Thread by @ChayuDamsinghe

Let me try and explain this as best as I can.

SL has almost always had a negative balance between what we get as dollar income and what we give as dollar expenses.

We've broadly met this balance through debt.

#SriLankaEconomicCrisis #SriLanka #IMFNow

(1/12)

https://twitter.com/isura/status/1511204287233380354

So to improve from where we are now (just 300mn in reserves) we have to either
1. Increase income
2. Reduce expenses
3. Get more debt

(2/12)

We can increase income by bringing more tourists, encouraging more remittances, and selling more exports.

Other than fixing the broken remittance markets, the rest take time. Tourism will recover, but how soon in this crisis is a question?

(3/12)

We can reduce expenses by buying fewer things or figuring out how to reschedule our payments.

The second, restructuring our debt is very likely to happen, but the process takes time.

How can we do the first?

(4/12)

Our biggest expense is imports, and consumer imports is actually a small part of that - so this "stop luxuries" idea doesn't work.

What we have a lot of is fuel, and raw materials/machinery for "local production" + exports. Exporters fine, they pay for themselves.

(5/12)

But we have to think long and hard - do we really need all these protections and monetary/tax support for these rent seeking local production businesses? It doesn't really help forex either, because this reduces our export ability

(6/12)

https://mobile.twitter.com/ChayuDamsinghe/status/1510916459765317635

Raising rates will likely force Sri Lankans to make a decision on what we need to prioritise - and I'm broadly confident we'll do that enough. Also stop subsidising rent seekers with low taxes.

(7/12)

Now our income is slowly rising (tourism, remittances improving from lows), our expenses have fallen (better import decisions+rescheduled debt).

Now this is still not enough because the deficit is so large.

(8/12)

But once we take actions like raise rates, taxes, start renegotiating debt, talking to IMF, now other countries and international agencies are willing to give us temporary support until we build up our income.

(9/12)

Of course, how much and how soon we recover is a tough question to answer, all depends on how soon we act.

In medium term, tourism, IT, and likely BPO/KPO will help us.

(10/12)

However, for a long term solution, Sri Lanka needs skilled labour. That needs either massive investment in education or opening up migration in the short term.

That I'm less confident of happening.

(11/12)

But in the end, this debt crisis isn't the first in the world. Many other countries have gone through, and come out in a similar or equivalent way (maybe exports instead of remittances, stock inflows instead of tourism) and they recovered. We will too.

(12/12)

Addendum: one thing I missed is "investment". Issue here is investment immediately goes out for imports to build whatever they want to build, and mostly (not always) is about domestic consumption due to rent seeking support. In any case, not short term solution