Call for consensus on structural reforms to get out of economic crisis

“We are no longer talking about a crisis that is about to engulf us. We are now in its midst, though not its depths. The hope that the 2022 Budget would give the right signals has evaporated,” Prof. Rohan Samarajiva, a leading policy analyst and an advisor of the Advocata Institute, said. 

He made these comments  at Advocata’s latest event, ‘A National Consensus for Economic Reforms or Arthikayata jathika sammuthiyak?’. Prof. Samarajiva provided a breakdown of  severe economic and social challenges facing the country. His keynote speech stressed on the importance of building a national consensus to implement immediate reforms to tackle a wide range of issues ranging from unsustainable debt to shortages of essential items  in the country.

The present macroeconomic instability lies in the failure of the state to implement deep structural reforms to the economy for nearly twenty years. The COVID-19 pandemic has exposed Sri Lanka’s fundamental weaknesses that have plagued the economy for a long period of time. 

The event  brought together  politicians representing the main political parties to discuss  the importance of a united course of action,  to drive Sri Lanka’s economy towards a path of growth.

Prof. Samarajiva explained the seriousness of the crisis. “We cannot get out of the crisis without taking some bitter medicine. It is increasingly becoming clear that debt restructuring in the context of an IMF (International Monetary Fund) program is essential. Unlike in previous IMF programs, we cannot afford to abandon discipline at the earliest opportunity. Unless we own the reforms, we will keep falling back,” he said, stressing that what we need is a common minimum program of reform agreed by many. 

“We need an attention-grabbing action that will credibly communicate the intentions of the national Government. Divesting SriLankan Airlines on the same lines as Air India is a good candidate. The objective is to protect the taxpayers of this country from having to continually cover the losses of this technically bankrupt State-owned company,” he said, highlighting the importance of immediate measures to improve public finances. 

The national carrier SriLankan makes a daily loss of Rs. 129.03 million. In the last four years of operation, it has cost the economy Rs. 137 billion in the form of accumulated losses. 

MP Vijitha Herath of the JJB reflected on the need for a national consensus. He remarked: “The Sri Lankan economy is in the ICU. We are right now using minor reforms to push back certain deaths. But we need surgery to help the patient,” highlighting the need for deep structural reforms. 

He further commented that there is space for all parties to come together and agree on such a program of action for the benefit of the nation. SLPP MP Prof. Ranjith Bandara commented: “We need to prioritise the issues we need to solve. We need to be policy consistent in the long term.” Highlighting another key aspect of policy reform to achieve long-term stabilisation.

Trade reform is another area to boost productivity and achieve growth. Dr. Harsha De Silva elaborated on this aspect. “Import substitution mentality should be abandoned. We need to face and compete in the competitive international economy. We have been excluded from the global value chain because of our narrow mindset of  import substitution and complete self-sufficiency.” 

SJB MP Patali Champika Ranawaka commented on the importance of energy sector reforms to address the present crisis. “The power issue is the next crisis. We need to sell to India. If the rain dries out for six weeks then we are certainly headed to a big power crisis. Substitutes to generating electricity (kerosene) are also scarce. This crisis could lead to a rift in society,” he said, highlighting the urgency of reforming the energy sector.  

SLPP MP Dr. Suren Ragavan was of the opinion that “we need national consensus which capitalises on the unique competencies  and skills of the different communities”, further emphasising on the message of a common plan of action to come out of the present economic crisis. 

The recording of the media event can be found at www.advocata.org.

Advocata is an independent policy think tank based in Colombo, Sri Lanka. It conducts research, provide commentary and hold events to promote sound policy ideas compatible with a free society in Sri Lanka.