Lanka struggles to get back on track

by G.Kumanayake

Sri Lanka is facing an unprecedented economic crisis. The inefficient, corrupt politicians brought this country to bankruptcy. Now the country depends on credit lines, swaps and foreign aid. Since independence we never had visionary leaders. They were engaged in short-sighted power games and neglected the economic development.

Nevertheless, since 2005, the Rajapaksa family’s contribution to the economic decline cannot be underestimated. Mahinda Rajapaksa’s vanity projects such as the Mattala Airport and the International Conference Hall in Hambantota caused colossal harm to the country’s economy. “Sanda Hiru Seya”, the gigantic dagoba in Anuradhapura is another classic example. Most of the infrastructure projects are not economically productive.

The ‘Yahapalana Government’ which came into power in 2015 continued to obtain foreign loans. Their so-called development projects did not bring substantial benefits to the national economy. No attempt was made to curtail unnecessary expenditure. Instead, that Government imported super luxury vehicles for politicians and bureaucrats several times. For that purpose, supplementary estimates were passed in Parliament. Moreover, that Government failed to introduce the necessary economic reforms.

Total Government Debt (Rs. Million)

Year Amount

2011 5,137,762

2012 6,082,950

2013 6,889,212

2014 7,486,862

2015 8,599,190

2016 9,478,869

2017 10,382,833

2018 12,030,548

2019 13,031,543

2021 15,117,247

2022 17,589,373

Sources: Central Bank Annual Reports

All Governments continued to borrow heavily and repaid at higher interest rates. The foreign exchange reserves virtually dried up. Now the country has defaulted on its debt. Our excessive spending and limited revenue caused Balance of Payment problems. Thus, it is obvious that the current economic crisis is not due to the COVID – 19 pandemic or the War in Ukraine. It is caused by stupid political decisions and purely a man-made disaster. Covid and Ukraine only aggravated our problems. It is true that energy and food prices are escalating at the global level. But Sri Lanka’s main problem is the forex shortage.

Due to the lack of US dollars all sectors are affected. The non-availability of medicine and medical equipment is a grave problem. It has been pointed out that even the local producers are unable to produce drugs as there are no dollars to purchase raw materials.

Sadly, we find it very difficult to unload cargo. Recently a crude oil tanker arrived at the Port of Colombo and demurrage to the tune of US$ 75 million was paid to unload crude oil!

President Gotabaya Rajapaksa recently said that he was not responsible for the crisis. Then he admitted that some of his decisions were wrong. Sri Lanka’s food security is at a perilous state due to the fertiliser fiasco. Gotabaya and his CBSL Governor Cabraal flatly refused to seek the IMF’s assistance. When the Government’s loincloth caught fire, Ali Sabry, the newly-appointed Finance Minister was dispatched to Washington. GR appointed his two brothers Mahinda and Basil as Finance Ministers who were clueless about the economy. His myopic tax cuts weakened the economy. Thus, Gotabaya is primarily responsible for the current pathetic situation.

Now Sri Lanka struggles to get back on track. The focus should be on how to earn forex. The country must expand its FDI and export sectors. Sri Lanka’s FDI in 2020 was mere 548 million. Other Asian countries are far ahead.

US$ billion in 2020

Hong Kong 120

Singapore 28

Indonesia 19

Vietnam 16

Recently a high-ranking officer of the Board of Investment (BOI) took part in a TV programme and said that it was difficult to attract more FDI due to many ‘external factors’. Several other government institutions must perform certain tasks and those are beyond the limits of the BOI. Having functioned for the past 40 years, isn’t it high time to address these issues? Can the BOI come up with such ‘excuses’ for the failure to attract substantial FDI?

Another important sector is tourism. We need a robust plan to attract more tourists. The chairperson of Sri Lanka Tourism tendered her resignation after submitting a strongly worded letter to the new Tourism Minister. A battle went on between the chairperson and the Sri Lanka Association of Inbound Tour Operators. All stakeholders must work hard to revive the tourism sector.

