Harsh reality: What needs to be done 

By Jayampathy Molligoda-May 10, 2019, 8:28 pm

It is being argued that the government has not assigned top priority to national security. The Archbishop of Colombo, Malcolm Cardinal Ranjith is also reported to have told the government, in no uncertain terms, that he is utterly displeased with the security measures adopted since the Easter Sunday attacks. The opponents of the government claimed that this so-called ‘yahapalana’ government was brought into power with the majority Muslim votes - is being kept in power with the continuous support of Muslim parliamentarians and they need these Muslim votes even for the forthcoming presidential and parliamentary elections as well. Their contention is that there could be undue political interference in the ongoing investigations into the incidents and in the current security measures to appease the political leaders.

The Sri Lankan armed forces and their Intelligence services have proved that they are quite capable of protecting the country. This is despite many security lapses which we have observed due to undue political interference, especially in the communication channels disseminating classified ‘national security’ information to the relevant authorities and on-going investigations. The Cardinal has proved that he is a much better leader than the self-proclaimed ones.

Since we are faced with a very complex situation, one could argue that finding a lasting solution is an exceedingly difficult task. My own view is that we need to adopt a more professional, strategic management approach in order to bring back an effective and efficient government model. As we have experienced earlier, the defeat of LTTE terrorism was possible ten years ago due to then government, especially the Ministry of Defence adopting a more strategic management approach and implementing it efficiently and effectively. There is no room for ‘blame culture’ under strategic management model and this approach prevents any implementation snags thus attaining the pre-determined goals and objectives.

Economy as reflected in the Central Bank report 2018:

For a small economy (US$ 89 Billion) like Sri Lanka-with a domestic consumer market of a mere 21 million, the external demand from the international markets for Sri Lankan products and services is critical in order to sustain medium-term economic growth. However, the Sri Lankan external sector performance-balance of trade-has been poor mainly due to a steady deterioration of the export competitiveness and due to lack of consistent policies and implementation snags, red tapes etc. The trade deficit surpassed US$ 10.3 billion for the first time in the economic history of Sri Lanka whereas our total export earnings figure was US$ 11.9 billion only.

The Central Bank report highlights few positive features of the economy, (a) Overall budget deficit declined to 5.3% from 5.5% in 2017, (b) while gross official reserves of the country stood at $ 6.9 billion as at end 2018." (c) Agriculture sub-sector growth has been 4.8% although this sector contributes only 7% to the GDP. In my view, these salient features are only superficial in nature. The government budget deficit of 5.3 % is as a result of the substantial reduction of public investments and in fact, the Central Bank report says that reduced capital expenditure has contributed to a dampening of economic activity. Also, the government revenue collection has declined and was only 13.3% of GDP. The foreign reserves, which stood at 8.2 Billion as at end 2014, are not ‘earned’ but with additional foreign borrowings, which includes the issue of international sovereign bonds (ISBs) and proceeds from asset selling etc. The agriculture growth rates have been around 4 % during the period up to 2015 and it was only during the years 2016 and 2017, it was recorded negative growth. The Sri Lankan ‘per capita income’ is stagnated during the last four years and it is now US $ 4,102 /= (Only 1. 9 % growth per year as it was US$ 3,819/= in 2014) This figure doesn’t really show the income inequality and huge disparity among the rural ‘bottom of the pyramid’ people, where more than 25% of the people are living below the ‘poverty indicators’ set by World Bank.

It is regrettable that an ‘export led growth strategy’ practised for many years has become a mere slogan. The import expenditure reached an all-time high of US $22.2 billion, in 2018. Continued inflows by way of tourist earnings US$ 4.4 billion and stagnated workers’ remittances amounting to US$ 7 billion have contributed to curtailing the expanded ‘trade deficit’ to a certain extent.  The annual economic growth rate has further declined from 3.4% in 2017 to 3.2% in 2018 and this is inadequate to maintain individual and family income levels to fight against ever increasing cost of living issue.

Do we practice social-market economy?

As development economists have pointed out, the obstacles to development are self-reinforcing where low levels of household income prevent domestic savings, which in-tern retard capital formation; thus low investments hinder productivity growth, and keep household income back at low levels. This is the poverty-growth vicious cycle.

