Sri Lanka: Ostriches with heads in the sand on the impact of a Global recession? Is an economic alignment with India the only answer?
October 17th, 2022By Raj Gonsalkorale
Another global recession is imminent. The US, UK, EU are all expected have lower growth rates and China’s growth has slowed down. India stands alone as a country that my bets weather the storm. There has been no discussion about its possible effect on Sri Lanka and what mitigating steps should be taken to cushion its ill effects on a country that is already bankrupt. Some 9.6 million people are reportedly in poverty according to a study by the Peradeniya university. Its malnutrition levels have increased sharply. Public hospitals still have drug shortages. Inflation has risen very steeply with the highest increase seen with food items. Foreign exchange reserves are still precarious and there is yet, no agreed way forward economically and politically with opposition parties harping on elections without offering any alternatives to proposals put forward by the President. For many ordinary people, absence of queues for petrol and gas appears to be the mirage that is hiding the quicksand below the surface.
The impending global recession is expected to hit the economies of all major powers to varying degrees, except India. As stated in the article ” The global recession and its impact on India” (https://www.ukessays.com/essays/economics/the-global-recession-and-its-impact-on-india-economics-essay.php), a slowdown in the US economy was bad news for India during the last recession because Indian companies have major outsourcing deals from the US clients. India’s exports to the US have been developed over the years, but they successfully weathered the great financial crisis of September 2008”
The article examines why India suffered so little during the previous global recession that impacted some of the biggest economies of the West, quote” There are many factors that saved the Indian economy from the bad consequences of the global recession. India being a nation whose market is majorly dependent on agriculture; hence it supported India from getting laid off like other affected countries. In those times Indian banks and financial institutions had almost entirely avoided buying the mortgage-backed securities and credit which turned to be toxic and felled western financial institutions. While India’s merchandise exports were hit by the recession, service exports did not fall as IT and BPO exports held up good. Foreign direct investment went high despite the global financial crisis. Financiers reversed flows into India, but long-term investors in plant and factories kept moving on their ongoing projects” unquote.
In the context of an impending global recession, the Sri Lankan government should begin discussions with India about what mitigating measures could be taken to prevent the current bad situation from getting worse. In all likelihood, it is not the IMF, but India which would be in a better position to assist Sri Lanka. However, in doing a bilateral deal, India too would lay down some conditions, both economic and political, and it is best to begin discussions and negotiations now rather than when the country has reached the next precipice.
Need for contingency planning
The ADB forecasts Sri Lanka’s GDP to be around 2.3% in 2023. This forecast however was prior to assessing the impact of the impending global recession on Sri Lanka. While economists will argue and predict varying degrees of impact, it is best to identify the worst case scenario and undertake contingency planning to address such a scenario.
A study has revealed that 9.6 million (or 42% of the population) people of Sri Lanka are currently suffering from poverty. This is no doubt a direct result of the economic catastrophe faced by Sri Lanka now.
Prof. Wasantha Athukorala of the Department of Economics and Statistics at the University of Peradeniya said this in an article (http://www.adaderana.lk/news/85495/96-million-in-sri-lanka-suffering-from-poverty). What could possibly be worse than this situation? And could it be allowed to get worse?
What are the likely effects of a global recession to countries like Sri Lanka?
It could impact on foreign direct investments. What is meagre today could get worse. Sri Lanka’s exports, its life blood, could get affected due to lower demand. Whatever plans that the BOI has and the Port City commission could be adversely affected.
Some countries who employ migrant workers, may reduce such employment opportunities if they are forced to scale back on their projects as a consequence of a global recession, and this will impact on remittances from overseas migrants working in developed countries. Sri Lanka has experienced this with the COVID pandemic, and the slow rise of remittances is bound to decline, strangling and suffocating the country
Tourism, a critical input to the economy which has just begun to show marginal increases will decline causing much hardship to the industry and those directly and indirectly employed it, in addition to the impact on the country’s coffers.
