Transport, Highways and Mass Media Minister Dr. Bandula Gunawardena, the author of numerous books on the economy of Sri Lanka, launched the book “Aya Weya 2024: Arthika Vidyathmaka Horawak” (Budget 2024: An hour of economics) at the Sri Lanka Foundation (SLF) last Wednesday.
It is a scientific analysis of the 2024 Budget of Sri Lanka, which explores the need for a far-sighted economic policy followed by prudent action to stabilise the Sri Lankan economy.
In an introductory speech, Minister Dr. Gunawardena spoke briefly about the complicated history and the nature of the economic crisis facing Sri Lanka and the need to urgently address fiscal consolidation to arrest the slide further. The Minister also highlighted the importance of following through with the plan set out in collaboration with the International Monetary Fund (IMF) as Sri Lanka’s debt repayments for existing loans can only be repaid in full beyond 20 years from 2024.
Addressing the nation’s economic woes, Dr. Gunawardena, a prominent financial and economic expert, painted a sobering picture of the challenges ahead. He emphasized the complex nature of the crisis, urging a “prudent and far-sighted policy of action” to restore economic stability.
One of Dr. Gunawardena’s central concerns was the country’s crippling debt burden. “Taking loans has been a thorn in our side for too long,” he said. “Each successive borrowing has sunk us deeper into a quagmire of loans.” He stressed the need to break free from this dependence, advocating for sustainable solutions that do not exacerbate the issue.
Dr. Gunawardena warned against quick fixes and populism, emphasizing the need for responsible policy choices. “The path to economic stability will not be paved with short-term gains or empty promises,” he said. He called for sacrifice, commitment, and a clear-eyed understanding of the challenges at hand.
In a time of adversity, Dr. Gunawardena emphasized the importance of collective action. “This is not a time for political gamesmanship or short-term gains,” he said. “It is a time for unity, for collective action, and for bold, visionary leadership.” He urged the nation to come together and work towards a brighter future.
“As a nation, we are in a tough spot,” Dr. Gunawardena said. “But difficulties pave the way for progress. My book delves into the roots of our crisis, dissects the social challenges we face, and charts a path forward.”
He emphasized the book’s grounding in reality, distancing it from mere theoretical musings. “This is not fiction,” he said. “I present real facts, unfiltered realities, to equip readers with the knowledge needed to understand the present and navigate the future.”
Speaker Mahinda Yapa Abeywardena was the chief guest at the book launch. Minister of State for Mass Media Shantha Bandara, Members of Parliament Vajira Abeywardena, Jayantha Ketagoda, and a large number of public representatives, Government officials, academics, media personnel and others were present at the event.
Three economics experts also presented their views at this forum. Their speeches are summarised below:
No other alternative to present program to rebuild economy
Priyanga Dunusinghe, Colombo University Senior Economic Professor :
“Although there was some opposition to the IMF in the past, today some important points regarding economic stabilisation through the IMF are well analysed. In particular, when talking about the Fiscal Management Responsibility Act presented by Dr. Gunawardena to Parliament in 2003, although public finance is a subject matter in the history of the Parliament, such bills had not been presented until then. This bill was the first bill introduced to establish financial discipline. Here, two points have been introduced about the current economic crisis. That is the budget deficit and the balance of payments deficit. Savings are lower in developing countries according to economics. Investments are low. Why is investment so low?
If the question is raised, it will be possible to find the root causes. For example, Government expenditure is low because tax revenue is low. The problem of why the tax revenue is at a low level arises again. It is also said that there is no information about the people earning various incomes. Why not try to collect information? So isn’t this the lack of a mechanism to get information? The issue arises here. There is a need for an in-depth study on this. Clearly there is a need to develop relevant machinery to strengthen the tax regime. There are accusations that economic and political institutions have arranged these things according to their needs.
We must understand this situation and this reality. Therefore, the root causes of the existing budget deficit related to the settlement of the balance of payments should be addressed. We have to address the question why we are not starting businesses, we are not bringing in dollars, why are the exporters hiding the dollar income. It is essential to create an economic and political institutional structure in which everyone can participate. In particular, the organisational structure is used only to fulfill the needs of a very limited group of people. After Independence, the main responsibility of Parliament is to prepare and restore the necessary institutional structure to take this country to development as a nation. That is, the formulation of the policy and the related institutional structure and responsibility related to public finance. Therefore, the relevant solutions are based on massive economic and political policies. The Government is currently taking some steps.
In the future, the promotion of exports, the establishment of public financial discipline, all these things depend on the extent to which everyone gets economic and political information. Countries such as Vietnam have an economic project in which every part of the society can participate. Therefore, it is necessary to move to an economic model in which everyone can participate. But it is not like that in Sri Lanka. A lot of things are decided based on politics. Can this situation continue as a country? If we can address that issue properly, we will be able to win in the future. We have achieved limited stability. We should obviously be happy about that. Kudos to the team that led the way in creating this stability.
Going beyond this, the essential point is that political stability is the most important reason for the collapse of this journey because we have failed to achieve political stability. There is no other way to build the economy. We agree with that. But that journey must continue within broader socio-political and economic reforms. Otherwise, if temporary plasters are applied, it will lead to a crisis again. The political parties should expand the existing economic program and move forward. Their support and intervention is essential to bring about political stability.”
