War ushers bleak economic prospects
The uncertainty of war is
giving way to a certainty that it would come upon us soon. This
column would most probably be read after the war has begun. The
ironic economic reality is that the economic consequence of uncertainty
was even worse than the certainty of war itself.
countries were waiting for the war in the Middle East, their economies
were languishing. Stock markets the world over had dipped, oil prices
had risen. With the imminent certainty of war markets have rallied
and oil prices have fallen.
of stock markets and commodity prices is based on a view of the
war as well as the expectations of the post war situation. That
view may not be vindicated. Time alone will tell. The war would
indeed be nasty and brutish. Will it be short? That indeed is the
expectation. Yet the consequences of the war may not necessarily
be that which is predicted.
It can run
a course that we cannot predict at the brink of war. Scientists
have warned us that there would be no winners or losers in this
war, only losers. Dominant economic opinion appears to be vulture
like, waiting to pounce upon the remaining economic flesh and distribute
it to their advantage. Will the world gain from the war? Would the
gains be only to the Texan oil magnates? Perhaps nothing hampers
economic growth more than uncertainty.
developed countries were withholding their funds and stock markets
were crashing. Consumers were not spending and thereby effective
demand was not increasing. Consequently production has to be curtailed,
employment was reduced and this in turn led to a reduction in purchasing
power and investment. The downturn of industrialised countries and
global investment and demand is leading towards an inhospitable
economic environment for developing countries, particularly small
economies like ours that have a high trade dependency.
Until the war
is finally over there is very little prospect for the Sri Lankan
economy. Any anticipated benefits will not be forthcoming immediately.
The economy is likely to suffer this year from the ravages of war.
It may be that the consequences of the war may run longer than anticipated.
Last year's economic performance has been described as an economic
recovery. Perhaps it would be more appropriate to describe it as
a modest recovery. It was the sluggishness of the international
economy that delayed the recovery. Until the second half of last
year there were no signs of recovery. Then there were some improvements.
Yet, industrial growth and exports were inadequate to even catch
up with the previous year's poor performance.
recorded a decline of 2.2 per cent, with industrial exports declining
by 2.4 per cent. It is true that the performance in the second half
was much better and recorded a significant growth. There were also
signs that industrial production and exports were likely to grow
as raw material imports had begun to increase. Yet these expectations
may be fast disappearing with global economic conditions fast deteriorating.
the Sri Lankan economy is likely to be crippled by the impact of
the war, the rise in oil prices and reduced demand for exports,
in particular. Already tourism in East and South East Asia has suffered
owing to mysterious diseases. The outbreak if war would be a severe
set back to tourism this year. One cannot expect 2003 to be a year
of growth until the war clouds finally disappear and the post war
period is one of restoration with a regime of lower crude oil prices,
peace and prospects of a rapid spurt in spending in the developed
world. This still appears to be a hope than an expectation.
Last year's economic indicators are not at all as rosy as the government
likes us to believe.
an economic growth of 3 per cent is expected, the fundamentals of
the economy remain flawed. In 2003 our trade deficit reached a very
high 1.4 billion US dollars. The public debt, of which much has
been spoken and little done, has increased rather than declined.
This despite the privatisation proceeds contributing to the coffers.
Unemployment has increased and the cost of living has risen.
The fact is
that the Sri Lankan economy was unable to even get to the level
of the year 2000. Now that 2003 is again a global disaster, the
fear is that the economy would slide further. This would be especially
so if our industrial export markets decline, tea exports face a
severe constraints of shipment, oil prices rise, Middle East remittances
decline and tourism is affected by a gulf war. Despite these gloomy
economic prospects there is little public awareness of the deep-rooted
problems the country is facing. There are even fewer efforts to
face these problems through a tightening of the belt and conservation
blame is placed on the government without consideration of the uncontrollable
international conditions the country is facing. Blame must be placed
on the government for not adequately acquainting the people of the
real situation and seeking public co-operation to cope with the
problem. Instead it is concessions, increased salary advances, promises
of higher salaries, government sustaining losses in petroleum prices
and the like that we see.
international context nor the political situation at home is likely
to be conducive to economic growth this year. War abroad and continued
conflict at home are likely to drag the economy down.