• Professor of the Practice of Int’l Development of Georgetown University in Washington DC, Shanta Devarajan on the new President’s priorities 

Sri Lanka’s ninth Executive President was sworn in last week. Termed as one of the most peaceful elections this country has ever had, for the first time in history, the second preference votes were counted to declare the winner – Anura Kumara Dissanayake of the National People’s Power (NPP) Party. President Dissanayake now takes over a nation that has had unprecedented economic and social woes. His plate is full with lots to do, but he will have to prioritise his focus.

This week, ‘Kaleidoscope’ spoke to Professor of the Practice of International Development at the Georgetown University, Washington DC, Shanta Devarajan to detail what the President should prioritise.

Following are excerpts from the interview.

What do you think the priorities are for a new President at this time?

The priorities for any President of Sri Lanka at this time, regardless of who was elected, has to be to revive economic growth in the country. The country has come through a very painful process of stabilisation. As you know, inflation hit 70%; there were shortages of food, medicine, and fuel, and reserves were depleted, which is why Sri Lanka had to default on its loans. Now what Sri Lanka has achieved in the last two years is stabilise that economy. So, inflation has come down, reserves have been built up, and now you do find food and fuel and medicines to buy in the market. But, the problem is that the economy is still not growing very rapidly. In fact, we’ve had negative growth for two years, in 2022 and last year (2023). It’s only in the last four quarters there has been positive growth. I think that the highest priority has to be to generate rapid economic growth over the medium term over the next five-10 years. The focus of not just the President but the administration has to be on policies that are going to create economic growth. 

What are those policies? 

It’s very clear that the most important thing is to open up the economy to foreign trade. The economy was opened to foreign trade back in 1979 and the country just boomed. The economy just took off and everything from the apparel sector to tourism and agriculture saw a massive fillip. But, in the last 10-15 years, pretty much since the Rajapaksas were in charge (a reference to former Presidents Mahinda Rajapaksa and Gotabaya Rajapaksa, and the former Finance Minister Basil Rajapaksa), the economy has become increasingly closed. That administration restricted foreign trade, placed restrictions on imports, and the list goes on. That choked the economy and as a result, growth has been very slow. We must have a second wave of trade reform, opening up the economy to trade to unleash the entrepreneurial spirit of the Sri Lankan entrepreneurs to enable this economy to grow. 

What other reforms are we looking at?

More specifically, I would say that there are two others – at least two other items on the agenda that are unfinished from the previous administration (the Sri Lanka Podujana Peramuna and United National Party administration led by Ranil Wickremesinghe), but, they’re part of the reform programme that I would attach very high importance to. One is the reform of the State owned enterprises (SOEs). One of the reasons why we’ve had such lacklustre growth is that Sri Lanka has SOEs, most notably the SriLankan Airlines, and a few others, which are really depleting the Treasury. The debt of the SriLankan Airlines alone is 1% of the country’s gross domestic product (GDP). Think about that: Sri Lanka has had about 1% of GDP growth, that’s the magnitude of the SriLankan Airlines’ debt. So, we have to stop these SOEs bleeding the Treasury in every way possible. Plus, they’re not creating economic activity in the economy. The other two big SOEs that need reform, and not necessarily privatisation, are the Ceylon Petroleum Corporation and the Ceylon Electricity Board. There are a few more similar enterprises that require reform and these are the very high priority reforms. 

What about taxation reform?

That is a very high priority. Sri Lanka still has a very low tax to GDP ratio. In fact, that’s one of the reasons that we had this crisis back in 2022, because two Governments ago, the Gotabaya Rajapaksa Government cut taxes so much that Sri Lanka’s tax to GDP ratio fell to about 8% of the GDP. That caused the fiscal deficit to balloon and that’s what led to the hyperinflation and other factors. Now we see a slow build up of the tax revenues and the tax to GDP ratio being about 9%. We need to get much higher than that. Comparable countries have tax to GDP ratios of 15-16% and Sri Lanka used to have a tax to GDP ratio close to 20%. So, we can do it. It’s just a question of being able to put through the tax reforms. And, when I say tax reform, I don’t mean taxing the poor or the middle class. It’s about taxing the rich. The rich get away with paying very little taxes in this country. I think that we can move towards something like a wealth tax or a tax on housing, which would be one way of capturing some of that huge wealth. Driving around Colombo, that vast wealth is very evident and you are bound to think, ‘These people aren’t paying any taxes on all that wealth’ which is really very troubling because the lack of taxation, the lack of tax revenue, means that there isn’t enough money to pay for some of the public services that the poor need, like health or education or social transfers. 

What pitfalls should we be aware of at this point?

That’s a hard one because usually the pitfall is the political reaction, as we saw with the ‘aragalaya’ movement (the public movement that sought the resignation of the former Government led by Gotabaya Rajapaksa, and a system change). The Sri Lankan public has shown that if you make mistakes, it will punish you for it. The Rajapaksa administration found that out rather brutally. I think that the new President will have to make sure that he manages the economy prudently so that we don’t fall into these huge fiscal deficits that led to the austerity programmes which people got very upset about. It has to be done in a measured way. During an election campaign, every candidate, not just Dissanayake, promises the sun and the moon – ‘I will lower taxes for you’, ‘I will lower prices’, and things like that. The fact is, we can’t lower something unless we have a way of paying for it. And that has to be the mantra of this administration as well.  If you try to keep a campaign promise without worrying about how you’re going to finance it, you will run into trouble very quickly. That’s the pitfall that we have to avoid. I think that it is possible to lower taxes for the poor and the middle class or increase services to the poor and the middle class. But, it has to be done in a fiscally prudent way. And, that’s why I would recommend raising taxes on the rich so that you can actually finance these programmes.

(The writer is the host, director, and co-producer of the weekly digital programme ‘Kaleidoscope with Savithri Rodrigo’ which can be viewed on YouTube, Facebook, Instagram, and LinkedIn. She has over three decades of experience in print, electronic, and social media)