Sri Lanka stands at a critical moment as it steers the challenging path of economic recovery following a severe crisis. President Ranil Wickremesinghe’s leadership over the past two years has been marked by a pragmatic approach aimed at stabilising the economy and addressing social unrest. As the country heads towards the 2024 Presidential Elections, it is crucial for aspiring leaders and critics to present grounded, actionable plans rather than theoretical solutions that lack feasibility, if they are posing a challenge.
When President Wickremesinghe took office, Sri Lanka was grappling with an unprecedented economic crisis. His administration’s efforts have started to yield positive results, including the progress made in negotiations on debt restructuring agreements with key creditors like India and the Paris Club, and a separate agreement with China. These deals have been essential in reducing interest payments and unlocking further International Monetary Fund (IMF) financing.
The economy’s tentative recovery is evident from modest growth rates and significant reductions in inflation. For instance, the economy grew by 1.6% in the third quarter of 2023, marking the first expansion in 18 months. Inflation has also moderated, which is a crucial indicator of economic stabilization. However, these gains are fragile and need to be bolstered by continuous and realistic policy measures.
Policy shortcomings
Critics and political opponents of Wickremesinghe have been vocal about the shortcomings of his policies. However, it is essential that any proposed alternatives are not just populist rhetoric but are grounded in practical realities. The economic and political landscape in Sri Lanka is complex, with debt restructuring and austerity measures being unavoidable elements of the recovery process. The opposition, particularly parties like the Janatha Vimukthi Peramuna (JVP) or its new incarnation the National People’s Power (NPP), must demonstrate how their policies would realistically achieve better outcomes.
The road to recovery is fraught with challenges. Political stability is crucial for sustained economic growth, yet the upcoming elections introduce a layer of uncertainty. A section of the public critical of economic reforms perceived to favor the privileged has seemingly bolstered support for alternative political movements. It is imperative that any Presidential aspirant continues with the necessary reforms while addressing the socio-economic needs of the broader population.
Grounded Policy Recommendations
For Sri Lanka to continue on its path to recovery, the following policy recommendations should be considered by all political contenders:
1. Debt Management and Fiscal Responsibility: Continue negotiations with creditors to ensure sustainable debt repayment terms. Fiscal discipline must be maintained to prevent further economic deterioration.
Debt restructuring has been a cornerstone of Wickremesinghe’s approach. The agreements reached with bilateral creditors have extended repayment deadlines and lowered interest rates, providing some breathing room for the economy. However, private creditors, who hold a significant portion of Sri Lanka’s debt, remain a challenge. Their concerns about potential losses need to be addressed through transparent and inclusive negotiations.
2. Structural Reforms: Implement deep structural reforms in sectors such as education, labour, and agriculture to enhance productivity and attract investment. Privatisation of underperforming state-owned enterprises should be pursued to improve efficiency and reduce fiscal burdens.
Structural reforms are essential for long-term economic health. Sri Lanka’s rigid labour laws and outdated educational system are barriers to growth. Modernising these sectors can help create a more dynamic and competitive economy. Furthermore, privatising inefficient state-owned enterprises can free up resources and reduce the fiscal deficit.
3. Social Safety Nets: Strengthen social safety nets to protect the most vulnerable populations during the transition period. This includes targeted subsidies, social insurance programmes, and measures to address child malnutrition and poverty.
The economic crisis has significantly impacted the poor, with poverty rates doubling in recent years. Strengthening social safety nets is crucial to ensure that the benefits of economic recovery are broadly shared. Programmes that provide direct support to low-income families can help mitigate the adverse effects of necessary austerity measures.
4. Political Stability and Consensus: Build a broad political consensus around key economic policies to ensure continuity and stability. This is essential to maintain investor confidence and support long-term economic planning.
Political stability is a prerequisite for economic recovery. The current polarised political climate poses a risk to sustained reform efforts. Building a broad-based coalition that supports essential economic policies can help create a stable environment conducive to growth and development.
The severity of Sri Lanka’s economic crisis cannot be overstated. In 2022, the country experienced its worst financial downturn since independence, marked by massive inflation, crippling debt, and severe shortages of essential goods. The crisis led to widespread protests and political upheaval, culminating in the resignation of President Gotabaya Rajapaksa.
President Ranil Wickremesinghe, stepped into this tumultuous environment with a focus on stabilising the economy. His administration’s efforts have been multifaceted, involving not only debt restructuring but also securing international financial assistance and implementing austerity measures. These actions, though painful, were necessary to lay the groundwork for recovery.
One of the critical steps taken was the agreement with the IMF for a $2.9 billion bailout package. This package comes with stringent conditions, including fiscal consolidation, tax reforms, and public sector restructuring. While these measures are essential for long-term stability, they have also led to increased public dissatisfaction due to their immediate impact on living standards.
Moreover, Wickremesinghe’s administration has been working on improving diplomatic relations to secure financial support and investment. Strengthening ties with regional powers such as India and China has been a priority. For instance, India’s financial aid and investments in infrastructure projects have been pivotal in stabilising the economy.
However, the success of these efforts hinges on the implementation of structural reforms. Sri Lanka’s agricultural sector, which employs a significant portion of the population, requires modernization.
Similarly, reforming the education system to align with market needs can help address the skills gap and reduce unemployment. Investment in vocational training and higher education can create a more competent workforce capable of driving economic growth.
Public discontent
As Sri Lanka approaches the 2024 elections, the political landscape remains highly volatile. The main opposition parties, including the NPP and the Samagi Jana Balawegaya (SJB), have capitalized on public discontent to garner support. However, their proposed policies must be scrutinised for practicality and feasibility.
The JVP’s call for radical change resonates with a section of the youth. Yet, their proposals must be realistic and implementable within the constraints of Sri Lanka’s current economic situation. Similarly, the SJB’s plan to renegotiate the IMF agreement must be carefully considered to avoid jeopardizing the financial stability achieved thus far.
All in all Sri Lanka’s path to recovery requires practical, grounded solutions that address the immediate economic challenges while laying the foundation for long-term growth. President Wickremesinghe’s pragmatic approach has provided a starting point, but continuous efforts are needed to sustain and build on these gains. Aspiring leaders must move beyond rhetoric and present viable alternatives that can be realistically implemented. The future of Sri Lanka depends on the collective ability of its leaders to navigate these turbulent times with wisdom and pragmatism and not having hair splitting arguments on theoretical notions.
Laksitha De Silva