Challenge for all-party conference; predictability through better long-term planning

When tomorrow dawns, there is no certainty that the Sun will rise tomorrow. Bayesian interpretation of probability expresses the sunrise problem as follows: “What is the probability that the sun will rise tomorrow?” It illustrates the difficulty of using probability theory when evaluating the plausibility of statements or beliefs.

The all-party conference called for by the President for the 23rd of this month gives an opportunity for a reset of economic planning and a shift of objectives and targets. The country simply cannot afford to be in a situation where an incumbent government of whatever political persuasion carries on like the proverbial caravan while some dogs’ barks and inconveniences the government of the day. Economic planning should be the province of those engaged in running the economy, not those ruining it. It should also not be with departments and corporations subservient to the government of the day, while they should have a role in providing information that is required by the suggested body of planners

The reality in Sri Lanka today is akin to the Bayesian interpretation of probability. Perhaps with a difference. Probability may have advanced to certainty! The sun may rise, but it is possible that there may not be power, diesel, petrol, even essential foods and even medicines tomorrow even if they were available today. They might be available again the day after tomorrow. 

Three or four days ago, the country was told officially that there was no need to devalue the rupee. It’s now devalued and some reports say the rupee is heading towards Rs. 270-300 to the US Dollar. The country was told there will not be power cuts after the 5th. They persist. Diesel and petrol shortages were to be over by the 5th. They persist although the Energy Secretary stated that ship loads were queuing up in the harbour. No doubt the public has a better idea of the ground reality, and they may have come to a stage when they would have stopped believing statements, and certainty may have replaced probability.

Sri Lanka very likely is suffering the consequences of missing the woods for the trees in economic planning when one considers the state of the country’s economy today. While the impact of COVID has been severe, and underestimated by many, successive governments have contributed to the perilous state of the economy being experienced now. Long-term planning has never been a strategy due to the limitations on such planning imposed by politics. At best, five- or six-year planning has been the norm to coincide with the life of an elected government. If one considers the country’s debt situation and its foreign exchange reserves, to the best of knowledge, there has never been a nationally agreed limit for debt and a target for foreign reserves. Consequently, successive governments have contributed to the ratcheting of debt to go beyond the country’s GDP, and foreign reserves to fall to near zero.

The all-party conference called for by the President for the 23rd of this month gives an opportunity to arrive at a national consensus on these and other key economic yardsticks, and the media, civil society, the academia, and all relevant professional bodies and very importantly the business sector to pressure all the political parties to agree on such vital economic settings. This would be distinguishing the trees from the woods and engaging in strong advocacy to change the dynamics relating to economic planning and management. 

As mentioned, Sri Lanka owes more than what it produces (debt to GDP ratio has exceeded 100%) and reportedly it finances its budget deficit primarily with debt. The article published in Economynext (Sri Lanka 2021 budget deficit revised up to 9.5-pct of GDP - https://economynext.com/sri-lanka-2021-budget-deficit-revised-up-to-9-5-pct-of-gdp-82611/) stated that the deficit of Rs. 1,575 (in billions) was to be bridged with debt, both local and foreign. As there is some controversy about the budget deficit and its GDP representation, it is best therefore that this topic is left for experts in this field to analyse and comment on. What is known is that Sri Lanka does not earn enough to meet its annual recurrent expenditure and must resort to borrowings to meet that expenditure, let alone being able to fund development expenditure with revenue generated locally. 

The mission for the All Party Conference (APC) should essentially be the economy and how it can be transformed into an export-based, import substitution economy by realising the full potential of land and water resources to ensure food security, and export potential for crops not considered so far, and laying down a path to maximise the country’s IT capabilities, maximisation of returns from plantation crops, and exploration of alternatives, fisheries development, the tourist industry and its potential, the garment industry and the future for more value adding expansion, and fast tracking the move to renewable energy source development and reducing dependence on oil and gas imports for electricity generation. 

All this would require an ability for politicians to look beyond their noses and into the future. While issues such as human rights, minority rights are very important, the conference should regard economic imperatives as paramount at this stage as it is the very sovereignty of the country that is at stake unless this is done. 

The sole agenda should be the economy and how the Government could reduce its overseas and local debt burden within the planning horizon, and how it could build up its foreign reserves to at least perhaps 50% of the country’s GDP within an agreed timespan. 

Resilience during adverse economic times can only be achieved if appropriate economic settings are in place and the country has a diversified economy less dependent on imports and there is food security, and energy self-sufficiency.

The APC forum also gives the Executive President of the country an opportunity to show his true mettle in governance of the country and not be seen as a member of a dynasty preparing the way for the continuation of it. Unfortunately, such an impression prevails in the country. To do this the President will have to release himself from all political shackles, if he is to have the independence and freedom to govern in the best interest of the entire country. Ideally, he should resign from affiliations with any political party so that he would be free to do what is in the best interest of the country. This is entirely his decision.

The new dynamic for the President and the APC should be to agree on a planning horizon of at least 10-15 years, and for such a plan to be developed by the business sector, academics, land and water management experts, unions, industrialists, the plantation sector, fisheries sector, the tourism sector, and professional bodies. Very importantly, politicians and political parties should be divorced from this planning exercise and called upon only to present their views when the plan is presented in Parliament. The all-party conference could nominate a steering committee comprising of representatives of the key players identified above and any other to develop an economic plan, with an initial broad-based contour of such a plan to be presented to the All-Party Conference in three months’ time, with the full plan presented in six months’ time. 

The approved plan should then be tabled in Parliament to give it the status of a law. 

