Ignoring the crisis

Usually in a throne speech, the Head of State is expected to explain to the people the major challenges the country is facing and how he intends to overcome them; but no such explanation was made by the President in the throne speech – Pic by Shehan Gunasekara

Before and after the Parliamentary Elections, Sri Lanka’s economy was in a precarious situation, mired in a terrible economic crisis. It can be considered as the biggest issue Sri Lanka is facing at the moment. 

Surprisingly, however, this issue was not discussed by political leaders running for office at the Presidential Election or the Parliamentary Election held thereafter. Usually in a throne speech, the Head of State is expected to explain to the people the major challenges the country is facing and how he intends to overcome them; but no such explanation was made by the President in the throne speech.

Perhaps, the President might have found it difficult to fathom the true nature of the economic crisis Sri Lanka is facing because he seems to have a kind of a military mind which, generally, is more attuned for quick action. Or, he may have thought it was not necessary to let the public know that Sri Lanka is a country having such big problems.

Revenue of the State 

In terms of revenue, the State is in a desperate and crisis situation where the main sources of State revenue have depleted on a large scale, rendering it impossible to sustain even day-to-day expenditure. The country’s balance of payments has reached a level of an explosive crisis. 

Even before the outbreak of the COVID-19 pandemic, Sri Lanka’s foreign exchange earnings remained at a very low level which was not adequate to meet the costs of imports and the payment of instalments and interest on foreign loans. The pandemic that broke out on top of the economic crisis led to double or treble the burden of the economic crisis of the country.

There is a sharp decline in the country’s transitional income as a large number of Sri Lankans working abroad have lost their jobs in the face of the pandemic situation. The downturn in the tourism and garment industries has also led to a sharp decline in the earnings of those two sectors, making it extremely difficult to balance the cost of imports and the instalments and the interest payable on foreign loans obtained. 

At the same time there was a rapid decline in Government revenue. The tax relief policy introduced by the new President also reduced the Government’s tax revenue by as much as 33%.

Explosive features of the crisis

According to the Vote on Account, tabled at the Parliament for the next four months, the Government spending for the period will be Rs. 1,700 billion. The Government revenue for the four months will be Rs. 400 billion; accordingly, Government expenditure for one month amounts to Rs. 425 billion whereas Government revenue per month will be only Rs. 100 billion. Consequently, Rs. 325 billion or 76.48% of monthly expenditure will have to be covered by loans, which cannot be considered a sustainable measure in the long run.  Under the circumstances, the Government has banned the importation of large quantities of goods as a measure of reducing the cost of imports. However, it is unlikely that the restriction on imports may have a positive impact on the economy.

According to the World Bank’s latest forecasts on the economic impacts caused by the coronavirus, Sri Lanka’s economic growth is expected to slow down to -3. It is estimated that around 500,000 Sri Lankans working in the Middle East will lose their jobs. The number of job losses in all sectors will be around one million.  Further, a large number of those who had made a living from tourism and the garment industry have lost their jobs. Though it is not clear what the exact number is, the number of people who have lost their jobs in those two sectors alone can be very high. 

The magnitude of the challenge 

Although the number of people losing their jobs in different sectors of the economy such as foreign employment, tourism and all other sectors, including the garment sector, is one million, the impact it would have on the country’s socio-economy and politics might be huge. That situation will accelerate the decline already set in the economy. 

Despite the economic woes having grown to a maximum, Sri Lanka is compelled to allocate $ 3 billion on instalments and interest alone on foreign loans obtained on commercial basis. Sri Lanka runs the risk of being declared a bankrupt country in the event it fails to pay even one instalment. If such a situation arises, Sri Lanka is most likely to be plunged into a miserable situation that will persist for long and will not be easy to recover from.

The Government should explain to the public the policy it is going to adopt to overcome this crucial challenge Sri Lanka is facing. How many people will lose their jobs? What is the extent of damage caused to the economy in consequence thereof? What is the policy that the Government intends to follow in respect of the large number of job losses? How does the Government expect to increase State revenue? What policies does it intend to adopt? What policies does it intend to implement to increase Government revenue? What are the means of revenue to be introduced? What is the expected growth rate of each of them? The Government should explain the above issues to the public.

The Government should also explain to the public how it is going to resolve the issues on balance of payments that have reached a level of explosion. How is it going to pay instalments and interest due on foreign loans? How to find foreign exchange earnings required for that? Selling rare and valuable assets of the country to superpowers may be the easiest way to do so; but it will only aggravate the problem rather than solving it. A strong policy of imports restrictions alone will not help build productive capacity of the economy in the country. But the Government seems to think that a policy of slashing imports will lead to generating a strong productive economy in the country.

Overcoming false dreams

The garment industry was the leading industry in Sri Lanka among several other industries; it can be considered the one that earned the bulk of foreign exchange requirements of Sri Lanka. There were 800 medium and large scale garment factories in Sri Lanka employing as many as 300,000 workers. The annual revenue Sri Lanka earned from the garment industry remained at a level as high as $ 6 billion.

In view of the progress achieved by Sri Lanka in the sphere of garment industry and the problems it has encountered in the face of the current crisis, will there be a possibility to transform it into an industry producing garments for the local market instead of running it any longer as an export industry? Probably the answer of many will be in the affirmative that Sri Lanka has the potential to effect such a transformation. Yet, about 70% of raw materials and 90% of accessories required for the garment industry constituted the items imported. What was done in Sri Lanka included only the designing and production of finished goods utilising the imported raw materials and accessories, for the markets in the USA and Europe. The system of garment industry is not geared to be used to produce items like saris, lunges, trouser materials and printed cotton materials like cheeththa needed for Sri Lanka. 

The situation in agriculture also is no different. But, Sri Lanka must overcome this crisis. Otherwise, the future of the children of the country will inevitably be miserable. The Government must pay maximum attention on how to overcome this crisis the country is facing. The Opposition movements also should join this process, discreetly, and nurture the dialogue launched in this regard by expressing their views.