An objective assessment of the state of the Sri Lankan economy is
never easy. Political bias tends to lead to contrasting assessments.
But for many, the current perception is that the economy is in shambles.
Price increases on a weekly basis, and the prospects of continuing
hikes signal fundamental flaws in the economy.
the main source of the crisis is the sharp increase in international
oil (and gas) prices and its sequential chain of consequences. The
petroleum price increase has resulted in the costs of imports rising
rapidly to choke any gains in export growth. Consequently, we are
facing a serious trade imbalance. The magnitude of the deficit -
US $ 894 million - Exports vs. Imports, is indeed a cause for anxiety.
By the end of this year, the deficit is likely to be US $ 2,000
million. That is no joke. The main reason for the trade deficit
is the increase in import expenditure by 18 per cent.
have not fared too badly, but they have been woefully inadequate
to offset the increase in import expenditures. Although exports
grew in the first five months of the year, it declined from May.
is ominous. Especially disappointing is the fact that apparel exports
-- the country's leading export - is virtually stagnant now. The
strain is reflected in the depreciation of the rupee. The underlying
reason for the depreciation is the balance of payments difficulties.
Its impact would be to raise prices and fuel inflation.
Government revenue collection fell below expectations in 2003. While
the budget expectations were to harness Rs. 331.5 billion, the actual
revenue collection was only Rs 276.5 billion. This declining trend
is a serious problem for public finances in the country. The indications
are that revenue collection is not adequate this year too.
production however declined from that of the record Maha 2003 harvest.
Indications are that the Yala harvest too would be lower. Hence
the pressure on rice prices. The government remains in a quandary
whether to ease consumer prices by importing rice, or let the price
rise benefit the farmer. Importing rice will have an adverse impact
on the trade balance as well. Only the services sector has fared
well. Tourism, communications and port services are expanding. Tourist
arrivals as well as tourist earnings continued to grow by 4.5 per
is essential that the government explains to the people that price
rises are inevitable owing to global conditions. But that is an
old song.The government must explain that if it were to maintain
prices through subsidies, then sooner than later, the people would
have to pay for these in some other ways and that the increased
expenditures promised at election time are unsustainable. Finance
Minister Sarath Amunugama seems to realise this and has the political
guts to say so.
weaknesses in the structure and performance of the economy are the
root causes of the inflationary trends. Getting the fundamentals
right is the real solution: Providing incentives for agricultural
production, reducing the cultivation costs, reducing marketing margins
and improving the technological skills are the means of improving
small-farm agricultural productivity. Such improvements coupled
with the JVP-led tank renovation scheme, the launch of which, President
Chandrika Kumaratunga sadly decided to snub, could reduce food prices,
at least among the vast mass of the rural people. The long-run solution
is the strengthening of the economy by productivity gains.
small island economy that must necessarily be heavily trade dependent
is subject to the winds of global economic fluctuations. And governments
must be up to it. No doubt, most of the hardships people are facing
today are due to the rise in prices of critical goods. Yet, governments
can either ease the situation or even aggravate it. Unfortunately,
recent pronouncements and responses in the face of the economic
crisis may aggravate the adverse trends. Rumblings of controls on
the economy are likely to have an adverse impact on investment,
capital inflows and export earnings.
JVP must know that we are increasingly living in an inter-dependent
world, however much world lending agencies prescribe a seemingly
one-sided pro-West agenda. The political situation and our political
culture are hardly conducive for proper economic decision- making.
There is the danger that the responses to the global conditions
may distort economic decisions, hamper economic growth and exacerbate
we have is a right-of-centre UNP economic policy that is pro-West,
propelling us to vagaries and the dizzy heights of the international
market place too fast, all without our feet firmly on earth. Some
of its proponents are also not men of good faith. On the other hand,
we find the left-of-centre PA with no economic policy of their own,
brandishing a laissez-faire ( non-interference) policy of sorts
with a typical cavalier bent (which brought our growth rate once
to sub-zero ), and a left-wing nationalist JVP that promotes an
autochthonous (rooted in native soil ) style of economy.
three divergent economic policies are mismatched in today's modern
world where being in step with international trade with an eye on
the well-being of the vast mass of rural folks needs a happy blend.
That happy blend would be the success story for Sri Lanka if it
ever can be achieved. A nationalist heart with an internationalist