The present crisis of the Sri Lankan economy is a phenomenon with its roots penetrating far back to the immediate post independent period with the clear visibility of embryonic signs of the incoming crisis before it became a full-blown disaster of today’s magnitude.
However, owing to the dereliction of all responsible parties linked with the accountability of governing the country, a crisis that could have been nipped out at the inception was allowed, wittingly or unwittingly, to take its natural course of destruction which resulted in the growth of a crisis into monster dimensions in a relatively short span of time, finally engulfing the whole country in an economic vortex.
The economy today is in tailspin and woes of Sri Lanka, as revealed by major performance parameters, seem to be in deterioration by the day begetting hopelessness, despair and anger among the masses, in particular the meso-social stratum, which as a whole bring the country to the brink of despair while polarising the already divided political apparatchiks and their voter support base to an unprecedented no holds barred conflict and enmity.
Essential commodities
Scarcity of essential commodities, withering of foreign exchange reserves, spiralling inflation, unstable supply of fuel and gas, escalation of passenger transport cost, skyrocketing electricity and water tariffs are the salient features of the day-to-day life of the masses since the beginning of 2022, an annus horribilis, which do not show any sign of receding in the near future.
According to the authoritative sources of the Government and international monetary organisations, an immediate infusion of US$ to the tune of four billion is the minimum requirement for the country to reach a breathing space.
In the circumstances of non-infusion of four billion dollars, the entire state mechanism and administrative apparatus will encounter unimaginable economic and political catastrophe due to street riots, trade union protests, agitations by the public, breakdown of law and order and civil disturbances that may arise as spontaneous response from the suffering masses.
The latest reports of the Central Bank of Sri Lanka reveal a disturbing development related to the wage earners both in the private and public sectors in which magnitude of decline in real wages closely follows the rate of increase in money wages that attributes further to the deterioration in standards of living, particularly of fixed income earning groups.
This phenomenon of diminishing real wage rates is similar to an economic vicious cycle that gathers momentum within to propel the wage earners to undertake an endless wage bargaining process with the employers in the form of worker agitations, work stoppages and breakdown of law and order which ultimately results in hyperinflation as labour and production cost run behind each other in a circular pattern elevating the prices of goods and services into a new higher stratum.
While inflation is hyper active in certain sectors of the economy, the possibility of experiencing recession parallelly in the manufacturing and service sectors poses a grave economic threat as far as political and administrative stability of the country is concerned.
Shortsighted economic policies and logrolling through the reduction of tax liability in 2019, the effort to maintain fixed exchange rate, practice of printing money and organic fertiliser policy increased the momentum of crisis while all negative economic and geopolitical forces at global level further incinerating the already inflamed economy.
The current economic crisis is multifaceted and its roots are penetrated into the core economic structure of the country which makes it necessary for the decision makers to address the structural economic strangulation that, like an octopus’s strangling grip, tightens its suffocating clutch across macro, meso and micro strata of the economy which can immobilise the financial system and the way of life in no time if counter measures are not initiated on an urgent basis to prevent the collapse of the economy.
Government strategy
The strategy towards which government is involuntarily tilted, as widely articulated in public media, is the option of approaching the IMF to implore financial assistance in order to balance the chronical disparities that have roosted permanently in the country’s balance of payment account as well as recurrent and capital expenditure.
Although there was a general consensus between the Government and opposition political parties at the initial stage of the crisis on the urgent need of seeking financial intervention by the IMF, the strength of cooperation extended by the opposition for the IMF solution appears to have waned away in the face of unrestrained greed for political power characterised by gung ho political rivalry, which always leads to the situation where urgent issues are frequently pushed into the backburner due to intrinsic nature of any power struggle.
Bitter medicine
The IMF solution, although it appears to be the easiest and most plausible way out for finding an economic remedy to the public, is a conditional offer wrapped up in a package that encompasses obligatory commitments on the part of the beneficiary in line with the standard procedure followed by the IMF when extending its lifeline for the counties which struggle to float without sinking in the turbulent economic ocean.
The common scenario that can be anticipated from opposition parties in Parliament and outside is to capitalise on the unpopular measures embedded in the loan package to their advantage, as it has been repeatedly practised, for overthrowing the Government by appealing to the emotionally overcharged masses in resorting to antigovernment rhetoric shrouded with political venom, hypocrisy and hatred.
