By Ashan Nanayakkara –

Ashan Nanayakkara

“Render unto Caesar the things that are Caesar’s, and unto God the things that are God’s”, this gospel truth could equally be applied to pre-independent economy of Ceylon, and one could say that, British had managed our economy, though, for their looting purposes, splendidly well, whereas, Sinhalese rulers who took over the power afterwards, played havoc with the economy. So, British must get the respect what they deserve. On the other hand, in post-independent era, either it be Stanley de Zoysa, or Felix Dias Bandaranaike, or Ravi Karunanayake, or Basil Rajapaksa, or PB Jayasunadera or Ajith Nivard Cabraal, everybody, had one common identity, that is, willingly or unwillingly, bringing the economy of this country to a catastrophe. The lamenting speech delivered by the outgoing, Finance Secretary, Mahinda Siriwardena at the farewell ceremony organized at the President’s Secretariat Office on 18^th June 2025, is a testament how the said Finance Ministers and et al. of by gone era recklessly ruined Sri Lankan economy.

1950-1960:

Looking at the international trade, Ceylon’s exports in 1950, increased nearly by 50 per cent, compared with 1949, to a record level of Rs. 1,563 million. The export volume index which averaged 128 in 1949, rose to 142 in 1950, in terms of the Central Bank Report of year 1950.

After, persuading large masses for his cause, in 1956, at General Election, SWRD Bandaranaike, ‘an enigma wrapped in a riddle’, according to DB Dhanapala, the expressive editor of the ‘Lankadipa’, newspaper, led Sri Lanka Freedom Party (SLFP) to a landslide victory over the ruling party – United National Party (UNP). There were 4-main patrons behind this election triumphant, i.e.: Bandaranaike’s SLFP, Lanka Sama Samaja Party (LSSP) of Philip Gunawardena, Language Front of W Dahanayake, group of independents ushered by IMRA Iriyagolle, all of whom were ranked Sinhalese chauvinists cum promoters of welfare economy.

The said key men in the Government defined the socio and economic profile of the country since 1956 to 1959, and, it is not misleading to state that the latter shepherded the country to a total disarray. According to Central Bank Report of 1960, “Yet, in the monetary field the year 1960 was one of crisis. As in the years immediately preceding… In the Process, her external reserves continued to fall rapidly. By 1960, the decline in external reserves had gone so far that corrective measures became imperative… The particularly sharp increase in current expenditure and transfer payments, mainly the food subsidy. The high outlays in 1959/60, (and the provision for 1960/61) include an enhanced provision for food subsides following the reduction in the price of rationed rice in April, 1960. The total food subsidy bill which was reduced from Rs. 131.6 million in 1950/51 to Rs. 12.5 million in 1953/54 increased thereafter once more to Rs. 105.5 million in 1956/57 and Rs. 193 million in 1959/60.” – at pp 4-7 of Economic Problems and Policies – the Central Bank Report of 1960.

The above observations are evidence that, how irrationally the economic decisions were made by those left-wing politicians, and ironically, the rhetoric such as promulgating Official Language Act (No. 33 of 1956) [commonly known as Sinhalese Only Act], empowering (or, as matter of fact, hoodwinking) Panchmaha Balaveygaya, (represents, maha sanga, doctors, teachers, farmers and laborers), ending brown-sahibs, banning horse races and consumption of liquor at public functions, commencing a culture of excessively giving food subsidies, kept the real economic issues under the carpet and compelled the successive government to act on the bad presidents set by them. “Up to 1950/56, with the exception of 1950/51 and 1951/52, total capital expenditure exceeded total welfare expenditure mainly because the subsidy on rice was comparatively small; but from 1959/60 onwards, expenditure was heavily weighted in favor of welfare. Welfare expenditure has progressively increased over the years, and in 1974 it reached the peak level of Rs. 1,465 million, which is 41 per cent of current expenditure or 112 per cent of capital expenditure. The high level of spending on welfare has tended to progressively enlarge the size of the budget deficits since the mid-fifties and have siphoned away resources from investment to consumption.” at p. 61 of 25^th Anniversary Review of the Economy of Sri Lanka – the Central Bank of Sri Lanka.

