Who Are Primarily Responsible For The Economic Disaster, The Politicians Or The People?

By Harsha Gunasena –

Sri Lanka has entered into a staff level agreement with IMF on 1 September 2022 and the agreement was not reveled to the Parliament. However the summary of the agreement was published in the webpage of IMF. The key elements of the agreement were raising fiscal revenue and aim to reach a primary surplus of 2.3% of GDP by 2025; introducing cost-recovery based pricing for fuel and electricity;  introducing a social safety net; restoring price stability through data-driven monetary policy action, fiscal consolidation, phasing out monetary financing, and stronger central bank autonomy; rebuilding foreign reserves through restoring a market-determined and flexible exchange rate; safeguarding financial stability by ensuring adequately capitalized banking system, and by upgrading financial sector safety nets; and reducing corruption. 

Primary account is the difference between the revenue and expenditure of the government excluding interest payments and debt repayments. If a surplus is needed in addition to increasing the revenue the expenditure also should be reduced. IMF statement was not specific about that. What was meant by fiscal consolidation was to reduce the budget deficit and expansion of debt.

Salaries and wages of the government employees amounts to around 50% of the government revenue in 2020-2022. In the budget estimates of 2023, it was brought down to 30% level as a result of the increase of the revenue. The government intend to reduce the number of government employees by not filling the vacancies. The treasury should give the approval to fill the vacancies but they do  not give such approval. Revenue will increase instantly by privatizing the State Owned Enterprises (SOE) and thereby the budget deficit will reduce. By doing so there is an impact to the budget deficit in the long run since the government does not have to pump cash to these institutions if they make losses.

In last September addressing a party meeting in Ambalantota, JVP leader Anura Kumara Dissanayake said that the state sector must be downscaled and be made more efficient. He said over the years, politicians have used the State sector to provide employment to their supporters.

Citing few examples he said that there were 600 academic staff at the University of Sri Jayewardenepura while it had over 4000 non-academic staff and the bottom level of the state sector is inundated with staff.  He said five buses leave Matara daily with workers bound for the Colombo harbour after they were employed by a politician who hailed from the area during his tenure as Ports Minister.

The President in his  budget speech said in  Parliament on 14 November 2022 that .he proposes to restructure which means privatize Sri Lankan Airlines, Sri Lanka Telecom, Colombo Hilton, Waters Edge and the Insurance Corporation and use such funds to increase the foreign exchange reserves of the country and strengthen the Rupee.

At a conference about budget proposals he said that the Government does not intend to do business, whilst pointing out that it lost billions and trillions of rupees which would have been better invested on education, health or housing. He said that we have to decide whether we want to strengthen the people or whether we want to take public money and strengthen the Insurance Corporation, SriLankan Airlines and Sri Lanka Telecom. He stressed that his priority was to look at the people and not these companies and buildings. He went on to say that if these institutions could fetch USD 7 Billion Sri Lanka would be back to normal.  

Champika Ranawaka, the leader of the 43 Brigade is having a different view. He is of the view that there will not be foreign investors at the point where the country is bankrupt. They will not be interested to invest in Dollars and get the return in Rupees since there are restrictions for outward remittances. If any one comes the reason could be that there are geopolitical interests of the nations hosting those companies. Therefore these institutions could be sold to the cronies as did by the previous governments. In contrast to this process he thinks that efficient management without any political biases should be appointed to SOEs at this point. He is not of the opinion that SOEs should not be privatized.

Former President Mahinda Rajapaksa and Opposition Leader Sajith Premadasa speaking in the Parliament during the budget debate said that they were opposed to selling SOEs which make profits which means they were not opposed of selling loss making SOEs.

Daily Mirror Newspaper reported on 15 December 1922 that that based on a  survey carried out by Social Scientists Association led by Prof. Jayadeva Uyangoda together with USAID had revealed that 93. 8% of the younger generation and 93.2% of the elderly population does not think national assets should be sold off. Only 42.1% of the youth and 47.4% of the elderly believe that recruitment of persons to the state sector should be minimized. As per the research report 69.1% of the youth population and 69.4% of the elderly population believes that development projects implemented in Sri Lanka after the war will have some benefit to the nation in the future. The survey has also revealed that 76.6% of the youth population, and 71.9% of the elderly population believe that rulers have to be responsible for the country’s economic downturn

In this country as a result of nationalization of businesses the wealth of the country concentrated in the hands of the government. The underlying reason for the economic downturn of the country is the deficit budgeting policy applied by the successive governments and the business community has not increased the exports by innovation supported by the government policies. This process was aggravated during the time of Mahinda Rajapaksa and it was triggered during the time of Gotabaya Rajapaksa. People have given their blessings for this process. Therefor I would say that those who are primarily responsible for the economic downturn is not the politicians but the people. Since they still do not understand the situation it would be difficult to come out from this disastrous position. 

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