For instance, the IMF package includes preconditions such as restructuring the loss making public enterprises, reduction of budget deficits, increase of tax revenue, reduction of recurrent expenditure and rationalisation of the public sector employment structure before the release of the first tranche of loan which essentially result in more public anger and protests since the short term economic consequences of such recommendations intensify the economic woes of the people who consider such action is akin to the falling into hearth from the frying pan.
IMF assistance
The IMF loan, similar to a pontoon bridge, delivers a temporary bridging facility for a country to overcome financial discrepancies in the balance of payment as an immediate external assistance; however, since the pontoon bridge should subsequently be replaced by a permanent bridge, the supplementary economic reforms, both political and policy level, should be adopted by the Governments in recipient countries in spite of their unpalatable nature to ensure that the foundation is solidly laid down while the pontoon bridge is being used till the construction of a permanent bride by introducing structural adjustments to guarantee that the leaking holes of the economy are tightly sealed so that both velocity and quantity of leakages are at absolute minimum level if they cannot be totally ceased.
Leakages of economy
A quick review of the Sri Lankan economic model emulated by different ruling elites since the 1970’s demonstrates a remarkable bias towards mimicking of the development strategies adopted by many European nations which were in a position, in terms of their affluency and capacity, to articulate their future economic outlook based on the philosophy that leans heavily on the need for warfare orientation and social security consciousness.
Sri Lanka being a poor country with a rich country’s taste has been moving towards welfarism, concentrating more of its attention on facets of distribution rather than on creation of wealth, which resulted in showering of low income segments of the population with eleemosynary allowances, non-productive stipends, free services and various other transfer payments that culminated in an unbearable imbalance between Government income and expenditure on one hand and creation of a glutton nation that consumes more than what it produces.
In keeping with welfarist inclination, many of the left leaning regimes, influenced by the blowing wind of socialism, created a leviathan state sector to provide employment in excess of the requirements of public sector institutions that created a Frankenstein which penetrated its tentacles, overpowering its own creator, into all spheres of administration including the central decision-making mechanism.
Bunker mentality
Albeit the economy is moving through a hazardous period, its stakeholders that include political parties, trade unions, government enterprises and public opinion makers seem to be behaving under the delusion that the situation in the country is copacetic. For example, a trade union of the CEB, a stakeholder of the institution that is a public sector enterprise, while conducting a media briefing advised the public to abstain from paying electricity tariff and said that CEB employees would not come to non-tariff payers’ residences to disconnect the power supply. Such statements amount to stakeholder hooliganism that promotes ochlocracy, anarchy and finally the death of the State and the CEB.
Another stakeholder of the State, the CPC, irrespective of its continuous financial losses recorded over the years, was generous enough to distribute year-end bonus to its employees in 2022 showing not only their insensitivity to the plight of the country and ‘homo economicus’ value system that they are entrenched in but also their capacity of twisting the meaning embedded in the word ‘bonus’.
Professional groups representing doctors, lawyers and engineers who belong to the upper echelons of the social pyramid are all up the ante to declare war against the proposed increase of income tax without proposing an alternative way out for the Government for narrowing the gap between plummeting Government revenue and increasing recurrent expenditure.
Some stakeholders of the economy demonstrate irresponsible behaviour very often; for instance, the owners of poultry farms who supply eggs, the cheapest source of providing protein to the people, said that the cost of producing one egg is over Rs. 50, therefore, the price prescribed by the Government is not realistic; albeit when the Government decided to import eggs and sell at a lower price, the same people dared to say without shame that local eggs can be sold below Rs. 50 each.
Way forward
The political hierarchy, all stakeholders including the people should understand that it is necessary for all them to traverse along a hazardous path that is a tall order for the Government and the country to undertake to reach a sustainable long term solution to the economic turmoil.
Sealing the wasteful leakages of the economy needs action in relation to the reduction of public service, restructuring of loss-making state enterprises, revisiting the provision of free tertiary education, reigning the behaviour of trade unions, abolition of cronyism and introduction of many other progressive reforms, accomplishment of which requires not only political resolution and an iron fist but also a visionary leadership that does not shilly-shally, in the face of criticism and challenge.
Public sector
Sri Lanka with 21.8 million people (2020 data) requires a relatively small public sector; nevertheless, the Government has become the largest employer with 1.5 million state sector workers which in statistical terms equals to the ratio of 1.5: 21.8 that stands at a ballpark figure of one Government employee for every 14 persons in the population. Sri Lanka’s state sector cadre was raised by 61,000 persons to 1.52 million persons in 2020 from 1.46 million a year earlier despite the fact that an additional tax burden is imposed on the private sector and the self-employed to contribute to the Government coffers for disbursing the State sector salaries and other allowances.
