Economic euphoria could lead to complacency
The magnitude of the foreign aid pledges has led the country into an economic euphoria. Paradoxically the country's worst economic and social disaster is looked at as a mild economic quake hardly affecting the economic growth.

The economic crisis that appeared to be progressively ominous last year owing to the oil crisis has been washed away by the tsunami. Visions of a "New Modernised Lanka" are emerging. This euphoria may be misplaced for many reasons.

The complacency that is already visible may signify that we are on the verge of another missed opportunity in our economic history. As Country Director of the World Bank, Peter Harold has rightly pointed out, the economic growth rate is not the best measure of the impact of the disaster. Achieving a high growth rate is a misleading indicator of the economic loss, the loss of livelihoods and the human tragedy.

The balance of payments may show a surplus this year owing to the flow of aid. This is not an indicator of our strength in our trade and balance of payments. Several fundamental weaknesses in the economy persist. Though we may record a high growth rate, the rate of inflation is likely to rise owing to both a loss of production in fisheries and agriculture and the expenditure on reconstruction.

Let us be cautious about the aid pledges. There is a history of countries pledging aid at times of disaster that never materialises. Pledges have to be transformed into commitments and these into disbursements. There are many slippages at each stage. Pledges and commitments do not always result in actual aid disbursements. The actual manner and levels of aid utilisation have an important bearing on the amount that would be ultimately disbursed. If there were evidence of mishandling of aid and corruption then donor countries and international agencies would withhold their commitments. The country's capacity of aid utilisation could restrict the amount disbursed. Our experience of aid utilisation has been that only a fraction of the aid committed have been utilised. Most aid is time bound and if we are unable to utilise the commitments within a time frame, then the aid disbursement could be a small fraction of the aid pledges and commitments.

Aid fatigue is a well-known phenomenon. Often there are conditions attached to aid that cannot be fulfilled. These could include political conditions, economic policy preconditions and aid utilisation requirements. These may not be apparent at this stage but would emerge as the subsequent instalments of assistance are committed. What is often described as aid could be highly inflated amounts, as high cost items such as foreign salaries and consultancy fees are included. For instance, it is not clear whether the salaries and expenditures of the American and other forces numbering around 200,000 at present in the country are being counted as aid. Probably they are.

And finally much of the aid may not be aid at all; they could be long-term loans at concessionary rates of interest. Such assistance would add to our foreign debt burden and the servicing costs could be high, especially if they are not utilised in a cost-effective manner. Such loans being considered aid could result in a high proportion of wastage.

Besides this, we need to be aware that reconstruction costs would add to economic output only over a longer period of time and would not contribute directly to exports. Consequently the high costs of aid could be a long-term burden on the country and an entree into a debt trap. It is these reasons that prompted the President of the World Bank, James Wolfensohn to say that we must utilise grants first and loans afterwards.

The most significant impact on the country's economic development could arise if the large amounts of foreign assistance lead the government and the people to be complacent. Economic growth is neither a gift of God nor of donors. It is disciplined hard work with skills, technology and management that could lead us to higher levels of economic attainments.

The end result of expecting growth and development on a platter can be continued underdevelopment and the country being left behind. Complacency could deny us the opportunities of ushering in economic development.

Back to Top

Back to Columns

Copyright © 2001 Wijeya Newspapers Ltd. All rights reserved.