If the country’s life blood trifecta of exports, tourism and remittances are affected any further, it is difficult to imagine how the country would survive.
Unemployment will rise and so will social unrest as a consequence. The country will not have enough funds to support the most affected as government revenue will not be there to provide such assistance. Depreciation of the of the rupee has already caused much misery to the people and a further depreciation which might be inevitable, is bound aggravate social unrest.
It is in this context that a politically consensual approach as to the nature and extent of contingency planning, mitigation measures and broad strategic planning of the future direction of the economy becomes imperative. If not for today’s generation, but at least for the future generation. Such a task could have been achieved by the National Governance Council if only the country’s interest was placed above the personal interests of politicians.
Contrary to the belief that Ostriches bury their heads in the sand to save themselves from predators, which in fact is a myth, the BBC science focus (https://www.sciencefocus.com/nature/do-ostriches-really-bury-their-head-in-the-sand/) explains the why Ostriches engage in this practice , quote As flightless birds, ostriches are unable to build nests in trees, so they lay their eggs in holes dug in the ground. To make sure that the eggs are evenly heated, they occasionally stick their heads into the nest to rotate the eggs, which makes it look like they’re trying to hide – hence the myth. An ostrich trying to hide from predators in this way wouldn’t last for long, and it wouldn’t be able to breathe, either!” end quote.
In referring to the situation in Sri Lanka where many people seem outwardly oblivious to the clear and present danger to the country and its people like Ostriches purportedly bury their heads in the sand, it is an insult to an Ostrich who is in fact sticking their heads into the sand for a purpose, as that is where their nests are and for the sake of their yet to be born chicks. One wishes human behavior was more like that of Ostriches!
Collectively, the attitude of many people and the politicians who represent them, and even many religious leaders and civil society leaders, appear to live the myth surrounding Ostriches rather than the truth.
The attitudes displayed in the wake of current and potential hardships and disruptions, even greater poverty levels and malnutrition do not give an indication that the safety and well-being of future generations is being considered as a priority.
While the President has proposed several governance initiatives including the national governance council, grama sevaka level people’s committees, changes to electoral laws, many Parliamentary oversight committees as checks and balance mechanisms, no Opposition politician has presented an alternative governance model. The President’s proposals are matters for discussion and debate and improvement, if they are regarded as inadequate, but the irresponsible Opposition has not done this.
It is no wonder that the current Parliamentary system and those in it are a ridiculed lot. It is no wonder that a genuine Aragalaya began with very ordinary people’s participation to discuss and debate the future, as the past and the present have been failures. The concept of the original Aragalaya is no doubt in the hearts and minds of many and it should not surprise anyone if the movement resumes and becomes active in all parts of the country.
In this context, it is well worth for readers to watch and listen to a broadcast made by Venerable Galkande Dhammananda of the Walpola Rahula Trust (https://www.youtube.com/watch?v=wI49kigcXxI) on the birth of the Aragalaya before political vultures descended on it to feed on its message and regurgitate a politically motivated, violent message simply to change the deck chairs of a sinking Sri Lanka. Venerable Dhammananda’s broadcast should be watched by those whose hearts ache for Sri Lanka, and for the future generations of the country whose lives will be adversely affected if the political status quo continues.
A national economic summit
The Opposition political parties and those splinter groups withing the ruling party, should demonstrate their concern for the country, not by calling for elections at this juncture, but by joining together with the President and the governing party to agree on a broad program to address immediate and impending economic disasters. Such a program could be developed at a National Economic Summit with the participation of the business community, union leaders, academics, professional organisations, women’s organisations and other key participants, to develop a bi partisan economic plan for the next 10 years that includes a fiscal and monetary policy, an export development plan, a tourism plan, foreign direct investment plan, a plan for local revenue raising including taxation reform, and in addition, very importantly, a plan for food security.
If politicians do not change and take the lead to do this, and make a concerted, genuine effort to reverse the current economic catastrophe and undertake contingency planning to avoid even a worse debacle, people should exercise their right to change not just the politicians but the system that produces them.
