Sri Lanka economic crisis caused by reckless deficit spending: Sri Lanka’s ex-President Mahinda Rajapaksa
Posted on September 26th, 2016

ECONOMYNEXT – Sri Lanka’s ex-President Mahinda Rajapaksa said reckless post-election spending involving a state worker salary hike and subsidies generated an economic crisis, driving investors away though it is being blamed on debt taken during his rule.

“All the economic problems of the yahapalana (Good Governance) government are due to the fact that they bribed voters with salary increases and price reductions in order to win the 2015 August parliamentary elections,” Rajapaksa said in prepared text of a speech delivered on September 15.

“They thought only of winning the elections, not about how they would manage the country after winning.

“This election related largesse set off a chain reaction which began with the loss of control over government expenditure, and an increase in the budget deficit.”

“The money thrown around to win the election resulted in an increase in imports.

“Seeing the recklessness of the new government, foreign investors began withdrawing their money and leaving Sri Lanka.”

Sri Lanka’s rupee collapsed from 131 to 147 during 2015 as the central bank printed money to 290 billion rupees finance the deficit as credit demand went up and also sterilized forex interventions as foreign investors fled.

During the Rajapaksa’s rule in 2012 also the rupee collapsed from 110 to 130 to the dollar.

The 2012 balance of paymetns crisis was triggered by energy subsidies, not election spending, and the central bank printed around 220 billion rupees as utilities borrowed from state banks to keep rates down and boost credit and imports.

Rajapaksa said during his time there was no difficulty in repaying debt and he did not complain about the lack of money.

Analysts say during the last few years of his rule, then Treasury Secretary P B Jayasundera did slowly squeeze expenditure, with total spending as a share of GDP falling.

In addition revenue to GDP also fell, reducing the overall tax burden on the people, while the budget deficit also fell. The strategy is superior to cutting deficits by raising taxes from the people to pay state workers.

However part of the expenditure fall, analysts say was a statistical sleight-of-hand where road building costs were hidden by off-balance sheet borrowings.

The economy was also hamstrung by Rajapaksa’s tendency to mis-manage state enterprises and build new ones and his support for domestic businesses and farmers to exploit consumers with import duties.

A large part of Sri Lanka’s current problems are due to the losses and inefficiencies at state enterprise and import protection.

The current administration has continued the policy of helping businesses build monopolies with import duties.

Rajapaksa charged that the International Monetary Fund had imposed ‘strict conditions’ on Sri Lanka because the new administration could not be trusted.

“The international lending agencies saw the reckless manner in which the yahapalana government destabilised the economy in a matter of weeks and months which is why they imposed strict conditions on Sri Lanka,” he said.

He denied that the economy was heading for a crisis in late 2015 when he called an election.

“The yahapalana leaders say it was not my astrologer who persuaded me to call an early election but Dr P.B. Jayasundera my treasury secretary. I am quite amused by such stories,” Rajapaksa said.

Economic analysts say the economy was recovering by the third quarter of 2014 as shown by credit and trade numbers. But expropriation, favoring businesses with import duties, the burden of loss making state enterprises, lack of rule of law, corruption and growing vicious nationalism had hurt the country’s growth propects. (Colombo/Sept15/2016)

2 Responses to “Sri Lanka economic crisis caused by reckless deficit spending: Sri Lanka’s ex-President Mahinda Rajapaksa”

  1. Hiranthe Says:

    We loved you Dear Ex-President for saving Mother Lanka from the killer Velu and showing your metal to the West who were trying to protect him. But you have taken everything for granted and ignored valuable advised given by many sons of Mother Lanka.
    Due to your ignorance, Mother Lanka lost the best leading son she has produced for a long time in you. She is weeping in the dark now and the Yamapallos are dragging her to the edge of the hill to push her down to the hell of no return.
    Even for today, you are the best choice of her to save her. However if you are looking to come back and help her out of this misery you may have to change many things and declare to the Public honestly so they will rally around you again and all the deities protect Mother Lanka will be supporting you
    Some of them I can think of are:
    1. Talk to the heart of Tamil people those who were saved by our Rana viruwos… You are the only one who can talk in Tamil to them and win their hearts. Then separatist Tamil Leaders will have no place.. People will chase them out. You can start this from now on.
    2. Scrap 13A and promise people that you are giving Grama Sabha.. so people have more say and they can select their own leader like in the past.
    3. Strictly do not associate with any corrupt politicians or officials. You know better than the public who is a thief. Please do not think of the crowd he would bring.. Actually it is not his crowd he is bringing… the crowed is merely surrounding him due to the fact that he is with you. That is the only reason. Otherwise people hate them.
    4. Do not waste a single Rupee for showing off or big functions. Be simple and be religious
    5. Abolish preferential voting / Manapa system.
    6. Don’t pump your family members except for Gota. To be very honest, Gota is a better choice than you when it comes to strategy and love for the country. But he is not a politician and he will lose his goodness if he comes to politics. Keep him as your second in command and the top advisor.
    7. Let Namal and Basil be simple and come up the ladder on their own. Don’t let Basil to organise your new party. People still hate him. People will hesitate to come around you when you are still surrounded by the same losers.
    8. Udaya and Wimal are really honest sons of Mother Lanka, yet 80% of people hates these two.. because they talk their hearts and in order to get the attention, they shout from the top of the voice. People think that they are playing for the gallery. Once you take the charge, keep them closer to you but let them calm down a bit and become more polished statesmen. They are valuable assets. They love Mother Lanka from their core.
    9. Please do not go to Thirupathy Temple in Endia any more. If we are promoting a true Therawada Buddhist country…. Why these hindu gods. You have more self confidence by doing the right thing to Mother Lanka..

    I hope some more points will be raised by our fellow patriots… We should creat a list jointly….

  2. plumblossom Says:

    This UNP is trying to privatise state enterprises suggesting that they are loss making. I would like to point out to this treacherous UNP Government that they have no right to privatise any state enterprises since they belong to the people of Sri Lanka in general and is not their private property to privatise as they wish. If state enterprises are loss making, appoint a good management team to manage the state enterprise properly. This treacherous UNP Government is privatising state enterprises citing loss making as an excuse since they are also privatising even profit making state enterprises. Actually this UNP Government is selling all state enterprises to their friends in high places and to companies of those foreign powers who helped them come to power monetarily and via totally false propaganda during their election campaign and this is their pay back.

    We would warn any buyer of any state enterprises being privatised by this treacherous UNP Government that as soon as a a new Government comes to power, all these selling of state enterprises will be considered null and void and anyone who buys up any of these state enterprises will have to bear the loss of buying any state enterprise. Therefore we urge all potential buyers not to buy any state enterprise since as soon as a new Government comes to power, all such selling of state enterprises will be considered null and void and they will only end up making a loss.

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