How To Understand Ranil’s Ideas About Economic Policy
Reading Ranil’s answers to the Bond Commission was an eye opener because till then I had not realized how shoddy his pronouncements were. Coincidentally, while I was annotating his arguments, I heard a pair of announcers on early morning radio mocking his declaration, now forgotten, that he would provide tabs to everyone. It strengthened the perception that he simply used language as a tool to increase his standing, with little appreciation of the comprehension skills of his audience.
It was in that light that I read his statement on public finance, which was sent me by someone in the Ministry of Social Services. And I realized that that too deserved annotation, to establish how inconsequential it was.
So here we go, the thoughts of Chairman Ranil –
The challenge faced by us today is to sustain what we have built, and strengthening the economy. This task has two prongs. The first is to stabilise the economy creating a country free of debt for our future generations. ‘In the short term however we borrowed much more than we needed at higher rates of interest than the norm, but there were good reasons for this which I cannot share now’.The second is to expand the economy giving all Sri Lankans the chance for prosperity.
We inherited a plagued economy, ‘as the UNP did in 1977 and in 2001 given the mismanagement of Mrs Bandaranaike and then her daughter. This time round, though growth was high and inflation was low, we have no doubt that Mr Rajapaksa was much worse than those two, whom I have now learnt to love and admire.’
Despite the reasons which are beyond our control and challenging domestic and global conditions, we were able to sustain a steady GDP growth rate of 4.4%, ‘as opposed to 7.4% in 2014, but that is a small price to pay for having me in charge’.
For years, the growth of the Economy of Sri Lanka was heavily reliant on huge public investments in infrastructure. Only the industries such as construction industry were strengthened by such investments. Concurrently, the exports share of the GDP of Sri Lanka was decreased gradually.
The ratio of revenue to GDP in 2016 increased to 14.2% from 11.4% in 2014, . For the first six months of 2017, revenue to GDP now stands at 6.7% of GDP from 6% in the corresponding period in 2016. It is expected to reduce the current debt which is 79.3% of the GDP to 70% of GDP by 2020.
When considering the public debt service payments based on the outstanding debt as at end of August 2017, we have to pay Rs. 1,974 billion in 2018. We will have to pay Rs. 1,515 billion in 2019. It means we have to pay more than 3,489 billion in 2018 and 2019 for debt servicing, ‘a conclusion I reached having added the other two figures and then assumed that there must be more somewhere though only God and Arjuna Mahendran know where’.
In order to overcome these unprecedented challenges, the government has initiated a prudent debt management strategy. Our traditional approaches to debt management will have to change to cope with new risks and structural and regulatory changes. Our policies will be targeted on forward-looking liability management strategies. Accordingly, the funds required by the government will be raised with transparency and predictability ‘though we started by doing something totally unpredictable and lacking in transparency, and then repeated the exercise a bit later, though some might say that that at least was predictable – given our penchant for lying, if the Minister of Finance told banks not to bid at high interest because those bids would not be accepted, any fool could have predicted that the opposite would happen’. Under the medium – term debt management strategy, the detailed strategies of government borrowings will be known in advance to the domestic and foreign debt portfolios, ‘though we may occasionally announce that less will be auctioned than in fact we will want after my good friends Kabir and Malik get in on the act’.
Our government is taking a two-pronged approach to address the price stability, ‘and I am proud that in 2015 inflation dropped to 0.9% and it is only teething problems that caused it to rise the following year to 4%’. We expect to provide the opportunity of buying the food items at a lower price throughout the year in order to control the short-term price fluctuations resulting in hardships to the people ‘and you must ignore the fact that soon after I make such sweeping promises the prices of many goods many people need will rise dramatically’.
We will improve the domestic supply chains and distribution networks to do so. In the meantime, we will allow importing of food products and other essential commodities at reasonable costs within the competitive market framework. We have reduced taxes on food commodities substantially over the past three months. ‘I am sorry that despite all this the price of food has risen but we’ urge domestic wholesalers and retailers to pass the benefit of these reductions to the consumers. However, the government will provide the space to the Central Bank to carry out its monetary policy independently to maintain price stability on a sustainable basis. The Central Bank is moving towards a new monetary policy framework targeting a flexible inflation. The aim of this framework is to maintain a low inflation continuously while supporting the economic activities. With this change of policy, our people will get the opportunity to live comfortably with the security of stable prices.
Our ambition is to make Sri Lanka a prosperous country by 2025. For this vision to become a reality, our activities should join hands with the external world. Sri Lanka is a small island right in the middle of a large world ‘whatever the middle of a round entity can mean, since I will not mention the Indian Ocean or Asia given that my vision is global’. For thousands of years we have benefitted from being located strategically. Unfortunately, we seem to have forgotten this competitive advantage of the location.
… we have to leave behind the decades of inward-looking policies that shrouded our capacity to grow ‘which is precisely what my mother’s cousin J R Jayewardene said 40 years ago, but you must bear with me for saying it again since obviously he did not change things as he claimed’.
