By Ameer Ali –

Dr. Ameer Ali

The post-World War II economic and monetary order structured on the edifice of Keynesianism but driven by conspicuous consumption led by Veblen’s leisure class and Marcuse’s one-dimensional man has produced world’s first trillionaire while an estimated 847 million or 8% of world population are left to live in abject poverty. In this contrasting scenario is the world going to celebrate and glorify the success of one man for his trillion-dollar AI investment or rebel against this order and demand an alternative system which would be more egalitarian, humane and ethical? This debate is an old one and remained largely academic but is now being articulated with vigour by a new generation of young activists.

In the meantime, there is a more immediate problem facing economies that are left to grapple with recent developments in Global North. If there were to be any distinct contribution to the world economy this year and probably next particularly by Donald Trump’s trade and economic policies, that would be an unavoidable slowdown leading to recession. However, IMF’s World Economic Outlook has projected a growth rate of just 3.3% for this year falling to 3.2% in 2027. While keeping in mind Kenneth Galbraith’s sarcasm about economic predictions when he wrote that they make astrology respectable, Trump’s mercantilist tariffs, regressive taxes and imperialist adventures which benefited the one percent wealthy, large corporations and financial and fossil fuel sectors at the expense of the working poor have created a fertile terrain for economic pessimism. That pessimism prevails throughout the entire Global North, and its fall out will be felt in many parts of Global South.

Sri Lanka will be among several developing economies in Asia, Africa and Latin America which would face an economic setback largely because of developments outside its control. The two wars, one in Europe and the other in the Middle East, show no sign of ending soon although in the case of the second a 14-point memorandum of understanding had been signed between Iran and US to the disappointment of Israel, and it is expected to be finally ratified in 60 days. If ratified this deal would at least reduce the energy share of the supply constraint which is one of the factors contributing to this recession. But what of the share born by the climate crisis and El Nino effect – a phenomenon marked by periodic warming of oceanic surface temperatures, which is causing prolonged droughts, floods, quakes and wildfires with catastrophic consequence to developing economies?

The inflationary effect of this war-driven and supply-push recession is beyond the control of central banks with their conventional monetary tools. Raising interest rates to counter inflation would result in reducing investment which in combination with AI backed automative technological transformation would cut employment and cause stagflation; and to countries like Sri Lanka which are burdened with heavy foreign debt, servicing that debt and fiscal balancing would become more expensive and difficult. Even if the wars could end, climate crisis is bound to create unexpected supply shocks as the 2025 Ditwah did in Sri Lanka. Unless the country restructures its economy by allocating sufficient resources to domestic production and introduce reforms to achieve greater efficiency in utilizing those resources the system changes which the new leadership promised to voters cannot materialize at least in the economic arena. This is the challenge facing the government today.

The ruling coalition inherited an economy which had been financially bankrupted by decades of economic and financial mismanagement under successive governments and presidents. The 2022 Aragalaya was the angry expression of an awakened generation of young voters who demanded an end to this political culture. Those rebels not only forced the then President Gotabaya Rajapaksa to quit and run away from the country but also voiced their loss of confidence on the entire 225-member legislature. The immediate consequence of their revolt was not a system change but a change at the top with a stop-gap president Ranil Wickremesinghe who was then the only elected representative in the parliament from the UNP. His first task was to bring an end to the Aragalaya with police force. But the most sensible step he took to reduce the economic pain was to invite the IMF for the 17^th time to undertake the task of reparation. IMF began its task with $3 billion funding under its Extended Fund Facility arrangement to be released over nine tranches depending on how well the government cooperates with that institution in implementing its agenda. President AKD and the NPP coalition government also decided on pragmatic grounds to accept the IMF program although their ideological schooling dictated otherwise.

Eighteen months had passed since the new leadership took control of the situation. Economically, the country has stabilized and moving along a tolerable growth path. World Bank data show that Sri Lanka registered a growth rate of 5% in 2025 driven by increased consumption, higher exports, fiscal discipline, increased foreign remittances and tough reforms. However, due largely to factors beyond the control of government IMF expects that growth rate to dip to 3.1% in 2026. However, the sad fact in this growth is the unequal burden carried by the middle and low-income groups. With the expected recession this burden is bound to get worse unless the government gets into serious dialogue with IMF to ease the constraints that led to this disparity such as the program’s theoretical bias towards broadening the tax structure. It is time for the affordable classes to share a greater burden to fund the cost of a higher growth rate.

One area in which the new government has registered remarkable success is in its battle against corruption which had been the cancer that not only bankrupted the economy but also made Sri Lanka a fertile ground for the entry and growth of the underworld. Corruption at political level entered public administration, made security forces subservient to the will of presidents, prime ministers, ministers and parliamentarians, invaded the judiciary to kill its independence, and at the end made the country’s democracy a mockery. To the credit of AKD and NPP government the record of previous corruption is now brought to light by judicial investigations and the revelations are shocking. The election promise of clean governance is progressively being translated into action, and Transparency International’s Corruption index showing 0 = most corrupt and 100 = most clean, Sri Lanka has progressed from 32 in 2024 to 35 in 2025. However, there are blemishes marked by delay in taking corrective action against cases of corrupt behaviour from members within the governing group. The scandalous release of 323 containers without the mandatory inspection and the loss over the import of cheap coal by a minster are a couple of such blemishes.

Another pre-election promise was to achieve ethnic reconciliation, but the record so far is disappointing. No effort to reconcile the politically nurtured inter-ethnic animosity can be resolved without a constitution founded on principles of secular democracy. It is time the new leadership take constructive action on this fundamental issue. Unfulfilled promises are the real setbacks to a government elected with a record mandate. The opposition is trying to capitalise on these setbacks without any alternative and constructive agenda. The former stop-gap president Ranil Wickremesinghe who is facing corruption charges at the court is predicting a total “collapse” of the economy and trying to lead a campaign against AKD and NPP. His is a campaign not really against the new leadership but against the Aragalaya generation. He belongs to the ancient regime that has lost all credibility among this awakened Sri Lankans. There is no turning back from the new era despite setbacks, and the caravan will continue moving whether the dogs bark or not. Time is on its side.