CMA National Forum discusses reform; need to stick to the playbook

• Advocata Chairman Murtaza Jafferjee opines SL’s Presidency is designed for a Lee Kwan Yew, but we have 50 Robert Mugabes coming along
• Says debt is compounding at a faster rate than economy is growing
• CBSL Chief says there is continuous commitment to implement reforms under the IMF program
• Will closely collaborate with financial institutions to support the expansion of trade

 

By Darshana Abayasingha

Advocata Chairman Murtaza Jafferjee on Wednesday said Sri Lanka must stick to the playbook, as experiments could spell disaster for the island nation.

Addressing CMA Sri Lanka National Management Accounting Conference he pointed out Sri Lanka has little or no “wriggle-room”, and with Debt-to-GDP projected to be high as 95% in 10 years despite us sticking to the plan, the political economy of the country must consider it imperative to stay on course. – Pix by Shehan Gunasekera

The two-day program concluded yesterday and featured several eminent speakers and panellists addressing various aspects of accounting and economics. Chief Guest at the event was Central Bank Governor Dr. Nandalal Weerasinghe.

Kicking off the technical sessions, Jafferjee stated Sri Lanka needs a full-time Finance Minister, who is removed from political machinery. He termed calls to protect local industry and then grow industry as nonsense, and stressed the country must boost trade in order to become more competitive and productive. Jafferjee noted the prevalent policies over the past four decades have only benefitted an elite handful. He also pointed to Sri Lanka’s ageing and diminishing population and said policy-makers and industries both need to take significant note of this fact.

The Advocata Chairman said that despite all indicators looking favourable at present, the present leadership and bureaucrats have also pursued fairly correct economic policies that have reflected the real cost and value of money.

“But very little of the system has changed. What we have is elite capture where 10% gets 36% of revenues. Our Presidency is designed for a Lee Kwan Yew, but we also have 50 Robert Mugabes who come along. Our civil society is very weak and our population is very poorly informed. Our large current account deficit is not because we don’t export enough, but because we consume too much,” Jafferjee said. “I’m estimating high yielding bonds didn’t get restructured. Interest is high on them. That’s compounding at a very high rate. Debt is compounding at a faster rate than the economy is growing. It’s a tall order.”

 “Sri Lanka’s population is contracting, Socialist means no one gets left behind. Population is contracting. In 2023, 80,000 less babies were born and 40,000 more persons died. To this we need to add net migration. The number of people entering the working population is no longer growing. Those over 75 years will grow 5% over the next five years, which will increase our healthcare costs and poverty,” Jafferjee noted.

The theme of the forum this year is ‘Navigating Stability towards Dynamic Growth’ and reflects the collective pursuit of excellence in management accounting practices to achieve near-term priorities, recover from the economic crisis.

Addressing the gathering, Governor Weerasinghe, said his institution will closely collaborate with financial institutions to support the expansion of trade. This will include aggressive adoption of technology across multiple spheres, and the accounting profession could lead the way to assist the transformation of tax payments, he said. The continuous progress made within the IMF program is the most important thing, Weerasinghe said, and following the restructuring of bi-lateral debt he stated an agreement with bondholders has been submitted to assess the framework to ensure that any debt relief is comparable, and to confirm their consistency within the debt sustainability analysis of the IMF. “There is continuous commitment to implement reforms under the IMF program that will help eliminate the lingering uncertainties and improve investor confidence in a sustained manner,” he said.   

Former Foreign Secretary and UN Ambassador, H.G.S. Palihakkara, who averred the crisis was painful but the recovery will be excruciating. He lamented that leaders from all sides of the country have failed to achieve commonality on reforms, and election time sheds further uncertainty on progressive change.

“In such situations, we open ourselves up to intrusive geopolitical pressures in relation to their financial and other agendas. It is still not clear after this election what kind of approach will come towards the reform agenda. Sri Lanka must negotiate with trade unions and move towards consensual reforms, and not simply move to suppress them. Geopolitics is no better than local politics. It’s power-based manipulation. The Sri Lankan crisis is a telling case study in that sense. It’s a tangled web, but we must accept that we cannot grow in isolation. We have to reform and drive rule of law to overcome these challenges,”Palihakkara stated.

State-Owned Enterprise Restructuring Unit Director General Suresh Shah underscored that if Sri Lanka is still to have a 95% debt to GDP ratio in 2023, even if the country does everything right, then the country still sits on a knife’s edge. He pointed out that any exigency outside Sri Lanka could impact our position, because the debt is still so high.

“If a country goes to the IMF 17 times, that could only mean our economic management has been disastrous. It’s not that Sri Lankans don’t understand economics. If you look at the Regaining Sri Lanka document from 22 years ago, it is still very relevant. What we have here is a political economy. Those countries that have succeeded are those who compromised on the side of the economy. Singapore is a fine example. This is also because amongst major political parties there is no broad consensus on how the economy should move forward,” Shah averred.

Sri Lanka has never attracted more than $ 2 billion in Foreign Direct Investment during any year, he pointed out, whilst even countries like Bangladesh and Cambodia have done far better. Indonesia in 2023 saw $ 47 billion in foreign direct investment.

“We have to completely rethink our economic indicators. First, we have to build an economy that creates employment. Not give employment, but create employment. Ease of doing business must improve. Ministerial discretion must be reduced. We have to give every student hope and enhance our education infrastructure. We simply do not have the physical infrastructure to afford every child that qualifies to get into university. Our younger generation is our real national asset, not loss-making state entities,” he added.

Commenting on the session, ODI Global Visiting Senior Fellow Ganeshan Wignaraja, said debt repayments due from 2028 should keep many Sri Lankans awake at night, and the country must focus on generating enough income to do that. “If we go back to home-grown solutions as some call it we may face some trouble. All citizens should be lobbying politicians and ask what we are doing to make sure we can do that,” he said.

Prof. Srimal Abeyrathne from the Colombo University averred that after 45 years of a so-called open economy we only have $ 12 billion of exports annually, whilst others are doing in the hundreds. There has been so much investment in non-tradable sectors that we cannot convert into dollars. “We have to remove this anti export bias. We have to sustain our economic growth, if not I don’t know how to avoid the next crisis,” he added.