All eyes on fresh strategy

The Government’s new strategy to lift measures imposed to counter COVID-19 and allow the economy to function more freely, which is expected to be announced over the weekend, has been met with anticipation. Millions of people are eagerly waiting to get out of their homes where they have been cooped up for weeks, but the new reality they find may be difficult to accept. 

Much has already been written about the challenges faced by daily wage earners and people employed in vulnerable sectors such as tourism. But even stoic professionals may find that their relationships with their respective companies have changed. 

Almost all white collar workers will have to face pay cuts and companies will have to navigate uncomfortable discussions with their employees. This will be especially true for non-listed companies that give limited access of their financial returns to employees or despite making losses before the COVID-19 crisis failed to get their house in order, thus ending up being harder hit. Already the questions of “What happened to earnings? Or profits?” are mounting and the questions are unlikely to go away. 

An increase in transparency would be the best way to deal with these questions and CEOs, board members and other top officials should ideally anticipate these questions and prepare responses. Companies also need to be aware of how they break up salaries of workers and if cuts are essential then ensure basic salaries are still enough for people to survive on. This would mean an individual approach over generalised cuts that have been proposed by many companies. Laying off workers should also be done with the same sensitivity. 

There have been multiple hints over the past few weeks that given the Government’s finances, debt repayment obligations and policy priorities, the new economic strategy will lean heavily towards self-sufficiency and import substitution. At a time when financial markets are volatile and Sri Lanka is facing a possible recession, looking inward seems a sensible strategy but while it may spur consumption and stave off a bigger slow down Sri Lanka should not forget lessons already learnt from having a closed economy. 

Agriculture is a sector that only provides 7% of Sri Lanka’s GDP, despite employing 27% of its workforce. This sector has always been politicised because they make up a crucial vote bank and a ready depository of populism. With an all-important Parliamentary Election looming it is predictable for the Government to aim for inward looking policies to cater to this segment but unless this sector is made competitive, both consumers and farmers will see limited gains. As for manufacturing and services, these make up the bulk of Sri Lanka’s GDP because they contain the most exports and attract investment. For Sri Lanka to grow sustainably these segments of the economy have to be supported to become more competitive. 

Perhaps the most important strategy of all should be fiscal discipline and consolidation by the Government. This year is likely to bring an 8% or 9% budget deficit, on top of a 7% deficit in 2019. Sri Lanka needs to aim for primary and current account surpluses and push for long-delayed reforms. Since it is already in discussions with the International Monetary Fund (IMF), it makes sense to focus on reforms that will put the country on a sustainable economic footing. As COVID-19 has shown companies and the country, short-termism is too risky a game.