One can argue that the low export performance has been due to supply side issues than demand side and therefore, signing FTAs alone will not reverse the trends. It seems the fiscal austerity programme recommended by IMF/World Bank will not yield the benefits and even can lead to more social unrest instead of helping solve deep rooted structural issues. Therefore, there has to be an ‘investment led growth strategy’ to drive the export sector and achieve economic growth.

We preach that Sri Lanka is a Democratic Socialist Republic with a social-market economy. One can figure out the role played by the government in the social sector by looking at the total tax collection from the rich and the subsidies afforded to the less privileged people in society. The goal is to give equal access to these basic goods: every child should have access to education, regardless of his or her parents’ income, and everyone should have access to health care. The writer has been repeatedly pointing out that the government of the day during the last five- year period did not spend even 4% of GDP on health and education, where more than 25 percent of our people live below the poverty line. As per Central Bank report 2018, only 3.4% of GDP was spent on health and education. Our health and education services are fast deteriorating to a level where we could end up in having unhealthy and less educated children similar to the population living in least developed countries. The Central Bank has been repeatedly emphasising the need to address these ‘deep rooted structural issues’ in the economy, which have prevented the country from maintaining a sustainable GDP growth rate over time.

Ever increasing foreign debt portfolio:

Our country is now dependent on India, Singapore, Japan and China to buy goods we consume and on US, UK, Russia and Middle East for our exports. It is slowly but steadily moving away from its production- based economy.

The country’s total outstanding foreign debt position has reached an alarming UD$ 52 Billion, compared with US$ 43 Billion as at end 2014 and it accounts for 59% of GDP. Despite having a substantial reduction of public investments in both physical and social infrastructure as shown above, a total sum of US$ 23.5 Billion has been additionally borrowed from foreign sources during the of last four-year period and settling only US$ 14 Billion. We need to be mindful that the ‘social- infrastructure’ activities, namely health and education sectors are interwoven with socio-political fabric of the society. It is in this context only that a clear strategy of increasing public investments in education, at least 5% of the GDP should be viewed. This will enable the governments to mitigate the ‘student unrest’ to a certain extent. If this declining trend continues, Sri Lanka will end up as a ‘failed state’.

As we mentioned previously, the national security and normalcy could be restored within a short period of, say, one or two years provided a proper system to ensure national security is put in place. However, in my view, country’s economic war cannot be won within a period of three years even with a new government coming into power by end 2019. The next government can only reverse the negative trends with prudent national policy implementation from day one. A deficit of US $ 5 billion per year will have to be financed through foreign borrowings unless we successfully negotiate a debt rescheduling programme with lending institutions and countries.

Professionals must get together under one country, one nation, one people:

Lain Marlow of Bloomberg in his recent article quoted Dr. Jehan Perera, who serves as executive director at the National Peace Council of Sri Lanka and a pro -Yahapalana key activist as saying; Quote; "We thought this new government -- a liberal, western-oriented government -- would jump start the economy, get the economy taking off, But it didn’t happen." Unquote. Even before the attack, more and more Sri Lankans had grown disillusioned with this government of Sirisena and Wickremesinghe, who formed an alliance to defeat the previous Mahinda Rajapaksa government in January 2015. No point in blaming the governments and its ministers or the opposition politicians as we as people get the governments we deserve. Hopefully, there will be another round of elections before the end of the year, and people have the right to elect their political leaders. My own view is we must push for both the Presidential as well as Parliamentary elections to be held together this year.

In view of the above precarious macro- economic situation, it has now become necessary for all of us to concentrate on improving our own businesses or use our individual expertise and talents as our contribution to the country albeit at micro level. We need to look inward and focus on improving what we are good at including how to improve our own businesses. Let the authorities focus on providing national security and safety of people.

The Sri Lankan companies should have a new business model focusing on the entire global value chain. As for companies in the business of agriculture value addition, it is important to adopt a ‘sustainable agriculture model’ focusing on ecological balance and inclusivity. The new business model would have to address how it will shape the landscape of the farming businesses thereby changing the farmer demography in order to attract young educated youth so that they will evince an interest in improving not only food production and coping with growing demand for pesticide free agriculture, but achieving sustainability and take responsibility of achieving food security. In addition, the policy makers of the government dealing with national security must give highest priority to food security.

The restoration of political stability is a prerequisite for achieving economic growth. Therefore, time is opportune for the genuine professionals, academics and business leaders to get together and get involved actively in the affairs of the government machinery as a pressure group.