Sri Lanka’s efforts to improve its economy:

Source: The post Sri Lanka’s efforts to improve its economy has been created, based on the article “Sri Lanka & Bangladesh look east” published in “Business standard” on 25th April 2024.

UPSC Syllabus Topic: GS Paper 2-international relations- India and its neighbourhood- relations.

News: The article discusses Sri Lanka’s efforts to improve its economy by joining larger Asian trade groups and making agreements with countries like Thailand. These moves aim to diversify exports, boost investment, and develop connections with other Asian economies. This shift could also influence regional trade dynamics, especially with India and China.

For details information on Economic Crisis in Sri Lanka read Article 1, Article 2, Article 3

What challenges is Sri Lanka facing?

Economic Recovery: Sri Lanka is still in the midst of recovering from its economic difficulties (recent external debt crisis).

Narrow Export Range: The country relies heavily on a limited range of exports, including textiles, tea, rubber, and tourism.

Labor Issues: There is a decreasing labor productivity and an aging workforce, alongside increased out-migration of young workers.

Regional Trade Competition: Changing dynamics in regional trade are challenging, particularly with China’s growing influence in South Asian trade compared to India.

What is Sri Lanka doing to improve its economy?

Joining RCEP: Sri Lanka has expressed its intention to join the Regional Comprehensive Economic Partnership, aiming to integrate more closely with East Asian economies and diversify its export markets.

Signing FTAs: The country has signed a free-trade agreement with Thailand, which includes substantial tariff reductions and covers areas like investment and intellectual property rights, aiming to attract more foreign investment.

Exploring SEZ Linkages: Sri Lanka is developing connections between Port City Colombo and Thailand’s Eastern Economic Corridor to enhance trade and logistics routes.

Seeking External Investment: The nation is actively encouraging investment from ASEAN countries, leveraging its strategic position to boost its economic standing and recovery efforts.

What benefits does these effort will offer to Sri Lanka?

Enhanced Export Diversification: Joining RCEP and signing FTAs will diversify Sri Lanka’s export base beyond traditional commodities like tea and rubber, promoting industrial development.

For information on RCEP read here

Increased Foreign Investment: The trade agreements, particularly with regulatory enhancements, are expected to attract foreign investment, notably in the manufacturing sector.

Economic Integration: Access to regional value chains through RCEP offers opportunities for Sri Lanka to integrate into East Asian economic dynamics, boosting its export capabilities.

Improved Trade Policies: The “lock-in” effect of the agreements will promote structural reforms, enhancing Sri Lanka’s regulatory environment and making it more conducive to business and investment.

Labor Market Benefits: By engaging more in labor-intensive industries, these efforts could offer more employment opportunities, supporting the country’s labor force development.

How does Sri Lanka’s trade strategy impact regional dynamics?

Shift in Trade Focus: Sri Lanka’s efforts to join the RCEP and sign FTAs like the one with Thailand indicate a strategic pivot towards East Asia, moving away from traditional reliance on Western markets.

Increasing China’s Influence: By integrating with East Asian regional value chains, Sri Lanka may inadvertently boost China’s trade influence in South Asia, as China already plays a significant role in regional imports and exports compared to India.

Inspire other regional economies: Sri Lanka’s actions (joining RCEP, signing the FTA with Thailand) might inspire other regional economies like Bangladesh to pursue similar integration efforts with East Asian trade agreements.

Question for practice:

Examine the challenges faced by Sri Lanka in improving its economy and the strategies it is implementing to overcome them.