Although Sri Lanka gained Independence in 1948, it has never really been economically independent. Saddled with more imports than exports and burdened by foreign debt, the economy experienced sluggish growth at best. The war and two Southern insurgencies augmented the country’s economic woes, apart from the Boxing Day tsunami and the Covid-19 pandemic.
Sri Lanka’s ‘freedom fight’ was aimed at rising up as an independent nation. Here, those who spearheaded the Independence struggle aimed for political freedom. The focus was on giving the governing powers to Sri Lankans, but there was no discussion at all about economic freedom.
Economic independence cannot be “obtained” in that manner. It can only come from within. A country’s economy cannot bypass several generations in a few years and become equal to that of Singapore or China. It is a gradual process that takes years, if not decades.
After Independence, Sri Lanka’s economy experienced bankruptcy twice, though it was not labelled as such on the first occasion. In 2001, Sri Lanka’s economy collapsed and went into negative territory for the first time. The debt ratio became 101 percent of the Gross Domestic Product (GDP). Interest rates and exchange rates began to rise as the economy reached a point where it could no longer withstand external shocks.
At this time the country was led by President Chandrika Bandaranaike Kumaratunga. Ranil Wickremesinghe became the Prime Minister at the 2001 General Election. Amid the challenge of running the country under a French-style cohabitation arrangement, the onerous task of rebuilding the country and the economy was assigned to Prime Minister Wickremesinghe. He devised a plan to resuscitate the bankrupt economy, through a special legal framework.
The Fiscal Management (Responsibility) Act No. 03 of 2003 was brought to revive the bankrupt economy. This legislation was extremely important to take the economy to a non-dependent state.
It was pointed out at that time that if such solutions are not provided to address the root causes of the economic problems, the crisis will continue to spread. Political ideologies and subsidies cannot propel the economy forward – the ultimate result will be bankruptcy.
Imposing legal restrictions to protect the economy was a major strategy of Prime Minister Wickremesinghe. Although subsequent Governments diluted and eventually discarded the Act, the economy was saved from bankruptcy at that time due to Wickremesinghe’s planned economic vision. In fact, the total deviation from the Fiscal Management (Responsibility) Act eventually led to a far worse economic crisis in 2022.
Before leaving the country at the height of the Aragalaya (Struggle) and the economic crisis, former President Gotabaya Rajapaksa extended an invitation to the leaders of all major political parties to accept the post of Prime Minister. This was fraught with multiple risks and many political leaders declined his call citing various reasons. Only Ranil Wickremesinghe accepted this challenge without a moment’s hesitation.
Having ascended to the Presidency a few months later, he made several crucial decisions. At that time, the economic growth rate had dropped to minus 7.8. As an immediate remedy, the Government decided to seek assistance from the world’s lender, the International Monetary Fund (IMF) as a last resort. Many subsidies that had dragged the economy down were also curtailed.
It is now widely understood that new reforms are needed for the country’s economy to survive and thrive. Yes, there are no queues now, but if the present IMF-aligned economic program is not continued for many more years, the economy could go bankrupt again. Thus, it is necessary to pass several new Bills to maintain the economic status of the country regardless of the party or persons in power at any given time.
Last week, two crucial Bills for the economic future of this country were passed in Parliament. The two Acts that cover Economic Transformation and Public Finance Management provide a legal direction for the country’s economy with facts and figures.
By 2032, the country’s debt burden will be 95 percent of the GDP, the fiscal expenditure for one year should not exceed 13 percent of the GDP, with a surplus in the preliminary budget of the public account.
The leaders and Members of Opposition parties raised a hue and cry when the two Bills were presented to Parliament. But at the end of the day, the pivotal Bills were passed with Opposition support. This bipartisanship will be very important in the years ahead, regardless of who emerges victorious at the September 21 Presidential Election. After all, it has been suggested that the economy will not survive beyond two weeks if a future Government scuttles or changes the IMF deal.
Whichever way one looks at it, saving the country from bankruptcy twice is not an easy task. It is a historic feat. Not many countries or leaders have achieved this level of success.
Let’s take the example of Zimbabwe’s economy. The country’s foreign exports are minerals, gold, and agricultural products. There are two Trans-African Motorways that run through Zimbabwe. The Cairo-Cape Town highway and the M15 international highway that crosses the Zambezi River are prominent landmarks of the entire African continent. Zimbabwe was also the largest trading partner of South Africa.
But due to economic mismanagement and corruption, its economy was virtually decimated later on. Inflation rose from an annual rate of 32 percent in 1998 to an estimated peak of 11,200,000 percent in August 2008. The country’s Central Bank introduced a 100 trillion dollar note because, due to inflation, it was necessary to fill a bag and carry currency notes even to buy a loaf of bread. The two laws passed on Thursday encompass the legal framework to ensure that such an economic disaster does not befall Sri Lanka at any time in the future.
