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Building a consensus for a new national economy

05 Dec 2021

  • The way forward
By Imesh Ranasinghe Sri Lanka Podujana Peramuna (SLPP) MP Prof. Ranjith Bandara said that Sri Lanka needs a new strategic direction to build a unique economic model, a requirement which the country has failed to realise in the last 100 years, since before Independence. He said this at an event held by the Advocata Institute in Colombo to build a consensus for a national economy. The MP said that the first thing that should be included in a unique economic model is consensus.  “We need to come to an agreement based on political, social or other factors to reach a consensus during this period to aim for certain objectives,” he stressed. ‘Outside the box’ Speaking at the same event, Prof. Rohan Samarajiva said that it’s time for Sri Lankan policy makers to think outside the box. “When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully,” he said, quoting the famous English writer Samuel Johnson. Samarajiva said that Sri Lankans are facing similar conditions: “We are hoping that with a great disaster in front of our eyes our minds will concentrate.”  He pointed out that Sri Lankans have regressed to a period of standing in lines as they have started to feel shortcomings, while the food sub-index increased by 11.7% in October on a Year-on-Year (YoY) basis. “I am talking about perception,” he said. Moreover, Samarajiva noted that people also felt that Government responses on various matters are disorganised, especially when it comes to the fertiliser issue. “Anyone who is looking at this knows that this is a problem about perception,” he said.  Further, he said many hoped that the Budget 2022 would provide sustainable solutions to the current account deficit and the fiscal deficit. “I am not saying that this is a bad budget, but the solution we need at the moment can’t be found in it,” Samarajiva said. He added that no new revenue paths have been introduced to cover the fiscal deficit in order to gain the confidence of international lenders, while 50% of the new taxes introduced are one off taxes. This, he opined, is not a good signal when considering perception. He also noted that the expenditure cutdowns proposed by the Budget are not daring enough. “I wonder whether the people in power and the policy makers have sufficient understanding about our problems,” he queried. He said that although the Government expected a V-shaped recovery after the pandemic, such a recovery pattern has failed to materialise, apart from a gain in certain exports. Samarajiva said that due to the difficulties in importing essential goods and the confusion created by introducing and withdrawing regulations, restrictions and limitations have affected the lives of the people. Further, he said that delays in opening letters of credit (LCs) have added more expenses to the small-scale importers and manufacturers which has affected them badly. “I think this is also affecting exports as the new regulations put in place for the exporters of services have created new problems, which will cause them to leave the country,” he added. He noted that Sri Lanka has the highest income inequality in the region according to the Gini index. “In a country with such high income inequality, the effects of the economic contraction will be felt sharply by the people in the lower income deciles,” Samarajiva said. He said that when the lockdowns affected the income sources of the people in the informal sector,  the long queues that could be seen in front of pawn shops demonstrated the insufficient nature of the relief measures provided for these people. “The majority of our population cannot bear these economic pressures anymore. Regardless of whoever is in power, there is no alternative but to take the bitter medicine. However, the problem we have is that no one likes to take this bitter medicine or give it to others,” Samarajiva said.  ‘Outside the box’ too old?  Prof. Ranjith Bandara noted that the “outside the box” approach is a very old concept as Sri Lanka had already tried it a long time ago. “What we need now is a strategic direction,” he said. He said the country needs to create a consensus based on how the European countries rebuilt themselves after World War Two, or how the world agreed on the Keynesian method when the prices of goods and services went up following the Great Depression in the 1930s. “There is a need to create a consensus, but I don’t have an understanding whether that should happen through a national government, or by getting all the parties together,” the MP said. However, he said that before going for a consensus, the country needs to identify and address problems which require immediate solutions, since failing to address these would result in widespread disappointment among the public, possibly leading to protests. He also said that in addition to the aforementioned problems, “there are macroeconomic problems which remained unresolved for long periods of time regardless of which government was in power.” These long-term problems, Bandara said, were created due to inefficient management by successive governments: “These could be problems related to inflation, unemployment, and foreign exchange earnings.” “These are the problems we should think about after addressing the ones that need immediate solutions,” he said. He added that policy inconsistency was yet another problem Sri Lanka faces, as policies adopted by former governments are changed when new governments rise to power, in an endless cycle. “We need to reach an agreement to aim for policy-consistent governance, and it would be good if we could learn something about this from countries like India, Pakistan, Singapore, and the US,” Bandara said. Highlighting that any consensus reached by policy makers needed to cover the overall economy, he said that in forming such a consensus regarding the national economy, people who think “we are right” should be included instead of the people who think “I am right”. Debt crisis due to avoiding National Physical Plan  Samagi Jana Balawegaya (SJB) MP Patali Champika Ranawaka said that in addition to the situation created by the pandemic, the other reason for Sri Lanka’s debt crisis is not selecting projects based on the National Physical Plan which was instituted in 2008 and 2018. He alleged that even today the Government is choosing mega projects which are outside the provisions of the National Physical Plan. Ranawaka said that every major sector in Sri Lanka such as electricity, transport, and irrigation has long-term plans or master plans which should be followed.  “However, politicians have been choosing projects depending on their own needs and wants,” he added. As an example, the MP pointed out that the proposed Kurunegala-Dambulla Expressway is not an economically beneficial project for the country at the moment. Additionally, he said the fact that so many projects were initiated without a proper feasibility or economical study undertaken by the National Planning Department has strongly affected the country.  Ranawaka further noted that the use of commercial loans rather than concessional loans to invest in places which do not generate an income has also plunged the country into a massive financial crisis. We need more jobs Speaking at the event, SJB MP Dr. Harsha de Silva said that Sri Lanka needs to look at an economic plan that will create jobs, as people in various sectors have become unemployed due to the pandemic. “We need to look into how we can enable a person to earn a salary by building the economy,” he said. Moreover, he said that it is not possible for Sri Lankans to create jobs by manufacturing everything within the country. “We need to discard the mindset of import substitution since all these problems are because of that mindset,” de Silva said.  The MP said that problems faced by the Sri Lankan economy today could only be solved by a broader mindset so that Sri Lanka can rise in the international market. “Today, we have global supply chains. The telephone we used is produced in 43 countries, but we are not among those 43 countries. It is purely because of our mindset and nothing else,” he added. Production-based economy  National People’s Power (NPP) MP Vijitha Herath said the policy makers in the past 25-30 years have been looking for solutions for the problem that was at hand, which had resulted in the present crisis. He said after the Hiroshima atomic bomb, people in Japan agreed on a national policy in order to progress, but Sri Lanka has been unable to follow a similar path for a while. However, he said it is impossible to go for long-term reforms with a consensus of all the parties due to differences in political opinions, but it is possible to agree on short-term reforms.  “To save the Sri Lankan economy, we all should reach a consensus for a short period of one or two years,” he added. Herath said that Sri Lanka should move towards a production economy based on new technology while improving its food and agriculture sector to avoid importing these items to the country. “We should improve our agriculture sector, since our production would collapse if we import everything while aiming for an open economy,” the MP said.


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