Sri Lanka: How to mobilize adequate resources?

 No two countries have been similarly placed in this predicament or come up with identical solutions. Corruption at every level, extravagance in grandiose projects, tax evasion and the siphoning off of currency in breach of anti money laundering laws are some of the common features shared by most countries, with the solitary exception of a few that have been plagued by natural disasters or a state of rebellion.

by Dr. Dayanath Jayasuriya P. C.-26 June 2022 

I am not an economist but have gained sufficient insight into how different countries have struggled to cope with financial crises. During missions to over four dozen countries in several parts of the world ranging from the Central Asian Republics to Pacific Islands and South America, I have either participated in developing pro-poor programmes and restructuring health ministry budgets or being privy to interventions and recommendations made by the Bretton Woods institutions and bilateral and multilateral agencies.

I cannot recall even a single instance where the national authorities had not developed a plan of action for economic resurgence, including bridging financial support. However, imperfect or unrealistic some of these plans were, these laid the foundation or framework for negotiations and seeking guidance and help from IMF and other institutions.

In most of these countries there was an acute scarcity of US dollars and lack of sufficient funds to cope with mounting debts with imminent repayable obligations. A declaration of bankruptcy, however worded that may be, and defaults in repayments do not enure to the benefit of the defaulting country; you just make the country more vulnerable to litigation by sovereign and institutional creditors. This situation makes it all the more important to have a credible repayment schedule, whether by cash infusion or by resorting to public-private sector strategies.

No two countries have been similarly placed in this predicament or come up with identical solutions. Corruption at every level, extravagance in grandiose projects, tax evasion and the siphoning off of currency in breach of anti money laundering laws are some of the common features shared by most countries, with the solitary exception of a few that have been plagued by natural disasters or a state of rebellion. The latter group is better placed for donor assistance by way of grants for a genuine humanitarian crisis.

A few countries have been able to recover, after many years, part of the loot- the laundered and embezzled funds. This is a long drawn out process but eventually the trail of funds can be traced.

Repayment and rehabilitation schemes provide a mix of solutions ranging from short-term and medium-term to long-term. Progress of implementation success can be easily measured in short-term and medium term plans with specific outputs and timelines. Whilst there is no comprehensive empirical inventory of successful and unsuccessful solutions and strategies, a view that has gained currency is that there is a need to think out-of-the box and come up with innovative, unique and home-grown strategies as circumstances may demand.

Countries that are in dire need of foreign currency can make it mandatory for foreign currency account holders above a particular threshold limit to surrender such currency for local currency complemented by government guaranteed bond schemes with exceptions where there are genuine medical or educational needs to be met by utilizing foreign currency.

Where tax evasion, money laundering and a vibrant underground banking system are thriving, a measure to demonetize the more prominent denominations in its currency system can help widen the tax net and encourage the use of the formal banking system. Countries that traditionally attract tourists can offer benefits to those tourists who make bookings through government administered scheme and thereby remit foreign currency directly to the government coffers.

Where workers’ remittances make a significant inflow to the system, more foreign employment schemes can be explored through bilateral diplomatic channels. The elimination of red tape and irrational taxes can considerably help promote exports. Import substitution is possible through limiting imports of luxury items and stepping up production of suitable substitutes.

Bulk purchasing with long term commitments and a flexible pricing formula linked to global prices help to eliminate shortages of petrol, gas, drugs etc. Public-private partnerships have received a boost, for instance, from China’s One Belt One Road initiative, though some countries have lost control of public sector enterprises due to defaults in payments. There is nothing called a ‘free lunch’ and invariably the price is a trade-off.

Countries with democratically elected systems that respect human rights, law and order within a broad framework of good governance practices command more respect at the international and regional level to attract capital market players and concessionary repayment schemes. Reliance alone on a proud history and the power and influence of a few politicians will not help to mobilize adequate resources when there are so many well managed Third World countries trying to grab a portion of the small developmental aid pie. Cosmetic constitutional changes not directed at solving pressing problems of the public cannot allay the suffering of the masses.

(Dr. Dayanath Jayasuriya has been a UNDP Regional Adviser and HIV and Development for Asia and the Pacific; Chief Technical Adviser to the UN Drug Control Programme; head of a UN agency in Pakistan and a former Chairman of the Securities and Exchange Commission of Sri Lanka).