Analyse the Movement of FDI - Competition for FDI - Economics Assignment Help

Assignment Task :

Sri Lanka is in a deep foreign exchange crisis today. A subcomponent of this is the crisis involving the foreign debt problem of Sri Lanka. 

It is the total country debt that matters

In public discussions, the reference is usually made to the foreign debt contracted by the Government of Sri Lanka. This is only a part of the story. That is because there are private companies, banks, etc., which also have borrowed from foreign sources. Hence, what matters for debt resolution is not the government’s debt per se, but the total country debt. For instance, at end-2019, the government had borrowed a sum of US$ 35 billion from foreign sources. As at the same date, the private sector had borrowed US$ 21 billion, making the total country foreign debt a staggering US$ 56 billion which amounted to 66 per cent of the country’s GDP. Sri Lanka has to repay all these loans as and when they mature and pay interest on them annually. For this, it needs foreign exchange. 

Since there is a deficit in the current account of the balance of payments of the country, foreign exchange for debt repayment should be found by making further foreign borrowings or using the country’s existing foreign reserves. In the next twelve-month period, the total debt repayment commitment of Sri Lanka will be US$ 5.5 billion. Since the available liquid foreign reserves amount only to US$ 6 billion, the only option available for Sri Lanka to meet its debt repayment obligations is resorting to further borrowing. But it would worsen the country’s woes and will snare it in an inescapable debt trap. Dr. W.A. Wijewardena (Ceylon Today 15th August 2020)

Given the above the Sri Lanka has to find, expeditiously ways and means to increase the foreign currency inflow. There are two vehicles that can facilitate the inflow of foreign exchange – Exports and Foreign Direct Investment (FDI).

Lest focus on FDI in the post COVID world.

In the meantime, The World Investment Report 2020 titled, ‘International Production Beyond the Pandemic,’ projects that global foreign direct investment (FDI) will decrease up to 40 percent in 2020, bringing FDI below USD 1 trillion for the first time since 2005. FDI is expected to decrease 5-10 percent in 2021 and to begin to recover in 2022, led by global value chains, replenishment of capital stock, recovery of the global economy, and restructuring for resilience. UNCTAD Secretary-General Mukhisa Kituyi said the outlook is “highly uncertain” and depends on “the duration of the health crisis and on the effectiveness of the policies mitigating the pandemic’s economic effects.” He stressed that the transformation underway in international production will “impact developing countries over the coming decade” and requires a “major policy rethink.”

The 2020 report highlights three technology trends of the industrial revolution that are expected to shape international production: additive manufacturing; enhanced supply chain digitalization; and robotics-enabled automation. The policy environment for trade and investment and sustainability concerns, such as differences between regions and countries on emission targets and environmental, social, and governance standards, will influence the pace and extent of technological adoption. The report states that there is an opportunity for increased sustainability if countries and regions take advantage of the new industrial revolution and overcome growing economic nationalism. The report describes four possible trajectories: reshoring; diversification; regionalization; and replication. 

Considering the above scenarios, you as a consultant to the government is required to recommend end a short-term strategy to increase the FDI to Sri Lanka.  Your recommendation will require you to identify unprintable state institutions covering, Tourism 
 

1. 1. Student are expected to critically analyse the movement of FDI, competition for FDI, using theoretical models and comparative data.

   2. Financial viability, social and economic contribution form the selected projects and a broad return on investment.

   3. Adequate literature engagement, at least 20 consisting academic journals, case studies and reports.

   4. Referencing should be according to Harvard referencing style

   5. Illustrations and images used need to be validated with the source

Arguments need to reason out with the student's own findings and interpretations.

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