By DNR Samaranayaka –

DNR Samaranayaka

The 20^th amendment to the constitution was passed recently with the support of 156 members of parliament; it was opposed by 65 opposition members. The passing of 20A was helped by the crossovers of about eight opposition parliamentarians. Although some members of the SLPP were against the removal of the dual citizenship clause, they eventually succumbed to the pressure from the Rajapaksas, and voted in support of the 20A. Those opposing the amendment was led by Samagi Janabala Wegaya (SJB), the main opposition in the parliament. They argued that 20A concentrates power in the hands of the president, making him the all-powerful president so far in this country. The dictatorial power grabbed by the president, by getting the 20A passed, is likely to bring back a fear based regime that prevailed earlier under the former president Mahinda Rajapaksa. 

20A and parliamentary election  

Gotabaya Rajapaksa (GR) claimed that SLPP received the support of the people, at the general election held on 5^th August 2020, to replace 19A with 20A as the new constitution. Voters, however, did not vote for the 20A since nothing was known about it at the time of the election. They came to know about it only when it was introduced in the parliament after the election. This is the reason that objections to the new constitution were raised and the petitions were filed in the Supreme Court only after the 20A was introduced in parliament. If people knew about the contents of 20A, before the election, the SLPP would have lost the general election as most people would not have supported the proposed constitution. In fact, the SLPP at the general election lost nearly 72,000 votes compared with the votes that GR received at the presidential election. People voted for the government not because they supported 20A, but to get rid of Yahaplanaya. On a number of occasions, after the parliamentary election, the president stated that he has got a mandate from the people to introduce 20A. This was a very irresponsible statement knowing that the people were not aware of what he had in mind. 

Two thirds majority of the government is also far from the truth. The number of seats required for a two thirds majority is 150 out of 225 members, but the government was 5 seats short; it was filled by those SJB members who crossed over to the government hoping to benefit from their cross over. Since SJB opposed the 20A, those crossed over to the government from SJB also opposed the 20A. Accordingly there is no legitimacy of considering SJB members as SLPP members supporting the 20A. The president also allowed a murderer to enter the parliament, who was an MP on a SLPP ticket. This disgraceful act would not have been carried out by the president if the MP was an opposition member. These acts by the president demonstrates the Rajapaksas greediness for power.   

Cabinet of Gotabaya Rajapaksa

About 50 of the SLPP members in the current parliament were also the members of the former Rajapaksa government; a number of them are also in the current cabinet, holding key positions.  With the exception of few new comers, most other cabinet members in Gotabaya cabinet are with educational qualifications less than the senior School certificate. A common man with such qualifications, on the other hand, cannot even get a position as an office aid. Unfortunately these MPs are the people who make decisions about the country’s future. Politicians of all sides give preferences to those with minimal qualifications at any election; the reason for this is that they obey the leadership and except their decisions. Their role is to raise their hands (athaosssanno) to support the leadership. Mahinda Rajapaksa is the one who accommodates this group as his preference is for less educated people in the cabinet. Unfortunately, the politicians of all political parties do not give priority to capable men and women to enter parliament; the people cannot do anything about it since the choice of the candidate is the responsibility of the party leadership. Voters will have to either to select someone from the list or abstain from voting. It is time to ask those seeking to be members of parliament to provide details about their educational qualifications, age, and positions held in the past. Most of the members in the parliament have no respect to the position they hold. Former president Sirisena made a promise to introduce a code of conduct for parliamentarians soon after he became the president; but, like most other promises, this one too had been limited to just a promise. 

The performance of the economy

The growth rate of GDP (Gross Domestic Product) averaged around 3.1% during the last ten years ending in 2019. The highest growth rate of 4.8% was recorded in 2015 and the lowest was 2.3% in 2019. These figures clearly suggest that the economy was underperforming despite being a relatively peaceful period.  Both the former government and the Yahapalanaya failed to reach the country’s full potential. Given the poor economic performance in the country, it is not a surprise that the external factors that adversely effected the economy such as the Easter Sunday attack and the corona virus resulted in further economic destabilization. The country is going through the second phase of the virus with more causalities and many more issues to deal with compared to the first wave. 

