Sri Lanka has benefited immensely from SAARC countries, particularly Bangladesh and India, from a macroeconomic perspective, in recent times, said the Central Bank Governor of the Island nation.
P. Nandalal Weerasinghe made the remark while addressing the inaugural session of the 14th South Asia Economic Summit, a two-day event hosted by the Centre for Policy Dialogue at Sheraton Dhaka.
“The assistance that was extended in the wake of the crisis, provided immense relief in the midst of the socio-economic quagmire that Sri Lanka was in,” he said.
“This type of financial cooperation among us cannot only be a short-term buffer, but it can also be of a more long-term nature in the form of investment flows towards infrastructure gaps, and even building of overall productive capacities.”
In September, Sri Lanka paid US$ 50 million to Bangladesh, the final installment of a US$ 200 million loan taken under a currency swap agreement two years ago.
Sri Lanka paid back its loan as its embattled economy is staging a recovery from its worst economic crisis just a year ago.
Weerasinghe said, “The global economy has faced several challenges in recent years. While COVID-19 took a substantial socioeconomic toll on the global economy as it emerged and spread, it also created several new vulnerabilities in economies, while also exposing several deep-rooted issues, as we have seen from the experience of the Sri Lankan economy.”
With the rapid deployment of vaccines and economies adjusting to the ‘new normal’ of COVID-19, the global economy has seen a new turn of events caused by emergences of geopolitical tensions that are having sustained impact on commodity prices and with the possibility of negative impacts on commodity availability, he said.
On account of these developments, although global output growth is expected to continue slowing down, the South Asian region is expected to display some resilience, especially on account of exports and continued flow of remittances, he added.
“However, in all South Asian economies, projected growth may be teetering around the average seen prior to the pandemic, without reaching the same. This is primarily due to the unwinding of the expansive monetary and fiscal loosening that was needed in the wake of the pandemic.”
“The aspect that I want to draw your attention to, ladies and gentlemen, is that contrary to our optimism as individual economies, as a region, we need to be wary of this modest growth pace as all of us are striving to take our economies to the ‘high -income’ category within the next few decades, i.e. at least within a generation,” Weerasinghe said.
Hence, there is an urgent need to rethink areas of synergies and find means and ways of converging and reaching consensuses so that as policymakers and policy practitioners we can pave the way for prosperous economies and societies, he said.
Amid the global economic slowdown, the SAARC bloc will need to go back to the drawing board and rapidly work out effective yet pragmatic strategies that can help our vulnerable region to weather this storm, Weerasinghe said.
Regionalism will be essential to sustain South Asia’s dynamism. South Asia is a sub region that is yet to fully exploit its intra-regional potential, he said.
He said intra-regional trade among SAARC nations is crucial for promoting economic growth and reducing poverty in the region.
However, trade within SAARC has historically been limited due to various factors, including political tensions, restrictive tariffs and duties, import restraints, protracted customs requirements, and excessive documentation, Weerasinghe said.
The Lankan Central Bank Governor said Sri Lanka’s exports to the SAARC region accounted for nearly 10%of total Sri Lankan exports, while import expenditure accounted for nearly 29% of total expenditure, due to significantly high imports (about 89% in 2022) from India.
Intra-regional trade among SAARC countries was about US$ 40 billion (in each direction) in 2022, which has seen a steady growth over the years compared to US$ 6 billion in 2003, he said.
“Imports among SAARC countries were about 4% of the total imports from the world by SAARC countries, while exports among SAARC countries were about 7% of the total exports to the world by SAARC countries, which indicates that, despite steady growth in regional trade, it is still limited compared with total trade of the region.”
Several other agreements such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, Indian Ocean Rim Association are in operation to improve regional economic partnership, while the SAARC Agreement on Trade in Service is being negotiated to cover trade in services sector in the region, he said.
Weerasinghe said another welcome initiative has been the recent scheme by India to trade in Indian rupees.
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