Sri Lankan Economy in the Doldrums

by K. Mylvaganam, Vanni, March 22, 2008

The economy of Sri Lanka (SL) is diving deep into an abyss, thus burdening the common man, particularly the poor income group, with unbearable misery. Inflation has reached an ever higher level, and it is said that it is the highest in the entire Southeast Asian region. The Colombo Consumer Price Index (CCPI) reflected a record figure of 24% last month.

Lack of proper economic management and inefficiency at the highest level is supposed to be the underlying cause for this unsatisfactory situation prevailing in this country.

There are several other factors which also contribute to this deteriorating situation.

• The government’s borrowing from the Central Bank and obtaining loans at very high interests has forced the government to print money. This results in the increase in the inflation. Apart from the Central Bank, money is borrowed from private banks at exorbitant interest rates. The interest payment alone is Rs.120 billion.
• There is severe wastage of government funds. The public sector is a big drain on the finances of the country. Unnecessary appointments are made by the ministers and members of parliament to satisfy their supporters. It is said that there is an excess of employees in several government departments. In the dept. of education there are many teachers appointed to schools in the South more than the number required. (At the same time, the schools in the Tamil areas are suffering a severe shortage of teachers.) Public sector spending amounts to Rs.214 billion.
• Shortfall in revenue is another factor causing hardship. The war has deterred foreigners from investing in this country. The bombs exploding in Colombo and its suburbs have had its toll on tourism. It is said that the drop in income is around 25%. Some small time hotels are contemplating closing down and bigger hotels are pruning their rates.
• The budget deficit is another vital factor. Even though the government predicted its revenue to be Rs.775 billion in the last budget for 2008, yet the experts do not expect the revenue to go over Rs. 600 billion.
• Losses in State-managed corporations are also a big drain on finances. The Ceylon Electricity Board (CEB) and the Ceylon Petroleum Corporation are a two of such institutions. Billions of rupees are dissipated through the much talked about Mihin Lanka airline. The planes leased by this corporation are being withdrawn by the owners as Mihin Lanka has not paid up their dues. This state-owned airline is reported to be running at a loss already over Rs. 2 billion. The interest on its loan itself exceeds Rs.35 million a month. Some of its executives draw a remuneration between Rs. 300,000.00 and Rs. 500,000.00 per month.
• Wastage of government funds on fun and frolics. Millions of rupees are spent on gala festivals, meetings, poster campaigns, cut-outs of the President and those of the Ministers to boost their image. Millions are spent on wall posts and banners as well. The proposed South Asian Association of Regional Cooperation (SAARC) summit that is to be held in Colombo is estimated to cost Rs. 4.5 billion. The cost of providing security alone is expected to cost Rs. 1 billion. The question in everybody’s mind is as to whether we need this summit to be held in this country under the present volatile situation. The gala arrangements made to celebrate the “liberation of the East” did not come cheap. When a minister visits his electorate or any other place to open one or the other project or building, millions of government funds are spent to make the arrangement a great show.
• Maintaining the 107 ministers (maybe more, as it keeps rising often) itself demands a colossal sum running into billions. Some ministers are provided with 15 vehicles, some get bulletproof vehicles and an abundance of staff. On top of their monthly emoluments, there are other payments such as house rent, travelling allowances, etc.
• Corruption is the worst enemy of the country. It is prevalent from top to bottom. There are only a few officials one could say are honest and upright. But they have a hard time to do their job. Recently an unusually honest police officer was transferred from his post as he refused to the line of a corrupt boss. The sudden transfer of the head of the bribery commission tells its tale. He was working on a massive fraud involving some “influential” people. No reason was given for the transfer. The daily and weekly papers were filled with detailed particulars of the malpractices in the purchase of some MiG planes and other military equipment.
• The war is choking the government as its expenses are increasing in leaps and bounds. There were only 11,000 soldiers before the war broke out. But today it is estimated that the number has shot through the 200,000 mark, including the volunteer forces and the village guards. For every soldier injured, the injured is nursed at government expense and he or she is paid the monthly salary. When a soldier dies, compensation is paid to the parents and to the spouses. Billions are utilised for the procurement of modern sophisticated military equipment. Rs.117 billion are allocated for defence.
• Prices are soaring, but the people are asked to tighten their belts to let the government fight “terrorism.” The people have, accordingly and ungrudgingly, abided to give the government a chance to fulfil its promise. As prices rise and the war is dragging on, the people are losing their patience. The trade unions, too, that extended their cooperation to the government, are now threatening to go on strike unless their demands are met. The Jathika Vimukthy Peramuna (JVP), that has been toeing the line of the government, is turning its guns against it. They feel that they are losing the support of their grassroots, which are getting intolerant as they are feeling the pinch of the rising prices. The government promised to reduce the price of bread to Rs. 3.50 but now it is Rs. 40.00

Some prices are tabulated for easy comparison

• Foreign trips don’t come cheap. Most of the ministers spend more time overseas than in the country. And when the President goes on foreign visits, he takes not only his family members but also a contingent of officials and party supporters. When he went to view the final cricket match in South Africa, he took more than 90 followers with him. All those who fly overseas stay in five star hotels. These cost money – big money.
• The B udget Deficit keeps rising annually. The deficit in 2006 was US$3371 million, but the 2008 budget reflected a deficit of US$3560 million. Even though an increase in exports was registered in 2007, its positive effect was nullified by the increase in the imports. The imports superseded the exports. The only positive factor that keeps the state from drowning is the Balance of Payments Surplus (BPS). This is mainly due to the inflow of remittances. Thanks to the over 800,000 Tamil Diaspora and those working in the Middle East. Despite the shortfall in the trade balance the balance of payments show a surplus of nearly US $ 300 million.

God Save Sri Lanka or Better Not.

K.Mylvaganam

From Vanni

kmylvaganam1974@gmail.com