The President, the present government, future governments within the planning horizon of 10-15 years, should be required to govern according to such a law. Periodic revisions based on international developments should of course be permitted, but these too subject to deliberations and approval by an All-Party Conference.

The newly appointed Economic Council of Sri Lanka is no substitute for undertaking a long-term economic planning exercise as suggested. Chaired by the President and including the Prime Minister, Ministers Dr. Bandula Gunawardena, Basil Rajapaksa, Johnston Fernando, Mahindananda Aluthgamage, Dr. Ramesh Pathirana, Governor of the Central Bank Ajith Nivard Cabraal, Secretary to the President Gamini Senarath, Secretary to the Treasury S.R. Attygalle, and Deputy Governor of the Central Bank Dhammika Nanayakkara, and cannot be considered as an alternative forum to a key stakeholder led economic plan. At this point, it is well to take note of the composition of the newly appointed Tamil Nadu Economic Advisory Council that includes the former Reserve Bank of India governor Raghuram Rajan, Nobel laureate Esther Duflo, former Chief Economic Adviser Arvind Subramanian, development economist Jean Dreze, and former Union Finance Secretary S. Narayan. That certainly will generate confidence.

Sri Lanka has undergone tremendous material development since independence. The landscape in Colombo and some major provincial cities would be unrecognisable for someone who has not visited the country, say in 10 or 15 years. The standard of living amongst many have improved based on this material development and internationalisation influences have contributed to this upswing in development. Sri Lanka’s public health sector has been the envy of many developing nations and the country’s education sector including the tertiary education sector has made vast strides, while in all these, there is naturally room for improvement. However, all these have cost a significant amount of money. 

Resilience during adverse economic times can only be achieved if appropriate economic settings are in place and the country has a diversified economy less dependent on imports and there is food security, and energy self-sufficiency

The bottom line however in economic terms is that these developments have been done primarily with borrowed money and the country now owes more than what it produces.  

While some critics tend not to state or they understate the impact of COVID-19 on the country’s economy, it has been significant. The country probably has lost at least 50% of its income because of the pandemic and is still feeling the effects of it. This coupled with the massive debt repayments the country had to do and continues to do, has had the devastating effect on the country’s economy that it is experiencing now. However, lack of long-term economic planning has exacerbated the situation.

Much has been written on this topic by economists and politicians and it is not the intention of the writer, who is neither an economist nor a politician, to write on this topic. The writer sees this in very simplistic terms. For example, likening the situation to a hypothetical case of a household that repairs its home, adds more rooms, builds a new driveway, air conditions the house, buys extravagant equipment, furniture, new motor vehicles, etc., using borrowings from banks, from friends and even loan sharks, all based on the repayment capacity of the primary income earner of the family. Then imagine that income earner falling ill, or being sacked from his/her job, or losing heavily on the business that was bringing in the income. What recourse would that household have? Since there are no saved funds, the household either borrows more and/or starts selling the assets in the house to repay the loans.

What has happened to the country is not dissimilar, and this situation has been reached by the actions of successive governments, not a single householder as in the case of the householder debacle. Had the household invested part of the borrowings to earn more money by diversifying income sources, and then spent its own funds to upgrade itself, the impact of the downturn would not have been as bad and more manageable. 

Benefit of hindsight is a standard tool in the armoury of analysts and writers. Many who are such analysts or writers, including this writer, did not foresee the catastrophic situation the country is facing today. 

The welcome development activities that took place were hailed and the writer does not recall anyone cautioning in simple words that this development was funded with debt and it could pose financial difficulties at some point. While the political establishment would have embarked on these development projects with the best of intentions, and with an expectation that returns on these would flow in, the truth is that the diversification of the economy and new and additional income sources have been insufficient to withstand the perilous situation faced by the country today.

As stated at the beginning of this article, the political system in the country only has a five-year span for economic planning. Effectively, only say four years or less, as the last year or more of a government is focused only on what might win them the next election. The system compels pandering to financial supporters of any political party and politicians, to give in to what brings short term benefits, as supporters of other hues and colours would be waiting for their turn to make hay when the sun shines on their politicians.

One could say boldly, but sadly, that this situation would continue unless and until the system changes, and a new way of thinking on economic planning and management dawns not just on the politicians but essentially the public, the civil society, academics, professionals, and other stakeholders.

The all-party conference called for by the President for the 23rd of this month gives an opportunity for a reset of economic planning and a shift of objectives and targets. The country simply cannot afford to be in a situation where an incumbent government of whatever political persuasion carries on like the proverbial caravan while some dogs’ barks and inconveniences the government of the day. Economic planning should be the province of those engaged in running the economy, not those ruining it. It should also not be with departments and corporations subservient to the government of the day, while they should have a role in providing information that is required by the suggested body of planners.

Sri Lanka is at a crossroad now. It has travelled 74 years since independence and all parties that have governed the country changed economic priorities relying on short-term measures to the detriment of the country. 

The political parties in the Parliament have a choice. They can travel down the same path and fall into a bigger hole, or they can demonstrate a determination to find a way to avoid another catastrophe. 

The President could display his leadership qualities in governance and drive the discussion to arrive at the latter decision. If he fails, he must know the country has failed and he has failed the country. If this happens his incumbency will become increasingly impotent.

It is well for the politicians to remember that people may be fooled some of the time, but not all the time. It is time this was heeded by all politicians. Some have the benefit of having one leg in Sri Lanka and the other in another country. Millions of citizens do not have this luxury of a choice. President Gotabaya Rajapaksa was elected overwhelmingly as he projected himself as a non-politician. This might be the opportunity for him to demonstrate his ability to govern as a non-politician by working through the all-party conference and being a President of all the people of Sri Lanka.