As the saying goes, if wishes are horses the beggars would ride. General masses would love to hoard, even hill of beans though that is worthless if they are freely granted. But, those who govern the economy must be consciences on taking prudent decisions on not giving everything for free. It is the ruling men who must decide what they must give away for free, and them on at what cost. Once the popular promises are made at the election times, those who come to power will be in a pickle later on and have to meet with those lies. The cost is high and the future generations shall have to go through the mill due to irrational decisions made by their forefathers. Deceiving the peasants became the norm of the politics in this part of the world since independence and come to power by hook or crook was the philosophy of these politicos irrespective of them being in the Right or Left!

Desisted Philosophy Called Being Self-sufficient (self-reliance) in 1960s to 1976:

In 1958, 1959 and 1960 according to the Central Bank Report, the Government had, respectively, an aggregate net Foreign Debt of 175.1-Million Rupees, 199.7-Million Rupees, 222.8-Million Rupees. This is a drastic increase of the Foreign Debts compared to 1948, 1949 and 1950 during which the Sterling loans were only about, 82.3-Million Rupees, 80.1-Million Rupees, 75.7-Rupees.

At the end of 1956, external assets were about Rs. 1,194 million. By 1960 these assets were weakened down to the rock bottom level of Rs. 457 million.

In 1960, the total Government revenue was about 1,403.8-Million Rupees whilst the total expenditure was overwhelming sum of 1821.3-Million Rupees.

In the Foreign Account, the Current Account balance was -152.9-Million of Rupees. The balance of trade was -128-Million Rupees despite it hit about +412 and +412 Million Rupees during in the year 1954 and 1956, respectively.

In terms of the Central Bank Report of 1960, “Between 1956 and 1960 Ceylon lost 698.0 million of her external reserves – a fall of 59.2 per cent. Since 1958, the rate of decline in these reserves was itself increasing rapidly… it was evident that the level of external reserves was so low that it could no longer serve to cushion the monetary expansion.” – at p. 16 of External Assets of Ceylon – the Central Bank Report 1960.

Amidst, all these negative, key indicators, the first female Prime Minister, Sirimavo Bandaranaike (the wife of martyred Prime Minister, SWRD Bandaranaike and the mother of former President, Chandrika Kumarathunga) who came to power in 1961, inducted closed economy to Sri Lanka. This sea change affected to several aspects of this country and as a result, Cost of Living Index increased up to point 566.2 by December 1976 from 288.9 by 1957 (vide: table 19 of the Central Bank Report 1976). Incongruously, from year 1950 to year 1960 (for 10-years), the said index barley went up from 272 to 290.8 (vide: table 32 of the Central Bank Report 1960), and absurdly, within next 16-years, doubled the index number. The growth rate of Gross Domestic Production (GDP) in Sri Lanka in year 1970 marked 3.8, in year 1971 it was 1.3, in year 1972 it was -0.4, in year 1973 it was 7.3, in year 1974 it was 3.8, in year 1976 it was 6.5 and in year 1976 it was 3.3. The average growth rate marked 3.3 during this 7-years-time period and it is forgone conclusion that the country had been stagnated. During 1962 to 1964, the terms of trade fell from 142 to 105, and from 1965 to 1970 further fell down to 88. In 1974 it was further in wane towards lowest of all time and recorded 58.

Classicist, Prof. Rajiva Wijesinghe in his Luminous Lives, at pages no. 149-150, whilst admiring on ebullient Felix Dias Bandaranaike, insinuating nothing on economy, yet had penned this down, “However it was Felix who first realized subsidies must be limited if the means are not to defeat the ends, which is why in 1962 he sought to reduce the rice subsidy. Such clear understanding was in advance of his times, and his own party rejected the measure whereupon he promptly resigned.”. Paradoxically, the same party members who rejected to accept the looming economic debacle, adding insult to injury, nationalized the Tea Plantation in this country, and introduced Land Reform Laws in 1972, and thereby laid the groundwork to the demise of tea industry in Sri Lanka.

