By Jehan Perera –

Jehan Perera

With the election campaigns for the presidential election in full swing, the candidates are making a wide range of promises to an electorate that has not become cynical enough not to hope again that these might be kept. The promises are mostly with regard to the economic benefits that people can reasonably expect from a government that has their interests at heart, and include economic development, employment opportunities and subsidies. According to the World Bank, which recently promoted Sri Lanka to the status of an upper middle income country, extreme poverty is rare and concentrated in some geographical pockets; however, a relatively large share of the population subsists on slightly more than the poverty line.

The World Bank also notes that spending on health, education and social protection is low compared to countries at similar levels of development and attributes this to low tax revenues combined with large expenditures on government salaries and interest payments. Sri Lanka has huge international loans to repay and the infrastructure it has put up is not yielding sufficient returns. The contesting presidential candidates are not specific about how they will achieve the ambitious targets they have promised to meet, or how they will finance them. Their promises range from reducing taxes to increasing salaries, providing free fertiliser and a guaranteed price for agricultural products and ensuring that the environment is protected better.

Sri Lanka has a long history of extravagant promises that are made to influence voter behaviour at election time. One of the more dramatic of them was the promise to even bring rice from the moon in the event that earthly supplies were not forthcoming. This was in the context of the demand that was anticipated for rice that was to be given for free to everyone, the rich included. However, that particular promise boomeranged on the government when it had to face a world food shortage that occurred shortly thereafter in the aftermath of the world oil price hike that followed the formation of the OPEC oil cartel. In the case of the present election promises, most of them will cost the government a large amount of money and how this is to be financed when taxes are reduced will need to be explained.

Economics Implications 

There is another key election issue that is likely to have economic implications. The focus on issues of national sovereignty has been a feature at virtually all elections that took place after the heightening of the ethnic conflict. Especially after the synchronised bombings on Easter Sunday in six locations and the failure of the intelligence services and political leadership to adequately respond to the threat, there has also been an increased demand for strong national leadership. In this context there has been criticism of the manner in which Sri Lanka has agreed with the international community to deal with the issues of past human rights violations. The co-signing by the government of UNHRC resolution 30/1 of 2015 figures high on this list.

In his first media briefing at Shangri-La, one of the hotels targeted by Islamic suicide bombers on April 21, 2019 presidential candidate Gotabaya Rajapaksa emphasised the importance of national security. He also said that while he is committed to work with the UN system he rejects the Geneva Resolution co-sponsored by the present government in October 2015. The UNHRC resolution has been a matter of national controversy especially as it has national sovereignty implications in terms of ensuring accountability for war time violations of human rights. It was agreed to by the present government after its predecessor did its utmost to resist the UN effort to get involved in the country’s post-war processes. The government headed by President Mahinda Rajapaksa was adamant that it could deal with the issues of the past without having to be prodded by the international community and resolve them in a manner that would meet national interests rather than international interests.

During the period 2009-15 when Sri Lanka failed to meet the expectations of the international community, the country was subjected to a variety of sanctions. One was to be confronted periodically by the international community in Geneva at the UNHRC sessions and be questioned and subjected to strictures by the leading countries in the UNHRC. In addition, there was the tangible price that the country was called upon to pay when in 2010 the European Union withdrew their GSP Plus tariff privilege that it reserves for those countries that are poor but are yet making a genuine effort to improve the human rights of the people they govern. The ability to access the EU market can be indicative of a country respecting basic human rights, rule of law and good governance. It also sends a signal to the international investor community which will facilitate the attraction of inward foreign direct investments.

Workable Option 

GSP Plus offers incentives in the form of duty reductions on exports as a reward to developing countries for their commitment to upholding the 27 core international conventions on human and labour rights, sustainable development and good governance. Due to the withdrawal of the GSP in 2010 Sri Lanka’s exports to the EU dropped as a result and along with it thousands of Sri Lankan workers lost their jobs in the export industries that could no longer produce and export as much as their markets in the EU were suddenly made smaller and more competitive. In many apparels categories duties rose from zero to 9.6 percent, in the seafood sector to 18.5 percent, in the fresh and processed fruits and vegetable sector to 12.5 percent, and in the porcelain and ceramic ware sector to 8.4 percent.

Looking at how Sri Lanka’s competitors fared in the EU market, gives some sense of how Sri Lanka lost out to Asian apparel exporters. According to the International Trade Centre, Vietnam, Pakistan and Cambodia all trailed Sri Lanka in 2009, with EU exports at USD 2.1 billion, 1.5 billion and 1.09 billion, respectively, against Sri Lanka’s 2.3 billion. By 2015, however, Vietnam’s apparel exports to the EU had risen to USD 3.9 billion, Pakistan’s to 2.9 billion and Cambodia’s to 3.7 billion, with Sri Lanka behind at 2.4 billion. This situation was only partially reversed in 2017 after the government elected in 2015 accepted the need to abide by the UN desire for Sri Lanka’s reconciliation process to take place according to international standards.

In the coming years, Sri Lanka will face a challenge in retaining the GSP Plus tariff privileges on account of graduating to the ranks of an upper middle income country. This can make the country ineligible within a time frame of about three years but a longer period can be negotiated by showing that the label of upper middle income is only a statistical concept for the vast majority of people. If Sri Lanka were to unilaterally withdraw from its commitments made to the UNHRC by rejecting the co-sponsored resolution, the likelihood of the country preserving the GSP Plus tariff privilege will diminish further to the detriment of the national economy and to the people’s standard of living. An option to consider would be to renegotiate the commitments made under UN Resolution 30/1, as some of them require constitutional change, and to make them more workable instead of withdrawing unilaterally.