After COVID-19, the economy

President Gotabaya Rajapaksa and his team of medical staff, armed forces, Police and others have managed to bring COVID-19 generally under control. The Minister for Health stated the possibility of the country being mostly cleared of the epidemic by end April. An achievement beyond the actions, efforts of the mighty West, made an example to the rest of the world. Now, the Government needs to look at the effect the disease control had on the people, the country and the economy.

During the past month, the routine Government offices were on “work-from-home” or completely closed down (not that it mattered much), also most of the private and informal sector. At the beginning the manufacturing sector aimed at exports was allowed to work, but they suffered from staff absenteeism and shortage of raw materials, especially from China, and most were forced to close down.

Financial mess

When Gotabaya took over the presidency, the country’s finances were in a completely mess with huge sums unpaid to Government suppliers, contractors and host of others. In addition, this year Sri Lanka has to repay $ 4.8 billion of foreign debt. The situation was so bad PM Mahinda Rajapaksa had to request his counterpart in India to delay the loan payments by three years. The country also managed to get a $ 500 million loan from China Development Bank, a country itself affected by COVID-19.

Prior to the outbreak of the disease, the Government introduced widespread tax reductions, ignoring fund shortages, possibly in view of forthcoming elections. With the practical lockdown of the country the Government doled out Rs. 5,000 each for over five million vulnerable sections of the population, costing over Rs. 25,000 million. In addition, the Government made an advance payment of Rs. 10,000 to two million Samurdhi beneficiary families prior to Sinhala and Tamil New Year.

The President had proposed employing 100,000 unskilled jobs from poor people, especially from those drawing Samurdhi benefits. A good proposal, but was sufficient thought and groundwork carried out? In addition the Government gave appointments to nearly 45,000 graduates, without even an interview and with no proper idea of how they be used, clearly looking at the elections, but at what cost?

Cost of controlling the virus

Massive sums were spent on disease control, purchase of medicines and equipment, improvements to hospitals and feeding thousands of quarantined persons along with additional expenses incurred by the armed forces.

With fallen Government incomes, balancing expenses and income would be massive problem. With no funds set apart by the Parliament, the President was forced to draw funds from the Treasury. Meanwhile the rupee depreciated, exceeding Rs. 200 to the dollar. Having incurred uncontrolled Government expenditure, President Gotabaya Rajapaksa needs to come out with another set of proposals similar to what he presented to the public prior to Presidential Elections to revamp the country.

World’s economy affecting Sri Lanka

The continuing COVID-19 in the West is affecting Sri Lanka’s export market and will result in significant job cuts due to low global demand and shortage of raw materials. The demand for manufactured goods, especially garments, is coming down, with some importers having cancelled placed orders and others demanding reduced prices.

COVID-19 is affecting every country in the world, the situation made the State Finance Minister in Germany die by suicide. If the financially mighty Germany could be so affected how about other countries? World over even in the US people are advocating making use of the situation to make the country be self-sufficient. Our Government has already declared the need to revive local industry and reach self-sufficiency, especially in the agriculture sector.

Correcting finances

Huge additional expenditure and costly supportive measures, loss of Government revenue and mounting foreign debt has placed the country in a precarious financial situation. To avert a collapse of economy severe curtailment of Government expenditure will be necessary. The Government has already announced that all non-urgent imports will be curtailed for three months (until next budget).

The Government has already initiated a policy of improving agriculture, hinting there would be no more import of onions and potatoes among others. Are we to expect a pre-1977 situation?

Reducing expenses of politicians

Any serious curtailment of Government expenditure will need to start from the top. The President has already set an example. But our number of ministers, junior ministers and even number of MPs are far in excessive compared to other countries. The Provincial Councils were locked out for years and the public did not even notice. The country can do away with PCs except in the north and the east.

Our politicians are the most pampered in the whole world and the system needs correction. Victor Ivan’s article ‘The reality of the system’ available at http://www.ft.lk/columns/The-reality-of-the-system/4-696539, it indicates a MP is eligible for a supra grade motor vehicle once every five years, which they sell at the end of five years. The ministers are allowed a private staff consisting of six officers and 20 employees in addition to official staff. The minister’s six staff members are also offered duty free vehicle licenses once every five years, in addition to their official vehicles. Often, the six officers of the minister’s personal staff consist of family members or close relatives. Thus, the number of duty-free vehicle permits issued to a family of a minister increased to seven.

The Assets and Liabilities Law was intended to keep MPs under public surveillance to prevent corruption. But in Sri Lanka the details are inaccessible to public, making the law a joke.

