Learning a better balancing act

Monday, 9 April 2012 00:00 - - {{hitsCtrl.values.hits}}

Sri Lanka is facing a challenging April as it attempts to strengthen relations with India and move forward economically. A visit planned by Indian politicians due to kick off after the New Year will be preceded by an official tour from Palestine President Mohammed Abbas.

The tenuous economic situation was highlighted last week when the Government increased interest rates and brought into effect a mini-budget. Despite the claims by some politicians that the adjustment is necessary to continue providing assistance to the poorer segments of society the numbers tell a different tale.

While such statements enjoy a high degree of acceptance due to the past history of welfare spending commitments, the budgetary allocation of the current Government does not indicate the continuity of such commitments. As highlighted in a Verité Research Special Report on the budget, the state is now prioritising infrastructure spending over welfare spending with 25% of total capital expenditure being utilised for projects of the ports and highways ministry as opposed to the 6% allotted for health, education, and higher education combined.

Weekend reports dwelt on the high cost of living leading up to the Avurudu Season and the reduction of foreign remittances as a bulwark against the rising trade deficit. Articles highlighted the need for the dollar earnings to be encouraged to remain as foreign currencies. However since most money is sent for consumption by families residing in Sri Lanka and interest rates for Non-Residential Foreign Currency and Resident Foreign Currency accounts remain abysmally low it is more attractive for consumers to convert their cash and spend it rather than saving it in its original form.

These concerns will likely increase in the next few months, especially since credit rates have not decreased despite hiking of interest rates by the Central Bank. A previous editorial pointed out the inconsistent policies and continued negligence of issues like loss making state owned enterprises as worsening this situation. One example is how Mihin Air and SriLankan continue to operate without taking any prudent fiscal measures to reduce their debt portfolios.

The news that a Mahatma Gandhi statute has been destroyed in Batticaloa is an indication of how relations with India have deteriorated since the UN Human Rights Council vote in March. Would it be possible for the Sri Lankan Government to let bygones be bygones and resume relations? There seems little to be gained by distancing from Indian especially given the content of the resolution passed on Sri Lanka.

Since the Government insists that it was already prepared to implement the Lessons Learnt and Reconciliation Commission (LLRC) report there seems to be little point in backbiting with India. Bringing credibility to the reconciliation process by implementing meaningful reforms would be the best way not only to engage with Indian but promote Sri Lanka with the rest of the world. Despite Government attempts to increase relations with Palestine from an economic standpoint it is still important to maintain relations with the west to shore up the country’s fragile economy.

Balancing political concerns with the economic sphere will be crucial to keeping the post-war opportunity window open for at least a while longer.