‘Uncertainty’ the only certainty in Sri Lanka
View(s):Even as the dust settles on the recently-concluded parliamentary elections, drama and uncertainty continues as leaders from Sri Lanka’s two main parties grapple to form a joint administration.
The appointment of the cabinet is yet to take place, two weeks after the August 17th poll, while different dates of the swearing in of the new cabinet have been publicly expressed by spokespersons for the United National Party – Malik Samarawickrema who referred to September 2 – and the Sri Lanka Freedom Party – Duminda Dissanayake who said it would be on September 4.
Contradictory postures of the proposed ‘national or joint’ (there is continuing debate on the definition) administration coupled with uncertainties is not at all good for the business community which had been banking on a quick take-off, and a settling back to business scenario after eight months of ‘wait-and-see’.
The to-and-fro in Government and opposition ranks as both sides struggle to form an acceptable cabinet prompted one business analyst to humourously, comment, “The only certainty in business in Sri Lanka is the uncertainties that we have faced over the years.”
Economic problems are daunting and need quick-fix, fire-fighting measures to take care first of ballooning debt, left behind by the former regime, and strategies towards increasing exports, increasing local production and minimising state spending as long term goals.
The Maithri-Ranil combine inherited a Treasury that is not only depleted but with foreign bills rising due to accumulated interest and capital payments.
As reported in the previous page, the balance of payments during the first half of this year was a deficit of US$791.7 million compared to a $1,954 million surplus in the corresponding period last year however due to foreign borrowings to beef up reserves. Foreign reserves and export revenues have come down. Foreign and local borrowings have surged.
Faced with more attractive options, foreigners are pulling out their money from the stock market and investing their dollars elsewhere forcing the Central Bank to pump in dollars to maintain a stable foreign currency rate.
The salary hike in the first six months – with more money in the hands of people – led to increasing car sales (more foreign exchange needed) and increase in the import of consumer goods. The crisis is so bleak that authorities are going with the ‘begging bowl’ to the International Monetary Fund with another, desperate appeal for a $4 billion facility which was first turned down in March this year.
So what options does Sri Lanka have if this request is rejected again?
Printing money, devaluation of the local rupee and lowering interest rates leading to inflation and the Cost of Living Index rising – not at all viable options, Government planners agree.
In the meantime corporate sector leaders are mindful of the economic, social and political challenges faced by the new administration and are urging ‘tough’ decisions to put the country back on track.
Forward-looking strategies promoting foreign investment and raising the bar on incoming revenues need to be quickly put in place by new, yet-to-be-appointed subject ministers. Key sectors like garments, labour migration, tea and importantly IT need to finalise short and long term goals with Government support to raise export income levels. Sharply raising export revenue, increasing local tax collection and urgent parliamentary approval for some proposed high-taxed sectors in the last budget (which would bring in over Rs. 80 billion in delayed revenue) is what needs to be done. This is however easier said than done.
A Business Times story last week drew attention to a checklist by corporate leaders who say that spending at unviable state enterprises needs to be sharply cut, the country’s agriculture needs serious review (as a long term measure) and tourism needs to be aggressively promoted as a high-end destination.
Tourism industry heavyweight Hiran Cooray believes the interim UNP-led government has in the first six months improved strained relations with the West and India which had boosted arrivals, and now it was time for a proper brand and destination promotion strategy.
The confidence factor (doing business in Sri Lanka for foreign companies) needs to be revived with investor-friendly services, benefits and regulations.The private sector is also calling for a dialogue with the Government saying that a shared vision of development is better than a one-sided one.
Such a dialogue and eventual strategies should take care of the problems of inconsistent policies that have been the hallmark of the former regime with the sudden 2011 acquisition of several BOI companies among others, being one of the biggest deterrents to business. “One of the biggest problems has been inconsistent policies (in the past) and this I believe is a priority to resolve in the next six months,” former Ceylon Chamber of Commerce Chairman Suresh Shah was quoted as saying last week.
He also said the bureaucracy needs to be re-motivated to play a facilitation role saying officials were either not empowered, lacked skills, not motivated or incapable and “just didn’t move fast enough”.An uneasy bureaucracy was also responsible for Sri Lanka’s low ranking in the World Bank’s Ease of Doing Business Index, another issue that needs immediate correction to attract foreign investments.
In addition to the economic woes of the country, there are many issues that must be sorted out before the private sector steers the next stage of development. It is thus imperative that the cabinet is appointed next week without further delay with ministers quickly moving into their positions.
Sri Lanka has lost a lot of time in the past (30 years of conflict). Time is a luxury that politicians should not bargain with for the sake of portfolios and positions.