THE FRIDAY FORUM
Economic policy-making impacted by grave political instability
The FF shares the despair and disgust of most Sri Lankans with recent political events in the country that have now spiraled into a serious impasse in governance. The economic, social and political repercussions of this crisis will undoubtedly cause a serious set-back to the sustained and inclusive development and reconciliation that our nation urgently needs.
While the social and political repercussions of the crisis in government are being continuously discussed in the media, Friday Forum draws attention to the economic fallout of this fiasco. Friday Forum is particularly concerned at the haphazard government policy-making on the economy, which puts the country’s economic stability and the welfare of ordinary people at risk. This situation has been further exacerbated by the anarchy which currently prevails in the country.
These risks to the economy are not only high and already manifest in the external sector, but also threaten the ordinary citizens’ efforts to maintain current standards of living. Friday Forum will not comment on the causes of these sources of instability at this point, but will attempt to point out some measures that may mitigate these risks.
But first, a few sentences about the nature and weight of the problems we face. During the five years from 2019 to 2023, this society and its agent, the government, will have to pay back foreign debt amounting to $ 4 billion in 2019 and roughly $ 5 billion in the period 2020-2023. Interest on these debts alone will cost about 5% to 6% of GDP and 15 percent of total government expenditure. As foreign debt must be paid in foreign currency, our economy needs to save those amounts from exports, after meeting needs for imports. As the government needs to buy these amounts of foreign exchange from the market for this purpose, it must save enough from government revenue. As some 80 percent of all government expenditure is already committed and the balance must go into essential capital projects, the government must have the courage to raise tax revenue and curb expenditure. These are, in fact, sacrifices that everyone in society must make, as there is no government other than the members of this society.
When burdens like this weigh on countries, they might be temporarily lightened by foreign countries and intergovernmental organisations acting in concert for that limited purpose. The absence of a legitimate and well established government that can take the initiative and act fast to handle these questions, puts our people in serious jeopardy, where the country’s economy and finances are concerned. While these issues may seem abstruse and remote from the everyday life of the ordinary man and woman, they will take on a sharper reality when food becomes scarce and jobs are lost.
When President Sirisena dismissed the government then legitimately in office on 26 October 2018, he began a process of de-stabilization of government which has lasted longer than anyone expected. There has not been a legitimate and effective government in the country for close upon a month and there is no viable solution in sight. Friday Forum calls upon the President to immediately act within the framework of the Constitution and establish a legitimate and stable government, without which our country will slide towards disaster, not only socially and politically but also economically.
A government so established must set to work immediately to seek international assistance to ease the grip of the crisis that has engulfed the country’s economy. Friday Forum sees the prospect of a government seeking immediate assistance from a group of friendly countries who can provide a grant for immediate succour. The government should immediately submit to that Group an intermediate period programme to re-schedule repayment of debt. That programme will include the re-consideration not only of the maturity pattern of debt but also the rates of interest on these loans. The repayment of even rescheduled debt will necessitate reducing consumption and production of goods and services for exports without importing more for domestic use. A government must not pretend that this society can both eat more cake and also offer more to hungry lenders, unless we grow at rates which now seem astronomically high. Government, opinion leaders, academics and others must take the public into confidence and explain clearly the choices available to us, and the rationale for the options that government chooses. To become apologists for any government will be to lose the attention of the public.