Over 90 percent of government revenue currently goes on debt servicing, mainly to China, and the concessionary capital repayment moratorium on multi-lateral agency loans will soon expire. What happens then?
by Ajit Kanagasundaram
( July 16, 2017, Colombo, Sri Lanka Guardian) The state of our economy is parlous but we are living in a fools’s paradise. We have achieved middle income status on borrowed money spent on unproductive show projects like Mattala airport. Goods, mostly imported, are feely available even though at a price and the only cloud on the horizon seems to be dengue and garbage spills and the bother of the eternally troublesome Tamils with their incessant demands for devolution and autonomy – why can’t they ever be satisfied with our generosity in letting them merely exist?. What can go wrong in Paradise? A great deal as I will try and explain.
Let us take the basics first. Over 90 percent of government revenue currently goes on debt servicing, mainly to China, and the concessionary capital repayment moratorium on multi-lateral agency loans will soon expire. What happens then? The answer of the IMF and World Bank will be the same remedies that failed in Indonesia and Thailand in 1997 and Greece in 2014 – more austerity, budget cuts and higher taxes. This will deepen the recession, increase unemployment in a country with no social security safety net, dampen economic activity and create social unrest in a fragile country with deep class and ethnic fissures. The next targets of ethnic pogroms will be the Muslims and Christians as there are no worthwhile Tamil targets left and the BBS is already flexing its muscles
But we will have no alternative but to comply.
Our short term remedies are to borrow more from China (and compromise our sovereignty even more) and sell our assets like Hambantota harbor – but these are clearly short term and finite. The expectation of enormous FDI and setting up an international banking center in the new Port City are pipe dreams – we do not have the administrative capacity to set up world standard industrial parks, our labor is unskilled and strike prone and we lack cheap reliable electric power. As for a banking center we lack cost effective office space (the 20-year old world trade center costs twice as much per square foot of office space than more modern office space in Singapore) , reliable and cheap telecommunication links to the world and above all a judiciary with a track record of unbiased and expeditious dispensation of justice. Till then the Megapolis will remain a Megalomananiapolis !!
The only remedy is to use our resources of soil and water, especially in the partially developed Mahaweli areas, and develop agricultural and horticultural exports as Thailand and Vietnam have done (Thailand alone exports $ 3 billion worth a year – four times more than our tea industry where we have over 150 years experience), but this will be slow an take a generation of hard and sustained work. Time is running out and the only voice in the wilderness is Indrajit Coomaraswamy, our Central Bank Governor, who harps on these realities in every speech – but who is listening? Part of the problem is that as a Harrow and Cambridge educated gentleman and intellectual he minces his words. We need a political heavyweight like Champika Ranawake to sound the warning loud and clear.
These steps are the minimum we must take.
– Immediately sell our loss making corporations to the private sector – here and abroad. Foreigners are preferable as they will bring in foreign capital and management methods.
– Start a focused program to cultivate and export horticultural products – especially mangoes and oranges from the largely undeveloped Mahaweli areas especially System B.
– Expand our production and export of spices.
– Start a fragrance industry with our endemic flowers and spices.
– Build up a dairy industry especially in Jaffna where the people have a natural affinity for the activity.
– Allow foreigners to buy land freely if they pay a 100% tax rather than selectively as at present.
– Start a foreign residence program, similar to Malaysia’s “Malaysia my second home” program where foreigners are given a permanent visa if they bring in a minimum amount of capital. Sri Lanka has a better land environment and sea share than Malayasia and is much better culturally Malaysia’s Chinese are too busy making money, the Indians are cowed and introverted and the Malays are arrogant in their delusion of ethnic superiority and belief in Islam. The Sri Lankans are much more interesting and welcoming of foreigners especially the British, who as Galle Fort shows, have a natural affinity for us.
– Allow dual citizenship to any Diaspora, not selectively as at present especially for Tamils, as they will invest in the North and the East. The combined income of the Tamil Diaspora is now well in excess of our GDP and this is the largest untapped source of capital – not more loans.
If we do not act fast, for those of us who can see there is the “Plight at the end of the Tunnel”.
The writer can be reached at firstname.lastname@example.org