Investments must be increased to raise exports
Prof. Sirimal Abeyratne, Senior Professor of Economics at Colombo University:
“There is a need for the country to shift its focus from relying on remittances to actively generating income through manufacturing and exports. Many of the country’s leading companies predominantly offer financial services, and it is essential to develop manufacturing industries geared towards the global export market. Our top companies are stuck in finance. What we need are booming industries crafting products for the world market. That’s how we truly earn dollars, that’s how we build a thriving economy. Earning remittances from expatriate labour is nothing to be proud of. We must shift towards export-oriented manufacturing.
This book has analysed the most important economic problem based on economic principles. We will have to pay the loans for 20 to 30 years. By that time, will we be able to come out of the situation we are in today? Expenditure has increased more than income in our country. We had to face this crisis when we were unable to repay the loans. In the past, there was economic growth in our country in terms of foreign loans. But this economy is growing from the side of economic growth that receives rupee income. The problem is that we have to take dollar loans to carry out projects here and pay off the budget. So the dollar crisis remains. The budget issue and the foreign exchange issue are two interrelated issues. It is difficult to solve one without solving the other.
The primary issue affecting this is the dollar crisis. Why do we have a dollar problem? How long will it take to find answers to this question? Do we have no escape from the crisis? When talking about this issue, someone may argue that there are tourists arriving and remittances from workers right now. Many see the incentives these workers receive as part of prosperity. It is an unfortunate situation. We are in a bigger crisis than that. Although Vietnam was able to increase its export income from US$ 5 billion to US$ 250 billion after 25 years, we increased it from US$ 5 billion to just US$ 12.5 billion during that time. We get only 6 billion dollars from foreign workers. We can reduce our debt burden by earning dollars. To get out of this crisis we need to earn dollars. We have long earned dollars from tourists and foreign remittances and borrowing. If you look at our budget, this year too we have increased the credit limit. We still take credit. We are in a debt crisis. Most of the time, it would take at least 50,000 rupees to buy the goods that recently cost only 25,000 rupees. We should be happy about emerging from this crisis so quickly. But we are still in danger. If there is a small external shock, we fall back into this risk.
To get out of our economic crisis, two things should be raised. That is economic stability and debt restructuring. Here we mean settling the budget issue and restructuring domestic debt and foreign debt. Ours is not an open economy. We are not among the countries that have free trade agreements with Asia through ASEAN and RCEP. In general, the amount of domestic tax in each of the fast-growing countries, the amount of tax levied on imports, is between 2 percent and 4 percent when taken as a percentage of the country’s tax revenue. However, we have to follow a distorted tax system. The reason for this is a huge weakness in the tax administration. The Government has not prepared a system for that. What is the income, what is the asset and what is the expenditure of the people in this country? Here we are not in a proper system to get our income tax. We must increase our export earnings. This country should make necessary policies for export promotion. Stability and debt restructuring are the two issues that need to be addressed in the medium term.
If these issues are not addressed, these issues cannot be overcome. Therefore, we will have to increase exports. To increase exports, investments should be increased. We need to address the question of why investment is not increasing. How long will it take to address those issues?.”
Crisis would not have happened if Fiscal Responsibility Act was followed
Prof. Shirantha Heenkenda, Dean of the Faculty of Humanities and Social Sciences at the University of Sri Jayewardenepura:
“This book explains whether Sri Lanka’s finances were used meaningfully. What were the obstacles and where did we go wrong? More efforts have been made in this book to do this analysis based on data. The value of a fact increases only if something is presented with data. The facts are presented here with evidence. There are nine chapters here. It explains why this economy collapsed. There are three things he mentions. Sri Lanka’s budget deficit should be maintained at five percent as a percentage of GDP. Explaining all these data, it has not been maintained in Sri Lanka. It is clear that even though the Fiscal Management Responsibility Act existed, it was not utilised. Also, according to the Fiscal Responsibility Act No. 3 of 2003, it states that the total public debt must be maintained at less than 60 percent of the gross domestic product. There were also periods when it went up to 100 percent.
Chapter 2 mentions two reasons that bankrupted the country. One is that debt is not maintained at the required sustainable level. The income we get is not enough compared to the amount we spend. Also, the import cost is higher than the export income. In particular, every Government used to take local and foreign loans to cover the debt, sell real estate assets and mint money. These are mentioned here with data. Among the reasons raised for the current account deficit, two main points should be mentioned here. That is, there is no surplus in the primary account, the government revenue is not enough to cover the recurrent expenditure, the budget gap is more than 5 percent of the GDP and we are breaking even the basic principles of the Fiscal Responsibility Act. State tax revenue from 2000 to 2023 is shown on page 69. It has decreased from 17 percent to 9.7 percent. Data is abundantly presented in this regard.
Chapter 4 deals with the causes of current account deficit and account deficit along with the bylaws of international trade. The annual export rate explains the collapse. He explains the facts of the worst collapse of the Sri Lankan rupee. It explains that the worst collapse of the Sri Lankan rupee occurred during the period of the Good Governance Government. The effects of rupee depreciation are shown through various projects; The fifth chapter analyzes the public debt crisis. It also explains how the increase in public debt happened. A very good analysis is done there, pointing out that the debt burden can be maintained according to the economic management of developed countries. Those examples make a good analysis of how our country collapsed.
The sixth chapter deals with the restructuring of foreign debt. How to create a country without aid, what is the program for it is discussed at length. It analyzes what the next program is under the extended credit we are currently in, why we did not agree to it, the importance of continuing it, etc. When we reach the bottom as a country, we are assigned a lot of conditions. Chapters 3, 8 and 9 provide all the necessary data on the reasons for going to the IMF. Also, for a student of the modern era, it is very important that the complete data from the 1960s is mentioned here.