The proportion of government employees as a ratio of population is phenomenally over bulging and beyond the maintenance capacity of the Government since the Treasury has to mobilise a large sum of money on an annual basis. As stated in the Central Bank’s statistical bulletin, salaries and pensions devoured 84.6 percent of tax revenues in 2021 leaving meagre revenue to finance the other economic activities of the country.
The reduction in the State cadre must be effective at all echelons of the public service.
The employees who are supposed to be retrenched due to the restructuring must be assisted to find employment mainly in the agricultural sector through the supply of wherewithal, such as land, marketing infrastructure and finance, under the Government sponsorship.
Remuneration
Sri Lanka has a pampered public sector whose employees presume that they belong to a privileged category of the population and deem in exceptionalism when it comes to the allocation of resources and priorities are decided by the Government. This tendency has been amply demonstrated by certain worker categories who are possessed or dominated by mob mentality and attitudes rooted in the perceptual delusion of “might is right”.
A number of public sector enterprises, inter alia, the CEB and the CPC, has been elevated to the level of privileged institutions by their acts of incorporation so that the employees of such institutions are entitled to enjoy above average salaries and perks that are beyond the reach of the employees who are not fortunate enough to find employment in the privileged sectors.
A terse observation of the public sector employees’ pecuniary benefits and assistance in kind reveals that the system is made up with multiple facilities that run into, to name a few, housing loans, distress loans, festival advance, bonus, vehicle loans, duty free vehicle permits, attendance allowance, incentive payments, pension entitlement, unlimited over time, welfare allowance, vacation leave and medical leave which are in the final definition added on to the total maintenance expenditure borne by the Government for each and every employee.
As it appears in the public media often, some of the incentive and motivational payments are of preposterous nature so that no rational justification can be made in support of such payments made out of the tax payers’ money since such payments neither serve a fruitful purpose in terms of increasing the efficiency of public service nor contribute to the economic progress in the country.
It is often alleged that overtime payments alone of employees in some institutions such as Colombo Harbour, CEB, CGR and CPC far exceed the amount of total monthly wage bill since employees with the connivance of their superiors manipulate the task environment in workplace in such a way that overtime work becomes essential, perhaps a right as well, to maintain performance at least at floating level.
The system is badly in need of restructuring with standardisation of the payment structure right across the public sector on one hand and abolishing regressive incentive payment that is not only redundant but also incongruous, viewed from the reasoning of the elementary management principles.
Tertiary education
As recorded by the Central Bank, Rs. 290,237 million or 9.9 percent of the aggregate Government expenditure was spent on education in 2019 that includes both tertiary and school education.
Free education at the school level can be considered as a sine qua non for the development of a disciplined society, but the rationale in providing completely free education at the tertiary level is not only unconvincing but also crooked in terms of the behaviour of the beneficiaries, mainly the university students, in the face of their destructive, hooligan, irresponsible and mob mentality behaviour. Most of the time of the beneficiaries of free tertiary education is spent on thoroughfare in comparison to the time spent in the lecture rooms, involving in unruly political agitations over, very often, whimsical issues that have no connection with the domain of tertiary educational issues.
In view of the disturbing situation in the tertiary education sector, the unbridled system of free tertiary education must be curtailed and this initiative might lead to several positive outcomes; in particular waning off of unruly student behaviour in public places, infusing a cognition of value to the beneficiaries of education.
Political and governing apparatus
Politicians and political hierarchy are considered a vital component of a vibrant administrative system of any country.
However, the way forward lies on the ability and inclination to reduce the size of political hierarchy at central, provincial and local government levels with stripping of the numerous fringe benefits showered on them encompassing duty free vehicle permits, pension payment, free meals, staff allowances, sitting allowances and fuel allowances under the guise of making them more resourceful in providing better service to the public.
Instead of showering politicians at different strata of the system with pecuniary perks and various other benefits in kind, a living all-inclusive salary decided in view of their necessity in the context must be paid in lieu of the service rendered by them during their tenure as people’s representatives.
Agricultural land
A vast extent of fertile agricultural land that remains underutilised or unutilised must be mobilised into the main production atmosphere with the introduction of land reforms and repealing of regressive legal structures and administrative impediments that unduly delay speedy reallocation of land.
Mobilisation of idle agricultural land for productive husbandry delivers benefits in several aspects such as contribution to the saving on import expenditure and to increasing the earning of the vitally required foreign exchange by promotion of export driven crop practices.
