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We are entering the crucial week when people will decide on the country’s economic future. Indeed, the nation’s future.

Decisive

Perhaps never before have people gone to the polls, when their decision would determine the country’s economic policies and the nation’s future.

Elections

Next Saturday’s presidential poll and the general election, which is expected soon after, are of paramount importance for the country’s economy. Pursuing politically motivated and ideological policies could derail the “knife-edged” economic recovery and bring the country into an economic crisis once again.

Promises

The extravagant promises of increasing wages, subsidies to farmers, relief for the poor, and enhanced social security sans increased revenue would be an economic disaster.

However, presidential candidates have promised to usher in a “rich and beautiful country” and “economic development for all”. President Ranil Wickremesinghe says “Sri Lanka can.”

What matters

The candidates’ promises, personal appeal, ideological leanings, and a desire for a change in governance are likely to determine the choice of the majority, but it would be the efficacy of the new government’s economic policies that would matter most.

Voters

Most voters are not likely to cast their vote on the basis of the economic policies of the candidates and their parties. The intelligentsia, professionals, the business community, and those with economic knowledge and understanding are likely to vote on the economic programme of the candidates. However, they are a minority of the 17 million that will determine the country’s future.

Divided

The implication of this is that next Saturday’s choice of a president will be based on their political perceptions rather than their economic policies and capacity to implement an economic programme for stability and growth.

The personal appeal of the leader, promises, and prejudices will be the determining factors. The choice is not likely to be on the capacity and capability of the leader and their party. However, the economic future of the country depends on the understanding, knowledge, and capacity of the government that is elected.

Problem

The wide range of benefits, such as the reduction of taxes, increase in wages, subsidies to farmers, and social security for the elderly, infirm, and poor, are the deciding factors. Paradoxically, if these promises are fulfilled, the economy would be destabilised once again.

Plain truth

The plain truth is that the presidential election will not be decided on the economic plans, policies, and capabilities of the candidates and their team, but the future of the economy and country will be determined by them.

Future

The country’s political culture is such that the election is not likely to be won on the merits of the economic policies pursued by the parties. Nevertheless, people are expecting the next government to steer the economy to a stable one.

Policies

Manifestos are rich in promises and short on pragmatic programmes of achieving their laudable goals. In fact, their promises of conferring subsidies, income support, and increased spending to alleviate the poor and improve health and educational services would result in a widening fiscal deficit that would destabilise the economy. This is especially so in respect of economic policies that would increase government expenditure. Moreover, their policies to increase revenue may affect investment incentives and reduce investment.

Policies

What policies the next president would pursue cannot be gauged by their promises and manifestos. Hopefully, their extravagant promises will be modified to not jeopardise the economy.

Revenue

Most parties are extravagant in their promises to give relief and spend more but hardly come up with credible ways and means of enhancing revenue to finance their higher expenditure. It is not that they do not have proposals to increase revenue, but will their strategies yield the expected and required increases in revenue and reductions in expenditure?

Challenging

The task of the next president and government would be to find pragmatic ways by which revenue could be increased from the current low level to what it should be to reduce the fiscal deficit. Complementing such a strategy should be a reduction of expenditure. Reducing expenditure remains a tough task as the bulk of government expenditure is committed to expenditure on salaries, wages, pensions, interest costs, and expenditure on health and education.

All parties have promised to increase expenditure on education, health, and poverty alleviation. The new government has few options to cut expenditures, and, therefore, its strategy has to be mostly a revenue-enhancing one. Such a strategy is unlikely to enhance revenue much in the short run.

Capability

The implication of this is that the need of the hour is a government with the capacity to devise an effective taxation policy and system. As far as financial expertise and technology are concerned, a strong political resolve and the elimination of corruption are needed to achieve a higher revenue collection of about 12 to 14 percent of GDP. The inevitable implication of this reasoning is that the next government should ensure economic stabilisation.

Key issue

A key issue is whether the president elected at the next election would continue with the IMF’s Extended Fund Arrangement (EFF). Undoubtedly, President Wickremesinghe will continue with the current arrangement. He is, however, negotiating to soften the hardships caused by the taxation measures. This is no doubt owing to the protests of people and opposition parties’ promise of obtaining less burdensome conditions to give relief to the people.

Challenge

An immediate challenge would be how the IMF arrangement could be continued with some modifications that would give relief to the people going through hardships. This is no easy task, as revenue needs to be increased in an acceptable manner to give relief to low-income earners and the poor, who have been badly affected by price increases, reduced employment, and inadequate wages.

Important

On the other hand, it is vitally important that the IMF arrangement is continued to bolster international confidence and attract foreign investments. If the president who is elected chooses to ask for more than what the IMF could agree to, there is a prospect of the 17th IMF arrangement going in the way of the previous ones.

Conclusion

Will the presidential election on the 21st and the parliamentary elections thereafter result in the people choosing a competent, incorruptible, and committed government, or will the election rhetoric and ingrained prejudices result in the election of a government that could derail the economy and lead to another economic crisis?