20 May, 2022

Blog

The Economy Has Collapsed

By Kumar David

Prof. Kumar David

Polite commentators are bashful and write in the future tense. They avoid the present and prefer “on edge”, “critical” and “reeling”, but this is asinine. It has already happened; all that is pending are food riots. “The president (of Sri Lanka) appealed to visiting Chinese foreign minister Wang Yi that it would be a great relief if debt payments could be rescheduled in view of the economic crisis” reported the Guardian (UK) on 10 January 2022. When a country begs for debt rescheduling it means that it is up the gum-tree, broke, can’t pay up; rescheduling is defaulting, politely. A few in the opposition have appealed for default. The Island of 31 January said “Sumanthiran leads an MPs’ call: Postpone debt repayment”. Well Abraham wake up; it has happened. The government has affirmed all but officially that it has declared bankruptcy; there is no other interpretation of a plea for rescheduling addressed to the creditor holding 10% ($3.4 billion) of our foreign debt. Nearly half (47%) of Lanka’s foreign debt is to commercial markets and default cum restructuring will entail increase in interest rates on the amounts outstanding and it will pile on future pain. Interest rates the world over are on the up, Central Banks are tightening money supply in response to inflation concerns. Therefore, restructuring equals higher interest rates; Sri Lanka is sinking into a financial quagmire; that’s the bitter pill the JVP-NPP, Sajith’s outfit and Champika’s 43-Brigade cannot get away from – more on that later.

Debt, default, shortages, inflation, power-cuts, exploding gas cylinders, fertiliser lunacy, who doesn’t know all this? It will be a waste of your time and mine to recapitulate. A reasonable summary inference is that president and government will be ousted in the next election cycle, provided elections are not annulled by an illegal or an illegitimate artifice. I have often made a song and dance about such illegitimate possibilities and complained that the main opposition JVP-NPP and SJB and lesser outfits with a presence in parliament like the TNA were sleepwalking, oblivious to dangers. I will give that grumble a rest today and limit myself to what may happen during the remainder of this president and government’s term if they stay on to the end (three-plus years) and I will talk about election manifestoes.

Foreign Borrowing ($ million)
Total $52 billion (80% of GDP at end 2017)
(Source: Ministry of Finance)

If president and government serve out their terms it is easier to prognosticate economic trends than to predict the fallout from unavoidable socio-political conflicts if the government is brought to its knees before its fated expiry dates. Some things seem unavoidable in 2022 or 2023; the government will throw itself at the feet of commercial lenders and China and eventually the IMF, imploring mercy. Fresh monies and swap deals will entail higher costs, eventually the IMF will have its way and impose substantial structural reforms. Let’s stop fooling ourselves, price rises, and cuts in subsidies and welfare are unavoidable. You don’t believe me? Listen to the Finance Minister and government ministers and MPs. Citizens who have big money are moving it out and owners of properties are selling and finding ways of doing the same at inflated market exchange rates – others argue that these are the prevalent real-rates. In simple words the net effect will more economic hardship. This remark applies not only to fungible goods, commodities and fuel but also to services like electricity supply-reliability and healthcare.

What about the trade balance, remittances and tourism earnings? A sharp decrease in the LKR value will increase exports and discourage imports but the political costs will be high. Can a regime facing an electoral guillotine do it? But how otherwise can it circumvent the hangman’s noose? The IMF is sitting back and waiting for the beggar to come to the door on his knees; time is on its side and there is only that much alms that China and India will dole out. A fall of the LKR will strengthen remittance inflow; it will attract more tourists since a declining rupee is equivalent to reducing wages and making services cheaper. So-called fiscal reform (raising direct and indirect taxes), rebutting wage hikes and reducing expenditure on health, education and welfare will invite direct populist conflict and social tension. The government’s choice: “To be or not to be”.

Where, for example, will the strike in the health sector which started last week (temporarily paused) end? It dragged on in defiance of a court order and presidential emergency decrees. There will be other strikes, more defiance. Will the regime resort to direct action, will people defy it and will the multi-party governing alliance survive confrontation between the working class and the state? While one by one answers to these questions are not possible, collectively one can see that the regime is snowballing into an existential crisis. I am not using words carelessly; it’s not debt, fiscal crises or shortage conditions that are deteriorating, it is an overall existential crisis. I would have preferred it the other way where we could simply have voted the president and government out of office. Instead the way things are moving we have a threat of protest movements and the state responding with extra-legal machinations hanging over our head.

