Dilrook Kannangara

Sri Lanka’s economic crisis in not unique. Other countries have been in it and some are currently in it too. Economics is all about trade-offs. One basic premise of economics is that resources are limited but needs and wants are unlimited. The way to succeed economically is to manage needs and wants (not resources) to achieve best economic outcomes. Having decided on what needs and wants are crucial (and what must be given up, sadly), then comes resources management.

A full-scale economic overhaul takes time. It is doubtful whether Sri Lanka can survive until then as a functioning society. Quick goals must be achieved first in order to keep the Sri Lankan society functioning so that bigger long-term goals can be achieved.

Foreign commercial loans (ISBs and SLDBs) cannot be repaid. This is a painful economic fact. They must be defaulted officially. No interest payments and no repayments. It will result in court cases and ultimately Sri Lanka will be declared officially bankrupt. This official declaration is only symbolic. In substance Sri Lanka is bankrupt for months. A bankrupt nation need not repay commercial loans. This alone can save Sri Lanka in the long run. Bilateral loans (loans from foreign countries) must be repaid. These are not a huge burden.

Despite the crisis, an enormous amount of foreign currency leaves Sri Lanka today. Gold is the most popular medium of taking value out of Sri Lanka. All ports and airports must be equipped to nab gold. Sri Lanka must ban the importation of gold too.

Dollars are hoarded by various individuals for profit. This is because banks do not give the best rate for foreign remittances. Banks must be instructed to pay a higher rate than the prevailing rate in the market. Banks must be compensated in rupees for the additional amount. This will attract a sufficient amount of forex into the banking system which can be used to purchase fuel, fertilizer and other necessities. The bad side is this will further drive up inflation which is already at 130%. However, it is an essential choice the government must make and suffer the cost. Once foreign reserves are built, inflation will ease. However, this painful initial step must be taken.

These three simple strategies can save Sri Lanka from total collapse. Once again, resources are limited. Painful choices must be made to manage limited resources. If scant resources are wasted on face-save measures, there won’t be enough resources to run the country.