We earn USD 1.4 trillion but spend USD 3.4 trillion. We owe a total of USD 45-50 billion in long term debt. Out of this, over USD 15 billion is in Bonds. To service our debt this year we need USD 7-8.6 billion. However, as March 2022 ended our reserves had only USD 1.6 billion.
Increasing debt, interest rates and taxes are not new concerns. However, it was never a sincere intellectual discourse to resolve a growing national crisis. Instead it was merely fodder for the Opposition to gain political mileage.
When Governments changed, the sinners’ and preachers’ faces simply interchanged. The only solution the voter could think was to oust the sitting government at the next elections - though the Opposition acted no differently when in power.
This time however our poor economic status is not limited to numbers, real or imaginary. It is a tangible experience with shortages in essentials as fuel and other imported commodities. The fuel shortage especially is a serious affair creating a ripple effect on other sectors including power. Consequently our Cost of Living is rising whilst contracting our economy. Matters will turn to worse if the predicted famine becomes a reality.
The Gotabaya Rajapaksa Administration came to power determined to break the cycle of rolling the country’s economy via loans, bailouts from the IMF and World Bank who insist on politically suicidal macroeconomic reforms and releasing high interest, short period international sovereign bonds. The plan was to strengthen the economy instead and break the habit of borrowing to meet day-to-day expenses. Yet, before completing half its term the economy is collapsing.
Lives or Livelihoods?
Reducing national debt to GDP ratio was an ambitious gambol with potential to deliver if not for the COVID-19 pandemic. This Government admirably and successfully met the pandemic’s unique challenges. Whether we could have afforded the remedies is questionable.
This is an indecent consideration as it attempts to place a value on life. The demand for President Gotabaya to resign is building to a crescendo over economic mismanagement. Then, should our priority be to scrape the barrel for the last dime and save every Sri Lankan life as possible or stabilize the economy by allowing some to perish as powerful economies as the European, American and Indian did?
Loyalty to a Manifesto without a Marketing Strategy
 Port City project |
With the pandemic, our income dropped and expenses soared. Therefore, the Government’s continued effort to spearhead development projects attracted much criticism.
Lives matter as much as livelihoods. As such, constructing highways that contributed to the country’s much needed infrastructure as well as uplifted the wilted construction industry bringing back jobs and money to people’s hands is arguably good and necessary.
However, with successive lockdowns and disruption to the economy the benefits hoped to gain comes under scrutiny. With shortages of essentials and doomsday predictions we need a professional cost versus benefit statistical analysis to appreciate these investments better.
Our mishandling of global perspective and international relations too cost us. To revive the region’s worst performing economy with a GDP of two percent, the Gotabaya Administration slashed taxes to give a breathing space to businesses. Though revenue-wise the Government was taking a Rs 600 billion hit the benefits were to manifest in other ways as businesses recover and grow with increased demand and supply. This would translate into more employment opportunities and money moving within the country.
Unconcerned by this logic, credit rating agencies immediately downgraded Sri Lanka. Technically they were doing their job. Less money in the State kitty means less money for debt servicing, which drops the country’s credit worthiness.
Not everyone agrees with this myopic view. Taxes is not a mere government invoice but actually an incentive. Ordinary citizens pay taxes to get facilities as infrastructure and security that cannot be obtained as individuals. Governments slash taxes from entrepreneurs to encourage economic growth that governments on its own cannot achieve.
Ajith Cabraal, as the subject’s State Minister and later as Central Bank Governor, was prompt in arguing against these ratings. However, his was a lone voice without a cohesive strategic communication plan from the Government to project the country’s financial stability - a crucial factor to attract investors. Marketing and branding are two areas we are yet to master as a nation.
At the same time should we have stuck religiously to the manifesto during a global pandemic is debatable. Plans to revive the economy were without taking a pandemic into account. Hence, some structural adjustments were in order.
With the pandemic our GDP fell. The resulting Government’s revenue loss was Rs 1,000 billion in 2020 and in 2021. As the Government drew safety nets under all vulnerable sectors whilst meeting the pandemic’s direct challenges the expenses soared. This led the Government to excessive money printing, which is an alluring quick fix but dangerous cascade with no point of return.
