By Professor Milton Rajaratne (Faculty of Management, University of Peradeniya) Courtesy The Island

May 9, 2017, 8:28 pm

In contrast to the Rajapaksa government, the Yahapalana government highlighted accelerated growth, one million new jobs, small government, social market policy, debt free economy, big push to industry, and infrastructure projects, and revitalization of the capital market etc. in its policy statements. So far the Yahapalana government has spent one half of its life and produced two Annual Reports about the economy, i.e., 2015 and 2016. The Central Bank Annual Report 2014 covers the economic performance of the Rajapaksa government while the Annual Reports of 2015 and 2016 witness to the economic performance of the Yahapalana government. This paper compares 30 key economic indicators of Sri Lanka between the two governments to assess economic performance and to conclude whether Yahapalana government’s economic policy is so far successful.

The most striking fact about the Yahapalana government is that its economic machine has produced less in 2016 compared to 2015. Although it appears as US$14 increase in per capita income between 2014 and 2016, the per capita income has dropped in 2016 by US$8compared to 2015 which is a phenomenon, which last occurred in 2001 during the period of the “minus economy.”

Despite the slogans to create one million jobs and very expensive foreign travels of the Prime Minister to strike investment deals theinflow of FDI and the real sector have decreased and unemployment has increased creating frustration among the youth. Due to the decrease in FDI, domestic saving and investment, the domestic product will further shrink (if efficiency does not rapidly increase; which is impossible) causing social unrest in the coming years.

And getting trapped in their blame of Rajapaksa for public debt, the Yahapalana government has increasingly resorted to local and foreign loans during the two year administration and pushed the debt burden of the country from 71.3% to 79.3%.

Share market indices tell more about the business environment created by the Yahapalana government. The All Share Price Index has significantly dropped from 7,299 units to 6,228 units casting doubt over investment in the capital market. The value of shares traded during this two year period also has been slashed by almost a half and non-national net purchase from SLR 21.2 billion to SLR 0.3 billion indicating less trust on the capital market and dwindling foreign exchange inflow.

Official reserves have declined to a dangerous level equivalent to imports of 3.7 months from 5.1 months in 2014. Further due to decline in exports income the debt service ratio has also increased from 20.8% to 25%.The trade deficit has soared from US$-8.3 billion to US$-9.1 billion between the periods. The largely depreciated rupee has not been an incentive for the exporters and thus exports earnings has also decreased to US$10.3 billion from US$11.1 billion in 2014.

In conclusion, the Yahapalana economy has failed in many ways. It has failed in increasing income, promotion of exports, curtailing imports, curbing inflation, interest rates and lending rates, generating employment, increasing domestic savings and investment, attracting FDI and foreign share capital, developing capital market, controlling government debt and expenditure and many more. Those who ousted Rajapakse strongly believed that UNP has better economic knowhow and expected rapid economic development through which more employment and income would be generated. The UNP governments in the past did so. It is unfortunate for the country that the Minister of economic planning and development together with Minister of Finance have failed absolutely in bringing about the positive economic change since January 8, 2015. According to the food wholesalers in Pettah, the street felt a 40% drop in sales of this April compared to the previous April! The so called “change” is now felt as a strike of thunder to white collars and blue collars. The President is the umpire. Now it is the time for red cards to be shown to the incapable minsters and UNP led government.