Columns

On the eve of the Sinhala and Tamil New Year, thoughts uppermost in the minds of people is whether the country’s economic situation will enable them to celebrate the festive occasion. Will the shortages of essentials that have plagued the country this year continue?

Will we be able to greet each other SubaAluthAvuruddak with any conviction? What are the economic prospects in the year ahead? Will there be an unexpected changein the country?

Past year

This year has undoubtedly been one of the worst years in the annals of the country’s post-Independence period. It has surpassed the difficulties of the 1970-77 years in respect of the availability of essential items of food, fuel, medicines, milk, sugar and other commodities needed for daily living.

Prices

Prices have soared and their availability scarce. Prices have arisen so much that essentials like bread and are beyond the reach of a large proportion of the population.

Jobs

Small bakeries have stopped baking bread as their customers can’t afford bread. Eating houses have closed due to a lack of gas for cooking. People have lost their livelihoods as their workplaces have no electricity, gas and materials.

Hopes and expectations

The hopes and expectations are that these commodities will be freely available by the time of Sinhala and Tamil New Year. With the changes in policy and the assistance of foreign countries, there is a prospect of these scarcities being resolved.

However, their prices that have increased steeply will continue to rise. There is no prospect of prices stabilising with further depreciation of the currency, they will rise even further.

Low incomes

While the affluent may be able to access these commodities at these high prices, the lower-income groups would indeed be deprived of their basic necessities.

Job losses

In addition, a large number of people have lost their livelihoods or their earnings have dwindled. Even gas distributors have lost their incomes with the police distributing gas cylinders at various locations. People have been squeezed by high prices and low incomes.

Malnutrition

The country is no doubt facing the possibility of large-scale malnutrition and even starvation. As much as 60 percent of people are estimated to be malnourished.

Reversal

This is a reversal of the country’s improvement in livelihood over time. The nation boasted of its good social indicators that were better than many countries with higher per capita incomes than ours. This was due to social welfare policies pursued by successive governments for 75 years or more. Several of the social welfare policies had their beginnings prior to the country’s Independence.

Middle income?

It is deeply unfortunate that there would be a reversal of these improvements and that too after the country achieved middle-income status a few years ago. We have of course lost that position with the decline in economic growth and consequent lowering of per capita income to less than US$ 4000.

Cope and adapt

We hope that people will be able to cope and adapt themselves to the current severe economic hardships and have a period of relative enjoyment. Hopefully the better off will help the deprived. Sharing of food among the community could ease the hardships of the poorer people.

Resolution of problem

However, the resolution of the fundamental problems would require severe cuts in government expenditure, a further devaluation of the currency, reduction of wasteful expenditure and economic reforms.

Safety net

We must hope that the reform policies will have the least adverse impacts on the livelihoods of the poor and adequate safety nets would be in place. What is needed is the adoption of policies whose burdens fall on the rich, such as higher income taxation, high tariffs on luxury commodities and reduced duties on essentials. There should be subsidies and welfare measures to ameliorate the poor.

Taxation

Today the country has a population that faces very few direct taxes. Consequently, the government revenue is at a preposterously low level of eight percent of GDP. This must be enhanced to 12 percent immediately and increased by two percent annually with progressive taxes, reduction of tax avoidance and tax evasion.

Tax administration

An efficient and honest tax administration devoid of political interference is a prerequisite to this. The way forward is through withholding taxes, higher property taxes, much higher car licence fees on large vehicles and similar expenditures of the rich who avoid direct taxes. We hope the economic reforms that are needed are less painful to the poor and that the burden of the readjustment would fall mainly on the affluent.

Loss making enterprises

One of the ways by which this could be achieved is by the reform of state-owned enterprises that are a huge burden on the public purse. The government must have the political courage to reform these enterprises and reduce public expenditure. This together with a reduction of redundant expenditures in government would ease the pains of the process on the general population.

Good news

The good news on the eve of the New Year is that the government has taken the first steps in the right direction towards economic recovery. There is an expectation that the government will seek assistance from the IMF to restructure the foreign debt and undertake a reform programme to stabilise the economy.

Conclusion

The scarcities of essentials will gradually wane, but increasing prices is inevitable. The needed reforms will be painful, but inevitable. Those responsible for misleading the government should retire gracefully.

May the changes in policy usher in a Subha AluthAvuruddak!