemented with representation of Economic Expertise Think Tanks and Local and International Experts.

(8) Immediate Term Stimulus Initiatives

a. Immediate Relief in the form of Settlement or Compensation via Sovereign Supported Credit Facilities, ofunpaid Government bills to the private sector – unpaid bills by government to these sectors alone add up to Rs 68 billion.

b. Targeted Cash transfers to the most vulnerable segments of society including daily paid casual workers. Current measures are laudable and may need to be scaled up using digital means including Mobile Money systems in order to ensure accurate “targeting” and “Efficient Delivery” keeping in view Social Distancing constraints

c. Employment Assistance Schemes for Cash Strapped Firms. The survival of Enterprises across the Small, Medium and Large Sectors is an imperative which will underlie an accelerated recovery trajectory. The modality of such employment assistance could include Multi-Year, Tax Deduction Multipliers on Employment Costs.

d. Portfolio of Relief Measures for Citizens & SMEs which will not put pressure on the fiscal front such as Moratorium on EPF and ETF Contribution by firms as well as employees for at least the next 6 months and concessionary deferment of electricity and water charges.

(9) Medium Term Stimulus Strategies (May 2020 – End of 2020)

a. Easing of the stress on the Financial Sector during the second half of 2020 via the following measures

i. Refinancing or credit guarantees and/or tax concessions to support concessionary relief financing by commercial banks. The government could in turn seek a refinancing facility or credit guarantee line from multilateral institutions.

ii. Provision of Longer term arrangements to support Banks and NBFIs to match the potential deferment of anticipated inflows in the wake of repayment deferrals

iii. Waiver of any penal action on shortfalls in capital adequacy of financial institutions during the recovery phase during which time financial institutions are at risk of recording losses due to the marking to market of Sovereign bonds, SLDBs, and government securities.

b. Comprehensive Digitisation of Government Services for access by citizens and business via the acceleration of ongoing digitization efforts.

c. Formulation of a ‘Winter 2020/21 Visit Sri Lanka Campaign’ targeting specific markets where COVID-19 dynamics would result in a pent up demand for overseas travel and a preference for less affected Indian Ocean destinations. The strategy should be well funded and designed in alignment with COVID-19 Exit planning of airlines including the national carrier.

(10) Long Term Stimulus Strategies (12-24 Months)

a. Reintroduction of the exemption from income tax of interest from all debt securities to encourage the deployment of debt capital and increasing access to cash

b. Abolishment of all transaction taxes including Capital Gains Tax, Stamp Duty, VAT and other forms of taxes to facilitate restructuring to overcome crisis scenarios

c. Granting of investment relief for companies that invest in Covid-Resistant sectors of the economy creating additional employment

d. Structural Re-Engineering, Digitisation and Transformation of Key Sectors – Every Crisis gives an opportunity to restructure and start afresh. It is hence, considered opportune that the GoSL should encourage and incentivise structural changes in sectors such as agriculture, education, energy and transportation.

(11) Funding of an Accelerated Recovery Strategy

a. Securing 1-3 Year Moratoriums from Multi-Lateral and Bilateral Lenders in order to ease the pressure on budget deficits due to foreign borrowing falling due.

b. Engagement with the IMF and other Multilateral Agencies for a Rapid Funding Instruments (RFI)

c. Securing of at least a USD 1 billion currency swap line for a minimum of 12 months from bilateral partner nations
d. CBSL to provide financing to the government by purchasing government securities thereby injecting liquidity to finance a part of the recovery package.

e. Deploy strategic procurement strategies to exploit the sharp fall in global oil prices.

f. Initiate measures to reduce the proposed public investment of 3.7% of GDP to a lower figure of 2.5%- 3.0% of GDP for 2020, and redeploy resources towards economic recovery initiatives and the enhancement of Health infrastructure.

The Chamber of Commerce, on behalf of the Private Sector will support the efforts of the Government to achieve an accelerated economic recovery strategy in the post-COVID-19 era.

The Chamber will continue to echo the views and recommendations of the Private Sector as we collectively address the challenges of the period ahead and progress towards the shared vision of an exemplary economic recovery.

Please find the full letter here.