Public enterprises
Loss making public enterprises that serve as employment providers and pensioners’ temporary abodes must be restructured to downsise and convert them into financially sustainable organisations so that their existence can be reasonably justified in terms of input-output ratio achieved by each enterprise.
In the same breadth, the proliferation of public institutions right across the geographic regions and economic sectors in a haphazard style should be pruned forthwith to contain the leakage of government income to a substantial degree.
The main state services that must be subjected to scrutiny in this context are village level cadres and the sector specific organisations providing similar services to the same beneficiary groups, situation of which does not only lead to wastage of funds but also pose the problem of pinning or identifying the responsibility with a centralised authority when it comes to progress monitoring of the sector.
Trade Unions
Although trade unions are generally considered as partners in progress, in the Sri Lankan context, they have demonstrated and proved beyond doubt that their capabilities lie more in playing a destructive and annihilative role than undertaking responsibility of an even headed, level players’role. The top echelons of well-organised trade unions, affiliated to the main stream or wing nut political parties of the country, have shown that they are insensitive and oblivious to the ground realities as they are apparently brainwashed and blindfolded with political rhetoric parroted by their political masters.
Social and political mayhem caused by such trade union conduct has been on the upsurge to an agonising level so that wildcat strikes, agitation for Sisyphean demands and callous disregard for causing public inconvenience have become order of the day right round the calendar year.
The productivity loss, forfeiture of man-days and public inconvenience caused by trade union conduct on a perpetual basis accumulate to the billions of financial forfeiture year in and year out. This harmful conduct of the trade unions needs to be tamed by showing them the legitimate and ethical role expected of trade unions to play. Their arbitrary bargaining power and arm-twisting capability must be reined by the Government as part of the exercise in sealing the leak of the economy for the betterment of the country.
Price of utilities
Utilities such as electricity, fossil fuel and water tariff, main components that add to the cost of production, should be reasonably reduced to facilitate local manufacturers for boosting their production.
The practice followed by the government is to instrumentalise utilities, such as water, electricity and water as a revenue collecting scooper by heaping up more taxes on their cost price when all other sources are exhausted which has resulted in negative economic impacts on the production sectors due to the cascading effects emanated from the increased prices of utility.
Economic planners have to be mindful of two major undertakings to be accomplished, particularly, creating wealth in the country and patching up leaking wholes not only for stopping leakages but also for building an excess reserve of income that works as a buffer for cushioning negative impact of economic shocks that may occur in future as well.
System development and establishment of sufficiently empowered institutions with legal clouts is a sine qua non that can spearhead the maintenance of checks and balances which fulfill an essential requirement that can accomplish a vital role by way of reducing cronyism, logrolling, bribery, opaque tender procedure and insider dealing which in general send a substantial quantity of national wealth down the drain creating a yawning imbalance between revenue and expenditure in addition to the erosion of the trust of prospective investors placed on the Government.
One of the urgent institutional facilities is to establish a planning commission that does not rotate heads with the shift of political regimes, with the composition of bureaucrats, academicians and people’s representatives that help the country in maintaining consistency in economic policymaking and minimising the possibility of launching boondoggles.
Welfarism
Almost all regimes that came into power after 1956 have shown a remarkable tendency to emulate the development model which is biased towards achieving parity in distribution of wealth rather than enlarging the total stock of wealth in the country. In line with the welfare oriented economic policy, preferred by politicians due to its magical power to lure the votes of hoi polloi, Governments have introduced a plethora of welfare and eleemosynary programs such as Samurdhi, Janasaviya and various other transfer payments in rivalry with other political regimes which systematically created a nation dominated by the dependency syndrome where the Government is expected to provide free food and pogeys at no cost to them or at concessionary prices.
Welfarism is a murky concept as far as its ability to achieve social justice is concerned, since it has proven that the negative repercussions of welfarism often outweigh the benefits it produces even in developed countries.
A question may be posed whether the level of poverty, both absolute and relative, has been diminished or has shown signs of decline in Sri Lanka after intensive implementation of numerous poverty alleviation programs under Samurdhi and Janasaviya, inter alia, over two decades.
It appears to be a prudent policy approach to minimise the contamination and dilution of development strategy with welfarism since the need for achieving social parity can stay on the backburner till economic growth produces adequate wealth for social distribution.
The writer is a former Senior Management Consultant of the Sri Lanka Institute of Development Administration.