Christmas Wishes

CHRISTMAS has arrived after one of the most action packed years Sri Lanka has seen for at least a decade. A change of president, parliament and policies that holds fresh challenges and opportunities for a country that has always struggled to achieve its full potential. 

The Government, which has had a short honeymoon period is staring at a New Year packed with giant plans. This week a resolution was included in the parliament order book to convert all of parliament into a Constitutional Assembly in January. If the motion is passed then the work will begin to construct a new Constitution. The draft Constitution Bill will be put together by a Steering Committee headed by Prime Minister Ranil Wickremesinghe and will work to abolish the Executive Presidency, reform the electoral system by ending preferential votes and find a mechanism to improve reconciliation. The mammoth feat will need a two-thirds majority in parliament before it is presented to Cabinet and put before the people in a public referendum. 

Many countries around the world have struggled with building Constitutions and the political debate it will create will put new hurdles before the National Government. The second major situation will be to tackle the economic front. 

Sri Lanka’s coterie of economists have been speaking with one voice during the Budget debates and their voices are being heard, though possibly not by those in power. Efforts to reduce State expenditure and improve productivity suffered an early demise when public officials led by doctors demanded that perks such as vehicle permits be kept unchanged. This along with a slew of other adjustments have already weighted Rs.35 billion onto the Budget even before it was passed. The back and forth between the various camps of the National Government left many bewildered about the casual disregard for fiscal consolidation being called for by people with an actual knowledge of the economy. 

The subsidies and salary increases promised by the Government on top of very generous reductions in direct taxes mean the Government will continue to struggle to increase revenues and reduce expenditure. Given global realities exports are expected to struggle in 2016 and with the U.S. rate hike, liquidity in international commercial markets will continue to deplete. This means that any borrowing done by the Government will have to be at higher rates, leading it to borrow more at home, which will in turn crowd out the private sector. Such a measure would also increase interest rates, which is a natural tool used to tighten monetary policy. In fact many economists have already warned that the Government cannot delay its fiscal consolidation period any longer as Sri Lanka has to gear up to repay an estimated $4 billion in borrowings by 2018, making fiscal consolidation the first priority of the Government. 

A bailout plan of sorts has already been looked at by the Government. Prime Minister Ranil Wickremesinghe told parliament recently the possibility of borrowing more from the International Monetary Fund (IMF) has already been looked at even though an official request has not yet been made. However, many economists have argued against this, pointing out that borrowing more from easy sources would only worsen the tenuous fiscal situation. Austerity measures though are not favoured by the Government, which instead prefers to hope for more foreign investment, tourism and remittances to keep itself from sinking. 

Though the Government has tentatively looked at liberalising some parts of the economy in Budget 2016, it has also been met with early signs of displeasure. Ensuring economic growth and political stability will be the Christmas wish of everyone.