16 April, 2024

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A Generational Shift To Face The Crisis In Sri Lanka 

By Emesha Piumini Perera

Emesha Piumini Perera

Thomas L. Friedman, New York Time journalist, coined, the word “grasshopper generation” in his book” hot, flat and crowded” in 2009, explaining the pre subprime crisis situation in the US where the hedonistic approach to economic life had led to economic and ecological deficit bequeathing to future generation. This outcome might have been due to excessive consumption, investments and innovations that gambled future resource availability. Looking at the present crisis in Sri Lanka, the situation is not of much difference despite the fact that Sri Lanka is considered to be an underdeveloped economy compared to the US. With the structural changes of complete liberalisation introduced in 1977, Sri Lankan community has got used to or was trying to adopt the convenient and comfortable luxury living standards at least enjoyed previously by the upper and middle class families in Sri Lanka. And on the other hand the lower rung communities were backed up by the government which also has created a comfortable dependency mindset among people even in the rural villages in Sri Lanka. And also at micro level, the country has solely been dependent upon easy imports whereas it continued to export the traditional agricultural and basic and light manufacturing products which are less lucrative in terms of terms of trade and the foreign currency inflows. Therefore we have been facing twin deficits in the government budget as well as in the balance of payment as a result of the Karma of living beyond the means. This led us to borrow more and more and pile up our domestic and foreign debt burden. In past half a decade, the central government debt to GDP ratio increased to 104.6 per cent by end 2021 from 77.9 per cent in 2017. As a matter of fact, the politicians would definitely have made this situation worse through the misallocation of resources, unproductive infrastructural projects, meaningless ad-hoc policies free from proper planning and corruption. 

The current crisis in Sri Lanka can be recognized at a glimpse as a depletion of foreign reserves led by servicing of accumulated huge bulk of sovereign debt of the economy. As a consequence, Sri Lankan Government in April 2022 set to a Sovereign Debt Default that was preceded by a scarcity of essential imported goods such as fuel, gas and medicine and surging inflation.  According to CBSL weekly report, National Consumer Price Index (NCPI) based headline inflation  increased to 58.9 per cent in June 2022 year on year basis (Y-o-Y) from 45.3 per cent in May 2022 due to increases of prices of items in both Food and Non-food categories. Meanwhile, Food inflation (Y-o-Y) has been recorded at 75.8 per cent. However, these figures seem to be underestimated according to Hanke’s inflation dashboard. A professor at Johns Hopkins University in USA, Steve Hanke has estimated that Sri Lanka’s true inflation in April is 132%. This have further caused ripple effect impacting on the operation of transportation system and the power generations leading to daily power cuts.   As excuses for the crisis, the government presents downfall of tourism sector due to ,the 2018 Easter attack and the Covid-19 pandemic, which do not however explain the accumulated debt burden overtime or inability to form structural changes diversify the export portfolio from a long time span. Nevertheless this has sooner become a political and social crisis with the protests carried out by the general public for months all over the country compelling the President to resign.

Neither the government nor the decision makers were able to predict the crisis before it happened and smooth out its effect. The current crisis is described by Professor Prabhat Patnaik as a contingent crisis that was similar to the crisis in Greece. The borrowing has been seen as the panacea for every problem which is no more available as an option for the economy of which credit ratings have dropped down to the bottom level. Before the crisis occur, no proper attention was given to diversify the range of exports, improve the possible and affordable means of transportation, moving towards renewable energy or home gardening.  Like Grasshoppers, all enjoyed and entertained from what was thought as the prosperity. Till the crisis was at its door step no so called economist both could predict it nor consult and direct the government towards the right path but instead was nodding their heads for every wrong policy that unknowledgeable power-holders who did not have any expertise, were suggesting. This might also reflect the less effectiveness sophisticated forecasting models that the modern economists are using rather than rational and critical thinking. 

The time has arrived to shape shift from careless generation of Grasshoppers to serious generation of ants. Blaming each other would not solve any of the issues, instead will make them even worse as it has already happened. The solutions for the prevailing crisis can be analyzed in the time frames of short run and long run. 

Short run would include the immediate steps that the government should start implementing in the upcoming year. It is obvious that the economy does not possess adequate resources to pay off the mountain of debt that has been accumulated. Therefore the officials should start negotiating with relevant parties to restructuring the debt repayment, that has been already been started. It is worth to remember that Sri Lanka is not the only country that has defaulted its debt. Argentina, Ecuador and Lebanon were among the nations that defaulted on their sovereign debt in 2020 according to Reuters. In the meantime, the Sri Lanka should work on reestablishing its transport system, giving priority for the convenient, efficient and comfortable public transport instead of restricting the usage of personal vehicles. People in Sri Lanka should have the attitude change that using of public transport is not a matter to be ashamed of. This will somewhat facilitate to overcome the fuel crisis and also pave the way to attract tourists once again to the country with a minor promotional campaign. On the other hand, the workers who remit the foreign currency to their accounts should be incentivized by providing them an additional interest. Parallel to that, the expertise in the financial intelligence should be given the scope to reverse the Money Laundering happened during the past 10-15 years, and capture the responsible parties with evidence. As another way of resource collection, all the tax evaders should be fished and should charge them with a due interest. The assessors in the Department of Inland Revenue has a wide and honest role to play in this regard. After gathering of resources, the smooth operation of basic development criteria which make Sri Lanka unique such as education and health should be taken care of.

