Originally appeared on The Morning.
By Dhananath Fernando
In the mid 1990s, when Sri Lanka’s Cricket was performing extraordinarily well, there was an accusation that then President Chandrika Bandaranayake Kumarathunga was announcing unpopular policy decisions while public attention was on cricket. After Sri Lanka won a match, and while people are celebrating the next morning, the prices of items such as bread and LP gas are increased. There were even rumors that LTTE leaders had said “Sri Lankans remember any event only for two weeks”. Today, while public & media attention is focused on our historic cricket win against Australia, our policymakers seem to think that the attention diversion from cricket would save them from a historic Economic crisis. They are definitely wrong.
While IMF representatives are in Sri Lanka to explore the details of the programme, the drive for reforms among policy makers is extremely slow. Even more than 2 months after announcing the suspension of external debt, we have not yet provided any policy direction for stakeholders on reforms that we intend to follow to overcome the crisis.
So far, it seems like another round of political musical chairs without any genuine effort from policymakers to enact economic reforms. The school of thought that favored bringing political reforms hand in hand with Economic reforms is also now in question due to the situation with the 21st amendment. According to the Prime Minister, as per his recent speech in Parliament, we have to show our willingness for reforms to get the support of other countries. So what willingness has been indicated by our policy makers on any reforms? We have only been going to other countries and organizations with a begging bowl to find money for essentials on a weekly basis, and sadly that has become the new normal. We are at a very high risk of some level of social unrest with no reforms on the table and the poor leadership on display from our representatives. A short video clip uploaded by a journalist of a man in a fuel queue alerted me to the degree of risk we are in. The journalist asked about the impact of the economic crisis from this particular person in the queue. He said, with a very calm tone and patient body language, “I am a chauffeur and a father of 3 kids. I kindly request our leaders to not test the patience of fathers like me. The current protests & ‘Galle Face Green protests’ are broadly by youth. Not by fathers like me. Fathers like me do everything for our kids. We can’t see them suffering. When a father crosses the border of patience we don’t know where it will stop,” he said, with a measured tone and with a lot of depth.
While this column highlighted many preliminary reforms over the last two years, there are new reforms that we have to expedite given the severity of the crisis. As recent news stories have indicated, the debt restructuring in Sri Lanka seems likely to be very complicated and time consuming. In particular, the news that Hamilton Reserve Bank is suing Sri Lanka in American Federal courts indicates how complicated the situation could become. As per the report, they possess more than 25% of the July 2022 bond series and are requesting the full amount to be paid; they possess a share of the bond large enough to make them a ‘blocking minority’ which can block and delay the entire debt negotiating programme. The IMF, for their part, has indicated that they want to see a clear direction on debt restructuring if they were to support Sri Lanka. Bilateral partners such as China and Japan will also play a vital role in the entire process.
Given this situation and our slow approach to Economic reforms even after announcing debt restructuring, we will be left with a lot more debt to be paid. If we move at this pace, there is no doubt that we will have subsequent defaults even after restructuring, if we fail to boost economic growth. Therefore, the establishment of an independent debt office is extremely important. Our debt portfolio is diverse and expensive so highly skilled financial analysts should manage our debt in line with global trends. Following the dilution of our Civil Service, that level of skill is unfortunately not available in our public sector. Given the salary scale of the public sector we can’t expect talent with the calibre of skills of a fund manager to stay in the public sector. Simply put, a salary scale of LKR80,000 will not attract a fund manager who has to manage a few billion rupees worth of debts. Therefore, the independent public debt office should have a different salary scale (based on key performance indicators) and independent regulation if we are to have a sustainable problem for our debt crisis. We are where we are today due to our poor debt management. The “Common Minimum Programme” by the National Movement for Social Justice has indicated the same.
Furthermore, this crisis will inevitably impact many private enterprises and a record number of businesses will go bankrupt. In a market system it is unavoidable that while some companies succeed, others will fail. Our legal framework should allow the failed firms a faster exit so entrepreneurs can bounce back with a new business or otherwise utilise their time productively. Investing their energy and money on something productive instead of on an already failed business will inevitably affect the overall productivity and efficiency of the economy. Unfortunately, Sri Lanka does not have unified bankruptcy laws. So when a company fails, exit is not easy. More money, time & energy has to be invested to manage a bankruptcy as a result. There are some exceptions laid out as provisions in the Companies Act, but for most micro, small and medium enterprises - which are sole properties and partnerships - the absence of a bankruptcy law will cause severe repercussions. Sri Lanka should proactively think of these issues before the situation gets out of control.
Our policymakers should realise that the hunger and anger of the common man has created a volatile and flammable situation. There is no way for cricket or any other diversion to stop the righteous fury of a hungry man, so it is imperative that we bring about Economic reforms before a spark ignites the entire situation and pushes us deeper into crisis.
The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.