Thus to enable the country to handle the current financial impasse and to move the country towards honesty, the politicians’ vehicle permits and additional payments, as well as their pensions need to be halted and their private staff be done away with, the overstaffed Government could release staff to ministers. In addition, vehicle permits issued to senior Government servants too need to be stopped.

When former Education Minister C.W.W. Kannangara, responsible for the country’s free education, retired, he had no house to live nor an income. When he contacted the Speaker, the Parliament approved a lump sum of Rs. 10,000 and a monthly payment of Rs. 600. Our past MPs and past presidents’ pensions and perks can be done away with. Any past president or a MP with difficulty in survival without any assets could be given a payment from the President’s Fund.

Reducing excessive salaries

High salaries paid to directors and others in State organisations need to be reduced to affordable levels. Over a year ago in response to a Court case filed by a trade union of CEB, the Court directed that excessively high salaries paid to some engineers and high-ranking officers be reduced, but the decision was not implemented. The Government to begin with could instruct the CEB to implement the Court decision.

Mahinda Rajapaksa

President Gotabaya is appreciated by everyone for his simple and modest use of Government resources. But his PM, Mahinda Rajapaksa, is continuing his former exuberant lifestyle. His visit to India with a large contingent to meet the PM was followed by a pilgrimage around India, including Thirupathi in the deep south. His helicopter travels during the first three months cost the Treasury Rs. 84 million. It is clear that MR’s lifestyle at State expense needs change.

Electricity supply

The highest losses in the State sector are incurred by the CEB, who wish to continue generating expensive oil-based electrical power. The Cabinet at the request of CEB agreed to award a further 300 MW extension to Norochcholai coal power plant at unknown prices and conditions, ignoring the Government’s stated policy of 80% renewable power by 2030.

CEB engineers seem to be completely unaware of worldwide developments in the renewable energy sector that enable electricity generation for large (exceeding 100 MW) solar and wind power projects enabling electricity supply around Rs. 8 per unit, less than half the current cost. Current power purchases from private power suppliers exceed Rs. 30 per unit. The proposed coal power plant at Norochcholai would cost exceed Rs. 20 and will take minimum five years, if environmental approval is received, which is doubtful. Meanwhile, solar and wind power projects could deliver electricity in around two years, without any cost to the Government and no environmental issues.

Meanwhile, in a positive development, the country’s concerned professionals are demanding a three-day seminar/discussion on ‘Future of electricity power generation’ under the auspices of the Presidential Secretariat with the participation of all relevant parties in Government and Non-Governmental Organisations. They expect to discuss issues and fears raised by CEB engineers against the introduction and expansion of renewable energy and enlighten them on the advances made in the renewable sector and meeting the challenges in the sector, also to enact a new power generation policy to the country.

The country has no option other than renewable energy to deliver low cost electricity to the public, which would attract new industries to the country, while reducing expensive oil imports.

Government employing graduates

The Government has already issued appointment letters to nearly 45,000 graduates, without even an interview. But the commencement of employment was suspended by the Election Commissioner until elections, although their salaries are being paid. Cost-wise if they are paid Rs. 30,000 a month, salaries alone will cost Rs. 1,350 million a month or Rs. 16.2 billion year for the next 30 years and their pensions thereafter; can the country afford this?

The Government claims providing employment was not politically motivated, as they offered employment to every unemployed graduate irrespective of their party affiliations. But the entire process smells foul.

Only possibility of using the graduates productively is the conversion of graduates into English medium teachers, teaching English, mathematics, science, IT, etc. based on their choice. After a basic training, they could start teaching at lower classes and could move up, with additional training provided during school vacations. Their salaries could increase with the level, encouraging them to continue learning. 

Our graduates are not dumb, they entered the universities through a highly-competitive examination and have the ability to learn. But as the Education Department is unable to provide such training, converting of new graduates into English medium teachers will need assistance of the private sector.

Possible ending of virus

The country’s lockdown started on 19 March and has passed one month. The Government has hinted that the removal of curfew and opening the country would be gradually done in stages and will also depend on the number of new cases during the near future. 

A large number of locals held up in other countries, including doctors sent for post-graduate training in UK (with their families), are wishing to come back, would have to be quarantined, but the COVID-19 affected numbers would go up.

Currently export manufacturing is barely surviving, due to curfew and staff shortage. IT companies are the most suited to work-from-home, but they were unprepared and are barely managing.

If Sri Lanka could come out of virus early, the country would be one of the first countries to achieve this. With the virus affecting overseas buyers, orders would come down. But the country clearing from COVID-19 would attract other buyers, with the possibility of factories working near full-capacity. 

