Snap election or economic recession

Tuesday, 6 November 2018 00:10 -     - {{hitsCtrl.values.hits}}

Sri Lankans are funny. At least some of them are. The economy was in the decline for years, but hardly any concern is shown openly (although every other young person is trying their level best to migrate and abandon the sinking economic ship). 

However, the moment a political move is made which could be arguable constitutionally (cannot say unconstitutional as both sides seem to have logical arguments), they jump up chanting “constitutional crisis”. One could wish the same enthusiasm is shown on economic matters.

Statistics show deterioration of economy

The facts are clear. The economy is firmly in the decline. The economic growth fell below 5% in 2015 and 2016 and reduced further under 4% in 2017. Going by the original statistics for 2017, the growth in 2018 is seemingly below 3%. Sri Lanka should be growing at 7-8% p.a. to materially improve the livelihood of the people. 

While a constant complaint was the heavy debt burden and the need to tackle it, Government debt has escalated (by almost 50% in 3.5 years). The total Government debt that was Rs. 7,391 b by end of 2014 has increased to Rs. 10,994 b by mid-2018. If the focus was to reduce the debt burden, it just shouldn’t have increased so sharply.

The external current account deficit which was $ 2 b in 2014 has expanded to $ 2.3 b in 2017 and on track to expand further in 2018. The performance is appalling considering the global crude oil price averaged at $ 100 per bbl in 2014 while it declined to $ 54 per bbl in 2017. The chronic external current account deficit is what drives the long term depreciating trend of the rupee.

The “exports” which was the central theme of the Government, only grew by a meagre 2% from $ 11,130 m in 2014 to $ 11,360 m in 2017 despite all the fanfare about GSP+.

The decline in the stock market since January 2015 is well over 20%. The performance of the stock market is a reasonable indicator of investor sentiment in the economy.

In short, all the key economic indicators show that the economy is struggling.

Gloomy ground reality of economy

Leave aside the statistics, what’s the pulse of the economic stakeholders on the ground? The inconsistency in terms of fertiliser subsidy and weedicides aggravated the weather-related challenges posed to the farming community. The supermarkets of John Keells Holdings have reported an unprecedented loss in the September quarter, which indicates the economic problems have already trickled down to consumer spending. A clear reduction in demand for real estate is also reported, coupled with the slowdown in the construction industry since the beginning of the year. More pain is due in the coming months for all stakeholders of the real estate sector. 

Those who are linked to the capital markets are seeking employment in other segments, as the capital markets have been firmly on the decline. The banking sector is only beginning to feel the pinch as demand for credit is slowing down while the nonperforming loans have started to escalate. More pain is due in the coming year as the full impact of the sliding economy trickles down after a time lag. Top banking executives have made these views publicly at a gathering in recent weeks. 

The Government sector employees may not have felt the extent of the deterioration of the economy as their income is not linked to the performance of the economy, but the private sector is definitely feeling the heat. 

While the general complaint is on the rise in cost of living, the real concern is the fact that the income levels are not improving which results in a deterioration of quality of life. As a result, the dash for migration has clearly intensified. Ask any young individual, the plan is to migrate to Canada/Australia/Japan/Korea. The country is in serious long-term economic danger.

End of Unity Government – a relief for economic observers

The pathetic performance of the economy over the past three to four years is probably unprecedented, specially taking into account the absence of the civil war which all the previous Governments had to face since early 1980s. 

Giving the benefit of the doubt, one could argue that it was not the fault of either of the parties in the Unity Government. In other words, the fault possibly lied with the fact that it was a Unity Government with two opposite economic ideologies which just could not work together. 

Had any of the parties had their own government, the economic performance could have been better. Clearly the economic bar was set very low by the Unity Government. In short, the political experiment in 2015 January was a failure on the economic front. 

With the presidential election a year away and the Parliamentary election at least another 1.5 years away, there was no way the economy’s stakeholders could have borne another year or two of economic decline. The economic volcano was about to erupt. Therefore independent economic analysts would have been hoping for an end to the Unity Government immediately. The end of the Unity Government should be to the relief of economic observers.

One year is insufficient for an economic plan

While what happened thereafter is being debated, the fact remains that with 1.5 years to go, a new government just cannot come up with a strong economic plan, also taking into account that a presidential election is due in a year’s time. A plan needs at least a five-year window to implement successfully. No party has a mandate from the people to carry out an economic plan anyway, as the last election was held over three years ago. 

Therefore the best course of action for the sake of the country’s economy is for all political parties to arrive at the conclusion of holding a snap Parliamentary election before mid-next year followed by the presidential election by the end of the year. With the 2015 experiment gone wrong, people should be expecting a single party government and a president which could revive the economy at least by the end of next year. 

The economy may just hang on until that time. The politicians shouldn’t prolong it any longer for their personal benefits. After all, elections are never a foregone conclusion. A good plan and a team of capable implementers could win against all odds.

(The writers could be contacted via [email protected])