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Asian Tribune is published by E-LANKA MEDIA(PVT)Ltd. Vol. 20 No. 72

Crossroad To Power: Politics and economics of COVID19

By Sugeeswara Senadhira

Similar to many other countries, Sri Lanka too is at a crossroad today. The country is faced with an unenviable economic crisis of unprecedented magnitude. The government has initiated a series of programmes for economic recovery.

The task of implementing them is not easy as the country is faced with a general election in seven weeks time. There is a clear link between the state of the economy and politics. If distress grows, businesses continue to close down and millions find themselves deprived of basic incomes, there is a real possibility of social unrest and it would reflect in the election results.

Hence, the government plans to use this as an opportunity to rethink the nature of growth and provide immediate relief through a possible universal basic income, ramp up the welfare architecture, provide a buffer through a larger fiscal stimulus, and succeed in attracting investment.

On President Gotabaya Rajapaksa’s instructions, the Central Bank of Sri Lanka (CBSL) cut down the statutory reserve ratio (SRR) reducing the share of deposits that banks have keep in the central bank to 2.0 percent from 4.0 percent, releasing Rs 115 billion into the credit system in order the increase money circulation to hype economic activities. The liquidity injection came hours after the President summoned CBSL Governor, Prof. W D Lakshman and top officials to his office to give them a dressing down for not taking immediate action to revive economy.

“The financial sector is expected to pass the benefit of the high level of liquidity and the reduced cost of funds to the economy without delay, by increasing lending to businesses and households at low cost,” the central bank said.

“The financial sector is expected to pass the benefit of the high level of liquidity and the reduced cost of funds to the economy without delay, by increasing lending to businesses and households at low cost,” it added.

The CBSL pointed out that the SRR has been cut 200 basis points so far this year, policy rates have been cut 150 basis points and several other measures have also been taken. The SRR is an archaic rule that needlessly raises the cost of funds of banks, but the liquidity injection comes at a time when Sri Lanka’s foreign exchange reserves are declining and the country has faced forex shortages and rating downgrade after earlier money printing and tax cuts.

Following the announcement of the package by the Central Bank, opportunity is now open for state banks to create the environment that needed to revive the country’s economy. The President said that we must move forward with a new development programme deviating from the traditional methods to achieve the economic prosperity. He went on to note that money should circulate across the country and it is the responsibility of the 600 People’s Bank branches in the country to deduce the true customers and business to issue loans. All managers are obliged to carry out follow up reviews of loans productivity.

President Rajapaksa noted that this is the right opportunity to take the banking system to the rural areas. President warned not to offer loans for importation purposes. President stressed that respective parties must benefit from the 6 month relief period granted for the payment of leasing installments. Priority should be given to construction companies as well. He further added that People’s Bank has the opportunity to meet the housing requirements of middle-income earners in collaboration with the Urban Development Authority.

Ambassadors of European Union member countries praised the steps taken by Sri Lanka for quick economic recovery after successfully containing the COVID19 pandemic. At a meeting with the President earlier this week, the EU Ambassadors discussed the issues related to rebuilding the economy after passing the COVID-19 crisis. The country was able to quickly deploy the public health system to address the health threat caused by the pandemic, explained President.

The next concern before the country is reviving the economy, noted President. The current growth rate is very low and the national debt is high, he observed. To control this dire situation certain controls and restrictions on imports were needed. However, this does not mean Sri Lanka will be a closed economy. At the same time President expressed his interest in developing domestic industries. Most food items, noted President, can be produced locally.

Therefore, he stressed the need for Sri Lanka to modernize this sector. He also spoke of the importance of introducing organic fertilizer, better quality seeds and advanced technologies.

Presently, about 40 percent of the agricultural produce gets wasted due to lack of proper storage facilities. Therefore, underscored the President, there is a need to increase facilities in methods such as canning and drying fresh produce.

Given the current situation, said President, Sri Lanka would benefit from a debt moratorium. He also emphasized that taking further loans is not an option. Instead of further debt, Sri Lanka needs new investments.

President directed the EU delegations’ attention to projects such as renewable energy using solar and wind. He also expressed his interest in focusing on an IT based education system so that the youth are more exposed to new technologies.

The EU delegation responded positively to President Gotabaya and discussed at length a number of ways their respective countries may be able to engage with Sri Lanka in these areas.

The praise for the government economic revival plan came also from an unexpected quarter. Former Finance Minister Ravi Karunanayake said the President’s decision to admonish Central Bank officials was correct. “I, during the last regime, said that it was the officials of CB who were spoiling the country’s economy. Some criticized me vehemently when I said this at that time. I am happy that the President had found out the truth,” he said. “The President had asked the CB officials to quit if they cannot help building the economy. This is exactly what should be done,” the Assistant Leader of United National Party said.

The CONVID19 pandemic has caused devastating affects on the economy. Never in recent history has the country seen the kind of economic contraction. With the lockdown imposed to curb the spread of the pandemic, factories and businesses shut down, supply chains got disrupted, company revenues went down and unemployment soared.

Economists believe that while the structural reforms announced are important. They found the CBSL fiscal programme was an excellent initiative to rejuvenate economic activity.

Furthermore, the challenge of COVID19 has made a changed the pattern of thinking. All citizens across regions, castes, communities and classes today experience, simultaneously, the urgency of health care. Such a large collective experience cannot but have an impact on politics. Governments and parties will be judged on whether they were able to cope with the crisis. The challenge has made the politicians more sensitive to the needs of the people and it came at a right time as the general elections are round the corner.

Stay Safe, Stay at Home, Stay Informed, But Don't Forget to Wash Your Hands.

- Asian Tribune -

 Crossroad To Power: Politics and economics of COVID19
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