‘Cassandras’ and the upcoming crisis

President Dissanayake receives a warm welcome during a visit to Jaffna in January this year  

• The NPP is fast losing ground among the minorities who have disproportionately suffered under the PTA
• When GSP+ was restored in 2017, our government made many promises, including enactment of counter terrorism legislation compliant with international conventions to replace the Prevention of Terrorism Act

Those like me who warned of the prospect of ending up like Lebanon were called Cassandras by government apologists in 2021-22. The crisis came. Those then in government who ignored the warnings paid the price. But the Sri Lankan public did not suffer as much as the citizens of Lebanon where the manifestations of the crisis such as unannounced load shedding continue. Those who replaced the politicians and officials who crashed the economy heeded the warnings. Apollo’s curse appears to have only partial effect in the 21st Century. 

The next crisis
Tariffs on goods exported to Sri Lanka’s largest market, the United States, have been increased by 10 percent and may go higher. The trade war may push the US into recession, contracting demand further. Other apparel exporters may negotiate tariffs lower than ours, leaving us at a relative disadvantage. 
Export earnings will decline and jobs will be lost. The economy may contract or grow less than it would have. Tax revenues needed for debt repayments may fall short. The rupee may depreciate making it difficult to repay debt and import necessities. A second default may be our fate.
But it’s still 2025. And the 90 days is still not up. Negotiations with the Trump Administration are ongoing. Repayments of the restructured debt are still not due. Should the modern-day Cassandras hold their tongues, especially because there is nothing that can be done at this time other than wish the negotiators well.
But there is no reason to be reactive about the threats to the rest of our goods exports. There may be a role for Cassandras in 2025 after all. 
The second largest destination for Sri Lankan goods exports is the European Union. The EU is unlikely to generate Trumpian levels of uncertainty. In 2010, the last time the EU took away the GSP+ concession, they gave multiple warnings and opportunities for the government to keep its promises. 
When GSP+ was restored in 2017, our government made many promises, including enactment of counter terrorism legislation compliant with international conventions to replace the Prevention of Terrorism Act. The specificity of this issue and the abuse of the PTA by various governments, including the present one, has kept it at the forefront of all discussions on GSP+. There is no danger of GSP+ being withdrawn at short notice, but all eight countries currently enjoying the benefits of the concessionary tariffs will have to reapply in 2026. Thus, it cannot be concluded that the risk of its loss has been eliminated. 
It is true that Sri Lanka walked away from GSP+ once. Factories closed, jobs were lost, but the economy did not crash. So, can we live without this concession?
No. First, the issue then was GSP+ only. Now it will be in addition to the problems caused by the 10 percent Trump tariff plus whatever additional “reciprocal tariff” Trump imposes after the 90 days. 
Second, the economy is much weaker now and the current government has fewer cards to play than the post-war Mahinda Rajapaksa government. This is a country emerging from default.
Third, the apparel industry is less anchored to Sri Lanka now than in 2010. Companies that we think of as Sri Lankan operate factories in other countries such as India and Vietnam. Given the nature of the apparel industry, it would be relatively easy to redirect containers bringing inputs for the factories here to those located in countries with more favourable tariff treatment. Research and development and design functions may remain here, but job losses at the factory level are almost certain.
Unlike in the case of the Trump tariffs, Sri Lanka can be proactive. It can use the time until it has to reapply for the GSP+ concession to pre-empt the likely challenges. The new counter terrorism law can be fast tracked. Given its high profile, action on the PTA may even deflect attention from other shortcomings in our GSP+ application.
Fix the PTA even if economy is not at stake
Perhaps the government has heard enough about the economy from us Cassandras. So, let’s talk politics and morals.
The NPP’s General Election performance in the North and the East was impressive. Many thought those results portended a realignment of regional politics. But six months of inaction have dimmed those hopes. The NPP is fast losing ground among the minorities who have disproportionately suffered under the PTA. Wouldn’t quick action on the PTA halt the slide?
And lastly, shouldn’t this cruel law be removed on moral grounds? Who can defend coerced confessions in languages the accused do not understand? Who can condone torture and excessive detention without charges being proved? 
Heed the Cassandras not just to avoid default, but also because it’s the right thing to do.