Wednesday Apr 16, 2025
Wednesday Apr 16, 2025
Wednesday, 9 April 2025 00:00 - - {{hitsCtrl.values.hits}}
UK’s Foreign, Commonwealth and Development Office Deputy Chief Economist Fergus Cumming
|
UK’s Foreign, Commonwealth and Development Office (FCDO) Deputy Chief Economist Fergus Cumming was in Sri Lanka this week on an official visit. He met representatives of the Government, civil society organisations, think tanks, private sector among others. The Daily FT met up with Cumming, for a recap of his observations following his first visit in March last year and how Sri Lanka has managed its challenges and opportunities since then. In the interview, Cumming also shared his views on areas where both UK and Sri Lanka can further enhance cooperation as well as his outlook on the UK economy and his take on the current global trade scene. Here are excerpts.
|
By Nisthar Cassim
Q: When you spoke with Daily FT last time, you highlighted key takeaways from that visit. Looking back, have any of your expectations or concerns played out as anticipated?
I visited Sri Lanka just over a year ago, just after I had started my role as Deputy Chief Economist of the Foreign, Commonwealth and Development Office. I reflected back then on the optimism I sensed in many of my discussions and the positive momentum the economy was experiencing. Back then, I also referred to the strength of the UK’s relationship with Sri Lanka. I am not surprised to see this remain as strong as ever and, to underscore this, our Minister for the Indo-Pacific recently visited Sri Lanka at the end of January, setting out plans to strengthen the UK-Sri Lanka partnership – from inclusive economic growth, anti-corruption, human rights to national reconciliation.
I am also not surprised that Sri Lanka has continued its journey of recovery from 2022, which I know has been the product of hard work and sometimes quite difficult decisions. As an optimist, I knew that Sri Lanka could navigate a path through the IMF program. Part of my motivation for returning was to see the fruits of this effort for myself. And what I can see is that in lots of ways Sri Lanka is flourishing and democracy is alive and well, demonstrated by two peaceful elections despite the significant political transition.
But I still do believe that there may be some bumps in the road ahead and so none of us should take this progress for granted. There are still challenging reforms to be done and the Government will need to keep up its skilful and disciplined approach during a period where global systems are shifting in major ways, and almost beyond recognition.
|
Q: How do you see Sri Lanka’s progress in terms of macro-economic performance in the past year? Of the achievements, can you single out one or two as most noteworthy?
When I talk to stakeholders, it is clear that it is quite difficult to condense down the achievements into one or two! Indeed, one of the key reasons that Sri Lanka is the first country that I have returned to in my role is because I want to make sure I understand the lessons I should take back for the UK and the rest of the world. When we look across the macroeconomy (six consecutive quarters of economic growth), the fiscal position (highest tax-to-GDP ratio since 2008), or even the external sector (consistent current account surplus), we see a country transformed from when cars stood still on the streets in 2022.
That said, I do think two achievements stand out for me. First, the passing of the Public Financial Management Act was a watershed moment in Sri Lanka’s journey, setting important legally binding standards and procedures for prudent public finance management. The second achievement I would point to is the successful finalisation of debt-restructuring negotiations during a period of political uncertainty. Not only was this an important part of the recovery from 2022, but it was also relatively quick compared to similar examples around the world – even if it did not feel like that at the time!
|
Q: In your view what are the challenges Sri Lanka faces in the medium to long-term? What needs to be done to address these challenges successfully?
In the medium-to-long term Sri Lanka needs to continue its onward progress in a global environment that has become more challenging and more unpredictable. Some of that is in Sri Lanka’s control. Good governance and the ability to take difficult decisions will be required. Balancing the needs of different groups is never easy, and it was clear from my conversations that more can be done in areas like trade liberalisation and improving the business environment. Even before global trade tensions ignited, many countries were struggling with weak growth and high debt interest burdens. In that environment, adhering to helpful fiscal frameworks and working across the board to deliver a mix of reform and stability is essential.
It is also true though that there are things outside Sri Lanka’s control that pose challenges in terms of macroeconomic impact, but also much else. The recent period of increased global integration and positive-sum intertwined economic relationships looks like it is at best on pause, and has certainly become more complicated. This is a global shock, with no neat solution. At FCDO we are still working through all the moving parts but what is clear to me is that there will be opportunities to rethink, reimagine and re-ignite economic relationships. For example, very recently the UK funded the launch of the SheTrades Hub in Sri Lanka, in partnership with the Sri Lankan Export Development Board and the International Trade Centre. The hub will help connect women-led businesses in Sri Lanka with training opportunities, access to overseas markets, and a global network of female entrepreneurs.
|
Q: How did the UK economy fare in 2024? What is the outlook for 2025 and beyond?
The UK economy continued its post-COVID recovery in 2024 and expanded by almost 1% relative to the previous year. The new Government, elected last summer, set out its plan to boost growth by focussing on stability, reform and investment. Until very recently, many forecasters were expecting this to translate into economic growth of between 1.5 and 2% in 2026. The labour market continues to exhibit low levels of unemployment and inflation averaged 2.5% across 2024. Real wages picked up in many sectors, which was of course a welcome relief following a series of cost squeezes in the years before. Our fiscal framework remains a key tenet of our macroeconomic management, which continues to give international markets confidence and provides a solid platform from which the new administration can boost economic growth further.
As I said last year though, productivity growth remains a challenge for most of the world outside the United States. That puzzle continued for the UK in 2024. For that reason, the UK’s Foreign Secretary has been very clear that the UK is open for business, and we are looking for partners across the world to enhance shared prosperity. Sri Lanka is an important part of this ‘growth mission’ for the UK, and our historical and future bonds will stand the test of time.
|
Q: What are the prospects to further increase bilateral trade and investment between the UK and Sri Lanka? What are some of the immediate actionable recommendations?
Trade and investment are often the go-to areas when thinking about shared prosperity. For sure, I think there are lots of opportunities here. On the trade side, we can work to improve Sri Lanka’s utilisation of the Developing Countries Trading Scheme, which helps countries like Sri Lanka export even more to the UK with reduced tariffs. On the investment side, the UK is among Sri Lanka’s top 10 investor source countries. Sri Lanka’s strategic location, skilled workforce and people-to-people links are key reasons why UK companies look to this market.
But we need to be careful not to miss other things that add to our peoples’ wellbeing even if they do not automatically or mechanically show up in our national statistics. So, trade and investment are important. But so too are the flows of people across our educational institutions and other key sectors. I am also increasingly convinced that the two-way flows of ideas can move countries to the next level. There are examples in the public sector, with exchanges of ideas between tax experts (for example, last December the UK Government signed a two-year MoU with Sri Lanka’s Inland Revenue Department to provide capacity building on tax policy). Moreover, the flow of ideas across businesses drives efficiencies and pushes our progress forward. Experience shows that integrating Government with private-sector initiatives can unlock imaginative step-changes in our production, our consumption, and our investment. That can drive prosperity for all.
|
It is hard to talk about global trading relationships without acknowledging what an important juncture the world is currently at. While many are still trying to understand the ‘whats’ and the ‘whys’ of recent developments, our message is clear: The UK fundamentally remains an open, outward looking nation and one of the world’s leading advocates for free trade. Sri Lanka remains a key partner for the UK as we navigate the new landscape. I look forward to coming back once again as we continue together on our respective economic journeys.
UK is open for business, and we are looking for partners across the world to enhance shared prosperity. Sri Lanka is an important part of this ‘growth mission’ for the UK, and our historical and future bonds will stand the test of time.