Time to marshal the nation to win the economic battle

There was much euphoria within the government benches on Monday in Parliament after it secured a comfortable victory in passing the 2009 Budget. It is important that those overly excited MPs and Ministers of the government must remember that realistically speaking there isn’t much to cheer in terms of challenges the 2009 Budget has posed on them. Though approved and could be seen as a political victory, the 2009 Budget has been widely described as very ambitious, both in terms of revenue targets and expenditure estimates.

Leaving political rhetoric aside, many Opposition MPs and also a few government members of Parliament spoke of the many issues arising from the 2009 Budget during the month-long debate. That apart, private sector leaders and economists have cautioned the government on some of the pitfalls as well as the unrealistic nature of many of the proposals.

It must be emphasized that President Mahinda Rajapaksa, who is also the Minister of Finance, and his competent officials in the Treasury, cannot predict the future global scenario and its impact on the Sri Lankan economy. However, if one reads the preliminary reports being dished out by various international and multilateral donor agencies and groups, outlook is certainly scary for the global economy.

Though it is anticipated that politicians and also some officials tend to paint a rosy picture to the effect that Sri Lanka is well protected from and devoid of global ills, we remain resilient etc, it is only part of better risk management that everyone acknowledges there is an economic crisis either taking place right now or looming. We are not certainly being doomsayers but in this case statistics don’t lie and perceptions haven’t improved. Sri Lanka was facing a multitude of issues even before the global financial crisis erupted in mid September.

The unofficial pegging of the exchange rate to the US dollar had both its merits and demerits though there is growing opinion now it was more of the latter. Many independent economists have sounded serious warnings of Sri Lanka’s debt servicing commitments in the next 6 to 12 months in an environment of depleting foreign reserves, challenges to boost export income as well as raise private remittances. Due to high inflation and interest rates that fuelled costs for manufacturing and services sectors, the competitiveness of Sri Lanka has been further eroded. Spending in major export markets which are reeling from the impact of financial crisis are under stress and this doesn’t augur well for Lanka products and produce.

The only silver lining is the plunge in oil prices though unfortunately it had a heavy toll on the fiscal management a good part of 2008. However, a dip in oil prices could have other ramifications such as lower demand for tea and migrant labour from the Middle East.

Proponents of a proper valuation of the rupee argue that given the lower oil prices as well as challenges facing exporters, time is ripe for a devaluation. However, the managers of government foreign debt would think otherwise. Taking calculated risks is the need of the hour.

The government must admit the fact that the Lankan economy is under stress due to both global and domestic factors. It is only amateurish to deny such a situation. The World Bank yesterday issued a warning that Sri Lanka’s GDP growth in 2009 could plunge to a low of 4% whereas the government in its 2009 Budget forecast it to be 6.8%. This figure is very likely to be revised in early January by Central Bank.

The country’s engine of growth, private sector, is facing a cash crunch. This is not a surprise when the government, apart from being the biggest borrower, is facing a similar predicament. Bailouts are standards be it for financial services or industries. Such measures globally are out of admission of crises.

There is consensus that President Rajapaksa has successfully managed the war against terrorism, but that apparent preoccupation has perhaps deviated him from dealing with economic issues.

Many a pundit will argue that if terrorism is defeated all economic ills are resolved. But we have many dynamic Asian countries, with no terrorism threat yet reeling due to the current global crisis. The country needs funds to win the war whilst it also needs the economy ticking to keep home fires burning and give jobs to youth. Experts have often emphasized that battling terrorism shouldn’t be at the expense of ignoring economic issues. Both must be addressed simultaneously. In the opinion of the government, the 2009 Budget sets the stage for a true revival of the economy. With benefits from a weakened LTTE, the challenges in the economic battle front will be less daunting but ushering credible development and equitable growth requires President Rajapaksa, now marshalling his men and resources, to overcome the current economic ills as well to avoid a much bigger crisis before it is too late.

The crisis offers an excellent opportunity for both the Government and private sector to boldly reform, re-engineer and reinvent so that it is smarter to seize arising opportunities and drive better on the next growth wave.