Sri Lanka: Get back to basics 

Sri Lanka must practice the basics. Gather data, analyse, discuss and decide

Let’s face it, the current Government on a weekly basis tend to demonstrate its incompetence with poor decision-making. Some go on to say that the weakest administration that Sri Lanka has experienced in recent history is from the current Government. This consensus by the public is not because of the foreign exchange crisis or the crazy governance issues but the simple logic that one does not learn from the mistakes made. 

The saga of wrong decision-making has happened very regularly from the Lanka Sathosa sugar issue, LNG contract signature, Litro gas fiasco, just to name a few, which do not hold in good stead to a ‘development driven image’ agenda the Government chanted during the elections. Let me do a deep dive on two issues that spells out the poor decision-making we saw in Sri Lanka and the need to focus on – getting the basics right.

Fertiliser saga

When one fine day the President decided that Sri Lanka must be a country that advocates a non-chemical fertiliser policy much against the 32 academics/agricultural experts who strongly objected to this decision, the fool hardy Government pushed the agenda. 

Just six weeks after the decision, Sri Lanka saw one the worst backlashes from the farmer community and finally the decision was reversed. But, the cost of the mistake is estimated at a crop reduction of 30%-50% on paddy, vegetables and the tea industry. It was a classic case of poor-quality decision-making that has driven the country to the wire. This communique was not only Sri Lankan media but also in the international media which was very sad. After all, brand Sri Lanka is valued at $ 89 billion and such communique will push us down further 

Lights off 

The next key issue that one can highlight poor decision-making is the current power crisis. Though it is an internal issue, given the global environment we live in, a negative picture was showcased on global media from CNN to BBC/NDTV to Aljazeera which surely hurt Brand Sri Lanka. This sure would impact the Nation Brand value and index that Sri Lanka currently enjoys. The key message that was relayed on global media was, if Sri Lanka was heading for a blackout and that the administration had no strategies in place.

If one digs deeper, the two state entities, Ceylon Electricity Board (CEB) and the Ceylon Petroleum Corporation (CPC), are at loggerheads with the former stating that unless CPC delivers the fuel requirement, the Kelanitissa Power Plant which was shut down on 18 January will not be able to be started. Newspapers reported that the Kelanitissa Power Plant that generates 300 megawatts of electricity daily was shut down due to a lack of fuel which is a sad state of affairs when the Governor of the Central Bank states on media that the foreign reserves are up and the “country is on the road to prosperity”. 

The saga continued when the Minister in charge of CPC said that one cannot import diesel due to the foreign exchange crisis. Apparently the Sapugaskanda Power Plant was also forced to shut down due to a lack of heavy furnace oil. 

The sad story is that this news hit the US media and just 12 hours after the President made a speech at the “Central Highway opening” where he announced that in the next three years, he will put the country on track but sadly the very next day we saw a barrage of illogical decisions being rolled.

SL cannot afford

If we analyse some of the financial reports done by the current administration, it was appalling. The report by Verite the economic think tank in Sri Lanka highlighted how the budget deficit had doubled in the period 2019 and 2020. The number had increased from Rs. 1,016 billion in 2019 to Rs. 2,090 billion in 2020, an increase of Rs. 1,074 billion. 

It is important to note that there were several key tax policy changes made in late 2019 that contributed to the decline in revenue. Some of these were; (1) The abolition of the nation building tax, economic service charge, and PAYE tax (2) the exemption of withholding tax for residents (3) the changes in various tax rates such as the standard corporate income tax rate being reduced from 28% to 24%, VAT (other than financial services) being reduced from 15% to 8%, tax rates for sectors such as construction and manufacturing being reduced and exemptions being granted for other sectors such as IT and agriculture, and the threshold being increased for the registration for VAT from Rs. 3 million per quarter (Rs. 12 million per annum) to Rs. 75 million per quarter (Rs. 300 million per annum), and finally (4) the government ban on the importation of most motor vehicles from April 2020, which could have led to a significant reduction in the excise duty revenue from motor vehicles.

On a separate note, the increase in government expenditure is mainly due to an increase in capital expenditure (Rs. 176 billion), transfer payments (Rs. 166 billion), salaries and wages (Rs. 108 billion), and interest payments (Rs. 79 billion). It is important to note that the Government allocated Rs. 35 billion for the provision of COVID-19 relief assistance through the State Ministry of Samurdhi in the 2021 Budget but the essence of the discussion is that Sri Lanka cannot continue on this trajectory as the forecasted revenue will not cover the costs which will add to the pressure on the reserves.

SL – go back to basics 

This takes us to the glaring lettering on the wall, ‘Sri Lanka go back to basics’. Meaning, we have to start taking decisions with the most grounded data. We must understand basic mathematics. A minister cannot say that there will be no power cuts when the data says otherwise. A President cannot announce an organic country promise globally when the data back home will not be able to live up to this promise. 

The Governor of the Central Bank cannot say there is no foreign exchange issue in the media, when the traders’ association announced that there are 1,700 containers with essential items that cannot be cleared due to a forex shortage.

In simple words, one can summarise that the Government has repeatedly made blunders in decision-making, which a country like ours cannot afford. 

Next steps – IMF

Given the above facts, we know that the current Government does not have the capability to manage a country heading for bankruptcy. I guess the lettering is on the wall that we must turn to the IMF for guidance, so that we can put Sri Lanka back on track. If one wants to check the impact, the best case studies of the IMF are Venezuela, Ecuador and Pakistan; they are classic cases in which a country can be re-engineered for growth but with the support of the people of the country. 

In simple words, the IMF will push us to focus on the basics and get it right. They will somehow balance the revenue earning capacity with the expenditure so that the people of the country will not have to undergo tough times. If we do not do this properly, we will let go of this opportunity. The good news is that when in the dark the eyes get adjusted to see better – let’s hope the people of Sri Lanka will experience this at least now. 

(The thoughts are strictly the author’s views. He serves an Artificial Intelligence company for Brand Mapping in the South Asian Region.)