Economists seek practical solutions to resolve economic crisis | Sunday Observer

Economists seek practical solutions to resolve economic crisis

3 July, 2022

The economic crisis has exacerbated and there are no easy solutions in sight. We do not have the capacity to repay the loans and moreover, we do not have the foreign exchange to import fuel, LP Gas and other commodities. In this context, the Sunday Observer spoke to several prominent economists to get their perspectives on resolving the economic imbroglio.

The following are excerpts from their comments:

Transport Minister-Dr. Bandula Gunawardena

“This problem is due to the wrong fiscal policies followed by all Governments. We should at least now use public finances carefully. Our income and expenditure, budget deficit and loans and loan repayment have telescoped into a balance of payment and hence a foreign exchange crisis.

Parliament is responsible for overseeing the use of public funds. Although we have held many debates in Parliament on these issues, we have now officially defaulted on our foreign loans. We have taken loans and used them for consumption. Now those creditors have sued and we cannot escape lightly. We have used our foreign reserves in a limitless fashion and now we cannot repay the loans.

“It is clear that most politicians are clueless about this issue. As an economist I see four solutions to this issue. First, we have to raise Government income. Second, we have to curtail Government expenditure drastically. It should be around 25-30 percent of GDP. The Budget deficit should be around five percent of GDP. This will lead to some semblance of a balance in our loan portfolio.

We also have to earn more foreign exchange. We should aim to earn at least US$ 20 billion per year through the export of goods and services. The forex outflow should be controlled tightly. The final aim of all these moves is to achieve a surplus in the Balance of Payments in the Budget. If we go for these aims along with short-term adjustments from the International Monetary Fund (IMF), we can achieve economic prosperity at least by 2029.”

MP Dr. Harsha de Silva

“Seeking international help is the only way out of the present economic collapse. We have to find short, medium and long term solutions for this impasse. We have to seek solutions diplomatically for the dollar crisis. We have to seek help from our friendly countries including the Middle East, China, India, Western Europe, Japan and Russia. Some of the aid that we expected, such as a US$ 1.5 billion facility from China, did not materialise.

So we have to intensify our diplomatic efforts and reach. We have to discuss with Middle East countries to procure supplies of LP Gas and fuel. We have to increase our expatriate remittances and tourism income. All unnecessary expenditure must be curtailed. However, this Government has no clear vision even for that.”

Senior Prof. of Economics, University of Colombo, H.D. Karunaratna

“Agriculture is the key to reviving our economy. There is no problem per se with our agricultural sector. But we have a serious issue in taking the harvest to the consumer. There is no entrepreneurship or technology for that. Cultivating crops is good, but if we focus solely on that aspect, the farmer will be rendered helpless.

More than 25 percent of our crop harvest is wasted. We still use trucks where vegetable sacks are stacked one upon the other. Much of the harvest is brought to Dambulla and from there distributed to several other places. But if we can use the train to transport the produce there will be a big saving.

The other crisis we face pertains to foreign exchange. There is no tab on how many dollars are actually remitted to the country through our exports. Let’s say we exported goods worth US$ 1 billion last month. But we do not when that money will actually materialise here. Some portion of it may be retained abroad for raw materials and so on. There should be a dialogue on this.”

Senior Prof. of Economics Sampath Amaratunga

“There is no political solution to this crisis. We have to find more avenues to earn foreign exchange. Senior officials of the Finance Ministry and the Central Bank of Sri Lanka must give the correct statistics. We must not print money haphazardly. If we had acted methodically earlier, we could have saved some of our foreign reserves. We could also have done without wiping out Rs.1.5 trillion in taxes.

When we get US$ 100 from the export of garments, around US$ 80 goes out, so we actually get only US$ 20. It is not certain whether we get that amount even. Most raw materials in this sector are imported, from the button to the needle. Some expertise is also obtained from abroad. That is why we should have a production economy soon.

There should be a proper program for managing expatriate remittances. We should give them a guarantee that the funds will only be used for procuring essential goods such as fuel.”

Prof. Milton Rajaratna, University of Peradeniya

“There are two aspects of the economic crisis we have to identify. There is a domestic economic crisis as well as an external one. No rmally a country experiences only one of these but we have both. Hence the present predicament of the country.

We had no limits on our imports and experts. In other words, if we export one item, we import two. So if one dollar comes in, we lose two. Ultimately, we have been saddled with loans worth US$ 51 billion.

Thus we have to untangle our import-export jumble. Imports must be limited to essential items. We used to receive around US$ 600 million per month from expatriate workers, but now this is down to US$ 250 million. This is a great loss for the country.

Sri Lankan expatriates must be encouraged through various incentives and concessions. For example, priority can be given to them in case of Grade 1 admissions for their children and housing and land facilities. This is not difficult at all. Then we should look at short, medium and long term solutions to our socio-economic woes.

As for the local economy, the public service is a big burden to the country’s economy. We need only one third of the present workforce to run the Public Service smoothly. This should be reduced to at least one million.

Once public servants retire, they should not be re-hired for various vacancies. Most posts in the public service are not even needed. The best example is the Ceylon Petroleum Corporation (CPC) which has losses running into billions of rupees.

Yet, the Lanka Indian Oil Corporation (LIOC) is profitable, despite the fuel prices being the same. One does not need to be an economist to understand why. The public service is overstaffed and inefficient. We have to find solutions for these maladies, but they won’t come overnight.”

Prof. Sirimal Abeyratne of the University of Colombo

‘We have to expedite ways and means of bringing in foreign exchange to the country. There are various root causes of this economic crisis, including corruption, waste, fraud and tax reductions. But now we are faced with a foreign exchange crisis, plain and simple.

We need dollars, but they won’t flow in. There has been no proper mechanism to get down dollars since 2020. For that to happen, we need investments that will increase exports and earn dollars.

This cannot be done overnight. All should contribute to this effort. We should lay the foundation right now to extricate ourselves from this economic quagmire at least within the next two years.

It is not too late still. We need to get investors who will promote exports. There should be a restructuring program covering several sectors for this initiative.

Prof. Aminda Methsila Perera, Wayamba University

“Today we have a rupee crisis and a dollar crisis. There should be a tax restructuring program through the budget to develop the local economy. However, we have to bring in foreign tourists to earn foreign exchange. We can still control this situation. But every day we delay and vacillate, this crisis worsens. We actually go back several decades if that happens. Thus we should not delay finding solutions to this crisis under any circumstances.

There should be no political differences at this time. All should come together to evolve solutions. Otherwise, we will have to go back 70 years or more. There is another proposal to use the Indian Rupee as the Unit of Currency here, at least for some period. This is a good proposal since the Indian Rupee is a strong currency in the world market. There was a proposal for a common currency for the SAARC region, much like the Euro in Europe. But some political parties in Sri Lanka and elsewhere opposed this very beneficial proposal. In these critical times, we should take decisions with the head, not with the heart. We should think in practical terms in these critical times. Otherwise our future could be really bleak.

If the present economic crisis is to be resolved, the worthy proposals of economists must be implemented. Narrow political or personal ideologies should not hinder this process. All should strive to develop the economy.”