Features
Barking up the wrong tree
Economic downturn due structural weaknesses and not ‘open economic’ policies
by Jayampathy Molligoda
This article makes an attempt to present few socio-economic factors and indicators reflecting Sri Lankan economic downfall and examine whether it has some bearing on our failure to address serious structural weaknesses in the economy for the last 45 years.
My view is it’s not the open economic policy that has contributed to the downfall of our economy. It’s due to the fact that successive governments have failed in undertaking much needed structural reforms in the economy. As a result, our export performance has drastically declined and thus widening the trade deficit. It should be clearly understood that large fiscal (government budget) and external ‘current account’ deficits, popularly known as the ‘twin deficit’, are the two key structural problems in Sri Lanka identified as core weaknesses of the economy for many decades. In addition, the socio-political issues also would have contributed to the deterioration of the quality of life of the majority of people and thus eroding ‘rich value systems’ prevailed in the Sri Lankan society for a long period of time.
Socio-political issues:
The political analysts had been critically commenting on the manner in which President JRJ managed the country’s political system and governed the country during the initial period of the Presidential system under 78 Constitution. His governance style had created some kind of impression that JRJ government had made attempts to use tactics to undemocratically oppress the legitimate opposition by, first taking out the civic rights of the Leader of opposition, Mr Sirima Bandaranaike and suppress the trade union instigated general strike in 1980 and then postpone the Parliamentary elections by six years through a referendum, thus playing into extreme terrorism of LTTE, JVP and breakdown in law & order.
As a result, there has been a gradual deterioration of the economy of this country, although, both President JRJ and later President Premadasa were able to transform the socio-political system in the country and spur economic growth paving way for employment creation through private investments. Since 1978, the government of the day has been following an aggressive open economic policy framework and until 2014 there has been some progress in much needed infrastructure development with the participation of foreign and local enterprises in the private sector. However, no attempt has been made to evaluate the efficacy & effectiveness of such investments to the economy. Even after the war was successfully ended by 2009, we couldn’t establish trust & understanding among communities to establish a long- lasting peace and sound national security & defence system and political stability which are necessary pre-requisites for economic development on a sustainable basis.
Examine few key economic indicators:
(A) Government debt and depreciation of rupee:
Our total government debt was only Rs. 80 billion by end 1982, which includes some of the foreign loans obtained for the acceleration of Mahaweli development programme completed within six years. As for rupee depreciation- by end 1977, it was Rs 15.56, and by end 1982, it was Rs 21.32 for one US $. As can be seen, it was a gradual upward movement of the value of US $ and not very high rupee depreciation during the period-1977 to 1982. Since then, government debt had been increasing at a much faster rate and at the end 2014, it has gone up to Rs. 7, 486 billion, and by end 2019, it has further increased up to Rs. 13,031 billion. Our total external debt as a % of GDP by end 2010 was only 38% and it had increased to 67% by end 2019. As for rupee depreciation- by end 2004, it was Rs. 104.61 for one US$ and by end 2014 it was Rs. 131.05, now it’s Rs. 204/ but in the black market, it’s around Rs235-Rs 240/=.
(B) Poor export performance:
Compared to other regional counterparts, Sri Lankan export performance has been declining and it can be concluded that the investments made in infrastructure projects are giving diminishing returns. During the two decades in 1980’s and 90’s, we saw our export performance commencing from 1980 at one billion US$ (in the year 1980) going up to US$ 4.6 billion in the year 1999 and US $ 11.9 billion in 2019. The export performance reflects 26% of the GDP during the two decades ending 1999. However, the next two decades commencing 2000 to end 2019, the export performance of Sri Lanka has drastically declined to 16% of the corresponding GDP figures. (See table)
As can be seen, our trade deficit during the period 2010 to ‘19 has widened to 78% of total exports and our exports as a % of GDP has also decreased from 28% during the period 1990-99 to 14% during the ‘10 years period’ of 2010 to ‘19. In fact, it was an average of only 13% during the period 2015 to ‘19. The export revenue has been stagnating at an average of US$ 10. 9 billion and the trade deficit has widened to an average of US $ 8.5 billion during the period 2010 to ‘19. Repeated attempts to offset the trade deficit through tourism proceeds and remittances have not been successful without having corresponding forex inflows from export proceeds and FDI. Further, the exchange rate policy has created competitiveness issues for exporters, as external trade counterparts have become more competitive at the global market place due to their currencies are getting depreciated at a faster rate. Just to give an illustration, one cannot hold by his two hands four rubber ball in the water simultaneously for a long period of time; similarly, (i) our bank interest rates, (ii) inflation rate, (iii) rupee exchange rate and (iv) expecting large inflows of FDIs, cannot be held back for a long period of time – it’s a recipe for disaster in economic sense. These factors have adversely contributed to current macro- economic situation lowering the economic growth & development of the country.
