Features
Sri Lanka’s economy in the first 10 years
By Uditha Devapriya
Assessments of Sri Lanka’s history often depict the period from 1947 to 1956 as an Eden before the Fall. Partly, this was owing to how independence had been secured. Freedom was seen as being granted, not won; unlike the multiclass bloc that had prevailed against British dominion in India, in Ceylon independence had amounted to a transition from the colonial bureaucracy to a comprador elite. Independence became a top-down affair, led by those who emphasised cooperation with rather than resistance to Britain.
Moreover, unlike in India, where ethnic tensions led to the partition of the country into Hindu and Muslim sections, in Sri Lanka similar tensions between the Sinhala and Tamil communities did not erupt until a decade later. Until they did, a belief sprang up that the country had secured independence without “dropping a shed of blood.”
Though these sentiments bolstered optimism over the direction the colonial bourgeoisie intended to take Ceylon, they also symbolised the bourgeoisie’s failure to consolidate a multi-class identity. Multiethnic though the composition of the leadership may have been, this was not reflected in the country’s population, which bifurcated between an English speaking elite and a Sinhala and Tamil speaking majority. The elite’s failure to address these concerns eventually led to previous calls for the replacement of English by two languages being replaced by calls to enthrone one, Sinhala.
Yet writers, politicians, even historians depict the first 10 years of Sri Lanka’s independent statehood as one of high prosperity. Two reasons are cited: the elite’s consolidation of a multiethnic identity, and favourable economic conditions which, had the UNP-allied elite continued in power, would have taken Sri Lanka ahead. I have addressed the first of these assumptions above. The second requires more scrutiny and examination.
Commentators who note that we could have done better contend that the colonial office handed over a highly developing country to local elites, and that the latter, particularly those elected after 1956, squandered the opportunity. Implicit in this assumption is the belief that the Ceylonese economy had fared well under British rule.
It goes without saying that this was far from the case. The claims of these commentators, that the country possessed the best road network, railway service, and harbour in Asia, in addition to being “second only to Japan in terms of per capita income”, under British rule, are hence suspect: “The fact of the matter,” Avocado Collective notes, “is that nobody has calculated with any degree of accuracy Sri Lanka’s per capita income in 1948.”
The UN’s, World Bank’s, and IMF’s estimates for Ceylon’s per capita figures in 1950 stood respectively at 311, 326, and 331. As the Avocado Collective writers correctly observe, these numbers could not have been different a mere two years earlier.
The situation was thus more complex, and less rosy, than what these commentators would have one believe. Sri Lanka’s first five years of independent statehood were dominated by problems of rampant poverty, widespread landlessness, inflationary pressures, trade and budget deficits, and declining terms of trade. These reflected the limits of an economy that had been catered to commodity extraction to the exclusion of industrial and productive activity. They eventually came to constrain the country’s potential.
Contrary to those who think otherwise, the country’s plantation sector did not do much to improve the situation. In 1950 the Indian economist B. Das Gupta pointed out that with a per capita monthly aggregate national income of Rs. 30, the development of tea and rubber sectors had “not necessarily meant general economic development of the country.” Simply put, the country remained “extremely underdeveloped.” To top these problems, “only some 10 percent of the population” earned monthly incomes in excess of Rs. 50, no better than the situation in the 1920s. That in turn had opened up a huge savings deficit.
Trade prospects were even worse. The balance of payments fell from a surplus of Rs. 314 million in 1945 to a deficit of Rs. 196 million two years later. The recession in the US had been partly to blame – US imports made up around 45 percent of the total in the country – but so too had Ceylon’s forever precarious terms of trade situation.
Sri Lanka’s terms of trade had risen from 103 to 138 between 1938 and 1947. By 1949 they had come down to 131. Fluctuations in commodity prices contributed to these declines: a decrease in rubber prices from 60 cents a pound in 1948 to 54 cents a pound a year later, for instance, contributed to decreases in the terms of trade of around five percent and in the balance of payments of more than Rs. 52 million.
Making matters worse, by independence the population had been locked into consumption patterns which favoured imports. One economist estimated the country’s propensity to consume in 1956 to have been 0.8493, with a constant of Rs. 20.03. Marginal propensity to import, on the other hand, stood at 0.2516, with a constant of 11.74.