Tourism development

The tourism sector is heavily affected by the virus with hotels running at massive losses with reduced employee earnings. But it was revealed that nearly 41,000 foreign tourists who have arrived in the country prior to the crisis are currently staying back. With the availability of daily flights from London, Colombo and Singapore, the tourists’ decision to remain would have been their choice, considering Sri Lanka as a safer destination than their home.

If the country could achieve freedom from COVID-19 virus early, the situation could be exploited for the improvement of tourism sector. The country could invite rich tourists to be guests in our 5-star hotels, but without discounts for a minimum 14-day period.

Although the Government made no public statement, a few days ago Sri Lanka Tourism launched a new promotional video titled ‘Stay home, Stay safe. But dream of Sri Lanka.’ to entice future holidaymakers. The prospective guests would need to produce a PCR test certificate and apply for visa online. They could be admitted to the country with further checks at the airport. The hotels with resident doctors could conduct regular health checks. At the completion of 14 days they would be cleared to move over to another hotel of their choice. 

The offer would be acceptable to a large number of rich tourists from Europe to escape the pending virus threat and they would be long-term visitors. A couple occupying a room would bring the country around Rs. 1 million in their 14 days, a sizeable sum for the sector and the country.

Lower starred hotels

While rich foreigners occupy 5-star hotels, how about the lower starred hotels? After the relaxing of lockdown locals too would wish outings and will visit hotels especially during weekends.

The country’s medical sector staff made an invaluable contribution in fighting COVID-19 risking their own lives. While they worked, their children suffered at home. Thus it is only fair to offer medical staff who were engaged in fighting infection, a hotel voucher for Rs. 100,000 and below depending on the grade, for a holiday in a local hotel with their families appreciating their service. The Tourist Board could request hotels below three stars to give special offers and publish details on their websites. The scheme would give a much-needed holiday to medical staff with their families, will also help to revamp the hotel sector.

Revamping agriculture

With import restrictions due to the exchange crisis, with the exhaustion of current stocks, imported food items as potato, onions, dhal, chillies, sugar, etc. would become scarce and the country would face massive shortages just prior to elections. The Government has already requested the public to cultivate vegetables, but when transport restrictions are lifted vegetables would again be available in plenty. But without imports such as apples, grapes, oranges, etc. a fruit shortage would be imminent.

Unlike pre-1977, the country’s farmers have learnt to cultivate onions and potatoes, but the production is far short of the demand and the prices would rise. Even today, red onions come from the north and they would supply most of our chillies, potato and onion requirement but at a higher price.

Local sugar production is less than 20% of consumption. Kantale sugar factory was offered to an Indian investor, but the factory was not released. The investor’s request for the release resulted in a Rs. 20 million bribe and two of the last President’s officials are in jail. But it is claimed they were acting on behalf of their boss. The recommencement of Kantale sugar factory is an urgent need for the country. 

Drip irrigation

Farmers complain of rain-less periods affecting crops. A year ago price of coconuts exceeded Rs. 100, now everyone has forgotten until the next drought. In South Indian Kerala state 95% of coconut plantations are provided with drip-irrigation, with a 50% subsidy from the Government. A few weeks ago TV channels showed dried-up tea estates, even in high rainfall Agalawatta area. If our coconut estates and vulnerable tea plantations are provided with drip irrigation there could be substantial increase in production and lower cost to consumers.

In addition, the Government needs to promote improved cultivation practices as poly-tunnels, so that fruits and vegetables could be cultivated under controlled conditions with less water, fertiliser and agro-chemicals irrespective of the time period. The system would use less land and give better returns to the farmer.

Milk production

The country’s milk requirement is mostly imported in powder form. During the past decade the Government imported milk cows from New Zealand, but it was a complete failure. But the importing ministers made money. Sri Lanka may the only country in the world depending on imported milk powder for consumption. Meanwhile, packeted liquid milk costs the consumer around Rs. 230 per litre, while the milk producer is paid only Rs. 65.

The situation could be corrected if cattle farming especially near cities is encouraged, with grass cultivated on abandoned paddy fields. The biggest issue among the consumers is the cleanliness of milk from small farmers. If farmers can be provided with milking machines costing only Rs. 50,000 without taxes, supported by the Government, it would encourage local milk production, enabling supplying consumers at lower prices and saving valuable foreign exchange.

COVID-19 affected the country and had a heavy effect on the economy, but if the situation is handled properly, the country can recover and the populace will reach higher levels.