As a result of poor economic performance, a number of issues related to the economy had emerged since the end of 2019. These include rising foreign debt and debt repayment obligations, falling international reserves and government revenue, slowing down of the economy, and rising deficits in international trade and balance of payment accounts. The most difficult problem that the country is confronted with is the looming debt crisis. It is going to remain as the most difficult problem that the country has to deal with during the next few years. Currently, Sri Lanka’s outstanding foreign debt is about US$56 billion, including sovereign bonds, which are foreign currency denominated government bonds. Obtaining loans by issuing bonds is not too difficult, provided the country has a record of good ratings. They account for nearly 40% of total foreign debt. The balance is accounted by multilateral and bilateral lending agencies. The annual repayment of debt plus interest on debt is currently around US$5.2 billion and it is likely to remain at this level for few more years. 

The former Rajapaksa administration and Yahaplanaya are both equally responsible for the current situation in the country. The beginning of the debt crisis was during the former President Rajapaksa who was heavily dependent on borrowings from China.  He obtained about US$8 billion from China between 2010 and 2015. Almost all that money was spent on projects which failed to deliver benefits as expected. A major part of this debt was spent on two projects: Hambantota harbour and Mattala airport. Both were unsuccessful. The Mattala airport was built at a cost of US$ 275 million in 2016 but it still remain as an airport rarely used for international travel. It was built by clearing an animal habitat. Any leader with an iota of brain will not make such an ignorant decision.  In the case of Hambantota port also commenced building without a comprehensive survey of the harbour. Later a rock obstructing the entrance to the harbour was detected and it cost nearly $450 million to remove it. In the end, Sri Lanka could not service the debt on the Hambantota harbour and the Wickremasinghe government was forced to give the Hambantota harbour to China on a 99 year lease for $1.2 billion. Borrowings between 2015 and 2019 by Yahapalanaya added another $20 billion bringing the total closer to US$ 60 billion. Yahapalanaya was also involved in various corrupt schemes, during their period of government; the Bonds scam was the biggest financial fraud. It was never fully investigated since the two leaders were also involved in this massive racket. The Yahapalanaya   government also spent millions on luxury vehicles, foreign travel, and additional allowances to parliamentarians. 

The debt as a ratio to GDP reached 66% in 2019. This is the third highest ratio after 106% in 2002 and 71% in 2014. The main sources of repayment of foreign debt are from export earnings, foreign investments and remittances from Sri Lankans working abroad. Earnings from exports in 2019 totalled about US$11.1 billion and payments for imports were around US$ 18.7 billion, giving a deficit of US$ 7.57 billion. Remittances of about $7 billion barely helped meet the deficit or the difference between exports and imports in 2019. These figures demonstrate the vulnerable situation that the country is faced with in the immediate future.  There were some concern in the community that the government may not be able to meet the debt obligation for 2020. However, it has been successfully settled by the government which amounted to US $4.2. This does not mean that the government has the ability to settle debts that become payable in the near future. A major part of the debt repayment this year came from the country’s foreign reserves. The amount of foreign reserves currently available is expected to be around US$ 1 billion.  

Leadership of Gotabaya Rajapaksa 

President Rajapaksa’s priority appears to be on agriculture; he has made a number of policy decisions in this regard. As part of this policy, he has banned the importing of a few items such as turmeric and ginger and he wants all agricultural products (grains and condiments) to grow locally. Availability of land will be a crucial factor in promoting agriculture in the country. A recent news item reported that the government is planning to clear around 700 hectares of forest for agricultural purposes. This will have a devastating effect on the forest cover which is steadily declining due to encroachment by powerful people under the pretext of promoting agriculture. Human activity that follows the clearance of forests will also lead to ecological disasters affecting plants, animals and valuable species. The forest cover in the country at present has reached critical level of around 25%, which is even less than the world average of 30%. The president’s main focus is to increase foreign exchange earnings and he sees that agriculture has the potential to develop the economy and also earn foreign exchange more than any other source. However, agriculture alone cannot take the country forward as it provides only a limited number of seasonal employment; it can also be affected by droughts and floods. What Sri Lanka produces may not necessarily have a demand from other countries. It is necessary for the government to obtain expert advice in order to prepare a comprehensive economic policy to address the need of the country.