Except some trailblazing foreign policies, economic U-turn took place during Sirimavo’s era was bizarre and depressing. Once, best known for its opulence and prosperity in food, smile and hospitality, Sri Lanka became a famished, ravenous nation at the dawn of 1970s. The food shortage was so alarming and for a loaf of bread a family member has to being in high and dry in queues for days. It was a time where, people used to have a bite on fruit called “Lawalu” (yellow sapote – yellow coloured canistel fruit which has some surgery taste) when they have tea due to paucity of sugar. Toffees were consisted of “humbas meti” (clay). The rice given at co-operative society called, “bajiri sambha” have to be pulverize again and further cleaned at home, and still after consuming the same stomach aches were for sure. Most of the coupon given to people to buy the said substandard rice have been mortgaged to village money lender and thus have nothing to eat more often than not. The homemade garments sold at the market smell an ordour of kerosene. “At dawn, hundreds of people wait in bread lines. Elderly men and women pick through garbage. Thieves harvest vegetables and rice in the countryside. Although the Earth is bountiful in Sri Lanka, the nation of 13 million has a critical food shortage. Moreover, it is going broke, jolted by inflation, torn by internal dissension, and plainly alarmed about the future.” This is how the food and economic crisis in 1970s had been described by journalist Bernard Weinraub, in an article published in The New York Times in 1974.

In this sorry sight, JR Jayewardene came into power by securing 2/3 majority in the Parliament.

So as Mikhail Gorbachev brought perestroika, President – JR Jayewardene (JRJ) brought Open-economy, and also brought about Corruption:

By addressing, 22^nd Annual Session of the Ceylon Association for the Advancement of Science, on 14^th December, 1966, JR Jayewardene orated, for the first time, the jeremiads of incumbent weak executive in the country. In his speech, viz., “In some countries, the Executive is chosen directly by the people and is no dependent on the Legislature during the period of existence, for a specified number of years. The U.S.A. is an example of the latter. The new French constitution is a combination of the British and the American system. Such an executive is a strong executive, seated in power for a fixed number of years, not subject to the whims and fancies of an elected legislature; not afraid to take correct but unpopular decisions because of censure from its parliamentary party. THIS SEEMS TO ME VERY NECESSARY REQUIREMENT in a developing country faced with grave problems such as we are faced with today.” were some of his ideologies which he hinted. To make this most-aspired view a ground reality, opportunity was given on a plate of gold to JRJ by the people of this country in General Election, in year 1977. As ‘let there be light’, JRJ changed the constitution and created that omnipotent executive, forthwith, who is not answerable to the legislature. Then, his magic wand, turned towards the economy and the man who had recognized Adam Smith and laissez-faire ideologue, brought the open-economy over night.

Inwardly oriented, vastly centralized and pervasive Sri Lankan economy, all of a sudden, started to respond to a new paradigm shift called, market-based economy and shown short run economic boom. 1977 economic liberalization took place, inter alia, under the blessings of the International Monetary Fund (IMF). The said aid came under the pre-requisites of getting rid of trade and payment restrictions, unifying the exchange rates, reducing widespread subsidies for food, liberalizing import taxes etc. According to “An Overview of Economic Developments in Sri Lanka” by John R. Karlik, Mr. Michael W. Bell, M Martin, S Rajcoomar, and Charles Adair Sisson, a strong surge in investment was shown accompanied by the liberalization initiated in 1977 and within 3-years, investment had doubled to 30 per cent of GDP. This short term snowball was further enlarged by extensive infrastructural developments embarked on by the Government. Though inflation hyped at the early stages, gradually that too sustained a moderate rate in mid 1980s.

As always, there is other side of the coin. The opening of the economy unlocked new vistas of corruption. The commencement of government funded maga-projects, unbridled arrival of foreign investments to the country, the negotiations process of those projects were tasked upon the hands of politicians and the high ranking officers of the Government, increased allocation of money to military expenses, the change of election system which required the Politicians to burn money to their campaigns, have, all, soon led Sri Lanka to a pariah country whose governors fought to come to power just to amass wealth for their personal benefit.

Whilst corruption was started to swiftly spread its tentacles across the administrative system – due to regular depriving of the rights of those who were speaking in Tamil, a tension was, clandestinely, building among the youths of the Northern Provinces, and later, that sentiment soon turned into a bloody war and paved the way to erase the hopes of development for succeeding 3-decades to come in Sri Lanka.

To be continued…