Godahewa warns of economic challenges

Former State Minister Dr. Nalaka Godahewa, MP yesterday pointed out that a careful look at the Central Bank’s 2023 data revealed that the much-touted promise to build a thriving export-oriented economy under the current government was only a pipedream.

Addressing the media at the Nidahasa office at Nawala where he dealt with economic issues, the dissident SLPP MP said that according to the Central Bank’s data, by the end of the first half of 2023, the trade account exhibited a much expanded deficit of $364 million, a significant departure from the $22 million surplus recorded in June 2022. Furthermore, export earnings and import expenditures for the first half of 2023 had both declined by 10 percent and 18.6 percent, respectively, compared to the previous year. Earnings from industrial products, primarily driven by the apparel industry, had contracted by 12%, plummeting from $5,260 million in the first half of 2022 to $4,616 million—a drop of $650 million. Notably, the garment industry, a critical export sector, experienced an 18% decrease, declining from $5,260 million to $2,461 million in compared to the first half of 2022, resulting in a substantial $516 million reduction.

Dr. Godahewa argued that this compelling evidence pointed to a failure in achieving an export-oriented economy, as advocated by the President. However, he also emphasised that tourism revenue and remittances from foreign workers, which were not included in the trade balance, could potentially offset the balance of payments deficit if the government continued to postpone settling foreign debts. Consequently, he pointed out that there should be no issue with importing oil and gas until debt repayment commenced, stressing that economic growth was the only way to manage the country while servicing debts simultaneously.

Nonetheless, Dr. Godahewa noted that the overall state of the economy was concerning, with four consecutive quarters of economic contraction. In the first quarter of 2023 alone, the economy had contracted by 11.5%. He speculated that the contraction in the second quarter would be even more pronounced, although the central bank reports were delayed.

The MP expressed optimism that the government would secure the second installment of the promised $2.9 billion loan over five years from the IMF. However, he cautioned against viewing this positively, as many of the measures taken could have long-term detrimental effects on the country. For example, he highlighted the reduction of employees’ pensions due to domestic debt restructuring and the loss of numerous jobs due to the government’s economic mismanagement, particularly in key employment sectors such as construction and the garment industry.

To meet IMF demands, the government had raised taxes, leaving the working population financially strained. The government aimed to increase tax revenue by 70% by 2023, with tax revenue expected to rise from 1852 billion rupees in 2022 to 3130 billion rupees in 2023. This meant a 70% reduction in disposable income for most people, who already spent the majority of their earnings on basic necessities like food, electricity, and water.

Dr. Godahewa emphasized that there was little money left for essential expenses like education, healthcare, and clothing. This tax burden had driven professionals to leave the country in large numbers, with over 800 doctors, more than 300 specialist doctors, over 1000 engineers, over 500 university professors, and thousands of other professionals departing in the first half of 2023. This brain drain raised concerns about the nation’s ability to build and develop in the future.

The MP asserted that the government’s unreasonable tax policy was ineffective. They pointed out that when taxes were reasonable, people and businesses were more compliant, whereas excessive taxes led to emigration and business closures. By June 2023, the government had only managed to collect 77% of the expected tax revenue, even amidst a significant economic downturn.

The MP also criticized the government for attempting to stifle democratic processes, referencing recent remarks by the President and the Leader of the United National Party concerning the availability of funds for oil and gas in the event of a 2024 election.

Dr. Godahewa argued that the government’s decision to cancel local government elections due to financial constraints was questionable. For the local government election, the Election Commission had initially requested 10 billion rupees, which was later reduced to 4 billion rupees. Despite this, the government claimed it couldn’t afford to allocate the 4 billion rupees for the election, even though they had earmarked an additional 1390 billion rupees as government expenditure for 2023 compared to 2022. Dr. Godahewa pointed out that a mere 0.3% of the total estimated government expenditure was required to fund the election.