Six years earlier, H. A. de S. Gunasekara had pointed out that three-fourths of total national expenditure was being spent on imports. Very little was diverted to gross capital formation: while the figure stood at seven percent in most developing countries, in Sri Lanka it stood at a paltry four percent, even in 1948. This meant that the country lacked investment capacity, without which growth could simply not be sustained.
Industrialisation was the only feasible and viable answer, and that obviously required heavy State intervention, as was happening in South-East Asia. But all three UNP regimes from 1947 to 1956 dismissed such an idea. The first Finance Minister, J. R. Jayewardene, had been entranced by Keynesian prescriptions, but his high regard for Keynes blinded him to the fact that aggregate demand policies were, as H. A. de S. Gunasekara noted in a critique of the government’s policies, relevant to industrialised countries suffering from excess capacity. In Sri Lanka, by contrast, the problem wasn’t an excess of capacity, but a lack of it.
To give the first two UNP regimes credit, though, they differed from the laissez-faire, non-interventionist position that Jayewardene’s successor, Oliver Goonetilleke, would adopt. Moreover, right until the withdrawal of food subsidies in 1953, which sparked the Hartal, the government continued the social welfare policies it had inherited at independence. The latter, in particular, became a sine qua non of democratic governance in Sri Lanka, a legacy of the Donoughmore reforms: thus, while expenditure on welfare had absorbed 16 percent in the 1920s, by 1947 it was absorbing a more impressive 56 percent.
Generous as these schemes would have been, however, the government’s economic plans were seen as less than stellar, in need of much improvement.
In a critique of the 1950 Budget, G. V. S. de Silva accused the UNP of transferring wealth to the rich even while expanding welfare measures. The government’s attitude to the question of local industry, which had by then become a priority across South-East Asia, also came for criticism: according to one observer, the tariff structure privileged the filling up of coffers “at the cost of irrational treatment for home industries.” The situation was such that while tariffs on areca nuts stood at 100 percent, those on brushes and rat traps did not exceed 50 percent, though the latter items could be manufactured locally.
Historians like K. M. de Silva dismiss the Opposition’s regard for industrialisation as a much-exaggerated panacea for all ills. Yet, it was industrialisation, led by the State in conjunction with private players, which had spurred growth in South-East Asia. Regrettably enough, Sri Lanka’s elites did not pursue such a strategy, even in the long term.
Instead the first three UNP governments prioritised full employment, which meant focusing on aggregate demand. On the one hand, they oversaw huge land resettlement schemes, which Tamil politicians alleged were a cover for mass Sinhalese colonisation. On the other hand, they embarked on large-scale projects like the Gal Oya scheme, which the Left lucidly critiqued: S. A. Wickramasinghe, for instance, described Gal Oya as a white elephant that benefitted American experts and local elites rather than the people.
The government’s focus on demand policies distracted it from other considerations. It also compelled it to promote if not entrench unproductive sectors, rather than urging reforms on them by way of taxation or nationalisation. Indeed, as H. A. de S. Gunasekara correctly observed, demand policies could not work in a context where land and labour were being channelled for such sectors, prime among them the estates. As S. B. D. de Silva noted in The Political Economy of Underdevelopment, for over a century these sectors had been driven by neither science nor technology, but rather by labour exploitation, profit repatriation, and absentee landlordism. This was hardly a productive combination.
Not surprisingly, the UNP endeavoured to appease these interests. Disregarding Marxist demands to nationalise estates, the government went about imposing higher taxes on them. Yet this hardly endeared the UNP to estate owners: Das Gupta noted that the latter began repatriating their assets soon after independence, fearful of the State “lessening their prospect of profit.” Later, Finance Minister J. R. Jayewardene realised, rather dismally, that planters did not necessarily prefer his solution of taxation to the Marxist alternative of outright nationalisation. They dreaded both options, and wanted out. In its own way, that was as much a tribute to the regime’s failures as to its economic ideology, which reflected the elite’s preference to cooperate with, rather than antagonise, British interests.
The writer can be reached at udakdev1@gmail.com
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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