By Jehan Perera –
President Ranil Wickremesinghe’s stock is rising high in the higher echelons of society where there is virtual unanimity that the president’s handling of the economic crisis has been masterful. The president’s achievement is seen in his restoration of order out of the chaos of the Aragalaya period and by getting the IMF to grant its biggest ever loan to the country. The message is going out that the president is the best man for the job and that there is no alternative to him. Shortly after the IMF loan came through the government reduced the price of petrol and diesel by a significant amount and also brought down the price of several other essential commodities.
The government led by the president is also taking up economic challenges that are unpopular. This is also seen as the president doing what needs to be done. There is speculation that one of the reasons that opposition political parties are keeping quiet about elections is because they prefer the president to get on with the hard tasks. The manner in which the president dealt with the strike action by petroleum sector workers, by summoning the army to take over the fuel distribution is a sign that the government will be unyielding about what it believes needs to be done. In addition, the leaders of the strike action have been promptly sent on compulsory leave pending possible dismissal. The strikers are complaining that the army is forcing them to work.
The government is also going ahead with its plan to privatize state-owned economic enterprises which have been loss makers over the past decades due to incompetence, overstaffing and corruption. This governmental initiative has been praised by sections of the community as the way to reduce the drain on the government’s coffers as well as to increase the productivity of those national assets. It is believed that even profit making state-owned enterprises, such as Sri Lanka Telecom, will generate more profits once they are privatized. There is a need to ensure that this privatization will be done on the basis of competitive bidding rather than insider dealing. Much is expected from the IMF’s conditions in respect to addressing corruption vulnerabilities as noted by it. The question so far is why no action had been taken against those who caused losses over time through incompetence and corruption and how much of the money will private enterprises take away from the country when they get control over those assets.
On the other hand, the government’s efforts to sell state enterprises, which would mean the downsizing of the staff in them, is causing severe anxiety amongst those who are the likely casualties of this restructuring. Large numbers of workers in the state-owned enterprises will possibly be laid off in the process of economic rationalization. They will be leaving jobs in which they were by and large comfortable with generous overtime payments. They will be naturally anxious about how they will support their families who have got accustomed to a certain standard of living. The adequacy of the social spending floor prescribed by the IMF is questionable as it is only 0.6 percent of GDP (proxy for a country’s national income), which is far less than average spending on safety nets in other developing countries which is 1.6 percent.
The collapse of the economy that took place last year with the doubling and tripling of prices due to shortages in essential goods affected all sections of the population, but it affected those who were poorer more. It drove millions of people into poverty. Studies have shown that there is a dramatic increase in those below the poverty line in the past three years. In 2019, nearly 3 million people lived below the poverty line, but that number has increased to 9.6 million in October 2022 or over 42 percent of the population. Studies have also shown that about 70 percent of the population has had to cut back on their food intake. There have been several accounts in the media about the hardships faced by people who are unable to obtain the medical supplies they need.
It was this desperate situation that drove hundreds and thousands of people from all walks of life and all parts of the country to come out in protest in Colombo and elsewhere against the government. Many if not most of them had worked hard to secure their futures but it was suddenly snatched away from them. Like the three-wheel driver who told me that he had made it a practice to give his three children a packet of biscuits and a milk each to take to school each day, but now he could not afford it, and the two younger children could not understand why.
Today, there are people living in two worlds within Sri Lanka—one set of people able to ride the wave and getting high while the other set of people are getting trapped in the undercurrents and dragged down. The IMF is supporting the government to provide the private sector with more resources to be the engine of growth. They are being spared the new property, wealth and inheritance taxes till 2025. But the poorer sections are being called on to pay up immediately. They pay their taxes through indirect taxes which account for a greater proportion of tax revenue than direct taxes. Most new tax revenue will come from value-added taxes (VAT), which were raised from 8 to 12 percent in May 2022 and again to 15 percent in September. VAT affects the rich and the poor equally, decreasing the purchasing power of the latter.
There is a powerful social media campaign conducted by the government that the economy is on the mend and that opposition politicians are lining up to join it. This may impress those who are above the poverty level and who are able to afford the current prices. But those who are below the poverty level know the reality. No amount of social media campaigning will convince them that they are better off when they know they are worse off. The electricity price hikes have fallen much more on the poorest than on the richest in proportionate terms with those at the bottom paying three to four times more than they paid before while those at the top end only pay double. The recent reduction in petrol and diesel prices saw them being decreased by a very substantial sum, but not kerosene, the poor family’s fuel. Needless to say those at the bottom of the economic pyramid would want the government to change its economic policies and, if not, hold elections and be gone.
President Wickremesinghe has repeatedly held to the position that his priority is to revive the economy and not to hold elections. The government is aware that an avalanche of protest votes can hit them hard and make its rule even more illegitimate. The government is further seeking to bolster its power through a new law, the Anti-Terrorism Act, which is still in draft form and is intended to replace the much criticized Prevention of Terrorism Act. This draft law, ostensibly for national security, has been drafted in the aftermath of the Aragalaya and defined so broadly that even criticizing the government or mobilising against it can be construed to be an act of terrorism. Any policeman or security forces personnel is empowered to arrest a person and the entire group or organisation that person has membership in. It is a puzzle that President Wickremesinghe, once thought of as a liberal icon, should be pursuing the option of repression rather than the common good.