Two sides of the same coin

The constitutional standoff, which is entering its seventh week, has perhaps had the most telling impact on the economy. On one hand, the downgrading of ratings, suspension of the International Monetary Fund (IMF) program, high debt repayments, possible decline in tourism, currency depreciation, and the lack of a budget have grabbed people’s attention while on the other, danger of populist measures in the form of tax cuts continue to worry many.

These are different dimensions of a complex economic situation that will have an impact on the lives of all Sri Lankans, but the ability to hold politicians accountable for this is difficult, in some ways because the understanding of how an economy works is limited. The optics of different issues, such as currency depreciation largely viewed as bad and tax cuts as good, also makes it harder to keep political decisions balanced because politicians constantly attempt to please their core voters, even though the consequences of that can be felt by everyone.

Financial inclusion, which is giving people access to the financial system of a country, can only be effective if individuals are aware of how complex an economy can be. In Sri Lanka, many issues – including high levels of indebtedness – are caused by low financial literacy.   

As per Standard and Poor’s 2014 global financial literacy survey, Sri Lanka has a higher financial literacy rate than its South Asian peers. This is not a surprising factor since Sri Lanka has one of the highest adult print literacy rates in the region, and as a country with an aging population, there is greater need for competent use of the financial system to find solutions to social needs.

However, what it is noteworthy is the gap between print literacy and financial literacy. Sri Lanka has the highest gap between print literacy and financial literacy in the region. As per the survey, on average, 65% of adults in the major advanced economies are financially literate. South Asia records the lowest percentage of financial literacy, with Sri Lanka coming in at about 35%. Bhutan has the highest parity between its print literacy and financial literacy, recording 65% and 55%, respectively.

This indicates that there is more scope to promote financial literacy among Sri Lankans, and this may well be one of the main reasons behind Sri Lanka’s economy going through boom and bust cycles every few years. In Sri Lanka, many pockets of people in both rural and urban areas still struggle to understand how relief in the short-term can lead to long-term pain, especially given Sri Lanka’s high levels of debt. 

Therefore, when politicians discuss issues that are relevant to an economy, they are rarely discussed substantially. There is limited space for clear, well-written, and simplified information that the public can freely access to understand what economy policy decisions really mean and the potential impact they could have. When this shortage of knowledge meets political agendas, the result is usually disastrous.    

As Sri Lanka awaits the crucial Supreme Court decision – likely to be delivered this week – the economic impact of these political events cannot be allowed to move away from the public eye.