By Ameer Ali –
What is the true state of the country’s economy? It is difficult to know this, because neither the Central Bank (CB), which is the supreme institution that monitors the nation’s economic performance, expected to act as an independent watchdog over economic policies of governments in power and the custodian of uncompromised data, nor, in the absence of an elected parliament, the Presidency and its cabal of economic experts and advisors, are prepared to place the truth before the public. Observers are accusing the government of sanitising the true picture to spread falsehood. CB by implication is included in this criticism.
The way the country is run at present, with an assortment of special task forces, headed by military men and packed with handpicked appointees of the President, what is being published as economic data is mostly those that are politically less damaging and therefore profitable to the regime especially in the context of an impending election. That practice, no doubt, has compromised the independence of Central Bank. Although CB is generally considered as Government’s Bank, there is a degree of independence constitutionally allowed for that institution to prevent it becoming a tool in the hands of political leaders. This independence is in jeopardy under President Gotabaya Rajapaksa’s iron fist rule. It was as a clear act of subservience to the President GR’s dictates that CB’s Governor and his team immediately took steps, after an unprecedented harangue by him, to increase the money supply, as if that would provide the magical solution to the country’s economic ills. The removal of two members of that board before their term of office ended, and to be replaced by GR’s chosen men and woman, are further indications of the loss of CB’s independence. With all this can anyone trust the information dished out by CB? The situation demands whistle blowers.
However, outside officialdom, day to day situation in the market – as demonstrated by supply shortages, falling business confidence, declining exports, plummeting tourist arrivals, reduction in foreign remittances, rising unemployment and sky rocketing cost of living – reveal the actual state of the economy, which is struggling to breath. With drying streams of government revenue, because of pre-Covid-19 capricious tax reductions and import tariff exemptions, the President without any legislature approved budget has taken the short cut to spending from the Consolidated Fund as a last resort, and that fund also has is drying fast because of falling revenue. Hence, borrowings from external sources is the only way out, but here again no one knows how much has been actually borrowed and at what cost.
Politicians from the ruling camp, are understandably blaming the pandemic for all economic difficulties. But, pandemic was only the contributor and not the originator of this mess, because economic populism had already damaged the state of public finance months before Covid-19 arrived. The President’s victory in November 2019, obviously left certain unfinished businesses, the most important of which in his view is the need to revise the constitution to empower him as the supreme ruler. To achieve that he needs a government with two-third majority in the parliament that would support that revision. It was to entice the voters that he damaged the economy through his populist measures. The pandemic worsened the situation.
There is still a possibility that the elections would be delayed further if the second wave of Covid-19 gets nasty. Here again facts are hidden. “Status Statement VII: 21 July 2020”, released by The Alliance of Independent Professionals, describes a worrying scenario as follows: “The Health Ministry delayed the publication of social distancing rules for the elections until the majority of government campaigning was complete. The guidelines were issued on 17th July when the Election Commission warned the Health Ministry and the President that they may be compelled to postpone the election once again unless the guidelines were issued. The rules themselves are tailored to prioritise campaigning and pleasing politicians over containing the virus. For example, Regulation 3 states that the number of persons attending an election meeting shall not exceed three hundred. The rule then makes an exclusion: “provided, however, where the leader of a political party or an independent group participates at such meeting, the number of persons attending such meeting shall not exceed five hundred.” First of all, who will be doing the counting at these meetings? Reports from various sources indicate that the number attended at many SLPP rallies far exceeded 500. Secondly, the President is campaigning on behalf of SLPP. Is he an independent person?
In the heat of an election campaign and until the election is over the economy is left to its own fate. Economic difficulties for ordinary masses are mounting. In all probability the next government will be forced to take drastic measures to replenish its revenue bank and prices will increase further.
In the meantime, there are three contesting powers trying to pull the country in different directions through their ostentatious economic benevolence. Two of them, China and India, have already gained a foothold in the country, and the third, the US, with its Millennium Challenge Corporation worth $480 million investment is almost at the doorstep. In spite of all dilly dallying that agreement will be signed eventually by GR and his SLPP Government. The MCC is only one part of the deal. What about the Status of Forces Agreement (SOFA) or Visiting Forces Agreement (VFO), which, if signed, would turn part of Sri Lanka into another Guam or Okinawa. Politically manufactured economic difficulties, worsened by a global pandemic, will leave the SLPP government with no alternative but to sign MCC with its associated SOFA and VFO. This in short, is the politics of an economic mess.
*Dr. Ameer Ali, Scholl of Business & Governance, Murdoch University, Western Australia