By Lalith Dhammika Mendis –

Rule by a Powerful Family Oligarchy

SL was under the powerful oligarchy of the Rajapaksa family (RF) and its cohorts. The historic war victory in May 2009 propelled Mahinda Rajapaksa (MR) to glory. ECONOMYNEXT reported that MR successfully engineered his overwhelming popularity to establish the most powerful oligarchy that ruled SL for over a decade. Under MR’s leadership, a family dynasty assumed virtual control of state governance. According to the Sri Lanka Campaign, what unraveled in the aftermath saw a system of governance characterized by a “Family Rule” taking root, paving the way for corruption, nepotism, and crony capitalism to thrive.  India Today reported in October 2021 that the RF at some point controlled over 70% of the government budget

Disastrous economic fallout of corruption

Corruption undermines economic development, leads to misplacement of priorities, accompanies questionable procurement practices, weakens the rule of law, discourages foreign investments, and exacerbates poverty

The Centre for Poverty Analysis (CEPA), in its report published In September 2024, defines corruption as “Abuse of entrusted power for private gain by Political Leaders and Public Officials. Strong signs of the economic unravelling of SL surfaced during the presidency of MR, which spanned from 2005 to 2015.

The conclusion of the Eelam War in 2009 was followed by an influx of foreign funds, mainly from Chinese sources and International Sovereign Bonds (ISBs). The MR regime’s so-called spectacular economic performance was driven by the infrastructure boom that ensued, predominantly funded by Chinese sources and ISBs. The Foreign Policy Magazine reported that the borrowings were focused on projects such as the Lotus Tower, a Southern Province Airport, and highways, etc, allegedly tainted with corruption and lacking reciprocity in terms of economic benefits for the public.

Dr. Amal Kumarage, a renowned expert on highway construction, has disclosed about unjustifiably high costs incurred on the construction of highways due to rampant corruption. The road construction cost index for SL published by ICTAD increased from 240 in 2004 to twice that amount in 2013. In contrast, construction cost indices for the USA, Australia, and Europe have revealed only marginal increases of 10%, 20% and 2%-3% respectively, with the index for India remaining constant.

The studies of the World Bank and the University of Oxford revealed that the global average highway construction cost per kilometer was $7.8 million. In contrast, the section of the outer circular highway from Kadawatha to Kerawalapiya reportedly cost US$72 million per kilometer, nearly ten times the global average. This appeared to be one of the world’s highest, and a direct result of unbridled corruption.

The section of the southern expressway from Matara to Beliatta, costing a staggering 545% more per kilometer, is a pertinent case in point.

IMF Governance Diagnostic Assessment (GDA)

At the invitation of the GOSL, the IMF carried out a GDA focusing on Corruption Vulnerabilities and Governance Weaknesses and submitted its report in September 23. The GDA highlighted severe and systematic weaknesses in governance and serious corruption vulnerabilities in the state sector operations. It made a damning indictment of the corrupt regimes and the complicit state apparatus. The report pointed out glaring issues and brazen violations prevailing in the state procurement process, including the absence of a procurement law, poor procurement planning, high-level political engagement in procurement winner selection, poor management of procurement contracts, lack of transparency, oversight, and absence of competitive bidding in awarding procurement contracts.

SL – A Victim of an Inescapable Debt Trap   

Macrotrends reported that Sri Lanka’s external debt spiked from $11.3 billion in 2005 to $43.93 billion in 2015, marking a whopping rise of 289% in external debt from 2005. A Verite Research paper published in Public Finance, lk in the latter part of 2023, states that huge borrowings made to finance large-scale vanity projects such as Lotus Tower & MRIA have contributed to the unbearable debt burden faced by SL.

SL became a victim of an inescapable debt trap due to her appetite for International Sovereign Bonds (ISBs). The Advocata Institute reported that SL issued ISBs from 2007 and ISBs, which initially accounted for 12% of the external debt, tripled during the period from 2010 to 2021.  Since ISBs were said to carry coupon rates from 5% to 8%, they accounted for a whopping 70% of the interest payments made in 2021. Most of these debt-funded infrastructure investments lacked the reciprocal capacity to generate revenue and led to further Debt Spiral.  The easy money policy of resorting to external borrowings adopted by the then GOSL proved self-destructive and led to an escalation of borrowings, necessitating further borrowings to pay for what had already been borrowed, sparking a debt spiral.

