Prof. N.A.de S. Amaratunga 

Absence of fuel and gas queues are often cited as signs of economic recovery by politicians on the election platforms. On the contrary there is nothing to boast about because our poor people are worse off than they were. How fuel could be imported ending the queues was due to the fact that the foreign loan payments had been stopped and friendly countries had chipped in with some dollars and the country was able to find foreign exchange to import fuel and gas. This cannot be boastfully claimed as a stroke of a genius, for that was the obvious thing anybody would have done. After the Covid pandemic was brought under control export earnings, foregn remittance and tourism returned to normal and this resulted in the improvement of foreign reserves. This is the normal course of events after a pandemic and it would have happened under any sensible government. As all of that happened after the country had come out of an acutly perilous dire straits caused by the blunders of the previous SLPP president the change appeares wonderous and the work of a genius! Know the track record of these geniuses!

Contrary to all claims, however, the middle class and the poor are facing unprecedented difficulties in trying to barely exist. They have cut down their meals from three to two and from two to one and are getting deeply into debt. This is reflected in the poverty level which has increased from 14% to 26%. Should this happen if the economy is recovering? Economic recovery at the expense of the poor is meaningless. Nutrition, health and education of the nation have been irreperably damaged. Disastrous repercussions of this catastrophy will be experienced in the future. The rich getting richer in a wierd economic recovery will not help to rectify this irreparable damage.  We may have in our hands a poorly nourished, unhealthy and uneducated population incapable of undertaking any development work and the country may be preyed upon by foreign powers.

Let me reproduce an extract from a World Bank report on Sri Lanka issued in April 2024 ; …poverty rates continued to rise for the fourth year in a row, with an estimated 25.9% of Sri Lankans living below the poverty line in 2023. Labor force participation has also seen a decline, particularly among women and in urban areas, exacerbated by the closure of micro, small, and medium-sized enterprises (MSMEs). Households are grappling with multiple pressures from high prices, income losses, and under employment. This has led to households taking on debt to meet food requirements and maintain spending on health and education”.

Let us look at the other major economic problems Sri Lanka is facing apart from the gigantic problem of increasing poverty mentioned above. Sri Lanka has an external debt of USD 55 billion in the first quarter of 2024 which has risen from 54 billion in the last quarter of 2023. We have time till 2028 to start servicing these foreign loans. According to the debt schedule of the Central Bank debt servicing would amount to about 4% of the GDP annually starting from 2028. We earned USD 15 billion in exports but spent USD 16 billion for exports in 2023. We spend more foreign exchange than we earn and this situation may not change by 2028. Our export earnings have been around 20 % of the GDP since 1977 and it has not improved despite all effort. We have borrowed to pay loans and this may be expected to continue after 2028 also. Will we have money for poverty alleviation? Most unlikely.

Most of the presidential candidates do not seem to have addressed this aspect of the problem. Their plan seems to be to attract foreign investers and increase production of export goods. This had been Sri Lanka’s strategy since 1977 but with little success. Most importantly the purchasing power of the middle class and lower strata has been declining over the years. When household incomes and expenditures are calculated on the basis of purchasing power parity it is seen that the poor has been getting poorer while the rich has got richer. This picture is the eternal and persistant feature of the present global economic model which is based on neo-liberalism. It is incapable of delivering any other result. Neo-liberalism is the worst form of capitalism. On the other hand Keynesian policies which inserted a human face into capitalism had been kinder to the poor during the period 1950 – 1970 in the western countries. In 1970s Margeret Thatcher under the guidance of Friedrich Hayek introduced neo-liberalism saying There is no alternative”.

There is no alternative if what is wanted is the continuation of the  present system geared to ensure the flow of wealth from the poor to the rich. There is no alternative if what is wanted is development of the already developed at the expense of the poor and the environment.

Sri Lanka may be able to come out of the debt-poverty trap if it follows a import substitution policy instead of an export led economy. Consider  that we spend more than 50 % of foreign exchange to import essential food items that can be locally produced. But we do not attempt to attain self-sufficiency perhaps because it is cheaper to import. This mentality of looking at everything from the money and profit angle must give way to a philosophy of self-sufficiency in all what we need to lead a healthy life. If 50 % of foreign exchange is saved we will have enough for poverty alleviation.

Prof. N.A.de S. Amaratunga