This is the background as the election cycle moves to centre stage in three-plus years. In the normal order of things, the presidential election comes first in mid-2024 and this may be one reason why three candidates are already on offer – Anura Kumara (AKD), Sajith Premadasa (SP) and Patali Champika Ranawaka (PCR). There is another reason why presidential aspirants are popping up first. Apart from the NPP’s Rapid Response Manifesto the other two hopefuls are committed to retaining the presidential system; let’s be frank, both SP and PCR want to be president, both want the powers and the pomp of the presidency, neither will abolish it. The public too is fixated on presidency not parliament. Though it understands and rejects the evils the JR Jayewardene instituted presidency has brought to the country, it is fixated on the devilish drama of electing a president. Much newsprint and electronic quanta are devoted to kowda raja (who’s the king) drama. Tubby SP is well set on the inside track while long limbed PCR is making a run on the outside track. It is hard to see how PCR can displace SP as anointed favourite of the SJB, its only grit and greed that keeps him going. The JVP-NPP strategy is to lay long-term groundwork for the future.

The dark and dirty horse is the SLPP-Rajapaksa offering. The natural choice would be to re-nominate Gotabaya but his half-time record is so soiled that that seems suicidal. Mahinda is ineligible and Namal hilarious. The next best is Basil, but that would be a bacillus to some, in particular the Dead-Left. In Vasu’s party Basil was spoken of as a pox inflicted by crooked businesses in cahoots with imperialism. “Ten-percent a day will keep development away” will become the nursery rhyme of the next generation. It will be difficult for the government therefore to avoid offering soiled-goods-Gota re-nomination. (Will he accept?). This strengthens my guess that president and government will be sent packing in the 2024-25 election cycle. Is there time enough for a turn around and recovery? Well stranger things have happened . . . but! There are two interesting recent changes in government tactics. Under Basil’s influence there has been a shift in foreign policy from a god-speaks-in-Mandarin orientation to a middle position between China and the Quad. This is most noticeable in economic decision making. China’s response to this disloyalty is as yet unknown. The other change is that the government seems to have swapped its cloak and dagger appearance for an electoral strategy. Maybe it could no longer ignore allegations all around that a military move was the concealed spanner in its tool-kit.

The hurdles that the next government will encounter are herculean. No regime whatever its ideological complexion can avoid the imperative of both pruning the fiscal deficit by cutting expenditure and raising revenue; both unpleasant. The former entails reducing subsidies and welfare, the latter necessitates more taxes on the wealthy and increased indirect taxation such as VAT and sales-tax. This medicine will be as bitter for the JVP as it was for NM in the 1970s, but the comrades will have to partake of the poisoned chalice as did the Double Doctor. Whichever team goes out to bat it will find itself on a sticky wicket for the first innings; the second innings will permit discretionary policy choice. Development comes only after that; growth is predicated on economic and social stability. I am formalising by sequencing but the concept remains correct. Economic intervention by emphasising state sponsored or capitalist-market options, industrialisation strategy, how to mobilise labour and resources, all this follows economic stabilisation. This is true whether the perspective emphasises the responsibility of the state (Vietnam-China style), Champika’s reimaging of JR in his oddly named 43-Brigade (they are not highflyers, or it would have been 43-Squadron) or Sajith’s presumed eclectic mish-mash.

The 43-Platoon says it will increase revenue and prune expenditure. The current balance sheet looks like this: If next year government revenue is one unit (1.0), then gross government commitment amounts to 3.2 units, of which a little more than half (say 1.7 units) will be actual budgeted expenditure and a little less than half (say 1.5 units) will be debt servicing unless there is substantial foreign debt forgiveness. As I said any team that goes out to bat cannot run away from this dilemma in its first innings. The second innings is discretionary; Champika intends to strengthen market forces, expand the role of private entrepreneurship, call in the IMF, emphasise productivity enhancement and launch a tech-based economy. His plan includes homilies about renewing democracy, eliminating corruption, improving governance etc. but it retains the presidential system by implication. Nor is he famous for enhancing devolution to minorities and nothing like that should be expected. The 43 (Ali Baba managed with 40!) is JR-economics and ideology in Twenty-first Century garb.

And you may have noticed that the TNA and the Catholic Church seem to be in vanguard of the campaign to repeal the Prevention of Terrorism Act and to stop the resurgence of state-led white-van abductions. Where are the JVP and the SJB? Maybe they are too busy preparing for elections in a reversal of roles. Hmm, what a topsy-turvy world! While we await the Sajith and Rajapaksa Brigade manifestoes in the coming weeks there is a lot on our plates already to think over.