From the above economic indicators, it can be seen that during the last seven years, the economic situation got badly affected, out of which during the last two years, it was mainly due to Covid-19 and the year-2019, it was partly due to Easter Sunday attack. Up to now, our economy would have lost nearly US $ 10 billion as opportunity cost on account of tourism proceeds from May 2019 to end November 2021. It is expected that tourist arrivals will pick it up, targeting some 100,000 arrivals per month for the next 12 months ending 2022. It’s unfortunate the ‘political party blame culture’ also contributed to the deterioration of society’s values. Because of these events, the international community lost confidence in supporting SL and even private sector FDIs have failed to come. One can also conclude that inward looking policies will not offer solutions to foreign exchange crisis, although there is nothing wrong in promoting domestic production, smart agriculture and industrial revolutions, which covers ICT development. We cannot find solutions by simply blaming the present government or previous governments, instead the key opinion leaders (KOLs) could get the government of the day to bring in much needed financial discipline through government budgetary process and instil new political culture and demand the government to bring in much needed structural reforms in order to reverse the declining trend.
Radical changes are needed to address structural weaknesses:
During the Presidential elections in November ‘19, a massive mandate was given by masses to the incumbent President, GR to undertake much needed ‘system change’. The economic situation would improve, if we are able to make some structural reforms in the economic front and undertake radical changes in the socio-political front which include changes to some areas of the foreign policy implementation. The solution lies with the Government taking some bold decisions – however they need to be mindful to the political realities and maintain policy consistency, until we are able to overcome difficulties and improve credit rating.
Key structural reforms and radical changes:
a.The present $$$ crisis needs to be resolved immediately.
i.Trade deficit for a long period of time has been around US 10 billion per year.
ii.Expected tourism earnings may not be sufficient to offset deficits in the short term.
iii.External foreign exchange reserves are low- US $1,6 Billion by end November.
iv.Banking system is faced with severe foreign currency shortage for essential items.
b.Under a revolutionary Land reforms and proper land use plan, we need to identify uncultivated land parcels, which includes Mahaweli land to fast track cultivation and development work which could be handled under PPP models by inviting private sector participation with proper monitoring of progress through an effective regulatory mechanism.
c.Use ‘National Sustainable Development Council of Sri Lanka’ as the institutional vehicle to drive green economic policy changes, whilst the Council continues to focus on 17 SDGs.
d.Existing guarantees given by Multilateral agencies for some credit lines may not be available for fuel, diesel, petrol, but only for renewable energy sources. Therefore, if we continue to have diesel plants, sourcing foreign exchange without such credit lines, that becomes a serious issue, that’s why it is necessary to focus more on renewable energy.
e.Structuring mega projects have to be in line with international trends i.e.; Sustainable development goals, COP 26 Glasgow- ‘Climate change’ to attract the right investors for our projects. Indirect costs in delaying our mega projects. Colombo East Terminal (ECT), 300MW convertible power plants, Northern/Central Highway, Port access road etc. are examples resulting from delays. However, there should be a mechanism to ascertain whether the investments made in infrastructure projects are yielding desired, expected returns.
f.Drive against drugs & underworld operations, action against corrupt practices and improve public sector service efficiency. Maintain government fiscal deficit around 7% by increasing direct taxes and restructuring SOEs, thus further reducing the burden of high expenditure.
g. Focus on FDI led ‘export oriented’ growth strategy coupled with increase in domestic production, light industries, SMEs, ICT applications.i.e.; Grama Niladhari tabs etc. and a mechanism to reduce cost of living rise, provide relief packages, and paddy/rice value chain.
h.Within the framework of non- aligned movement, Sri Lanka could slowly shift our foreign relations towards India Japan and the US. This would enable FDIs and bi lateral funds to flow in from these countries including UAE, South Korea, Vietnam to attract funds and resolve US sanctions imposed through western banks. Even the IMF will facilitate structural adjustments and rating will improve.
Therefore, it is suggested the government to appoint an ‘Expert Council’ to look into these areas mandating them to recommend a short- term solution within a set of ‘medium term’ strategic plans for the next three -five years.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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