The problem with GR is that he believes he can do anything. This confidence comes from his role in eliminating the LTTE in 2009 and bringing peace to the country. It was, however, not a one man job; his leadership was supported by armed forces, but the Rajapaksas were given almost the entire credit of eradication the LTTE terrorism and most others who deserved some credit were ignored. The Army commander who led the battle was sent to jail. Based on what GR has been doing on the development front, he appears to be totally ignorant about the policies that need to be undertaken to develop the slowed economy. He does not want help from professionals as he appears to be very confident that he can deal with any situation.  He wants the people to judge his performance as the president. Although he has been the president for more than a year, the country has not seen any progress to date that can be attributed to the president or to his regime. Even the management of the virus is the responsibility of the army and the health services of the country. He plays only a limited role even in dealing with the corona virus.  

He has made a number of policy decisions without a proper understanding about what he proposes. One such decision is about the usefulness of removing the middleman in marketing of locally produced goods such as vegetables and fruits etc. He believes that this will provide a higher income to the producer. Before publically announcing his idea, he should have discussed this with those involved in the industry. Normally, a middleman is used only by big suppliers to the market. He can help the suppliers by arranging a trader; he gets a commission if the sale goes through. Small suppliers do not use the middle man because the quantity they bring to the market is too small and the income is too little to hire a middleman. The middleman also makes a living from his service. If there is no demand for the middleman, his service is not sought by the producer. There is practically no role for the middleman in the income of producers, whether they are small scale or large scale.        

Another policy decision of the president is about the country’s foreign exchange setback. He assumes this can be addressed by attracting more foreign direct investments to the country. In addition, it can help to avoid the need for foreign borrowings as well. Foreign direct investments are part of the investment capital of investors. They are brought to the country to build their investment projects and the government’s only income is from taxation and services once the project gets off the ground. In 2018, foreign direct investments totalled US$2.8 billion and in 2019, it came down to US$ 1.3 billion. Unless the country receives at least US$ 10 to 15 billion per year, the revenue that can generate from direct investments is too little to help the repayment of foreign debt.  

The President has been travelling in the country side visiting few villages and inquiring   about the problems that they face. Recently he had visited two villages in Badulla district. After investigating the conditions of the two villages, he advised the authorities to implement a number of projects including a few agricultural projects. It is not clear what he intends to achieve from these visits. President Rajapaksas held the position of Defence secretary in Mahinda Rajapaksa administration and was involved in two elections, visiting almost all parts of the country. He should certainly be familiar with conditions in all parts of the country. The information gathered from two or three villages is not a sample that can be used to derive any policy decision. In a similar visit earlier, he has been ridiculed by the people for the statement he made: “I am the president of this country. When I say something it is the law of the country”.  The president appears to have taken too seriously the power he has been bestowed by 20A. 

Eliminating of corruption is another priority of the president. This is a common promise of almost all political leaders in the past. Yahaplanaya came to power in 2015 with the promise that it will take action against the Rajapaksa family, which was (and is) considered as the most corrupt regime in the recent history. If Yahaplanaya fulfilled the promises that it made, it is very likely that some of the members of the Rajapaksa family would be in jail by now, serving long prison sentences. Wijeyadasa Rajapakshe, former Justice Minister of Yahaplanaya, has recently said that he was the one who saved the Rajapaksas from being prosecuted for corruption. He made this statement when he realized that he was not getting a ministerial post in GR’s cabinet which he was expecting. Those who were accused of large scale corruption during the former Rajapaksa regime are now accusing the MPs of Yahaplanaya as corrupt. Corruption can never be eliminated as long as greedy politicians are in parliament. It happened in the past, it is happening now and it will happen in the future as well.  

