ABC of AKD’s plans to handle the ‘Economy Stupid’

President Anura Kumara Dissanayake

In the Parliamentary election campaign, RW asked the voters not to send inexperienced people to Parliament and reiterated that only his team has the necessary experience. The results of both the Presidential and Parliamentary elections showed that RW had failed to convince the voters on this point, like the economy stupid slogan of the Clinton campaign. AKD, in his President’s address, disproved his critics. However, after the Presidential and Parliamentary elections, it is the economy stupid that is going to loom over Sri Lanka making it AKD’s biggest challenge

Vision of AKD

President Anura Kumara Dissanayake, known as AKD, outlined the plans of his Government to rescue the crisis-ridden and slow growing economy in delivering the President’s Address at the opening of the 10th Parliament last week1. In a short speech like this, one cannot give all the micro details of his plan. Hence, by outlining the main policy parameters, he treated his audience to the vision by which his Government is guided in the next five years to deliver prosperity to Sri Lankans. AKD’s forte lies in delivering speeches freely out of his mind instead of reading a prepared text. In his maiden speech at Parliament as the President of the Republic, he spoke for long 55 minutes occasionally looking at the sketch of his speech to pick only the key points. Otherwise, it was a free flow of his mind.

Steps of development policy management

In development policy designing and management, there are further steps to be taken by AKD Government. The vision should be converted to a plan, plan broken into projects, projects divided into programs, programs to be represented by implementation units. These units should be given targets with a timeframe. On the other side of implementation, there should be continuous monitoring, progress reviewing, and trouble shooting if there are impediments in the plan implementation. These two machineries should be put in place immediately and they should naturally be under AKD himself to provide the necessary authority and leadership for change management. Without this, the vision will be a talk only devoid of action.

Handling the economy stupid

James Carville, the political advisor to Bill Clinton is said to have coined in 1992 the phrase, ‘It is the Economy Stupid’, to belittle Clinton’s opposite, George HW Bush, on his ignorance of the ground realities in the ailing US economy2. The underlying connotation was that both the US economy and its chief economic manager were stupid. This soon became the Clinton campaign slogan, and it was successful in denying a second term for the incumbent President. AKD’s chief contender, former President Ranil Wickremesinghe or RW too tried to belittle his two main contenders on a similar ground. RW is reported to have publicly ridiculed AKD as well as Sajith Premadasa that neither one was experienced in running a crisis-hit economy unlike him. In his view, they both had run away from responsibility when the country needed a leader to bring order to the emerging anarchic state. In this context, RW maintained that only he stepped forward to take responsibility and only he had an experienced team to do so3. 

In the Parliamentary election campaign, RW asked the voters not to send inexperienced people to Parliament and reiterated that only his team has the necessary experience4. The results of both the Presidential and Parliamentary elections showed that RW had failed to convince the voters on this point, like the economy stupid slogan of the Clinton campaign. AKD, in his President’s address, disproved his critics. However, after the Presidential and Parliamentary elections, it is the economy stupid that is going to loom over Sri Lanka making it AKD’s biggest challenge.

Overvaluing pluses and ignoring minuses

Like any economic policy program, AKD’s program too has plus as well as minus points. With the unmatched super popularity which AKD has got from the people across the country today, it is natural for his fans to overvalue plus points and gloss over the shortcomings. Such analysis is guided by pure emotional affiliations, and it is injurious to both AKD and the country. The overassessment of his program will not give him an opportunity to correct himself. The country will suffer because of the unintended consequences of his policies. As a result, when, on a later date, the weaknesses are realised, it will be too late to reverse the policies and cut the long-term costs to the economy.

Such a fate served on the former President Gotabaya Rajapaksa when he sought to convert the country’s agriculture to organic farming overnight. This daring and obviously destructive attempt was praised by those who were around Gotabaya and, as a result, neither he nor his policy advisors got an opportunity to stop it in time to avoid the long-term damage done to Sri Lanka’s agricultural sector. AKD should not fall into this trap just by listening to people who praise him.

Hence, this article will critically review AKD’s policy statement.

Value of the Rule of Law

AKD’s policy vision is based on inclusive development which solicits participation of citizens in all the regions, all ethnicities, all faiths, and all lingual groups. The mandate he has got is from all these diverse parties. But he admitted that there are citizens who have not voted for him, or the candidates fielded by his political alliance. AKD and his Government accept that for a vibrant democracy – a necessity for sustainable development, there should be a multiparty system. It requires the recognition and appreciation of diverse views. This is the foundation of society being promoted under his rule. But for people to participate in development activities, there should also be the observance of the Rule of Law. 

AKD proudly announced that there should be no one who is above the law and all are under the law. In my view, this rule should be applied to the Executive President as well. A recent example of a President flouting this rule relates to RW who was found guilty by the Supreme Court for violating the Constitution by not holding the local government elections in time5. But RW, instead of observing the Rule of Law, defended his decision not to hold the local government elections implying that he would not obey the Supreme Court’s judgment6. This is a dangerous path for democratic inclusive development. 

