The Sunday Observer spoke to several leading economists to get their insights on the current state of the Sri Lankan economy.
A good opportunity to make tough decisions – University of Colombo Department of Economics, Professor Sirimal Abeyratne
There are two things that are necessary to get the economy back on track. First is macroeconomic stability that comes with sustaining borrowing. Many necessary steps have been taken towards that. Efforts have been made to reduce the Government’s budget deficit. Also, efforts have been made to carry out necessary activities to remove the burden of public infrastructure from the people. Also, efforts are being made to restructure debt. Dealing with international organisations has started again. With this fact, necessary steps have been taken to improve our economic stability to some extent. But this does not mean that the economy is on the right track. We have to move on from here.
This is because stability and credit sustainability depend on the country’s economic development. It is necessary to take appropriate actions for economic development.
It is also necessary to promote exports. We need to earn dollars. Multilateral loans, remittances from foreign workers, and dollar income from tourists are the only things we are still interested in, but this doesn’t solve all our problems. Measures should be taken to earn dollars from exports in a sustainable manner.
The biggest problem is investor confidence. We have to make tough decisions to build their trust. Also, this economic crisis has given a good opportunity to correct all other deficiencies in the country. We should take advantage of this opportunity to shape our future. We want to become a developed country in the coming 25 years.
The country is not on the right path – University of Peradeniya Department of Economics’ former Professor of Political Economy, Prof. Sumanasiri Liyanage
The definitive answer to the question whether the economy has recovered is “no”. We see that the national economy has dropped to a steeper level today than it was in 2021. Both domestic and foreign debt has increased greatly. This Government is still walking on the path of debt.
When we take all factors such as poverty, malnutrition, health conditions, education, and so on., we see a huge downturn. In 2022 the economy was in a difficult situation. But it is in a more precarious situation today. You don’t see it, because there are no petrol queues or gas queues like last year. There is a major crisis in the health sector. We can deal with queues by rationing goods when their prices go up.
We are reaping the benefits of not paying debts. The vital garment industries are closing due to unemployment. Our national income is collapsing in a big way. In this situation, we are being fed an illusion that the country is on the right track economically. The country’s export income is collapsing. But the IMF’s support and this Government’s policies are in close alignment. But, they will lead to economic devastation, not economic development.
Need to secure jobs overseas for professionals – University of Kelaniya, Department of Economics, Prof. Navaratne Banda
Although it seems that there is no calamity ahead of us, the economic crisis has not been resolved. There is no solution to the crisis by declaring “the era of queues is over”. We don’t see the danger because the country stopped paying its foreign debts and we have started debt restructuring. Therefore, the country has not reached the state before 2021.
Taxes are imposed on professionals while freeing the individuals who should be caught in the tax net. No steps have been taken regarding the areas that need to be developed. The current foreign income is not enough at all. A program should be prepared to send professionals who have received professional training to foreign countries. Likewise, opportunities for foreign jobs should be given to professionals for other disciplines such as IT.
If this kind of program is not implemented, the crisis that we thought to have been suppressed will begin to emerge. Therefore, we should create an environment where the people can live without burdening them with taxes. A situation has now arisen where it is impossible for people to live.
Negative views about the economy are fading – University of Peradeniya Department of Management, Prof. Milton Rajaratne
Not being able to control the economy of a country is a big problem. It is not possible to control exchange reserves due to various factors. The question arises as to how the economic crisis will be averted and brought to the path of recovery. It is currently recovering. So far, macroeconomic indicators are good. The Rupee has started to strengthen again. Inflation has decreased since last month. The other indicator is the control of government expenditure. Tax revenue has decreased. Money printing has been controlled, these are basic macroeconomic indicators. We are moving in the right direction. There is no shortage of goods in the country now.
Businessmen are optimistic about this change.
The market looks like it is becoming normal. Investment has been encouraged. Some businesses that were showing negative values soon turned positive. There is an argument that the economy will not collapse as long as the debt is not paid. The strengthening of the rupee and reserves have increased to three billion dollars. There is no obstacle to import goods. The Government has controlled the debt repayments well. The negative views about Sri Lanka’s economy are fading.
Government managed to stabilise economy in a short period – University of Colombo Department of Economics, Prof. Priyanga Dunusinghe
It is necessary to accept that the Government has succeeded in stabilising the economy in the short term. The Government has been able to restore the situation under the Economic Stabilisation Program. Inflation rose to 70 percent. As of today, it is down 4.5 percent. The rupee depreciated. The value of the dollar rose to 365. So far it has dropped to 320 rupees. Our reserves have risen to US$ 3.6 billion. A situation has arisen today, except for the people who bought bilateral and sovereign bonds, where the domestic debt is being paid.
On the other hand, the interest rate increased by about 30 percent. Currently, the policy interest rate has reached a level of 11 percent. The Central Bank has requested other commercial banks to lower interest rates while providing market loans.
The Government as a whole is moving forward with a social security program amid various obstacles. In this sense, in order to stabilise the economy in the short term, we are continuously negotiating with the IMF and our lenders. The Government has managed to complete the domestic debt restructuring process. Tax rates have been increased. The Petroleum Corporation, which was a huge burden on the State, introduced cost-reflective pricing specifically to reduce losses. Even if things like electricity bills go up, this will eventually reduce the loss. Voluntary Retirement Schemes have been introduced by the Government for corporations and institutions to reduce redundant labour. The Government took measures such as taking decisions on the balance of payments on one hand and bringing down the interest rate to stabilise the economy and bring down inflation on the other.
The Government’s action to hit the brakes and stop the vehicle from going further downhill should be appreciated. Once the economy is gradually stabilised, we should have the confidence that it will continue to grow.
Since a program is being implemented with the IMF, their macroeconomic goals up to 2027 should be achieved and funds should be used systematically. Despite the economic stabilisation, the solutions to basic problems affecting further progress of the economic crisis in the short term have not been executed so far. The Government should be more interested in exports. We have to follow various steps to get out of this crisis. Fraud, corruption, waste, inefficiency are rampant in the public sector. The consumer has been exploited by the private sector. The Government should introduce new regulations to stop fraud, corruption, inefficiency and consumer exploitation. Efforts should be made to bring in more foreign investors. The Government should give priority to protecting law and order.
The reality should be shown to the people. We as a country have defaulted on our debt and have come into great disrepute. This is why we should give priority to how we stand before the world. We must make sure to overcome this crisis properly. There are no massive changes in governance yet. More attention should be paid to this in the future. If not, there is a chance we will face an economic crisis again. We must move forward with the programs agreed with the IMF until 2027. Only related targets should be pursued according to financial statements. If the Government is dedicated, it will not be an obstacle. After passing the darkest era, the economy has reached stabilisation. Instead of bragging about the achievements, we should prepare a medium-term to long-term journey.