It is in the public domain for quite some time that the government of the day has not given priority to the most important ‘national security’ concerns and it did not figure high on the governance agenda since January 2015. Archbishop of Colombo Malcolm Ranjith is also reported to have told the government, in no uncertain terms, that he is utterly displeased with the security measures adopted since the Easter Sunday attacks.
The opponents of the government claimed that this so-called Yahapalana government was brought into power with the majority Muslim votes – is being kept in power with the continuous support of the Muslim parliamentarians and they need these Muslim votes even for the forthcoming presidential and parliamentary elections as well. Their contention is that there could be undue political interference in the ongoing investigations covering the incidents and the current security measures to appease the political leaders.
The Sri Lankan armed forces and their intelligence services have proved that they are quite capable of maintaining law and order and providing security and safety to the people and their property. This is despite many security lapses, which we have observed due to the undue political interferences, especially in the communication channels disseminating vital and classified national security information to the relevant authorities and ongoing investigations. His Eminence Malcolm Cardinal Ranjith has proved that he is a much better leader than the self-proclaimed ones.
Since we are faced with a very complex situation, one could argue that finding a lasting solution is an exceedingly difficult task. My own view is, we need to adopt a more professional and strategic management approach in order to bring back an effective and efficient governance model.
As we have experienced earlier, the military success to defeat LTTE terrorism 10 years back was achieved mainly due to then government, especially the Defence Ministry – adopting a more strategic management approach and implementing it efficiently and effectively. There is no room for a ‘blame culture’ under a strategic management model and this approach prevents any implementation snags, thus attaining the pre-determined goals and objectives.
Economy as reflected in Central Bank report 2018
For a small economy (US $ 89 billion) like Sri Lanka –with a domestic consumer market of a mere 21 million, the external demand from the international markets for Sri Lankan products and services is critical in order to sustain medium-term economic growth. However, the Sri Lankan external sector performance – balance of trade – has been poor, mainly due to a steady deterioration of the export competitiveness and due to lack of consistent policies and implementation snags, red tapes, etc. The trade deficit surpassed US $ 10.3 billion for the first time in the economic history of Sri Lanka, whereas our total export earnings figure was US $ 11.9 billion only.
The Central Bank report highlights few positive features of the economy, (a) Overall budget deficit declined to 5.3 percent from 5.5 percent in 2017, (b) Gross official reserves of the country stood at US $ 6.9 billion as at end-2018. (c) Agriculture sub-sector growth has been 4.8 percent, although this sector contributes only 7 percent to GDP.
In my view, these salient features are only superficial in nature. The government budget deficit of 5.3 percent is as a result of the substantial reduction of public investments and in fact, the Central Bank report says that reduced capital expenditure has contributed to a dampening of economic activity.
Also, the government revenue collection has declined and was only 13.3 percent of GDP. The foreign reserves, which stood at 8.2 billion as at end-2014, are not ‘earned’ but with additional foreign borrowings, which includes the issue of international sovereign bonds (ISBs) and proceeds from asset selling, etc. The agriculture growth rates have been around 4 percent during the period up to 2015 and it was only during the years 2016 and 2017 that it recorded a negative growth.
The Sri Lankan per capita income is stagnated during the last four years and it is now US $ 4,102 (Only 1. 9 percent growth per year as it was US $ 3,819 in 2014) This figure doesn’t really show the income inequality and huge disparity among the rural bottom of the pyramid people, where more than 25 percent of the people are living below the poverty indicators set by the World Bank.
It is regretted to mention that an export-led growth strategy practiced for many years has become a mere slogan. The import expenditure recorded its historically highest value of US $ 22.2 billion in 2018. Continued inflows, by way of tourist earnings, US $ 4.4 billion and stagnated workers’ remittances amounting to US $ 7 billion have contributed in curtailing the expanded trade deficit to a certain extent.
The annual economic growth rate has further declined from 3.4 percent in 2017 to 3.2 percent in 2018 and it’s totally inadequate to maintain individual and family income levels to fight against the ever increasing cost of living issue.
Do we practice social market economy?
As development economists have identified, the obstacles to development are self-reinforcing, where low levels of household income preventing domestic savings, which in tern retard capital formation, thus low investments hinder productivity growth and keep the household income back at low levels. This is the poverty-growth vicious cycle.
One can argue that the low export performance has been due to the supply-side issues than the demand side and therefore, signing FTAs alone will not reverse the trends. It seems the fiscal austerity programme recommended by the IMF/World Bank will not reap the benefits and it can lead to more social unrest than solving the deep-rooted structural issues. Therefore, it has to be some kind of an ‘investment-led growth strategy’ that could drive the export sector and economic growth.
We preach that Sri Lanka is a Democratic Socialist Republic and practice social market economy. One of the measures to see the role of the government in the social sector is to look at the total tax collection from the rich and the subsidies afforded to the less privileged people in society. The goal is to give equal access to these basic goods: every child should have access to education, regardless of his or her parents’ income and everyone should have access to healthcare.