Hence, AKD should not permit anyone to ridicule judicial judgments under his rule. When this precedent is established, it will be observed by future generations as Sri Lanka’s moral and ethical foundation for societal development. It is an essential requirement for inclusive development.

An immoral legislature and destructive institutions

Connected to this is his ‘clean Sri Lanka’ program which has gone beyond the environmental aspects of cleaning. It calls for an attitudinal and behavioural change in Sri Lankan people, on one side, and changing the behaviour of Parliamentarians, on the other. In the past, especially during the previous RW regime, Parliament became a place which did not give the best example of behaviour, accountability, and moral ethics to Sri Lankan people. On one occasion, RW speaking in Parliament said that there was no local government election and therefore there was no question of postponing the elections7. When the Supreme Court ordered that the local government elections should be conducted in terms of the prevailing laws, a government party legislator proposed that privileges of Parliament have been breached by an interim order of the Supreme Court8. These are only two glaring instances of immoral and unethical behaviour. 

These are clear cases of the non-observance of the accountability principle by legislators but there are many more. AKD stressed that Parliament cannot continue to act like this, and it should be brought under the supervision of the public eye. Regarding the behaviour of people, he said that the current ethos and norms should be changed to build a responsible society that appreciates each other. These are what economists call the defects in the institutional structure of the country. They have been branded as destructive institutions and they should necessarily be changed into inclusive institutions if Sri Lanka is to prevent itself from being a failed nation9.

Danger of acceding to debt restructuring plan

AKD also justified, quite correctly, the decision of his Government to go along with the prevailing Extended Fund Facility or EFF from IMF and the associated debt restructuring program. He said that the depth of the economic issue facing Sri Lanka does not leave room for making even the slightest mistake by the Government. It will be fatal to the economic life. Hence, to bring order to the chaos-stricken economy and maintain the trust and confidence of the international community, the Government has decided to be within the parameters set by IMF. He said that the third review of EFF is under way and will be completed by 22 November. 

This was done as expected10. Debt restructuring with bilateral creditors and commercial creditors, mainly the International Sovereign Bond or ISB holders, will be completed as agreed with them previously by end-December 2024. These are significant achievements with respect to IMF facility contrary to the suspicions of the critics of the AKD Government. However, the external debt restructuring without a significant haircut will leave a massive external sector gap of about $ 17 billion by 2027 as projected by IMF in May 2024 based on the estimated foreign inflows and outflow. It will simply pass the obligation onto the future generations. 

To avoid another debt crisis and free the future generations of the likely burden falling on them, AKD Government should increase the net foreign inflows in 2025 and beyond through an improvement in the export of goods and services to about $ 45 billion by 2030 as targeted by the Export Development Board11. This is an ambitious target but should necessarily be attained.

Stabilising nominal economy through IMF help

Proceeding with IMF will help Sri Lanka to tackle the issues in the nominal side of the macroeconomy. That is made up of the inflation, exchange rate, balance of payments, and the government budget. But the development of the real side of the macroeconomy, that is, the production of goods and services, is outside this IMF program. The real sector development will allow Sri Lanka to deliver prosperity to people, improve their living standards, generate employment, and repay external debt by facilitating the earning of foreign exchange through the export of goods and services. For this, a separate plan is necessary. I have presented this case earlier in a separate article12.

Immediate, short-term and medium-term development strategies

AKD has recognised this fact. He has proposed to take some immediate measures, known as picking low-hanging fruits, and initiating programs to create a turning point in Sri Lanka’s economy. As low-hanging fruits, he has identified five key areas. They are, information and communication technology or ICT, tourism, use of harbour services, agriculture, and fisheries. These five sectors will help Sri Lanka to increase the incomes of the people, generate employment, and promote consumption which is at a low ebb now. However, given the scale of the foreign funding needed to finance the external financing gap in the immediate future, all these five sectors will not help AKD to generate sufficient foreign exchange income to meet the requirements. They are also medium-term developments rather than quickly pickable fruits.

Overall, AKD’s policy statement is comprehensive, well-designed, and quickly implementable. He has not gone for a long-term dream like converting Sri Lanka to rich country by 2048 as was done by RW. His dream was limited only to words without action. In contrast, AKD has tried to tackle immediate as well as medium-term issues. This represents a visionary dream. As argued above, this dream should be converted to an action plan which should be monitored continuously to ensure rapid progress and resolve issues

Over relying on tourism

Also, a sector like tourism, though AKD expects to increase the number to 4 million per annum generating a tourism income of $ 8 billion in the next 3-4 years, has two issues to be solved immediately. One is the limited carrying capacity with the available hotel, airport, and transport facilities. These represent investments to be achieved in the medium term rather than immediately. Hence, if Sri Lanka starts investing in these infrastructure facilities immediately, it can attain observable results only after about five years. The second is the low domestic value addition in the tourism sector. 

