“If we let the economy fail, we will fail with health too”: Eran

• Says important to balance loss of life from new coronavirus and loss of life from our socioeconomic measures
• Says unprecedented economic fallout of COVID-19 can be compounded by ill-thought-through economic and financial management
• Warns failure to handle economy prudently will lead to social unrest
• Urges reverting to fundamental principle that Parliament has full control over public finance
• Says President has power to revoke dissolution and summon Parliament

Former UNP MP Eran Wickramaratne says the Government must balance programs to prevent the spread of the new coronavirus with prudent economic policies, warning that “if we let the economy fail, we will fail with health too”. He also emphasised on the importance of moving from curfew to limited lockdown, to change of lifestyle, balancing the loss of life from the new coronavirus and loss of life from our socioeconomic measures. Here are excerpts from an interview on the issue:

Q: What do you think of the measures taken by the Government so far? 

A: The COVID-19 pandemic is an unprecedented situation. From medical professionals to other specialists, it’s a learning curve. No one claims total knowledge or has a complete answer. 

At the outset, despite the warnings of the Leader of the Opposition in Parliament in late January and early February, the Government delayed acting by several weeks. It took a while to move the Government military discourse to a health discussion. The GMOA’s role in moving the discourse to health must be appreciated. 

The short-term exercise in flattening the curve to enable the health system to cope with the outbreak was logical. But in the long run, a total lockdown is not sustainable as the human cost will be incalculable. I think we need to now have the benefit of experts in virology and epidemiology giving us insights on how to contain the virus over the long-term.

Q: What are the powers vested in the President for financial expenditures during an election? 

A: In a democracy, the fundamental principle is that Parliament has absolute control over public finance. Article 148 states that ‘Parliament shall have full control over public finance. No tax rate or other levy shall be imposed by any local authority or any other public authority, except by or under law passed by Parliament or of any existing law’. In practice, an annual Appropriation Bill is passed in Parliament which is commonly known as the Budget.

In October 2019, instead of the Budget, a Vote on Account was passed in Parliament approving incomes and expenditures from 1 January 2020 to 30 April 2020. The Vote on Account is an interim budget proposal. The new Government was expected to present an Appropriation Bill (Budget) which it did not, so it continues to function on the basis of the Vote on Account passed in Parliament in October 2019. 

After an election a new Parliament will be summoned, and an Appropriation Bill will be presented. In the ensuing period, according to Article 150(3) of the Constitution, the President is empowered to ‘authorise the issue from the consolidated fund and the expenditure of such sums as he may consider necessary for the public services until the expiry of three months from the date on which the new Parliament is summoned to meet’.

The short-term exercise in flattening the curve to enable the health system to cope with the outbreak was logical. But in the long run, a total lockdown is not sustainable as the human cost will be incalculable

We have a humanitarian crisis in the making. We have an unprecedented economic fallout that can be compounded by ill-thought-through economic and financial management. What we do not want at this juncture is a constitutional crisis brought about by short-sighted politics.

We have to move from curfew, to limited lockdown, to change of lifestyle, balancing the loss of life from the new coronavirus and loss of life from our socioeconomic measures. We will have to rebalance for a year in the hope that a vaccine would be available widely within a year

The Government should reconvene Parliament and get everyone’s support in minimising the economic consequences of the fallout of the COVID-19 virus

Q: What happens to financial appropriations if the election has to be postponed beyond the 2 June deadline for the new Parliament to meet?

A: We must revert to the fundamental principle that Parliament has full control over public finance. Therefore, under Article 70 (7) if the President is satisfied that an Emergency situation exists, he can summon the dissolved Parliament and seek approval. If not, he can rescind the proclamation of dissolution and reinstate Parliament which had a five-year mandate expiring on 1 September 2020. If the President takes that option, the next Parliament has to be summoned by 1 December 2020. Then an election can be held in November which gives the Government an opportunity to deal with the COVID-19 pandemic without the interruption caused by an election.

We have a humanitarian crisis in the making. We have an unprecedented economic fallout that can be compounded by ill-thought-through economic and financial management. What we do not want at this juncture is a constitutional crisis brought about by short-sighted politics.

Q: How long can we sustain a lockdown? 

A: It is very likely that the case detection rate is much lower than the infection rate. Testing is expensive and also not widely available.

Our policy must be a people-first policy. But it cannot be measured only by the number of fatalities due to the new coronavirus but also the human consequences of a total lockdown. In India a total lockdown has been challenged as the loss of life due to hunger and absence of timely medication for other diseases may be bigger than the new coronavirus epidemic itself.

We need to study and extrapolate from experiences of Asian countries such as Burma, Thailand, Taiwan, Malaysia and Singapore in overcoming the health hazard without contributing to a wider humanitarian crisis. There may be limits to the comparisons we make with European countries whose natural environment and economic framework is very different to ours.

The economic slowdown is essentially a supply side problem. Untimely demand stimulation and fiscal measures may be futile. 

We have to address the supply of raw materials and logistics to kick-start production, manufacturing, and exports. This requires people movement into production. If we let the economy fail, we will fail with health too.

We have to move from curfew, to limited lockdown, to change of lifestyle, balancing the loss of life from the new coronavirus and loss of life from our socioeconomic measures.

We will have to rebalance for a year in the hope that a vaccine would be available widely within a year.

Q: What is the economic cost of the COVID-19 pandemic? 

A: In the previous period 2015-2019 we worked on reducing the budget deficit. We doubled Government revenue within four years. We had a primary surplus in 2017 and 2018 which had been achieved only once in the past 60 years. The Balance of Payments was positive. Inflation had trended down. Country ratings were Stable to Positive. These were no mean achievements for an economy which had a large debt burden and slow economic growth. It was not an easy road.

Now, the IMF has announced a global recession. Sri Lanka’s growth rate may be negative, the budget deficit will widen, revenues will decline compounded by the reversal of tax policy by the new government and the Balance of Payments will deteriorate. If the economy is not prudently handled it will lead to social unrest.

Health experts and macroeconomists will have to work together as stated by Prof. Ricardo Hausman from the Harvard Kennedy School of Government. 

The flatter the curve on corona infection, the more you want to lockdown. Then the more fiscal space you would require to mitigate the recession. Advanced economies are expanding the provision of healthcare, supporting payroll, delaying tax payments and supporting industries that are struggling. Sri Lanka does not have resources to do so in a meaningful manner. Government will have to borrow more.

Quantitative easing by the Central Bank will lead to higher inflation and further depreciation of the rupee. Our Balance of Payments will worsen with a drop in exports, tourism and remittances. Pressurising the banking industry to absorb the shock would jeopardise the financial system. You cannot save an economy by weakening your financial institutions. Private banks are best left to manage their own depositors and shareholders without Government interference. 

Despite the standard economic prescriptions, namely, cut in expenses, devaluation, and fiscal stimulus, we will need international assistance to postpone foreign debt obligations and support our Balance of Payments. The Government should reconvene Parliament and get everyone’s support in minimising the economic consequences of the fallout of the COVID-19 virus. If not, the President runs the risk of turning a health epidemic into an economic knockdown and a humanitarian crisis of unforeseen proportions.