By November, Budget 2021 will be presented to Parliament. 2020 was a no Budget year and funds were allocated using exceptional clauses in the Constitution. A huge supplementary account was passed soon after Parliamentary Elections on 5 August. Besides the Election manifesto, rata hadana saubhagyaye dekma, (Vistas of Prosperity and Splendour) the only official policy of the new Government came in the shape of the President’s address to Parliament.

In this regard, the Appropriation Bill, better known as the Budget, is supposed to offer the brick and mortar for economic policy statements. Moreover, as the Sri Lankan Parliament website notes, “In the annual calendar of the Parliament of Sri Lanka, the annual Budget presentation and ensuing debate takes precedence over most, if not all, legislation, motions and resolutions which Parliament debates in any given year”. Articles 148, 149 and 150 specify the Parliament’s absolute power over public finance. Moreover, these articles may be a constraint that the Parliament can impose on the executive arm of the state, the President.

 Sri Lankan Economy 2020

If the economic situation is the principle concern 2020 may be described as one of the worst years post-independence.

This may be attributed to three main factors:

(1) The neo-liberal policies have had inherent dynamics that eventually subdued the growth process although some growth was recorded in its first years of implementation partly due to heavy foreign assistance-funding big infra-structure projects. The same is true for reasonably high growth records under the Mahinda Rajapaksa regime.

(2) The Yahapalana Government retreated towards a fundamentalist version of neo-liberalism that was deflationary. Hence, from 2015- 2019 the economic growth was sluggish and as a result per capita income declined throwing the country back to a lower middle-income category.

(3) By March 2019 COVID-19 hit the economy, its impact on exports, tourism, and income from migrant labour was substantial. Nonetheless, it has not been limited to those sectors that are closely bound with the global system, but also extended to other sectors first through supply shock and then through demand shock.

Hence, the economic growth in 2020 is expected to be negative, significantly varying estimates given by different organisations notwithstanding. Asian Development Bank has estimated the growth rate of the Sri Lankan economy to be minus 5.5 per cent in 2020. The IMF April forecasts for 2020 are minus 0.5 per cent. Central Bank of Sri Lanka has predicted minus 1.5 per cent economic growth for 2020 and to recover over +3.0 per cent in 2021. Whatever the figure, it would be a formidable task to put the economy back in growth path. Of course, there is a natural tendency for the economy to recover from the wounds exacerbated by the pandemic in the Post COVID-19 period.

As my friend Prof Tilak Abeysinghe opines, “under the optimistic scenario, if the COVID-19 pandemic withers away and normalcy returns before the end of the year (2020), a V-shape or U-shape recovery is likely for all the sectors. Under the pessimistic scenario where Covid-19 outbreaks linger on, the economy would go into an L-shape drag. The growth numbers by sector indicate that GDP in 2020 alone may contract by about 4.3 per cent. The very objective of these warning lights is not to realise the bad outcome.”

Sri Lanka’s economic problems go beyond the problem of sluggish growth. In 2020, many have raised the issue of country’s debt. Here, the most important variable is not the amount of total debt but debt servicing per year, as a percentage either of GDP or of the Government total revenue. Figure 1 and Figure 2 give an idea how debt servicing had become a major economic issue in recent years.

The rate of inflation and of unemployment have also increased since 2015 and the steps taken to reduce these variables were not successful due to many reasons. Similarly, the poverty depending on the index used has also declined.

 The Tasks Ahead

It is clear that these issues are associated with sluggish growth and some have arisen from fiscal management and international trade policy. Hence the, economic crisis today is an outcome of incorrect economic policies introduced in 1977 and implemented by all the Governments in the last forty years.

In such a conundrum, President Gotabaya Rajapaksa thinks that simply fast, efficient and timely execution of decisions or prompt action of people’s problems by visiting villages may not only be inadequate but also harmful. What is imperative at this phase is an articulation of a new five-year plan assessing the global situation and mapping the internal resources that could be used. This would be a clear break from the neo-liberal policies that proved to be ineffective and regressive. Nonetheless, what we experience in the short period after the August Parliamentary Election is the Government going back not only with regard to economic policies but also with regard to its political decisions.

To mention a few:

(1) Surpassing the peoples’ mandate in drafting the 20A.

(2) Indiscriminate destruction of country’s protected forests.

(3) Using public money for the benefit of the politicians and their henchmen; and above all.

(4) Ad hoc economic decisions associated with either vested interests or trial and error decision making process.

As economists argue the recovery from the economic crisis exacerbated by COVID-19 may take V, U, W or L shape would depend as to what extent the Government could move away from the last 42 years policies and the policy-related practices. It may be premature and presumptuous to say, but the way things have been moving does not show a light at the end of the tunnel.

Sumanasiri Liyanage