By Ameer Ali –
The fifty-two days torment the nation endured since President Sirisena (MS) sacked Prime Minister Wickremesinghe (RW) on October 26th last year, has cost the country’s economy immensely. Capital flight, rupee depreciation, decline in tourist arrivals and above all investor uncertainty and external confidence are the direct result of Sirisena’s impetuous and unconstitutional action. Although RW and his government have been reinstated the political situation is not back to normal. There is continuous turbulence and MS, still smarting under defeat from his constitutional fiasco and public ignominy arising from it, continues to undermine the smooth functioning of an elected government. At the same time, the opposition led by the Rajapakse clan and its SLPP, which is hankering for power at any cost, is adding fuel to fire. The ultimate victim of this power play is the nation’s economy. No one seems to care about this victim.
“Neither a borrower nor a lender be” said Polonius in Shakespesare’s Hamlet. In one of the episodes in the Tamil epic Ramayanam of Kampan, King Ravana’s torment was compared to that of a person in deep financial debt. Instead of a Ravana today, Sri Lanka itself is tormented with a debt burden mounting to more than 70% of the value of all what she is producing. May be the Minister of Finance Mangala Samaraweera, has become a modern day Ravana to be tormented by an escalating national debt and a slow moving economy. In a sense, the debt burden is mostly an inherited one, but to which his government has contributed a fair share. Already, at least one lender has demanded and acquired one of the nation’s real assets, the Hambantota Harbour, ostensibly on a ninety-nine year lease. Will this asset ever revert to Sri Lanka? There is also no guaranty that more such acquisitions will not occur if Sri Lanka fails to free itself from its mounting foreign debt. The minister is now begging another lender, the IMF, to show mercy in renegotiating the terms of repayment for existing loans while beseeching IMF to lend even more.
Lending and borrowing are normal state of economic behaviour in modern life whether for an individual, corporation, institution or nation. However, if one wants to borrow one should first think of the reason for borrowing and of the ways and means of settling the loan. Without going into the economics behind public and private sector deficits, one can state in simple terms that a government borrows either to cover a temporary disequilibrium in its finances or to embark on specific development projects to increase the nation’s production capabilities that would earn more revenue in the future. Samaraweera believes that he could resurrect the ailing economy by attracting more foreign investment, spending on development projects such as his gamperaliya, reducing budget deficit and giving more incentives to the private sector, while at the same time bringing down the cost of living for struggling Sri Lankans. This is no less than a Herculean task and his options to accomplish it are severely constrained because of domestic political realities. No economy can operate independently of its political environment.
The most important issue facing the minister is to achieve fiscal consolidation to satisfy IMF monitors. This has to be achieved through cutting expenditure and increasing tax revenue. Even with increased flow of foreign investment to encourage production and export, which in any case is a medium to long term option to yield result, budgetary savings cannot be avoided. The question is ow is he going to reduce budget deficit especially when his government has just about a year to face a general election? Which expenditure to curtail and who to tax are sensitive issues especially for a government that is facing the polls soon. Political expediency is sure to overwhelm economic rationality in the forthcoming budget.
To make the minister’s task even more difficult, MS has determined to take revenge on RW and his UNF government, which is hanging on to power because of support from the Tamil National Alliance (TNA). MS’s decision to establish a Presidential Commission of Inquiry to probe UNF government’s performance between 2015-2018 while excluding a similar probe into the regime of Mahinda Rajapakse (MR), as promised to the people when MS was elected as president, is a deliberate ploy to tarnish the image of RW and redirect his government’s attention more on countering MS’s and SLPP’s political manoeuvres than on concentrating on economic development.
As mentioned already, the economy is the chief victim of planned political instability and reckless competition for power among the chief contestants, RW, MS and MR, not to mention Gotabaya Rajapaksa who is waiting in the wings. Currently, neither MS nor MR seems to worry about the economy, and neither of their parties SLFP and SLPP respectively has any economic blueprint for the future.
In the meantime, UNF is currently engaged in satisfying some of the demands of its life saving partner, TNA. The ongoing ramblings about a new constitution, which has not proceeded beyond its consultative stage, and which is said to incorporate TNA’s demand for more power devolution to north and east has already revived the federalist bogey even though TNA has publicly disavowed a federalism and one of its stalwarts has publicly appealed to the Tamils to forget for ever dreaming about Tamil Eelam.
With an economic growth rate hovering around 3% the country will not be able to get away from its debt burden in the immediate or medium term. Given the unstable political reality and inherent corruption and cronyism in public governance even a victory to the opposition in the next elections does not promise any redemption from the economic woes of ordinary Sri Lankans. The nation is in desperate need of a third alternative.
*Dr. Ameer Ali, School of Business and Governance, Murdoch University, Western Australia