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Latest comments

  • 6
    0

    KD,
    Well written, laudable.
    In other words, we are all planning to recite, “Que Sera, Sera”? Spanish (translated to English, “Whatever will be , will be”)
    That will be a long time since 1956!!
    I remember, in the Alfred Hitchcock film, ‘The Man Who Knew Too Much’ (1956) – Doris Days character, performs in film.
    This version won the 1956 Academy Award for “Best Original Song” under the title “Whatever Will Be, Will Be (Que Será, Será)”!!!
    Coming back to the foremost position in SL after 66 long years!!!
    It is supposed to represent CHEERFUL FATALISM!!! NOT FOR ME AND MANY SRI LANKANS!!
    It’s grim time to look forward to, by the poor/underprivileged especially, which should be avoided!
    Rich would circumvent and overcome live another day and recall the mess.
    What is the “Powers-that-be” are doing about this macabre situation ‘dawning’ on Sri Lankan economic horizon?
    Still playing ‘Pandu’?
    Inaction blaming Presidential manifesto?? Re-election hangs not be?? Forget it!!
    Who cares when one leg is in the US of A and the other is plundering the citizens wealth to propagate there filial renaissance and leave concrete and tarred/macadamised monuments on commercial loan borrowings, warm the cockles of Rulers’ hearts!!!!!

  • 5
    0

    CT,
    Forgot to add, as postscript that, reference to the film, ‘THE MAN WHO KNEW TOO MUCH’ (1956) does not refer to any current actors in the SL scenario, politically or otherwise, resulting in this conundrum!!!

  • 3
    23

    Of course, the economy has collapsed the entire world. This writer without knowing the world’s affairs. Go to the UN report and CIA report. Due to COVID 19 entire world is crying now. Is this writer blind?

    • 2
      16

      Selectively Blind

      • 8
        1

        a14455@

        U or the like slaves or Gota Or Mandabudhdhika BR/.
        .
        Btw the Can u perhaps teach BR basic lessons in simple English?
        .
        How can he ever go back to his home place again? If bugger is not shameless? .
        .
        I believe Honorable Mel is still there the bugger et would go and collect some pieces of valuable advice .
        .
        🐃🐕😶🤔🙂😡

    • 5
      1

      Remember “nation s topatchaya aka the most abusive of all – Mahinda prevaricating that they the mlechcha brothers could do it better” at the time SORYSENA/RW govt increased the fuel prices by 2 rps?
      Today the very same perethadanda/mlechcha man stutters before the very same audience/ the day these hoodwinking will cause people to chase and beat is nearing 😶😶🐕🐃🐃🐃😌😌😌😌😌

    • 5
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      N.P,
      “Of course, the economy has collapsed the entire world.”
      Oh, so you’re the guy who taught English to Basil??

    • 1
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      The fake pandemic was staged by freemasons for several reasons, and one of them was to crash the economic system and create a new one, with a reduced human population of under 500 million (look up the Georgia guidestones these wicked satanists erected in the USA many decades ago).
      Many journalists are freemasons and involved in biased reporting.
      The good news is that their plans are not working out, and they being taken down behind the scenes one by one.
      Too much to explain here (requires a huge essay), but all truth will be revealed to humanity in good time.
      My advice to people is to repent to the most high for their sins, and get right with him as soon as possible! Also stop believing anything you see through popular media outlets, as they are all filled with lying freemasons.
      The most high will deal with them also very soon!

  • 2
    7

    OMG really. where has it collapsed? When did yo see it?

    • 6
      0

      a14455,
      It is good to know, some Sri Lankans still enjoy 3 meals a day

    • 6
      0

      a14455.
      .
      Is there any other son of a bichon that behaves so ignorant other than u?.
      .
      / now u the kind of backlickers have no chances/ no sooner people would round up the mlechcha men and beat to death/ this is what we warned prior to Nov 2019/ .
      .
      Look at that Gonthadipila and Buruwanse/ they are speechless today/ they are shy to face up the very same ratathanakola eaters.
      .
      U the kind buffaloes cant save their bums this time for sure/ our target is to catch that Nishshanka Senadhipathi aka Pampers support of Gota/ wait and see bugger et at ll be fallen before long/ jaya niyayhayi 🐕🐃😶🤔🙂😡

    • 4
      0

      A14455,
      “where has it collapsed? When did yo see it?”
      You want to see it?
      Go and see the queue at the nearest petrol shed
      Go and see how much milk powder you can get .
      Go and see how many Kg of rice you can get for 120 bucks.
      Go and see if there are coconuts for less than 100 bucks.
      Go and see if there are power outages or not.
      You could ask around about which jackass reduced spending on fertiliser, and then spent three times that importing rice and compensating farmers?. Which farmers is this stupid mutt supporting, the ones in Burma or in Polonnaruwa?