The export sector is showing some progress. However, export crops such as tea and cinnamon face serious problems due to the chemical fertiliser and weedicide shortage. The country needs effective strategies to develop the export sector. High tech exports form only 1.5% of Sri Lanka’s manufactured exports. In Singapore it is high as 57%. In Malaysia and Thailand, it is 55% and 27% respectively.

Corruption hampers economic development. Under all governments corruption flourished. In 2021, Sri Lanka’s corruption index was 102 out of 180 countries! The SLPP successfully used the Central Bank Bond Scam against the previous Government. But we saw many serious corruption cases under the present administration. For example, the Auditor General’s report says that the total loss of the sugar scam is around Rs. 102 million. No genuine efforts are being made to eradicate corruption. The Bribery Commission is impotent.

Another point should be stressed. In our country almost all institutions had failed. For example, has Parliament effectively performed its oversight role? Every rupee that belongs to the Treasury should be controlled by Parliament. Then, how public finances had been allocated for unproductive ventures? The two main watchdog bodies, COPE and COPA, are like toothless tigers. Moreover, the involvement and enthusiasm of the members are not satisfactory. Some of them attend the committee meetings unprepared. Some officers do not follow the directions/ recommendations of the committees. Fiscal Management Responsibility Act No.3 of 2003 has not been able to serve the purpose.

Prime Minister Ranil Wickremasinghe stated that US$ 600 million would be required to ensure adequate supply of fertiliser. However, we wasted valuable forex to purchase substandard fertiliser from India and China. For the Chinese ‘carbonic fertiliser’ ship, which was rejected by the Sri Lankan scientists, US$ 6.9 million was paid. Has anyone been found guilty of the harmful decision? Where is the accountability? Many such irrational decisions are made, and millions of rupees of public funds wasted.

To get back on track, Sri Lanka needs an able leadership. Gotabaya Rajapaksa has failed miserably. He was elected by 6.9 million voters to govern the country democratically. He dashed their hopes. Now his credibility is at the lowest level. Undoubtedly, he is the most inefficient leader of Sri Lanka since Independence. His mandate is no longer valid. Constitutionally he can be the President until his term expires. Nevertheless, he has no moral right to hold the presidency. Thus, the ‘Gota go home’ slogan is valid. The protesters are rightly asking him to step down.

Hobbes, Locke and Rousseau expounded the Social Contract theory. Accordingly, ‘each person agrees to surrender some of his or her rights and freedom to a central authority on the condition that every other person does the same. In exchange, each person receives the benefits that supposedly only such a central authority can provide, including domestic peace. The authority must provide protection to individuals. Maintenance of social order is included.’ At present all Sri Lankans suffer a lot. Especially, the vulnerable segments are badly affected. In May, the overall inflation rate rose to 39.1%. Social unrest is widespread. People have lost confidence in the Government.

When Ranil Wickremesinghe was sworn in as the Prime Minister on May 12, liberal minded and pro-business people expressed their pleasure. They thought that Western countries and the international lending institutions would generously assist Sri Lanka. But the reality is that Ranil or any other individual cannot perform miracles. There is no point in pinning hopes on a ‘saviour’. On May 30 the World Bank reiterated that it does not plan to offer new financing to Sri Lanka until an adequate macroeconomic policy framework is in place. It is obvious that Wickremesinghe came forward to protect the extremely unpopular Gotabaya Rajapaksa regime.

Then a new Cabinet was formed with the same old faces, except for the two SJBers, who were solely interested in Ministerial portfolios. The man who failed to pay his massive electricity bill was awarded a ministererial post. And the person who proudly declared that he saved the Rajapaksas when they faced serious corruption charges is also a Minister. What can the country expect from such a gang?

The country’s future is bleak. The citizens’ agony is immeasurable. They will have to face more formidable challenges in the near future. Ironically, the stupid, arrogant politicians who brought misery to the nation are the least affected! They are unbelievably wealthy!

(The writer retired as chief research officer of Parliament)