Anura Kumara Dissanayake’s (AKD’s) Meteoric Rise to Political Stardom

People saw a silver lining in the dark clouds when AKD’s compelling narrative, calling for the topmost urgent need to eradicate corruption and establish good governance and the rule of law, started resonating with them. AKD’s impassioned call for public support to establish a clean government and bring the culprits of corruption and crimes to book, irrespective of social status, influence, or political affiliations, articulated in flawless eloquence, saw rapidly swelling public support emerging throughout the country.

Challenges lying ahead – Meeting time-bound IMF commitments

President AKD has completed a little over one year in office, and it is time to take stock. The NPP government is carrying a mixed bag. The economy is said to be on the right track and the path to recovery, although many formidable challenges remain to be surmounted. GOSL has to achieve both quantitative and qualitative targets.

SL must achieve a tax-to-GDP ratio of 15% and 15.5% in 2025 and 2026, respectively, with a primary surplus of 2.3% of GDP in 2025. Additionally, SL needs to achieve debt sustainability, one of the key targets set by the IMF bailout package, to achieve stability.   

The quantitative targets also encompass: the requirement to reduce the Public Debt to GDP ratio from 128% of  95% by 2032, lowering Gross Financing Needs (GFN) as a percentage of GDP from 34.6% in 2022 to less than 13% on average during the period 2027-2032, lessening foreign currency debt service as a percentage of GDP from 9.4% of GDP in 2022 to not higher than 4.5% per annum during the period 2027- 2032. The one that looms large is the need to raise adequate forex reserves to meet debt repayment from 2028.

SL, in its drive to achieve debt sustainability, has to initiate concrete measures to achieve qualitative targets of fiscal consolidation, macroeconomic stability, introduce long-term policy measures aimed at reforming laws and regulations, restructuring public sector institutions, promoting transparency and accountability, curbing corruption, and improving public financial management.

Tightrope Walking in Managing Public Sentiments

The GOSL must grapple with the unenviable task of managing the conflicting demands of meeting public expectations for cost-of-living (COL) relief while complying with stringent debt sustainability commitments. GOSL is thus required to enhance tax revenue. However, the imposition of indirect taxes, such as VAT, which is a regressive tax, adversely impacts low-income segments as it consumes a larger portion of their disposable incomes. That obviously leads to more COL burdens on the poor. Although the measures designed to achieve macroeconomic stability will receive the endorsement of the multilateral funding agencies, the rising COL, if it remains unaddressed, will certainly earn wrath, dissension, and resentment of the masses. What is economically prudent may prove politically inexpedient and disastrous. The man on the street is not going to buy whatever the economic success story, unless and until he can afford to pay for his necessities without much of a hassle. It is a dilemma facing the NPP Govt today and calls for out-of-the-box thinking and a strategy to deal with it before it is too late.

Offering much-needed COL relief to the masses

The majority in SL is constantly battling to keep home fires burning. They live from day to day and from hand to mouth. The reversal of SL’s economic undoing entails a sustained, multifaceted, strategic endeavor and requires a reasonable time scale to produce some tangible outcomes.

The International Food Policy Research Institute has conducted a Multidimensional Poverty and Vulnerability Assessment on Sri Lanka based on BRIGHT survey data from 2024-25, which reveals the gravity of poverty in SL as follows.

* Nearly one quarter of all Sri Lankans are multidimensionally poor, and nearly one half are multidimensionally vulnerable.

* Estate areas have the highest rates of multidimensional poverty (63%) and vulnerability (83%), but most of the multidimensionally poor (77%) and vulnerable (79%) live in rural areas because nearly 8 out of 10 Sri Lankans live there.

* The main sources of multidimensional poverty are health deprivations and standard of living (assets and basic services) deprivations.

* The main sources of multidimensional vulnerability are shocks, unproductive debt, poor health, and inadequate schooling.