According to Phillip Haslam, author of When Money Destroys Nations excessive money printing can lead to accelerated currency devaluation causing production costs to soar beyond current profits. Maintaining prices becomes a nightmare. This results in hoarding or overpricing in anticipation of future price increases. Eventually when costs become exorbitantly expensive goods disappear from the market altogether.
This makes the hawala and undial systems especially shameful. The Government pushed boundaries for the nation’s greater good. Yet, individuals took advantage of loopholes for personal profit. Bypassing banking systems and promoting the black market was a major factor that contributed to the current economic crisis.
We also failed to promote our key investment projects as the Colombo Port City and generate the excitement it deserves locally and internationally. Though individual officers strived to set the record straight from the likes of former US Ambassador Alaina Teplitz’s false commentary, the Foreign Ministry failed in its duty to protect or promote the Port City’s image.
Balancing International Relations
Theoretically monetary agencies as the IMF and the World Bank should applaud when countries like ours finally take responsibility for our own economies without expecting bailout packages. Psychologically though this can be very disturbing.
As countries becomes financial stable and independent the control monetary bodies have over their governments gets relinquished. Geopolitically this is threatening to powerful nations under which these monetary agents operate.
Today, the IMF is taking great delight in discrediting this Government’s valiant efforts to extract its nation from debt by strengthening its economy. Previously, President was categorical that this economic mess was not his creation. Today, the Government agrees with the IMF’s pronouncements and denounces their own brave efforts as “historic mistakes” and is careful not to apportion any blame to the previous government that was tilted to the US.
 Shortage of foreign currency |
When we decided to spurn the IMF we should have understood the importance of balancing relations between India, China and Russia. Sensitive to the role RAW played in ousting the Mahinda Rajapaksa Administration in 2015, this Government is overly cautious in its dealings with India. By attempting to reassure India we neglected China.
China consequently tightened her purse strings and did not rush to Sri Lanka’s aid as it usually did. While China dillydallied over a USD 1.5 billion credit line other factors overtook events within Sri Lanka.
The Gotabaya Administration’s two-third majority Government crumbled. As political instability set in President Gotabaya immediately backtracked plans for a home grown solution. Key figures including Cabraal and Secretary to Treasury SR Attygalle resigned. The new team with Dr. Nandalal Weerasinghe and Mahinda Siriwardana respectively believes the IMF’s help is the way forward.
Surprised by Sri Lanka’s sudden decision to turn to the IMF the Chinese embassy in Sri Lanka revealed to the press that China was about to release these funds when Sri Lanka abruptly decided on an IMF bailout. Expressing disappointment the embassy stated that China would be closely observing the developments with the IMF.
The recent upheaval simultaneously experienced by Pakistan and Sri Lanka cannot be coincidental. Sri Lankan Government’s conclusion is that China has given up on our countries and are recalibrating their focus to East Asia leaving us in India’s hands. There is a thought that to break the western hegemony in the emerging new world order China, India and Russia must work together and not be in conflict over territory.
However, China’s reaction to Sri Lanka approaching the IMF contests this view. Even if it was the case, Sri Lanka should not meekly accept it. Instead, Sri Lanka should strengthen our mission in China and build closer bilateral relations. Our survival depends on the fine balancing between both India and China without tilting to either.
Instead of investing in investing in unfriendly countries as Canada that always undermine us we ought to redirect resources to build closer relations with our all-weather friends as China, Russia, Bangladesh, Pakistan et el. Notwithstanding China’s decisions it is up to us to foster the kind of relationship we want with China.
Conversely India was eager to hold Sri Lanka’s hand as we pleaded a bailout package with the IMF. India may be hoping to reset relations with Sri Lanka that its foreign policy blotched twice in 1987 and 2015.
However the 13th Amendment India forced into our constitution continues to haunt us, especially at this juncture when there is a concerted effort to abolish the executive presidency. Thus, whether India’s assistance to a desperate Sri Lanka through credit lines for fuel and other essentials and support at the IMF (which is absent at the UNHRC) will bear fruit in India’s favor remains to be seen.
