16 May, 2022

Blog

Changing Pillows To Cure Headaches: What Led To The Current Economic Crisis In Sri Lanka?

By Sunil J. Wimalawansa

Prof Sunil J. Wimalawansa

Sri Lanka is undergoing rapid changes in response to ongoing unwholesome administrative decisions, poor/harmful policies, and choices that led to the current economic collapse. Besides, the collective unfavourable governmental decisions were responsible for causing food, medicine, power, fuel shortages, starvation, economic fallout, and island-wide socio-economic crises.

Unwise policies and short-sighted actions resulted in major shortages of essential items, such as cooking gas, medicines, food, and services, which occurred within a shorter period. The negative impacts are predominantly affecting the middle class and the poor. In contrast, greedy politicians have engineered the current economic calamity, allowing them to escalate the syphon funds out of the system.

These systematic frauds began 15 years ago, with unlimited international borrowing for self-gain (i.e., commissions) rather than for needs, projects, or development in the country. Besides, during the past two decades, governments approved many unsolicited non-competitive (illegal) bids for large, non-priority projects; despite current calamities, this is continuing. These include but are not limited to building highways, beautification, and worthless ventures like the Lotus Tower, Hambantota airport ad the conference centre, Mihin Lanka carrier, etc., obtained at exuberant interest rates, based not on the needs of the country but commissions. These significantly added to the escalating fiscal deficit of the country.

Dilapidated Sri Lanka economy

Sri Lanka’s economic situation is bleak, with minimal foreign reserves and gold. The dwindling economy and associated misfortunes were brought about by administrators’ terrible judgments to satisfy the needs of politicians, enacting irresponsible policies by politicians for personal benefit, and overall horrific economic mismanagement. Politically motivated, unsound policy-making, exuberant spending, flagrant corruption, and lack of knowledge and expertise of cabinet ministers on the subject matter ruined the country under the protection of the military.

While the COVID pandemic affected virtually all countries in Southeast Asia, Sri Lanka was the worst affected economically and handled the COVID crisis. The COVID-related economic crisis was self-inflicted by enforcing unwise decisions, including unwarranted harmful curfews, and mismanagement by the militarised COVID task force and the narrow-minded directors of health to fulfil the needs of the president’s and prime minister’s political agenda.

In addition to the irresponsible politicians, heads of task forces and secretaries of specific departments should be made accountable for their mismanagement and contributions to the current economic crisis. They should make payback the losses they created to the treasury through the legal system. Moreover, instead of tackling issues logically and cost-effectively, the administration created COVID as an unscrupulous business for profiting themselves. Collectively this was a perfect storm: causing an overwhelmingly negative impact on the economy and livelihoods and devastated small businesses and welfare, especially the low middle-class and daily wage-earners.

The initiation of economic crisis

In 2019, the president inappropriately initiated a politically-motivated massive tax cut, which reduced the government income by approximately 22%. In contrast, high taxation suppresses investment, innovation, production, investment, and overall growth; unnecessary and unthoughtful tax cuts detrimentally reduce the government revenue.

To make the matter worse, a handful of rogues persuaded the president to enforce an abrupt irrational agricultural transformation from synthetic fertiliser to organic farming, assuring a guaranteed failure—completely insane decisions by the current government. With a 40% drop in production, especially in agriculture and exports, the debt to GDP ratio is now approaching a record high, 110.

The maintenance of the economic crisis

Despite the widening income-expenditure gap, government continue to push non-priority high cost, road development and other projects to align companies and import luxury items, such as cars for politicians and elites. In parallel, financial mismanagements, such as the printing of billions of rupees and artificial control of the exchange rate by the Central Bank, escalated the inflation and devalued Rupees.

Mentioned actions destabilised the local financial market, the monitory system, import/exports, and the current dollar crisis. For taking politically-driven actions that harmed the country, the minister of finance, governor of the Central Bank, and treasury secretary must be made legally and financially accountable. Bad policies and violations worsened these conditions and corruption and eroded investor confidence. It is time to reverse these permanently.

Escalated abuse of power by executive presidents since 1977 is astonishing. The old idea that the need for a strong leader to succeed in a country was repeatedly proven flawed in Sri Lanka. Besides, unconfirmed evidence suggests that the ruling family’s involvement in mining Cryptocurrency using public resources, neither payments for using facilities and massive electricity consumption nor taxes. These further demonstrate greed and exploitation by the current ruling political lot.

People’s demonstration against corruption and for complete system change

As demonstrated since April first week of 2022, we, the people, are gaining the ultimate power to change and restore a democratic government.  Overdue changes are needed to prevent corrupt politicians and criminals from coming into power, stop reappointing inefficient and disposable politicians, and, most notably, change the system.

