When President Ranil Wickremesinghe announced in Parliament last week the securing of the second tranche of the IMF bailout following the delayed completion of the first review, he did not fail to include the caveat that the tough times were far from over. While that broke the bubble over the hype associated with the announcement, the IMF’s own caveat that agreements in principle with bilateral creditors needed to be officially signed off as well as the urgent need for reaching agreement with commercial creditors who form the bulk of the external debt burden ahead of the second review scheduled for six months from now appears to have had a sobering influence that all is far from being well.
For all intents and purposes, the people of this country are being led like lambs to slaughter by a regime that has clearly no revival strategy of its own other than imposing strangulating taxes. Given this scenario, it appears that it has conveniently outsourced strategy formulation to the multilateral lender of last resort. As far as the IMF is concerned, its primary concern is repayment of external debt and how it is done is of little consequence to it.
The issue here is that there does not seem to be much thought given to the long-term sustainability of the new tax policy that is due to kick in in two weeks’ time, which even to a student of economics seems unsustainable. What is more worrisome is the impact such an ill-thought-out, unsustainable policy will have on an already-doddering economy. While the short-term impact will instantly reflect on people’s wallets, the long-term impact will primarily be reflected in the forex- and revenue-generating industries.
Already, even before the Value-Added Tax (VAT) kicks in on 1 January, local electricity prices are among the highest in Asia, while even the likes of Singapore are relatively cheaper. At the end of the day, the availability of uninterrupted grid power at a reasonable price is the cornerstone of industrial development. That the regime has still not comprehended this fundamental fact is portrayed by the cavalier manner in which it is planning the switch to greener sources.
During his Budget speech, the President announced that Sri Lanka expected to transfer 70% of generation capacity to renewable sources by 2030. How this figure was arrived at is anyone’s guess as there is simply no data to suggest such a possibility in such a short time given the current status quo. Almost on cue in the past week, we had the Minister of Power and Energy announce that Cabinet approval had been granted to an unsolicited proposal to construct a mega solar farm in the Northern Province with an installed capacity of some 700 megawatts, complemented by a battery-based energy storage system. The cost of the project has been estimated at a whopping $ 1.7 billion. One would expect solar to be a much cheaper source given that it comes free but apparently the CEB intends to procure a unit of electricity from this company at a price of Rs. 50 per unit – higher than the cost of coal-generated power.
The Opposition Leader claimed that the company in question, although possessing a website, does not list any projects it has completed, those ongoing, or any expertise it has in this highly-specialised field. In fact it was further revealed that none of the directors of the company have any technical background and one director was a food and beverage manager of a hotel in Australia. Besides, there is nothing to suggest the existence of any battery technology capable of storing 700 MW of electricity.
This episode, which sounds all too familiar to the people of this country, underlines the point that despite the trauma endured by the people on a daily basis owing to the sins of their political leadership, redemption is still a long way off. Besides, Sri Lanka has not only gained notoriety as a safe haven for money laundering, deterring real investors from pitching tents here, but continues to pay scant regard for the rule of law, making a bad case worse.
Many are the sins that have been committed in the recent past through expedient use of the state of bankruptcy to justify such actions. The spectre of unsolicited proposals for mega projects has been the bane of this nation and continuation of that practice, ignoring laid-down procedures despite even the IMF expressing concern for the same in its Governance Diagnostic, only underscores the level of commitment to even minimum governance standards at this critical hour.
If the political authority is incapable of strategy formulation to ride out this economic storm of its own making, it must, at the very least, ensure adherence to good governance practices which must necessarily stem from strict adherence to the rule of law. Rule of law as interpreted by those in Government these days is not limited to the Police maintaining law and order in the streets, but more importantly to those in political authority adhering to the laws of the land.
It does not take rocket science for Sri Lanka to turn the corner and get on the right track once again. What is required is for those vested with authority to follow rules and regulations as a necessity rather than an option. If those in authority stick to the rules rather than tweaking them to suit circumstances or to turn against political or other adversaries, then the country would be well on the way to sustainable recovery.
The architect of modern Singapore had a very simple recipe for success. As he famously explained towards the latter part of his life, all that was necessary for Singapore to become a model nation for the rest of the world was for its leaders to keep the system clean. By system he meant the administration. By clean he meant free of corruption.
If Sri Lanka is to emulate that model, it does not need to reinvent the wheel, it only needs its political leaders to set the standards and the rest will fall in line. However, it is Sri Lanka’s misfortune that no one in political authority at this time, despite the crying need for it, is willing to take that route. Therefore the people of this nation will have to wait until they are consulted at some point next year to make the call on who should be entrusted with that task.
Two incidents that took place in the run-up to Friday’s Sri Lanka Podujana Peramuna Convention in Colombo underscore just how much needs to be done from the ground up to restore rule of law in this country, notwithstanding the fact that those found guilty of wrecking the economy were holding a convention in the first place.
In the first incident, unsupervised work crews armed with hammer drills were seen digging newly-carpeted roads at taxpayers’ expense, simply to install flag posts for the convention. In the second incident, a member of the public in Minuwangoda had complained to the local authority that despite a sign board warning against the erection of banners and flags at a roundabout in that area, such decorations had been put up. However, following the complaint, instead of removing the decorations, the warning sign board had been removed by the local council.
Therefore, while the IMF will likely continue to monetarily bail out Sri Lanka at increasingly-regular intervals, it is up to the political leadership of this country to bail out the people from substandard governance and continuing erosion of the rule of law – both of which cannot be outsourced as in the case of economic policy formulation.