For fear of antagonizing the West, we also blotched relations with Russia. When Russia, at the onset of the Ukraine war, offered us petroleum products at reasonable prices we baulked. India despite being a Quad member did not hesitate to accept.
After purchasing from India at higher prices penny has finally dropped. We have since then requested Russia’s help to overcome our ongoing energy crisis. Russian foreign ministry’s cryptic response was that our request is under the early stages of consideration and thus cannot be commented upon yet.
To prove our bona fide our Foreign Ministry must insist that the diplomatic community in Sri Lanka respect our neutrality stance. As such the Canadian High Commission must remove the Ukraine flag hung on their parapet wall. We cannot expect assistance from a nation while allowing others to embarrass that nation within our country.
Internal Strife and Anti-Govt. Protests
The once strong government suffered a severe blow due to the internal strifes between Basil Rajapaksa and a core group within the Government led by Udaya Gammanpila, Wimal Weerawansa and Vasudeva Nanayakkara. Both factions have reason to believe that they played a pivotal role in bringing this Government to power. Instead of cherishing the victory they have been pulling in different directions from the beginning.
Eventually the core group rebelled against their own government. Buddhist prelates and nationalists, who played a pivotal role in bringing this Government to power, too had distanced themselves from President primarily as they disagree with Basil’s policies.
The Gammanpila-Weerawansa-Nanayakkara rebel team with eight other political parties affiliated with the Government on March 02, 2022 held a massive conference. Though it was promoted as an unveiling of solutions to the prevailing economic issues, Weerawansa unleashed a tirade against Basil. The proposed solutions did not register in anyone’s mind then or remembered now for the presenters never promoted it.
Instead, they unwittingly gave ammunition to the JVP to market the Rajapaksa brothers as corrupt and pin the blame for the current economic woes on them. Marketing the anti-Government protests as apolitical, the JVP hand was hidden until May 9, 2022. This attracted the neo-liberal middle class who were already frustrated by the shortages that were pinching their lifestyles.
As this gained traction, it attracted celebrities and other personalities as Buddhist clergy and His Eminence Malcolm Cardinal Ranjith and the protest movement gained much hype. Even the Gammanpila-Weerawansa-Nanayakkara rebel group began to echo the same demands of the protestors and today finds themselves in the political wilderness without a leader or a slogan.
The protests’ bohemian ambience was promoted as signs of a smart and insightful new generation who would not be messed with as the previous generations. So-called advocates of democracy defended the protestors’ increasing boisterousness as their right to protest whilst issuing travel advisories to their own citizens against travelling to Sri Lanka.
Alarmingly a menacing undercurrent moving with the protests has surfaced a number of times. A mob attempted to enter President’s private residence with iron bars, sticks and sharp objectives. Another tried to set fire to a fuel filled bowser after pelting the Rambukkana Police with rocks. Properties of Government MPs, mostly the highly qualified professionals who entered Parliament on a national agenda, were looted and destroyed. Amarakeerthi Athukorala, a young and a sincere politician who did not use even a government vehicle was hunted down and lynched to death.
Surprisingly, none who advocates and supports the anti-government protests have spoken against this violence. Through their silence and continued reference to these mobsters as “peaceful protestors” and “outraged public” this violence is being endorsed.
One ministerial secretary recently warned that we are sitting atop a volcano as a famine is imminent. However, the real eruption is not in the shortages of food and other essentials but in this brewing violence. On March 22, 2022 - the night before Ordinary Level exams was to commence, mobsters torched the residence of a refilling station owner while the family was still inside. The arsonists were outraged when the refilling station ran out of its stock during that day. The owner’s child was to take the exam the following day.
Political Games
Clearly, our country burdened with a bulging debt and an empty purse is besieged with an economic dilemma. Yet, absurdly the effort is to find a political solution.
Amidst this confusion, there are signs of a violent force gathering momentum. If not arrested immediately, this could be the most destructive element of our times.
We embarked on an adventure to strengthen our economy. However, factors within and beyond our control has returned us to the starting point - seeking alms and aid from neighbours and monetary agents. We can still turn the tables around but only if we stop these political games.
Clashes at Galle Face. Picture by Wasitha Patabendige
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