The writer has been repeatedly pointing out that the government of the day during the last five-year period did not spend even 4 percent on health and education, where more than 25 percent of our people live below the poverty line. As per the Central Bank report 2018, only 3.4 percent of GDP was spent on health and education.
Our health and education services are fast deteriorating to a level where we could end up in having unhealthy and less educated children similar to the population living in the least developed countries. The Central Bank has been repeatedly emphasising the need to address these ‘deep-rooted structural issues’ in the economy, which have prevented the country from maintaining a sustainable GDP growth rate over time.
Ever increasing foreign debt portfolio
Our country is now dependent on India, Singapore, Japan and China to buy the goods we consume and is heavily dependent on the US, UK, Russia and the Middle East for little exports. Sri Lanka is slowly but steadily moving away from our production-based economy to a nation begging for disruption, unduly depending on few foreign countries to provide food and shelter to 21 million people of this country.
The country’s total outstanding foreign debt position has reached an alarming level and stood at US $ 52 billion, compared with US $ 43 billion as at end-2014, which is 59 percent of GDP. Despite having a substantial reduction of public investments in both physical and social infrastructure as shown above, a total sum of US $ 23.5 billion has been additionally borrowed from foreign sources during the last four- year period and settling only US $ 14 billion.
We need to be mindful that the social infrastructure activities, namely the health and education sectors, are interwoven with the sociopolitical fabric of society. It is in this context only that a clear strategy of increasing public investments in education, at least 5 percent of GDP, should be viewed. This will enable the governments to mitigate the student unrest to a certain extent. If this declining trend continues, Sri Lanka will end up as a ‘failed state’.
As we mentioned previously, the national security and normalcy could be restored within a short period of say, one or two years, provided a proper NS system is well established. However, in my view, the country’s economic war cannot be won (to be more precise – a serious economic downturn leading to our inability to pay foreign debts) within a period of three years even with a new government comes into power by end-2019.
The next government can only reverse the negative trends with prudent national policy implementation from day one. I project a sum of US $ 5 billion per year deficit to be financed through foreign borrowings, unless we successfully negotiate a debt rescheduling programme with the lending institutions and countries.
We will have come up with a complete transformation of the way we do things and put in place a new governance model to have a prudent policy deployment and a grand winning strategy if we are to overcome this serious sociopolitical and economic crisis.
Professionals must get together under one country, one nation, one people
Lain Marlow of Bloomberg in his recent article quoted Dr. Jehan Perera, who serves as Executive Director at the National Peace Council of Sri Lanka and a pro-Yahapalana key activist, as saying, “We thought this new government -- a liberal, western-oriented government -- would jump start the economy, get the economy taking off. But it didn’t happen.”
Even before the attack, more and more Sri Lankans had grown disillusioned with this government of Sirisena and Wickremesinghe, who formed an alliance to defeat the previous Mahinda Rajapaksa government in January 2015. No point in blaming the governments and their ministers or the opposition politicians, as we as people, get governments we deserve.
Hopefully there will be another round of elections before the end of the year and people have the right to elect their political leaders. My own view is we must push for both the presidential as well as parliamentary elections to be held together in 2019.
In view of the above precarious macroeconomic situation, it has now become necessary for all of us to concentrate on improving our own businesses or use our individual expertise and talents as our contribution to the country at micro level. We need to look inward and focus on improving what we are good at, including how to improve our own businesses. Let the authorities focus on providing national security and safety of people.
We would suggest the Sri Lankan companies to have a new business model focusing on the entire global value chain. As for the companies in the business of agriculture value addition, it is important to adopt a sustainable agriculture model focusing on ecological balance and inclusivity.
The new business model would have to address how it will shape the landscape of the farming businesses, thereby changing the farmer demography in order to attract young educated youth, so that they take interest in improving not only food production and coping with the growing demand for pesticide-free agriculture but also achieving sustainability and taking the responsibility of achieving food security and providing the nutritional value of our people. In addition, the policymakers of the government dealing with national security must give the highest priority to food security and nutritional issues as a a component of national security.
It goes without saying that the political stability by creating confidence and restoring the national security concerns and safety of the people is a necessary prerequisite for achieving economic growth in Sri Lanka and improving the socioeconomic welfare of the people. Therefore, time is opportune for the genuine professionals, academics and business leaders to get together – take the leadership under one country, one nation, one people theme and get involved actively in the affairs of the government machinery as a pressure group.
(Jayampathy Molligoda is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka. He has obtained his MBA from the Postgraduate Institute of Management and has also successfully completed an Executive Strategy Programme at the Victoria University, Melbourne, Australia. He was conferred ‘Professional Excellence Awards 2014’, at the CMA National Management Accounting Conference, held in 2014. He counts over 38 years of executive experience in the fields of financial management, strategic planning and human resource development and international tea marketing. He is a freelance journalist and a social activist)