Sri Lanka

2018 focus on politics and btw – the economy

Jan 2, 2018
The end of one year in the Gregorian calendar, and the beginning of a new year is always the time to reflect – and look ahead. This is a time too for New Year resolutions, usually thought of to right some wrongs, only to be inevitably broken sooner than later.
 
Still, it remains a good moment to pause and review, flipping back the pages to what we said at the arrival of 2016, a year after the new Government assumed power and then again as 2017 dawned.
 
At the beginning of 2016, we had the year old Government of National Unity already showing signs of a wobble. The senior partner of the coalition, the UNP’s proposal for a ‘Development (Special Provisions) Act was shot down by the junior partner, the SLFP, on the grounds that it was setting the stage for a ‘super minister’ who would deprive the SLFP ministers and SLFP-controlled provincial councils of a role in running the new Administration. The UNP had a different take on it. It wanted development to be streamlined under a super structure – similar to how countries like South Korea developed in the 1960s.
 
But it was not to be. The historical suspicions between the two parties remained, even though many had been switching parties with ease.
 
In 2017 we said; “The National Unity Government is clearly divided on important issues and one need not be a seer to foretell that these divisions will intensify in 2017. Only the instinct of self-preservation will keep this Government together and afloat. They must know they must swim together – or sink separately”.
 
As 2018 approaches, they seem to be sinking separately with their eyes open. Unable to postpone Local Government elections any longer, the two coalition partners have been hard pressed to consolidate their hold on the reins of power. They came together on the basis that the two main political parties would retain their own identities. Yet, one might have thought the President (SLFP) and the Prime Minister (UNP) would have forged a new alliance, turning the experiment of a long-awaited National Unity Government power-sharing into a more stable structure. Instead, the pulling and pushing and the little power-games continued within the coalition with the ‘third force’ – not the JVP but the break-away faction of the SLFP, now formed into an SLPP, making a powerful statement on the political stage.
 
The MoU between the UNP and the SLFP lapses at midnight today and the President is fast forwarding what seems to be an inevitable break-up by photographing himself with UNP members defecting to his SLFP. On the eve of the February 10 local elections it seems to be very much a desperate attempt to shore up the morale of the rank and file of the splintered, struggling party he leads. Then there is the Central Bank Commission report that was handed over yesterday which he will use as his ‘sword of Damocles’ to hang over the UNP.
 
It still may be too early to predict winners at the elections in just six weeks’ time, but the outcome is bound to be a significant pointer to the direction of the country’s political journey – and economic stability for 2018. It will also have very specific significance for the bigger elections in 2020. Already, we hear that there’s a debate on not just whether there will be another Presidential election – should the Executive Presidency continue, but if there is one, whether the President’s term of office is for six years (2021) or five (2020) depending on the way the 19th Amendment to the Constitution is interpreted. The economy in the meantime, faced two major natural disasters in 2017 – a drought and a flood retarding economic performance, depriving it of any significant achievements. A report in this newspaper last week also pointed out the number of strikes in 2016 – 41 of them that squandered 104,327 man-days, the worst tally since 2007, according to Central Bank data. Statistics for 2017 are still being worked out, but the people are only too aware of the number of trade union strikes, protests and work-to-rule campaigns that have now forced the Government to enact laws at least to show that it can act when the public is held to ransom. The doctors taking to the streets and the Government’s inability to resolve the festering issue of a private medical college, dragging on for over a year was a poor display of its problem-solving skills.
 
The rate of economic growth has been slower in 2017 compared to previous years. According to recent national account estimates released, the growth rate is expected to be around 4%, which even the Governor of the Central Bank has conceded as being “disappointing”. While industry and service sectors have grown at moderate levels at 4.5% and 4.2% respectively, the agriculture sector has recorded negative growth of 3.2%. If the drought and the floods hit the agriculture sector, man-made blunders of the Agriculture Ministry not having ordered fertilizer in time added to the woes. This is on top of a glyphosate ban that plantations are blaming for lower yields. Thus, accelerating the country’s growth momentum is still a challenging task.
 
Sri Lanka’s unemployment rate remains at 4.5% of the labour force as reported in the second quarter of the year, while the number of unemployed is closing in on the half a million mark. At the same time, many sectors are reported to be having labour shortages displaying a contradiction that is worse confounded when it is also reported that the agriculture sector and the public sector are having surplus labour contributing to lower productivity. In addition, more than a million are employed abroad as migrant workers, while another million are working as trishaw drivers, fast turning the country into a tuk-tuk economy as critics would say. On a brighter side, over the past 20 years, Sri Lanka’s poverty index has recorded a steady decline, as termed by the Centre for Poverty Analysis (CEPA), and Sri Lanka is now facing the challenge of the ‘last mile’ in its poverty alleviation programmes. Yet, thousands still live on ‘Samurdhi’ benefits and the country faces the challenge of keeping people from falling below the poverty line due to possibly shocks.
 
2017 was also marked by inflationary pressures, as the year-on-year inflation was reaching above 8% towards the end of the year. The challenge that Sri Lanka had faced with its external finance due to slower export growth continued in 2017 as well. Weak export performance and low FDI inflows exert pressure on the exchange rate. Though the Government has managed to achieve some progress in fiscal consolidation, the major challenge in 2018 is the foreign debt bunching up. Even if the country is able to manage debt repayment within the next few years from 2018, it would entail additional pressure on both fiscal consolidation and external finance position. This would further stress the need for more fundamental reforms of the economy aimed at achieving a higher growth momentum and greater export expansion.
 
But 2018 is going to be dominated by politics and ‘politricks’. That is almost a certainty.
 
The Sunday Times, January 1, 2018

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