The UNP, which had created for itself an aura of economic wizardry, failed spectacularly on this front on their 2015-2019 outing. Former Prime Minister Ranil Wickremesinghe’s disastrous decision to appoint his confidante Arjun Mahendran to the Governorship of the Central Bank precipitated the biggest financial crisis and fraud ever witnessed in Sri Lanka. It would not be incorrect to say that the Bond Scam led to the undoing of the local economy and of course, the UNF Government itself.
Adding insult to injury, the previous Government then went on a borrowing and taxation spree thatsuffocated the life out of the ordinary people. A very high 15 VAT rate was compounded by a plethora of other taxes as it tried in vain to earn revenue for debt servicing and recovering lost funds. Not even the hospital bills were spared in this attempt. This was a tall order given the magnitude of the problem.
Economic growth plummeted to its nadir, a level not even seen during the height of the conflict. The Rupee suffered a huge hit, falling to unprecedented levels against the US Dollar. Foreign investors also kept away as tensions between President Maithripala Sirisena and Prime Minister Wickremesinghe boiled over, leading to political instability. The combination of economic stagnation and lack of Foreign Direct Investment (FDI) resulted in an economic tsunami that sucked the life out of the populace. The Easter attacks also delivered a deadly blow, especially to tourism and allied industries.
The electorate was obviously fed up with the UNF administration’s economic mismanagement, resulting in a resounding victory for President Gotabaya Rajapaksa, who had clearly outlined his plans for reviving the moribund economy in the ‘Vistas of Prosperity’ manifesto. Moreover, unlike the infamous 100 day program of the UNF which took the better part of four and a half years, President Gotabaya Rajapaksa is already implementing many of the pledges in the manifesto, with priority given to the economy.
In fact, his Government has already announced key development goals for the 2020-25 period. The main target is a GDP per capita income share of US$ 6,500 per individual Sri Lankan within the next few years, from the current US$ 4,000 (approx), says Information and Communication Technology, Higher Education, Technology and Innovations Minister and co-Cabinet Spokesman Bandula Gunawardana, himself a well-known Economics expert.
Among the other announced targets are: maintaining Sri Lanka’s economic growth at or above 6.5 percent per annum, maintaining the unemployment rate at below 4 per cent, keeping inflation below 5 per cent per annum, maintaining the Budget deficit below 4 per cent, maintaining single digit interest rates and sustaining the value of the Rupee at a stable level that will not hurt the interests of both consumers and exporters. This will be part of the ‘National Policy Framework’ submitted to the Cabinet by Prime Minister and Finance Minister Mahinda Rajapaksa which contains 10 Principles of Governance.
This is a laudable move that would see the rapid implementation of the policies related to the economy. Among them are Productive Citizenry and a vibrant Human Resource; People-Centric Economic Development; A Technology Based Society; Development of Physical Resources and Sustainable Environmental Management. Since a well educated workforce and human resource is the foundation of any economy, President Gotabaya Rajapaksa has also urged swift action to develop the education sector which was another priority in his election manifesto.
President Rajapaksa has recognized the need for an education system capable of providing the necessary skills to the younger generation in a technology-driven global economy. The Government has also focused attention on revamping the Board of Investment to enhance its efficiency, given the importance of attracting more FDI, a vital cog in the economic wheel.
The emphasis on people centric economic development is rather important. The UNF Government tried its level best to stop projects such as the Port City (officially added to Sri Lanka’s landmass yesterday) which will eventually benefit thousands. Having scores of skyscrapers will not suffice if there are no programs that can benefit the people. Hence, the new Government’s drive to develop the rural economy and create a technology based society.
The Government also faces the socio-economic challenges posed by climate change, whose effects are clearly being felt here. Economic plans must necessarily include resources to tackle climate change, which can have serious consequences for coastal communities in just a couple of decades if the present emission rates continue.
The previous Government reversed many incentives granted for electric vehicles and renewable energy projects, even as it stipulated a zero registration policy for fossil fuel vehicles from 2040. President Gotabaya Rajapaksa has placed a moratorium on Government vehicle purchases for the moment, but when the time comes to replace them electric is the only way to go. The Government should also have another goal – say, 40 percent of power generation from renewable sources (solar, wind, ocean wave, etc) by 2040. A few countries have already exceeded this goal, which is not impossible at all for a country that gets plenty of wind and sunshine.
Economic recovery is not an overnight process and miracles cannot be expected as the economy was left in a deep morass by the previous administration. Yet, with the announced tax relief package and economic incentives, we can see a glimmer of hope that better tidings are on the horizon in the New Year.