      • 0
        0

        This comment was removed by a moderator because it didn’t abide by our Comment policy.

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        • 3
          0

          A14455,
          I feel for you. How pathetic. Do you get paid for deleted comments too?

      • 2
        0

        OC
        What you list are strong symptoms of an ailment, collapse takes a little more if not a lot depending on other circumstances.
        But those who ignore the symptoms accelerate collapse.

      • 2
        0

        The latest analysis warns that COVID-19 has pushed an additional 88 million people into extreme poverty this year – and that figure is just a baseline. In a worst-case scenario, the figure could be as high as 115 million. The World Bank Group forecasts that the largest share of the “new poor” will be in South Asia, with Sub-Saharan Africa close behind.  According to the latest Poverty and Shared Prosperity report, “many of the new poor are likely to be engaged in informal services, construction, and manufacturing – the sectors in which economic activity is most affected by lockdowns and other mobility restrictions.”
        **********************
        PS Since I saw debating of facts I put the above source up.It seems that south Asia is affected even more than Africa,and since we are borrowing from some countries here you can work out reality. I really suggest you check Prosperity report and CIA report when some commentators mislead CT readers with their unsourced views.It will not help the country in the long run. There are reports that Europe and US are recovered to pre pandemic levels but please check it.

    • 4
      2

      a14455,
      Remember, One country one law.

      One day you too will, with Rapist STF, going to the jungle to look for the gun they gave you for your protection. Then you try to escape from Rapist SFF, like Mathukka did and then your work is done and then you are not coming back to prision. Aanduwa cannot afford give a different law for you, than it gives to others. Only time may differ.
      Long live a14455! Jayaweva a14455!

  • 1
    0

    Whether Gotabaya and his SLPP go full term or replaced in the interim by any single party al or by a coalition in the present opposition is uncertain.

    But the fate of ordinary citizens is the same irrespective of what happens-,untold misery. Within a short time, there will be chaos and a military takeover is a possibility. It may initially be a benevolent dictatorship with sweet words and promises of civilian rule once the mess is cleared out..
    But it will end soon once the military has consolidated their rule and the promises will evaporate and disappear in thin air.

    This is a wakeup call to all ordinary citizens to unite irrespective of any political, racial, religious differences and face the crisis united, because as usual it will be the underprivileged who will suffer , the privileged will find a way out.

  • 1
    0

    Some mistakes had crept in my above comment. I give below the corrected version.
    Whether Gotabaya and his SLPP go full term or replaced in the interim by any single party or by a coalition is uncertain.

    But the fate of ordinary citizens will be the same irrespective of what happens to Gotabaya- untold misery.

    Within a short time after a regime change, there will be chaos and a military takeover is a possibility.

    It may initially be a benevolent dictatorship with sweet words and promises of civilian rule once the mess is cleared out.

    But it will be for a very short period, once the military has consolidated their rule and the promises will evaporate and disappear in thin air.

    This is the history of any country taken over by the military.

    This is a wakeup call to all ordinary citizens to unite irrespective of any political, racial, religious differences and face the crisis united, because as usual it will be the underprivileged who will suffer, the privileged will find a way out.

  • 3
    0

    ……………..The hurdles that the next Government will encounter are herculean…………..
    says Prof. Kumar David.

    This may account for the lacklustre performance of the SJB AND JVP/ NPP IN ACTIVELY pushing forward to topple the Govt!

  • 4
    0

    Sri Lankans are pathetic about their future; more worried about how the country is going to be surviving in the midst of economic crisis ,political nepotism, scarcity of food items etc , on top racial and religious bias of their leaders.

  • 1
    0

    “China’s response to this disloyalty is as yet unknown.”
    When has China punished “such disloyalty” The US would punish even a vague sign of disloyalty.
    But the Chinese are more seasoned in diplomacy. It takes a lot of provocation of a sensitive kind for it to hit back.

    • 0
      2

      I understand UK punished too harsh you for your disloyal Stalin-ism, after leaning in their country. But you write Hunu, never imported Hunu from China like Mahindananda did. Open an LC with People Bank to import Hunu, replacing the “i” with “a” in your name. Then China will grab all you property, arguing that dead persons are not allowed to own or posses anything. Go for it to learn something.
      Jeyaweva!

    • 0
      0

      Except the 6.7 Million US $ for the non compliant organics!!!? Small Change indeed!

  • 0
    0

    I fully agree. Economy has ALREADY collapsed.

    Soma

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