Columns

The question uppermost in the minds of most persons is whether the peace of the Vesak weekend was the turning point to peaceful conditions and economic recovery. There are signs that the country is getting back to normal with the fear psychosis diminishing though not eliminated. This return to peace and normalcy is an essential condition for economic recovery.

The assurances of the Army Commander, Prime Minister, the President and the State Minister of Defence that there is no threat and that citizens could resume their activities is reassuring.

Insufficient

Peace alone is inadequate to promote economic growth and development. Social harmony is the prerequisite for long term development. Whether the dialogue and conversations of religious and political leaders in the past six weeks would lead to social, religious and ethnic harmony is yet to be seen. The nation must seize this opportunity to establish religious and ethnic harmony that is a necessary though not a sufficient condition for economic development.

Stumbling block

The biggest obstacle and setback to the country’s post-independent economic development has been the recurrent ethnic violence and the prolonged civil war. Unless the country is united with its rich cultural and religious diversity, rapid economic development will remain an elusive objective, an unrealised dream.

Economic recovery

For the present a return to peace and normalcy would provide the environment for economic recovery. That is the best we can hope for at this point in time. The bomb blasts and insecure conditions have setback the economy. It has not devastated it. The task is not one of economic reconstruction. It is one of picking up from the setback to progressively accelerate economic production.

This does not mean that much harm has not been done to the economy, nor that the economic recovery would be speedy and spectacular. At best the economy could  return to the recent level of economic growth. While achieving the low rate of economic growth of the past few years is not a difficult task, achieving economic growth of over 5 percent in 2019 is unrealistic.

Essential not sufficient

Peace, law and order are essential preconditions. They are not sufficient conditions for economic development. A host of other conditions are needed for the economy to take off to a higher trajectory pf growth. It is because these conditions were lacking that the country’s post independent economic growth averaged only around 3.5 percent. In the last four years it dipped even below that long term average owing to economic and non-economic conditions not being conducive to growth.

Policies

The lack of clear and certain economic policies, a weak capacity to implement economic policies, inability to undertake essential economic reforms  and corruption have been among the main reasons for slow economic growth. This incapacity has led to the country being the one left behind in South Asia’s economic growth of over twice our attainment.

Rapid economic growth is a long term prospect after a stable and capable government is established after the next elections. And that too is an uncertainty.

IMF assistance

The economy’s recovery may benefit from international assistance. The IMF releasing the sixth  tranche of the Extended Fund Facility (EFF) is an instance of this. It also extended the arrangement by an additional year, until June 2, 2020, with the re-phasing of remaining disbursements.

The release of the US$ 164.1 million is a small amount. Yet it is of significance in reinforcing international confidence. Its decision to release the funds was probably motivated by the sympathy it had for the country owing to the terrorist attack.

Good report

The IMF also gave a good report on the economy. It said: “The Sri Lankan authorities have successfully brought the programme back on track, despite important setbacks, by advancing fiscal consolidation through a well-targeted 2019 budget, rebuilding reserves, while maintaining a prudent monetary policy under greater exchange rate flexibility, and reviving structural reforms. Sustaining policy discipline remains critical to strengthen resilience, given still sizable public debt and low external buffers, and support strong and inclusive growth.”

Advice

Furthermore it advised: “Sustained revenue mobilization is needed to place public debt on a downward path, while making space for critical public investment and an expansion of the social safety net under well-defined selection criteria. Strengthening the selection and appraisal process of large-scale investment projects and assessing their fiscal affordability is critical, given Sri Lanka’s high public debt. Stronger fiscal rules and a medium-term debt management strategy will support medium-term fiscal consolidation and debt reduction efforts.”

It advised the government “ to strengthen state enterprises’ governance and transparency, including  a restructuring plan for Sri Lankan Airlines and completing energy pricing reforms, building on important progress with the implementation of the fuel pricing formula.

China

China has agreed to provide aid worth USD14 million to procure Chinese-made counter-insurgency equipment. This will not strengthen the balance of payments. Other countries too may be obliged to make contributions, especially those that are vying for a place in our strategically significant Island.

If these come as loans, they have to be repaid, as in the case of the IMF facility. Then they are a relief for the present and a burden for the future. Hopefully we will receive mostly grants and assistance in kind to tide over the current economic difficulties.

National task

Economic recovery is a national imperative. The government’s primary obligation of ensuring peace and security is the foremost precondition. Now that this is ensured and the life of the nation is normal, economic growth should gain momentum in the second half of the year. There is a need to catch up lost production in the months ahead.

Peak production

Both agriculture and manufactures should produce at their peak possibilities. At most they were interrupted and must regain their momentum. Among services the setback to tourism was shattering and the economic activities connected to tourism, received a mammoth blow.

Economic activities that have backward linkages with tourism and other services that have been badly affected include, travel, hotels, guest houses and other tourist accommodation, restaurants, arts and crafts, gem and jewelry sales. The livelihoods of persons in these are severely affected.

These could recover for most part, only after tourism bounces back. Meanwhile domestic tourism would have to fill in to some extent. If security conditions improve one could expect somewhat of a recovery at year’s end with the next tourist season.

National harmony

While all religious leaders have emphasised the need for religious and ethnic harmony and civil society organisations too have underscored this imperative, the stumbling block appears to be the narrow intents of sections to take political advantage of the conditions. The nearness of elections compounds the problem.

Conclusion

The terrorist attacks have slowed down the economy. It is likely to impact adversely on the balance of payments, the fiscal outcome and economic growth. However it is not a breakdown of the economy and could be resuscitated with the return of secure conditions, law and order, an enlightened political leadership and social harmony,

The restoration of law and order, elimination of terrorism, ensuring ethnic harmony and good governance would be vital for economic recovery. It is also important to prevent any ethnic or religious backlash to ensure that the economic recovery is not impeded. Economic recovery would depend very much on the political leadership and implementation of economic policies.