Reform or perish

Originally appeared on The Morning.

By Dhananath Fernando

A Staff-Level Agreement (SLA) with the International Monetary Fund (IMF) is a positive indicator of things to come. However, we still have a long journey to go and getting an SLA is just the beginning. 

We have negotiated with our creditors and have begun to implement reforms to stabilise the ship. We have to continue this trend and perform hard reforms to ensure our economy grows to a level where we can sustain it without resorting to borrowing.

In the status quo, I foresee a few scenarios that could happen with present political dynamics.

Scenario 1: Forming reform committees but not performing reforms

Sri Lankan policymakers’ solution for all problems is to set up a committee. There is a risk that we will do the same for reforms. Already, committees are being formed to take reforms forward, but reforms generally get sidelined or stuck in limbo. 

I recall many years ago there was a Cabinet Committee on Economic Management (CCEM), which was later replaced by the National Economic Council (NEC). Afterwards, the NEC was also dissolved and no economic reforms were taken forward. 

In the interim Budget, a new committee on SOE reforms and a few other pre-reform steps have been suggested. But the willingness to reform and the ability to execute is the most important aspect. If we leave a committee for reforms to its own devices, it will kill time while this crisis kills many of us.

Scenario 2: Some reforms are as good as no reforms 

There is a probability that a few reforms will be enacted. This is also a dangerous scenario. While in 1977 some reforms were implemented, labour market reforms and many other required reforms were not carried out. As a result, we failed to get the maximum benefit out of opening up the markets. 

Reforms in the 1990s were also not carried out in a holistic manner. Half-baked and half-hearted reforms will not rescue us from this crisis 

Scenario 3: Capitalising on low expectations but no real reforms

Another possible scenario is that policymakers and politicians will try to build their political capital based on a low-expectation environment. 

People’s expectations have fallen so low that a two-hour power cut has become accepted given the circumstances. A few hours staying in a fuel line has also become acceptable and even an achievement, despite us taking the ability to freely pump fuel for granted only a few months ago. The availability of LP gas has also become an achievement. 

Given this environment, politicians may try to just keep the basics supplied and settle for a new normal with very low expectations and build political capital until the election without enacting hard reforms. That will not only take Sri Lanka backwards, but we will move towards stagflation. Our youth will be less aspirational and the dream of a higher income country will fade away 

Scenario 4: Making reforms the entry gate for corruption 

While economic reforms are essential, since we haven’t seen any reforms on the political front, the same corrupt politicians may misuse this opportunity. 

Important reforms such as privatisation and Public-Private Partnerships will be passed with less transparency and no accountability to benefit the inner circle of corrupt politicians and with minimum benefit for poor taxpayers. This will dilute the public’s trust of reforms and create resistance against much-needed change. 

Scenario 5: Reforms that snowball 

This would be the best-case scenario, where we move proactively on a series of reforms to completely transform our economy. These reforms will not just halt after one wave.

Given dynamic economic and global conditions, reforms have to keep moving while keeping up with global changes, since otherwise the reforms that we do today will pose the same barriers for us a few years later. Sri Lanka needs to move towards reform and resetting itself in a holistic manner. 

Our aim has to be to create an economy where the 17th time becomes the last time in which we go to the IMF.  We need in-depth thinking to move fast. Simply making statements or addressing the audience based on current sentiments is not a solution; we need genuine willpower to get reforms done.

We have to capitalise on the IMF SLA and move forward with the rest of the reforms without delaying the process. The research has already been done and what needs to happen is very well known. It is just that we need to get our act together and move forward.

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.