Warning bells for Fiji – Economic crisis in Sri Lanka ‘a lesson’
Posted on May 1st, 2022

Courtesy The Fiji Times

Economist Dr Neelesh Gounder. Picture: RAMA

The current economic and political crisis in Sri Lanka should be a lesson for Fiji of what bad finance management could do to an economy, says USP economist Dr Neelesh Gounder.

His comments come in the wake of international media reports that Sri Lanka has officially requested the IMF to bail it out of its worst economic crisis in 70 years. Dr Gounder said the Sri Lankan crisis had been in the making for some time.

Years of mismanagement of the economy, corruption and nepotism had slowly created a fragile economic situation prior to the crisis,” he said.

All these had led to falling economic growth, investment and government revenues while the government debt burden continued to rise. In order to reverse the economic situation, Dr Gounder said Sri Lankan president Gotabaya Rajapaksa further cut taxes such as VAT and corporate taxes.

This, however, made the situation worse as it further reduced government revenue.

At the same time, several domestic policy failures were fuelling the crisis.

Then the bomb blasts of churches and luxury hotels in Colombo in April 2019 and the COVID-19 pandemic exacerbated the weak economic situation.”

Dr Gounder said as revenues from tourism earnings declined, foreign exchange reserves dried up and worsened the situation, leading to a full-blown economic crisis.

Just last week, the Sri Lankan Government suspended debt payments for the first time since its independence,” he added.

While their case was more complex, Dr Gounder said there were important lessons for Fiji from the economic collapse of Sri Lanka.

It shows the importance of proper economic management with the right economic and social policies.

There is a continuous need to push towards a more diversified economy and thereby reduce the impacts of domestic or external economic shocks.

Beyond this and fundamentally, the economic collapse in Sri Lanka highlights the crucial role of political institutions such as having a robust parliamentary system, informed decision-making by incorporating competing demands of various stakeholders, ethical-political leadership, media freedom and ensuring that oversight institutions remain independent and effective towards keeping those in authority under check and accountable.”

Questions have been sent to Economy Minister Aiyaz Sayed-Khaiyum.

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