• So long as you spend more than you earn, you have to crash at some point
• Repeat insolvencies are inevitable; need to drastically cut Govt. spending
• This year alone, the Government will spend Rs. 3 trillion more than it earns
• State revenue is insufficient to fund defence, education, health, bureaucracy
• Biggest weakness is politicians’ inability to understand national predicament
• Big opportunity we have going into the future is the resilience of our society
• Murder among poorer classes gets a lot less attention; media also to blame
• Underlying issues need to be addressed brutally, like shutting down SriLankan
• If Sajith joins RW’s coalition, they will win, but SP will be reduced to a figurehead

With an annual budget deficit of around $ 10 billion and seemingly unable to either service the debt or cut the deficit, Sri Lanka will certainly crash again, warned biodiversity scientist and public policy advocate Rohan Pethiyagoda, in an interview with The Sunday Morning.

“So long as you spend more than you earn, you have to crash at some point. People point to Greece, but Greece was saved because it is in the European Union (EU). Argentina is a much better point of comparison. Until the early 1960s Argentina was one of the most prosperous countries in the world. Now it is a basket case, worse than us,” he pointed out.

“If I were a politician, I would warn the public that repeat insolvencies are inevitable and explain why we are in this situation and why we have no choice but to drastically cut Government spending. But no politician will do this,” he added.

In the course of the interview, he also spoke on Sri Lanka’s overseas debt, extrajudicial killings, the current political situation, and upcoming elections.

Commenting on the polls, Pethiyagoda said the forthcoming election would be especially interesting given the extent to which Parliament was fragmented. “I think Ranil will succeed in forming a grand coalition inclusive of the SLPP and the minorities, while trying to hobble Sajith, perhaps luring some of his MPs to cross over. I’d be astonished if the Rajapaksa family fields a candidate: it is too soon after the Gotabaya disaster,” he added.

Following are excerpts of the interview: 

Could you do a SWOT analysis of the state of the nation today?

The strength, as I see it, is that we have managed to retain an illusion of solvency. None of our creditors have gone to court against us or seized our assets, as is happening to Argentina. Sri Lanka is very good at playing the Western governments, quick to make promises and slow to keep them. Just look at the UN Human Rights Council. We’ve been running circles around them for 15 years, shamelessly breaking just about every promise we make. 

I think our biggest weakness is the inability of politicians, firstly to understand the national predicament and secondly to explain to people what it is. Ever since the hartal of 1953, successive governments have run deficit budgets, spending far more than they earn. This year alone, the Government will spend Rs. 3 trillion more than it earns. Part of that Rs. 3 trillion is to service existing debt and part of it is new debt.

Either way, the deficit keeps growing and when new borrowing is impossible, governments print money, sending us back into an inflationary spiral. This has been our post-Independence story. 

State revenue is insufficient to fund defence, education, health, and the Government’s huge bureaucracy. Any mention of cuts is politically toxic. And so, the cycle continues, with inflation and devaluation being the obvious consequences. In 1948 you could buy a US Dollar for six rupees. Now it is over Rs. 300. The rupee has lost 98% of its value.

It takes too long to explain here, but the fact is that inflation benefits the wealthy and is in effect a tax paid by the poor. But have you ever heard a politician say that? If you spend more than you earn, you eventually go bankrupt. That is what happened to us.

The big opportunity we have going into the future is the resilience of our society. We’ve gone through this huge upheaval in terms of cost of living increases, shortage of goods, and various hardships, yet there’s no sign of revolution. This society has matured; we’re not throwing tantrums. Most countries would have descended into anarchy, as happened in Greece and Argentina. Sri Lankans held their nerve. 

The threat, of course, is our overseas debt. Ranil Wickremesinghe has been President for almost two years and he’s been kicking this can down the road. He’s deflected our creditors beautifully and we have dodged servicing our overseas debt for two years. He will continue to dodge until the elections and then, of course, we will have to face the music, regardless of which government is elected.

If overseas creditors force us to start servicing debt, we have to come up with $ 6-10 billion a year, depending on how well we negotiate. But even now, after two years of austerity, the Central Bank reserve stands at just $ 4.5 billion and even that is not in ready cash. If creditors force us into insolvency again, it’s going to be really bad. This is a real possibility – Argentina has been forced into insolvency three times since 2001 despite massive IMF bailouts. 

What are the measures that need to be put in place to ensure a better future and that we don’t crash again?

We will crash again. Of that you can be sure. So long as you spend more than you earn, you have to crash at some point. People point to Greece, but Greece was saved because it is in the EU. Argentina is a much better point of comparison. Until the early 1960s Argentina was one of the most prosperous countries in the world. Now it is a basket case, worse than us. 

Despite the last two years of austerity having paid rich dividends, people are becoming restless already. They want to import cars and luxuries. Even Central Bank Governor Dr. Nandalal Weerasinghe, who’s been telling the rest of us to tighten our belts, dealt out lavish salary increments to Central Bank staff. I am very disappointed by this. 

If I were a politician, I would warn the public that repeat insolvencies are inevitable and explain why we are in this situation and why we have no choice but to drastically cut Government spending. But no politician will do this.

In an interview a year ago, you said things were better compared to the year earlier and that there was light at the end of the tunnel, but today you are painting a very bleak picture?

I was talking about social and political stability, the lack of queues, and so on. Looking back at the turmoil of 2022, we are in a happy place compared to where we might have been. Two years ago today, we were without electricity, gas, food, and fuel.

The fact that the ‘Aragalaya’ didn’t turn into an anarchic revolution was astonishing. We saw the chaos that ensued in the ‘Arab Spring,’ when one country after another had popular protests of this kind and ended up worse than where they started: Egypt, Tunisia, Yemen, Syria, and Libya. We must count ourselves very lucky that we didn’t go the same way.

