Not Constitutional Reforms: Economic Reforms must be the priority – Dr. Wijewardena
By Anjali Caldera
The Government’s failure to introduce appropriate economic reforms was the main reason for the collapse of Sri Lankan economy, thus Sri Lanka seems to have failed in its effort to attain the ‘V’ shape economic recovery planned for the future, stated the former Deputy Governor of the Central Bank of Sri Lanka Dr. W. A. Wijewardena.
He said this in a video on YouTube for the ‘IDA (Space)’, column of the week. In this video he emphasised that the present Government was concentrating on constitutional reforms rather than economic reforms and it did not present a proper budget for 2020 with resources to combat COVID-19; hence we have wait till next month to see the budgetary reforms for 2021.
Dr. Wijewardena said that this critical condition the economy is in was an outcome of the revenue loss which took place due to sweeping tax concessions given to tax payers since the beginning of this year. “It is estimated that only 50 per cent of the revenue could be earned from taxes this year in comparison to the tax revenue in 2019.”
Meanwhile, the expenses of the Government also increased unexpectedly as a result of dealing with the COVID-19 outbreak in the country forcing it to search for more and more debt driven funds as there is a huge budget deficit to cover the expenses of the pandemic. Hence to settle the acquired debts and its interest payments the Government has had to borrow from the banking system locally as well as overseas.
During the first seven months of the year alone the Government has borrowed an amount equal to Rs 1,500 billion from the Central Bank of Sri Lanka and commercial banks. State-owned firms have also borrowed a sum equal to Rs 500 billion, bringing total borrowings to Rs 2,000 billion. The private sector has only borrowed a sum equal to Rs 500 billion, which is just ¼ of what the Government has borrowed.
“Another reason for the economic crisis is the defects that occurred in the local supply chain, especially in agriculture, due to COVID-19,” he said. “The industrial sector also suffered”, he added.
He further revealed that the drawbacks in production due to the pandemic resulted in the weakening of the export sector. A sharp decline in production took place in the months of March/April. But as exports started to show an increase in May/June/ July, the Government expected a ‘V’ shaped recovery in the export sector, but as it started to decline again in August, the hopes of the Government also faded.
Hence the Government has no other option than to expect a ‘W’ shaped economic recovery, (a decline in economy with a slight rise after a period of time and again a drop and a rise later).
The second wave of COVID-19 to hit the country (Minuwangoda and Divulapitiya clusters) did nothing to help the recovery effort, he said.
Initially when the coronavirus epidemic was thought to have been successfully controlled, the Sri Lankan Government expected a ‘V’ shaped economic recovery, which indicated a drop in the economy and then a rise. Achieving a ‘V’ shaped economic recovery now is a difficult task unless the Government addresses the current problems in the economy successfully.
Thus to bring back the pre-COVID-19 status quo in the economy it will take time, maybe not even by 2021 but in 2022 and maybe even 2023, he concluded.