Budget 2021

The budget 2021 resulted in an estimated cost of Rs 3,525 billion and the estimated income is expected at Rs 2,019 billion, giving a deficit of RS1, 506 billion. As the budget reveals, the government’s primary focus appears to be the development and expansion of the private sector. In support of this objective, the budget for 2021 has provided a number of incentives in the form of tax exemptions, tax reductions, suspensions of some taxes, tax holidays and tax concessions. Most of these benefits are aimed at a rapid expansion of the stock market in the coming years. Since the virus is still alive, the private sector investments in the economy cannot be expected to be forthcoming to the extent that the government expects. The rural sector, where nearly 50% to 60% of the population live, on the other hand, has not been given much assistance to at least to recover from the hardships due to the virus. The budget provides loans to farmers up to Rs 500,000; but the government appears to have not considered how many farmers are in a position to obtain loans of this magnitude or how many would really like to commit to a huge loan under the prevailing situation in the country. A few minor concessions has been provided to farmers such as free fertilizer for paddy and Rs 1,500 for other cultivations. These are, however, not new concessions. Under the public spending program, the budget allocates funds for drinking wells, rural roads and housing projects, but these projects have very little impact on the shortcomings of these basic needs that prevail throughout the country.     

Although the government expects a 5% to 6% economic growth rate for 2021, there is nothing in this budget to suggest that such a growth rate has been targeted in the budget. This budget is certainly not a growth oriented budget in the short term. Most of the investments are likely to have any impact only in the medium term. It is estimated that the growth rate of the economy is likely to remain negative between 2.0% and 4% in 2020 and given the poor performance of the economy to begin with, it is very unlikely that the growth rate passes 3% by the end of the year. During the last ten years, the economy grew by only 3.1% despite being a more conducive period for a higher economic growth.   

Investments alone cannot achieve a higher economic growth. An equally significant factor is spending. The level of spending is limited to the ability to purchase goods and services. Without a steady source of income, the only option to the people is to cut down spending. Like the government’s decision to reduce imports as a measure of reducing expenditure on imports, the people who are without a regular income will also have to do the same thing. This is the current situation that the country is faced with. The government needs to increase the income level of the bottom 50% of the population if at least an average growth rate to become a reality. Most of the people in this category are daily wages and majority of them are without any employment. Families who benefitted from remittances from their family members working overseas are also now faced with a situation to live without that support. Those who have returned from overseas employment are now without any employment; they are the worst affected groups in the country at present. Unfortunately, the government appears to have not given any consideration to the problems of those affected the most. 

What needs to be done is to create small scale projects in rural areas for the rural population to have an income that can improve their living standards and also contribute to the growth of the economy. Upgrading and renovating dilapidated buildings in schools, hospitals and government departments, providing toilet facilities in schools and towns, and rehabilitating minor irrigation projects will help the rural population to have an income and an improvement in their living standards as well. The government must postpone all these large scale projects currently under consideration for at least five years. The country can survive without these investments, but the people may face severe hardships if their problems are not considered as a priority. It is possible that hardships endured by the people may lead to political instability in the country as well. The government does not show any interest in developing even a plan to help recover the ailing economy due to the virus. It is the most needed action at the moment given the current status of the economy.    

The budget must also focus on new foreign exchange earning opportunities to make this sector much resilient and diversified. Currently the foreign exchange earnings are limited to three or four main sources and a number of minor sources. The vulnerability of depending just a few sources was highlighted by the devastation that followed the corona virus on remittances, tourism and garments, the three main sources of foreign exchange receipts. 

Sinharaja road development project

The president recently made a unilateral decision to approve a road project which has been halted by environmentalists as the road is within the protected area of the Sinharaja rain forest. The rain forest is protected under the national Heritage and Wilderness Area Act. This road is now completed. Minister Johnston Fernando, Chief Government Whip, has said that not a single tree was cut when building the road. The problem, however, is not with the road itself or cutting down a tree: the problem is when a road is built or an improvement to the road is made to allow vehicles to use the road in a protected area. It invites human settlements. As the need for this project is to facilitate access for the villagers to areas outside the protected area, it is important to examine how these settlements have come up in a protected area. What the president would have done was to discuss this matter with the environmentalists before making a decision. In a few years’ time this region could attract more settlements since the government has opened up the opportunity for it to happen. The devastation caused by GR’s decision can be clearly seen in the images appeared in the media after the road construction has been completed. It is important for the leadership to recognize that the responsibility of the environmentalists is to protect the environment and voice their opinion.

*The writer is an economist and he can be contacted at tilaks@iprimus.com.au