How to address poverty whist meeting economic stability KPI’s is a complex change faced by the GOSL.

Walking the talk

NPP achieved power by making huge promises to reduce prices, eradicate corruption, bring the culprits to book, recover stolen assets worth billions of US Dollars, punish the perpetrators of the Easter Sunday massacre, and those responsible for the mysterious death of Thajudin, the disappearance of the journalist Ekneligoda, and the sensational murder of Lasantha Wicremathunga, etc.

NPP’s performance so far on this score has not met public expectations.

While it is gratifying to see measures being taken as never before to arrest, indict, and punish culprits of corruption, including those with strong political affiliations, bust narcotic syndicates, and stop giving political protection to influential fraudsters, the so-called big sharks, which, according to NPP bigwigs, are responsible for the economic ruination of the country, remain at large.

This is a big question mark for people.

Although reasons for delays in major cases may be justified, such delays provide grist for opposition propaganda mills and prove very costly to the NPP Government. These cases were much hyped up by the NPP during the run-up to the last polls to derive mass support.

Efficient delivery of public services (PSs)

It is well known that PSs are characterized by inefficiency, corruption, mismanagement, waste, and a lackadaisical attitude, etc.

NPP politicians are, in some cases, facing difficulties in implementing programmes as planned due to the apathetic and indifferent attitude of public sector employees. (PSE). The PSs in SL have been marred by inefficiency, casual attitude, apathy, neglect, and nonchalance that prevailed over the decades under successive regimes. PSEs even have their virtual monopolies, which could dictate their own terms in discharging duties.

PSEs are known to engage in moonlighting, ghost shifts, malingering, loafing, slackening, and double-dipping. One of the reasons for this sordid state of affairs is PSs being used by politicians as a source of employment for their henchmen under successive governments.

Efficient delivery of PSs in this context requires the reversal of the deep-rooted malady, a formidable challenge, no doubt.

Objective Self-Appraisal of Performance

The time is right for the NPP to carry out a self-appraisal to determine if its performance has met expectations. It is not the political theatrics that could rally mass support. What is tangibly achieved by alleviating the woes of the masses could no doubt bolster people’s allegiance. Can NPP politicos demonstrate humility to stand an objective, unbiased test of self-reflection to mend their ways where necessary?

Setting up a mechanism of in-house performance appraisal comprising a body of experts is a sine-qua non for NPP’s continued success. Is this possible?

It is said that some government politicos do not heed the advice of experienced public officials even when it is crucial. This is the other side of the inefficiency set in PSs. All these bungles will prove very costly.

Need for Political Maturity

President AKD epitomizes humility. His natural disposition, mannerisms, and unpretentious, down-to-earth, and feet-on-the-ground posture naturally elicit people’s love, admiration, attachment, and affection.  His ability to flawlessly articulate and eloquently deliver impassioned, candid narratives to people’s hearts and bring to light reprehensible depths of corruption and skullduggery that pervaded corridors of power, and caused the unprecedented economic catastrophe, rallied people around the NPP, which saw its meteoric rise to the pinnacle of power from the humble beginnings of a paltry 3%.

People voted for AKD. Most of today’s Parliamentarians and those holding offices at other levels of governance have never been known in politics. Even seniors, with their irreproachable track records as clean men, should be humble enough to accept this simple truth that there is no room for arrogance and conceit. Those qualities can simply make them history, sooner or later.

The NPP victory was a clear vote for AKD. Its bigwigs must wake up to this reality and mend ways before it is too late. They should maintain cohesion in communication as one solid group and engage the masses in constructive dialogue. There are no permanent friends or foes in politics, and the tide may unpredictably turn in the opponents’ favour. History could repeat. Whether it’ll dawn upon them before it is too late is hard to predict. It is a huge challenge facing the NPP today.

NPP politicians must not resort to actions that would reverse the painstaking gains made by AKD through sheer hard work, steadfast commitment, and unremitting efforts to bring it to what it is today.

This calls for serious soul-searching. The last thing well-meaning people of this country need is NPP to not squander its historic, hard-won victory for the people.