To maintain tourists, Sri Lanka should import fuel to power their transportation and electricity generation, vehicles, and above all, foods and beverages. In addition, road and airport expansion also involve foreign exchange expenditure. In these circumstances, the domestic value addition will be only the profits of the hotels, salaries paid to local employees, and purchase of utilities from the domestic market. Hence, out of the $ 8 billion earned as gross income, the net domestic value addition is projected to be about $ 2-3 billion.

Quickly pickable ICT?

ICT sector also faces the problem of quick market access and lack of talented personnel. Market access can be achieved through comprehensive economic cooperation agreements with buyer countries on one side, and partnering with seller countries, on the other. In this case, renegotiating the abandoned Economic and Technical Cooperation Agreement or ETCA with India should be done by AKD government as a matter of priority. Partnership with Indian ICT firms will provide quick market access to Sri Lankan ICT developers. However, a caveat in ICT sector is the advancements in artificial intelligence or AI which will take over many of the routine and programming jobs from human workers. Developed countries attempt at resolving this issue by evolving with AI13. Without an AI base, Sri Lanka cannot do this.

Turning points

As a turning point, AKD is planning to rely on the development of a digital economy to improve the efficiency and hence, the productivity, in the economy, and the introduction of new technology to Sri Lanka increase its value addition. These are worthwhile medium-term goals to be pursued by the country to make it a rich country in the long run. However, that alone will not help the country due to the scanty natural resource base in the country. Sri Lanka’s only available resource is the brain power of its people. This sector faces two issues which AKD has not recognised in his plan. 

One is the fast ageing of the Sri Lanka’s population. According to the projections by Economic and Social Commission for Asia and the Pacific or ESCAP, Sri Lanka is fast ageing with a median age of 33 in 2025 rising to 40 by 205014. This is a fast increase since 1960 when the median age stood at 18. With an ever-rising low number of young people, Sri Lanka is fast losing its demographic dividend. The second is the increased migration of the professionals in the country which has accelerated during the last three years. The loss of trained professionals is an impediment for Sri Lanka to attain a sustained economic growth. AKD should lay foundation for converting this brain drain to a brain gain.

A comprehensive policy statement needing quick action

Overall, AKD’s policy statement is comprehensive, well-designed, and quickly implementable. He has not gone for a long-term dream like converting Sri Lanka to rich country by 2048 as was done by RW. His dream was limited only to words without action. In contrast, AKD has tried to tackle immediate as well as medium-term issues. This represents a visionary dream. As argued above, this dream should be converted to an action plan which should be monitored continuously to ensure rapid progress and resolve issues.

Footnotes:

1An English translation is available at: https://pmd.gov.lk/news/the-full-speech-delivered-by-president-anura-kumara-dissanayake-at-the-inauguration-of-the-first-session-of-the-tenth-parliament/ 

2https://politicaldictionary.com/words/its-the-economy-stupid/ 

3https://www.dailymirror.lk/opinion/Why-Ranil-is-so-Confident-of-Winning-the-Presidential-Election/172-291758 

4https://economynext.com/sri-lankas-former-president-calls-for-experienced-members-to-be-sent-to-parliament-184036/ 

5https://timesofindia.indiatimes.com/world/south-asia/sri-lanka-top-court-finds-president-wickremesinghe-guilty-of-unlawful-conduct-over-election-delay/articleshow/112716801.cms 

6https://www.instagram.com/colombogazette/reel/C_Fq1EtOqaE/ 

7https://citizen.lk/article/watch-there-is-no-election-to-be-postponed-ranil-tells-parliament 

8https://ceylontoday.lk/2023/03/08/dolawatte-raises-privileges-issue-over-court-order/ 

9This issue has been treated in detail here: https://www.ft.lk/columns/What-can-AKD-and-also-SP-and-RW-learn-from-Economics-Nobel-Laureates-in-2024/4-768187 

10https://www.imf.org/en/News/Articles/2024/11/23/pr24435-imf-team-reaches-staff-level-agreement-with-sri-lanka 

11https://www.ft.lk/top-story/EDB-targets-45-b-export-revenue-by-2030-amid-economic-overhaul/26-769471#:~:text=EDB%20targets%20%24%2045%20b%20export%20revenue%20by%202030%20amid%20economic%20overhaul,-Thursday%2C%2021%20November&text=Sri%20Lanka%20has%20set%20its,within%20the%20next%20five%20years. 

12https://www.ft.lk/columns/AKD-s-top-priority-should-be-to-appease-a-population-boiling-from-within/4-767000 

13https://www.youtube.com/watch?v=jIL5pVqFceA 

14https://www.population-trends-asiapacific.org/data/LKA

(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected].)