Columns

In two weeks’ time a new President will be in office. A period of political stability is essential to resolve the formidable economic challenges facing the country. Even a short period of political anarchy could aggravate the nation’s economic problems.

Political stability after the election is an immediate requirement for economic recovery. This is only possible if the newly elected president is able to work together with the Prime Minister and the rest of the government. If, on the other hand, the new President attempts to act as an executive president, then there could be a constitutional crisis similar to the one in October 2018. Such a chaotic state of affairs would cripple the economy once again.

This is not the only way there could be political instability. Whoever wins the Presidency, there is a likelihood of an early dissolution of parliament and a fresh election. Then the country would once again be plunged into another wave of preoccupation with the elections and a neglect of the economy.

Coalition

Furthermore, if the results of the parliamentary election do not give a single party a majority in parliament and the President is of another party, then there could be political instability despite the powers of the new President being reduced under the 19th Amendment.

Another impotent coalition would be the worst option for economic growth. A government formed by a single party with a clear economic vision and certainty in economic policies is vital for economic development.

Prerequisite

Political stability is a necessary and crucial prerequisite for economic development. Yet it is not sufficient. A number of other conditions are essential to move the economy forward. Foremost among them are sound and pragmatic economic policies and their effective implementation, a multiplicity of reforms, and ethnic harmony.

Neither of the two presidential front runners has disclosed a credible economic policy or programme. Their plethora of promises would worsen the economic crisis rather than lead to an economic recovery and economic development.

Formidable challenges

The economic challenges facing the country are formidable. The revival of the economy after a stable government is established is an enormous task. As the Institute of Policy Studies (IPS) has pointed out in its latest State of the Economy report, the country has had 10 consecutive quarters of below 3.5 percent growth and the  prospects of economic revival is dim during the remaining months of this government’s tenure.

What are the prospects in the next five years? Each time there was a prospect of economic revival, it has been cut down. The political anarchy last October, the Easter Sunday bomb blasts in April this year, the crippling strikes and obstructionist actions of the opposition have deterred economic growth.

Policies

While in the short term, an element of political stability could revive some sectors and turn the stock market to be bullish, an economic recovery would require not only political stability, a multiplicity of economic reforms, pragmatic economic policies and their effective implementation. The process of fiscal consolidation needs to be revived after the fiscal slippage this year. The politically difficult reform of the massive lossmaking state enterprises would require to be addressed.

Foreign debt

Servicing the foreign debt of US$ 54 billion is onerous unless there is a significant balance of payments surplus. There is a glimmer of hope that there would be such a surplus this year, but it could be enhanced in the  next few years only if the recent export growth accelerates, imports are contained, tourism revives and foreign investment increases. Political stability and economic policies will determine these.

State of the economy

The Institute of Policy Studies (IPS) in its 2019 State of the Economy report states that “The Sri Lankan economy is making a slow recovery after a series of setbacks – a devastating terror attack in April 2019, preceded by a political crisis in the third quarter of 2018. With sluggish GDP growth of around 3 percent and high foreign debt settlements, the overall positioning of the economy in 2019 is weak.

This is despite significant gains from macro reform measures in fiscal, monetary and exchange rate policy management from mid-2016.”

The IPS goes on to say: “As Sri Lanka prepares the groundwork for a fresh phase of economic growth and development on the back of decisive elections in 2019-2020, new tools to assess and understand competitiveness must be heeded. Transformative technologies such as artificial intelligence (AI), robotics, and 3D printing – under the banner of the Fourth Industrial Revolution (4IR) – are proving to be invasive, complex and disruptive. For countries with ageing populations like Sri Lanka that must rely on productivity as a key driver of future growth the challenges need to be understood and opportunities grasped”.

Forward looking

This year’s IPS State of the Economy 2019 report focuses on ‘Transforming Sri Lanka’s Economy in the Fourth Industrial Revolution (4IR)’. It examines many areas of the Sri Lankan economy – world of work, education, migration, gender, health, financial inclusion, trade, agriculture, and climate change, amongst others – where the 4th Industrial Revolution technologies will come into play as defining features of the country’s future economic progress.

Short sightedness

In contrast to the IPS’ forward looking perspectives, our political leaders are preoccupied in doling out money in numerous ways and making promises that would worsen the country’s economic plight. There are no plans to reduce wasteful public expenditure and reduce the public debt. No mention of reducing the size of the cabinet or reducing the size of the bloated public sector employment, reforming the loss making enterprises and fiscal consolidation.

Economic performance

This year’s economic performance has been most disappointing. It is the lowest economic growth in the post-2015 five years — also much lower than the annual average growth from 1950 to 2018.  It is less than half the economic growth of the South Asian region and almost the lowest economic growth in South Asia. The country’s foreign debt has grown from US$ 21 billion in 2015 to US$ 54 billion this year and the servicing of the debt is a serious concern.

Concluding reflection

Whoever is elected President, the country’s political milieu of truckling to the masses will prevent the required reforms for economic stabilisation and growth. A political reformation is needed to bring about economic development.