Corrupt politicians created it in 1977 and fostered it by the political system for self-benefit and pilferage: current politicians escalated it to the maximum. The disastrous 20th amendment is one example of greediness and a deliberate enactment to expand corruption, looting the treasury, and allowing stealing by governing politicians using spinless administrators without fear of audits and retributions.

System change is the most important goal

Despite the above, dedicated Sri Lankans who are currently pushing for system change must be rational and not get carried away by emotions or misguided by outside forces or politicians trying to manipulate them via cham or a paid local mob. The current slogan used by the populous is too restricted and must include total “system change.”

Changing the regime is only one goal of the protestors: the system changes with permanently eliminating corruption is more critical for the longer-term benefits and prosperity of the country. This needs exemplary leadership from groups such as the Invidia Foundation and wise decisions guided by true non-political experts for sustainable system change for the country’s longer-term benefits, stability, and prosperity.

The new constitution should encompass a section that all ministers and higher administrative appointments, including higher education, agriculture, security, etc., are given to those with relevant education and proven expertise and capable of exhaling in those positions, not based on nepotism, connections, friendships, or thuggery.

It is worth introducing a term limit of two and upper and lower age limits for all elected positions in the country. In the present cabinet, the average age is 72 years; it is time to give decision making/legislative responsibilities to the younger generation. Elected officials should pay a nominal salary but no other benefits, which the public does not have.

Interim priorities

The key priority is immediately revoking the 20th amendment in the current parliament and solving the current and longer-term economic crises for benefits and solvency.  There must be a moratorium on all non-essential expenditure by central and peripheral administrations and Municipalities and an immediate reduction of a third of all ministerial and departmental budgets. None of these has materialised to date.

As part of proactive austerity measures, all perks provided to members of parliament and provincial members should be permanently revoked now, including the proposed ten temporary ministers of the interim cabinet. From now onwards, holding a ministerial or any elected position in the parliament must be considered a privilege, not a paid employment. They are government servants and must serve the public. Only crooks and criminals will contest and get elected if MPs continually get perks.

Controlling the economic crisis International Monetary Fund

As part of advising, restructuring the debt, and funding, the IMF would undoubtedly impose a chain of austerity measures, monetary discipline, restrictions on improper governmental spending, and measures to increase productivity and internal review collections. It is another insanity that the Sri Lankan government is waiting for the IMF or another organisation to enforce a reduction in its spending. Austerity measures such as reducing spending and increasing taxes will be unpalatable to the populous. In parallel, increasing productivity and exports are crucial to reducing the budget deficit. These are crucial to reverse the current negative trend and prevent bankruptcy.

*To be Continue…

Print Friendly, PDF & Email

Latest comments

  • 3
    1

    “Changing the regime is only one goal of the protestors: the system changes with permanently eliminating corruption is more critical for the longer-term benefits and prosperity of the country.”

    The system changes with permanently eliminating corruption should be the highest priority in the system change. To do this all the doors that are barrier to this changes should be closed. Racism and Fundamentalism are the great barriers and difficult to close these doors but the people should be firm. This does not mean the religions and languages or devolution of power are barriers as they do not lead to corruption.

  • 0
    0

    Controlling the economic crisis International Monetary Fund

    The finance minister is travelling to bring funds like from the ATM Machine besides the country has not stable Government. and protesting is going on that proofs of default The struggle you’re in today for developing the strength you need and a valued tomorrow is not in the presentation

  • 2
    0

    I am in total agreement. The mismanagement, cronyism & nepotism, mega corruption we are well aware of but what is the strategy for the future?

    With SL’s bad credit rating & defaulting, the IMF is the only hope but we are suspicious of the West, particularly, the US, although, the same level of mistrust is not leveled against China. The austerity measures sure to be imposed by the IMF is better than endless years of uncertainty, as. at least, we can expect aid & foreign investment with the IMF but under a dubious govt., the credibility of SL will be zero with no hope of restructuring our debts & progress. Many are still in denial & have hopes for a Rajapakse led future prosperity but they only have to ask the question, what has the Rajapakse regime contributed so far, apart from ‘saving’ the Sinhala Buddhist nation & highways built at the highest cost per mile. The blunders can be attributed to lack of foresight & mistakes, which in turn, indicates incompetence but corruption is inexcusable & the plunder of public funds is nothing short of treason against the country.

  • 0
    0

    Another very important reform is to make it illegal to cross over from one party to another party and still be allowed to retain the parliamentary seat! Whoever introduced and facilitated this practice must have been a diabolical and unprincipled scoundrel of the worst sort!

Leave A Comment

Comments should not exceed 200 words. Embedding external links and writing in capital letters are discouraged. Commenting is automatically disabled after 5 days and approval may take up to 24 hours. Please read our Comments Policy for further details. Your email address will not be published.