The political equilibrium seems quite fluid these days given the realisation of the powers that be, that the state of the economy will weigh down not only the current Government but even more heavily, the next one. So heavily that given the current context, the next government will have little or no leeway to embark on capital investment or large-scale development projects unless they are fully funded through grants or long-term funding with at least a five-year grace period. The Government, if it wants to keep its head above water, will have no choice but to introduce various austerity measures which no doubt will lead to its unpopularity in double-quick time. But this is Sri Lanka and economic issues are yet to bite, so the two main parties are clamouring to establish the next government by putting together various alliances of like-minded parties. The divided United National Party (UNP) is yet to settle its petty squabbles which threaten a major split. Formed by Opposition Leader and prime ministerial candidate SajithPremadasa, the Samagi Jana Balawegaya seems better placed now with the support of the major Tamil and Muslim parties on board to offer greater resistance, if it is smart enough to capitalise on the corruption scandals that have backfired on the ruling party. To make matters worse, the Sri Lanka PodujanaPeramuna (SLPP) which seemed to be cruising along has been jolted by the arrival of serial party destroyer former President MaithripalaSirisena who has been named as Chairman of the new alliance. Sirisena has a notorious reputation that precedes him of having been the chief destroyer of the once-dominant Sri Lanka Freedom Party (SLFP) through its total capitulation to the SLPP and almost succeeding in decimating the UNP while in office. Whatever the political capital that the leaders of the SLPP may see in Sirisena, following his disastrous performance in the top job, he is perceived more as a liability than an asset these days. Notwithstanding all that, the bottom line is that whichever party comes to power, it will have a herculean task in making ends meet to keep the economy afloat. Economists forecast foreign reserves to deplete to under $ 7 billion by around June this year if not sooner, reflecting the dwindling inflow of foreign funds. The ongoing Millennium Challenge Corporation (MCC) drama also has the potential to have far-reaching economic ramifications if the US decides to play hard with market access for Sri Lankan exports. The US is currently Sri Lanka’s biggest export market, accounting for 27% of all merchandise exports. Sri Lanka is already grappling with the problem of falling export earnings with Export Development Board (EDB) data indicating that export growth fell to a three-year low in 2019. The export sector only grew by 0.4% in 2019 to bring in a total revenue of $ 16.1 billion. Sri Lanka still depends on apparel and agricultural exports which have retained the top two slots since the 1990s, exposing the limitations of the revenue-generating capacity and the lack of innovation. To make matters worse, the next biggest earner, workers’ remittances, has also declined by 4.3% in 2019 to $ 6.7 billion from $ 7 billion in 2018. Tourism earnings have also fallen sharply to register just $ 3.5 billion in 2019 down from $ 4.3 billion in 2018. Meanwhile, Central Bank data indicates that there has been a net foreign investment outflow of $ 334 million in 2019, further compounding the situation. What is worrisome however is the economic stimulus package introduced by the Government through various tax cuts has resulted in a higher import bill as the business sector seems to be utilising the savings on tax benefits on importing consumer goods, machinery, and vehicles. Vehicle imports were up for the first time last December since November 2018. Imports in general picked up for the first time since October 2018 last December by nearly 3%, contributing to a widening trade deficit, adding to the economic headache which has been further aggravated by the estimated revenue shortfall of around Rs. 600 billion owing to the tax cuts and other incentives. It is therefore not surprising that Sri Lanka’s foreign loan repayment capacity has been seriously compromised, resulting in Premier MahindaRajapaksa requesting New Delhi for a three-year moratorium on loans obtained from India. There has been no official response to this request so far. What may have prompted the request is the fact that Sri Lanka has to pay the highest-ever loan repayment component in its history amounting to nearly $ 5 billion with or without Chinese and Indian help during the course of this year. If Sri Lanka is to wean away from the begging bowl culture and stand on its own two feet at least some time in the future, the foundation must be in place to grow the country’s export basket so that at least we have enough cash to pay for what we import and turn the current trade deficit in to a surplus. Apparels and agricultural products need to be further consolidated, complemented with greater volumes of industrial exports, IT, business process outsourcing, financial, and other services in order to diversify the export basket and sustain income levels. It is also prudent and makes sense for apparel manufacturers to be able to sell their products in the local market which is currently banned under Board of Investment (BOI) laws. By opening up the local markets to garment exporters, a significant amount of foreign exchange could be saved as these same products need not be imported for local consumption. The same goes for electronic items and other merchandise which are manufactured in Sri Lanka but prevented from release to local markets. The only items that find their way to local stores are factory rejects. Ironically, the same products that are exported are also imported. Therefore, a great opportunity for import substitution and saving of precious foreign exchange is lost due to archaic laws. It is no secret that the Government is cash-strapped and is facing a difficult situation as it is not in a position to submit a vote on account to Parliament to raise borrowing limits and obtain more funding as it does not have a working majority. This is what must have weighed on the Government’s mind, prompting it to hastily withdraw the amendments proposed to the Vote on Account submitted by the previous administration which in fact will be in effect till end-April, by which time a new administration will be in office. Desperate times call for desperate measures and a very different economic and business climate may be in the offing post-election including the re-imposition of taxes in order to rescue Sri Lanka from the brink of economic disaster. Given what’s in store, make hay while the sun shines seems the order of the day.