But I have always been clear that there is really no fix for our national predicament short of Elon Musk dying and leaving us his money. Just look at the basic arithmetic. Our total domestic and foreign debt now stands at around $ 100 billion. Our annual budget deficit is around $ 10 billion. We can’t seem to either service the debt or cut the deficit. That is why I say we will almost certainly default again. 

There has been a marked rise in the shooting of people, with many extrajudicial killings in recent months. Why is this happening, what does it mean in terms of law and order, and what kind of impact is this having on society?

The thing is, in most of those cases we don’t know who is being killed. According to a senior Police officer I talked to a few days ago, these killings are mostly drug-related. I have no idea whether this is true.

But why is the State turning a blind eye?

To be brutally honest, the State pays a lot more attention when someone from the middle or upper classes dies. Apart from political assassinations, that is the plain fact. Murder among the poorer classes gets a lot less attention. And here, the media is to blame, too.

What does it mean for society when law and order is allowed to break down in this manner?

Of course, it isn’t good. But you need to look at this dispassionately, because the well-off and the poor get very different treatment.

My house was burgled last year and within minutes of it being reported, the place was crawling with Police. They did a fantastic job. Within 48 hours they arrested the burglars, sending a special squad as far as Anamaduwa, and recovered the stolen goods.

I am very grateful to them, but at the same time, I know that an ordinary citizen is very unlikely to get that level of service. And as much as even drug dealers deserve justice and equal treatment under the law, they are very unlikely to get it.

What are your thoughts on the current political situation and upcoming elections?

The forthcoming election will be especially interesting because of the extent to which Parliament is fragmented. The SJB, NPP, SLPP, and the ethnic minority parties each represent blocs of at least 20%. It is an open question as to whether the minorities will throw their lot in with Ranil or Sajith. 

I think Ranil will succeed in forming a grand coalition inclusive of the SLPP and the minorities, while trying to hobble Sajith, perhaps luring some of his MPs to cross over. I’d be astonished if the Rajapaksa family fields a candidate: it is too soon after the Gotabaya disaster.

In any case, Sajith is not likely to join such a coalition: he knows the measure of the President too well. If there is a three-way fight between Ranil, Sajith, and Anura Kumara, it seems unlikely that any of them will reach 50%, leaving us with the uncertainty of a second-preference count.

If Sajith joins Ranil’s coalition, they will almost certainly win the election, but Sajith will be reduced to a figurehead, which is what the office of the prime minister has become. So, interesting times lie ahead.

What are your expectations, what do you hope for?

I think Sajith deserves a chance. He has some competent people in his front bench, like Harsha and Eran. He’s a generation younger than Ranil, who will be over 80 at the end of his term, if elected. But as I said, of the three, he’ll have the hardest time getting elected.

The NPP, as the JVP now brands itself, is looking increasingly attractive to the youth. But the NPP has been silent on the specifics of its policy framework. How will it address debt and the deficit? 

The NPP talks endlessly about wiping out corruption. As important as that is, we need to recognise that our national predicament does not result from corruption: 70% of public expenditure is recurrent, for salaries, etc., and there’s negligible corruption there. Assuming that corruption soaks up even 20% of capital expenditure, that amounts to only a modest 6% of the budget.

I am not for a moment condoning that. We must stamp it out. But it shows that our true problems lie elsewhere, in a bloated and inefficient public service. And I doubt whether the NPP will do anything about that. That, after all, is its constituency.

What can we do about it?

Nothing. This is a problem that has been spiralling ever since 1953, with each government progressively growing the deficit. I can’t see how that can be stopped. No country in that situation has managed it and, looking at the intellectual capacity of Parliament, I seriously doubt that we will.

We can trim a little here and there, but the underlying issues need to be addressed brutally: like shutting down SriLankan Airlines, which has liabilities of almost Rs. 500 billion. We don’t need a State corporation for every pin and nail.

Just look around the room you’re in now: there’s a State institution for almost everything in it: timber, building materials, printing, trading, cashew, lotteries, handicrafts, milk, pencils, and even biryani. And then, the hundreds of so-called ‘circuit bungalows’ in all the best tourism locations, maintained at taxpayer expense. Crazy. 

Do we have the political will to see such change through?

We can’t, that’s why we will always fail. No politician will touch any of these useless entities because that’s where their unemployable cronies and relatives get jobs, cars, and foreign travel.

Then what is your hope for Sri Lanka?

I don’t hope. Hope is just wishful thinking. I like to see pragmatic solutions. And even if a politician with solutions comes along, the people simply will not let them trim the fat.

Look at the pushback I got just last week for pointing to the massively wasteful Adani Mannar Wind Power Project, which promises to syphon $ 2.3 billion out of the country. There are also many who think it was worth spending $ 113 million on the Lotus Tower just so they can go up and take in the view.

So long as the people are politically naïve, there really is no hope. Just try shutting down SriLankan Airlines and see the political fallout. People don’t care that its cumulative loss exceeds three years’ worth of PAYE tax revenue.

There’s a misplaced sense of national pride?

Exactly. People say we won’t get tourists if we don’t have a national airline. My answer is, look at Greece, Brazil, and Cyprus, all of which are massive tourist magnets compared to Sri Lanka. They don’t have national airlines, but yet the tourists come by the million. We need to have the courage to do what is good for the country, not what is good for politicians. 

Are Sri Lankans delusional?

I think every country is delusional to some extent, but I think we have this thing in our DNA where we don’t want to progress. Everyone wants Sri Lanka to be like Singapore. But when you tell them that in Singapore your employer can fire you at a moment’s notice and there’s no Labour Tribunal to run to, or that the penalty for not stopping at a pedestrian crossing is six months’ imprisonment and a Rs. 300,000 fine, they quickly change their minds.