ECONOMYNEXT – Sri Lanka can emerge from the current economic crisis with good policies targeting the long term rather than ad hoc policy measures, said opposition lawmaker Mayantha Dissanayake.
Sri Lanka’s precarious economic situation has created great uncertainty for entrepreneurs and businesses in the country.
The loss of government revenue and the sharp increase in government spending led to a higher budget deficit against a backdrop of excess central bank money printing.
Finance Minister Basil Rajapaksa was candid about the current crisis situation, including a risky repayment of the country’s external debt, in his first speech to parliament in August after being appointed to the portfolio two months ago.
“In terms of budget, in terms of fiscal policy, in terms of the direction we want to take as a country, the Covid pandemic has certainly hit us very hard,” Dissanayake said at a forum hosted by NextGenSL, a multi-party political group and the German Friedrich Naumann Foundation for Freedom.
“But we in the opposition think we can get away with it if the right policies are in place.
And that right policy mix includes attracting more foreign direct investment, building industries, and long-term sustainable policies instead of ad hoc policy measures, he said.
The successive Sri Lankan government has always looked at short-term policies that will help them win the next legislative or presidential elections.
There has been no cohesion in economic policies and they are changed every time a government is elected or a new finance minister takes the reins.
This has resulted in an inconsistent political regime, making it harder for investors and businesses.
“We have to fix this country first because of the way we are doing in terms of inflation, in terms of losing FDI, people don’t want to invest in this country,” Dissanayake said.
“We have to build that trust in investors who come and say, Sri Lanka is good, trust us, invest in us. This is the kind of message we need to send.
“But unfortunately, sometimes ad hoc policies do not help us in our medium and long term goals.”
An overburdened state-owned enterprise sector, an inefficient public sector, government intervention in enterprises, and priority given to rent-seeking enterprises (non-capitalist or mercantilist) are some of the main concerns highlighted by analysts. as obstacles to a rapid economic recovery.
As a result, the government is forced to spend more as declining tax efficiency resulted in record revenue as a percentage of GDP in 2020.
“So government spending is something we really need to look at and looking at state-owned companies we may want to look at something like Temasek’s Singapore model and how to regulate,” Dissanayake said, referring to an agency that has shares in state-owned enterprises in Singapore.
“And also in terms of restructuring our economy, we also presented it to parliament by looking at organizations like the IMF because we have to find a balance between this welfare state and you know how to provide people with those who really need it. financial assistance assistance. “
The administration claimed the privatization was “selling state assets” and succeeded in imposing its ideology on the then opposition, which stammered and was dismissed from office.
Sri Lanka’s last so-called Yahapalana administration had serious political fear unlike previous United National Party-linked administrations which boldly privatized businesses and bowed to the pro-state ideology of the former Rajapaksa administration, according to The critics.
The administration also granted de facto “central bank independence”, allowing the agency to print money, destroy the 131 rupee to 182 rupees for the US dollar through a discretionary or “flexible” policy. , Impose import controls and make its free-trade economic strategy a laughing stock, critics say.
However, it printed even more money over the past two years and led the country to an external default.
Sri Lanka is now not only unable to generate dollars to repay debt, but uses reserves for current imports as printed currency boosts credit and the central bank has been left with negative reserves.
The government of President Gotabaya Rajapaksa has opposed a bailout request from the International Monetary Fund (IMF), as past experience has shown that the terms of the global lender are seen as unpleasant for the government in power.
Due to a Latin American style central bank printing money, Sri Lanka occasionally runs into currency crises and the agency submits the country to the IMF. This time, however, the country also faces a sovereign default.
Senior officials told EconomyNext that the worst repercussions of an IMF loan, including a sharp depreciation of the rupee, downsizing of state-owned enterprises and untargeted subsidies used to gain votes, could only be felt when the government goes to the next presidential election in 2024..
Dissanayake, who comes from a center-right party with somewhat market-friendly economic policies, said the country needs to go for original thinking.
“Some public enterprises will have to be made redundant; we will have to launch public-private partnerships, ”he said.
“I’m not saying or advocating selling our assets here, but I’m just saying that we need to think new and maybe think out of the box in terms of the economic strategies and reforms we need to undertake.” (Colombo / Oct 24, 2021)