In the long run of five to ten years, one properly planned policy agenda should be implemented, focusing on few main areas. The Sri Lanka must encourage domestic industries again and also the established ones should be given the training and information to find international markets. Relying on imports even for the products that can be produced with in the country will only make the current account further deteriorate. Sri Lanka should avoid importing agricultural products instead should encourage Sri Lankan farmers to make the country self-subsistent. In this regard, enhancing the agriculture productivity through modern or traditional means that are appropriate to Sri Lanka, should be key to drive the country towards the trajectory of development. Along with the development of agricultural sector, small and medium manufacturing and service sector firms should be encouraged to development their markets domestically as well as internationally. Diversification of Sri Lankan Exports and wining the international competitiveness should definitely be one of the major area that should be given attention. And learning the lessons from the current crisis, the dependence towards one energy source which it also ecologically unhealthy should gradually be evaded. Instead, renewable energy sources, electric vehicles must be encouraged as a part of the agenda. As a source of foreign currency, more viable, lucrative as well as environmentally healthy Foreign Direct Investment projects can be hosted by the country which would further create more scope for employment opportunities and knowledge. Specially service sector entrepreneurs, intelligence, consultancy related small firms should be offered incubation by the government to acquire the competitive advantage towards particular industry. And also instead of adding more infrastructure, the government should identify the ways to use existing unproductive infrastructure in more productive ways.

For all these policies to be successfully implemented, the changes in attitudes of Sri Lankans seem to be a must. Though the Singapore model is something that Sri Lanka cannot apply as it is, some tips related with reconstructing attitudes can thoroughly be learned by Sri Lankans. Kishore Mahbubani, a Singaporean academic, diplomat and geopolitical consultant in one of his popular interviews reveals the three pillars of the secret formula for the Singapore’s Success. They are (1) Meritocracy-Hiring the best people to control the country 2) Pragmatism (Not to be bound by any ideology as long as it is suitable for the country’s development, Singapore’s economic policy is a mix of both Capitalism and Socialism) 3) Honesty (Formula of MPH- Meritocracy, Pragmatism Honesty). Especially honesty is something very important attitude change that Sri Lankans essentially need to practice from Janitor/bus conductor /shop keeper and fuel seller/teachers to Member of Parliament and the President of the country. Without that, no implemented policies are to be successful.  

The economic, social and political crisis that the Sri Lankans are facing is going to be more acute. In the first quarter of 2022, it has been marked a negative economic growth of -1.6 percent reflecting a recessionary phase. Asian Development Bank forecasts the lowest economic growth rate of 2.4 percent for Sri Lanka among all South Asian Countries in 2022. Nevertheless it is not a situation that is impossible to be overcome as it has gone through and seen the worse. The time has come for the Sri Lankans to be united as a kingdom of ants to uplift the country again with the hope of prosperity.

Related Links

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/statistics/wei/WEI_20220722_e.pdf

https://www.lankaxpress.com/sri-lanka-inflation-is-the-2nd-highest-in-the-world/

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2021/en/10_Chapter_06.pdf

https://mronline.org/2022/05/02/reflections-on-the-sri-lankan-economic-crisis/

https://www.youtube.com/watch?v=slPoVm8jSw8

*W. Emesha Piumini Perera is currently working as a freelance researcher and has pursued her Masters in Arts specialized in Economics from Savitribai Phule Pune University, India. She was also an undergraduate of Department of Economics of University of Colombo. 

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Latest comments

  • 2
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    EPP suggests to unite to face the crisis, but that will not help if the family is able to lay hands on the money as it will surely be robbed from the citizens of the nation into the MR family accounts.

    • 2
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      “Though the Singapore model is something that Sri Lanka cannot apply as it is, some tips related with reconstructing attitudes can thoroughly be learned by Sri Lankans.”
      True. Laziness and indiscipline are ingrained here.
      However, Buddhist Thailand is also successful. But its success was closely connected to US troops sowing their wild oats there in the 60’s. Our prim and proper authorities won’t even allow tourists with Buddha tattoos.
      Thailand, Singapore, and Korea all had authoritarian governments. But that is exactly what Aragalaya proponents are complaining about here. You can’t have the cake and eat it, guys.

  • 2
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    Very good ideas and suggestions indeed.

    Education has a role to play in attitude change. Social engagement is also important. oung people ought to be taught to do something for their community. In the county that I live in people find a place i.e. an empty building and do various things. e.g. bring second hand books, do art, open a small tea and coffee section, read poetry. Residents in the area come and join. This creates connectivity. Relevance. creativity, cooperation. The economic model in operation in Lanka and many other countries promote individualism and competetion rather than cooperation(cooperation is limite to profit making/searching). Society is much larger than the economy. Social relations are larger than economic or political relations. There is scope for people to engage in social activities and create new spaceds for interaction,engagement,mutual help etc.

  • 2
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    Thoughtfully written…need now to set the stage for transformation and a really open economy to boost the key sectors; and to bring in investment and divest loss making institutions nd the broad base those institutions that are profitable such as Insurance so that they can do even better

  • 5
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    Shows how much of untapped knowledge, talent and resource , we still have in Lanka. But our Parliament is full of senile, geriatric crooks, con men surrounded by underworld, murderers, crooks, criminals, drug peddlers, racist……. . Emesha, I am sorry in saying this, ” young people like you with full of ideas are of no use to our Banana Republic. Stay where ever you are , so that you can progress and help others in doing so. We have plenty retards to parrot (already heard from one ) ” if not for Covid, Easter attack,Ukraine crisis , we will be prosperous ans splendor “. As you say, many of us saw this coming years ago.

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