"It’s the economy, stupid"

With a Presidential election on the horizon, various trade unions from the Government sector are flexing their muscle to win their demands. From war veterans to teachers, and train drivers to doctors, what better time than now to hold a Government on election-mode, to ransom. And to hell with the general public they are meant to serve. All they have earned so far, at least from the thinking public is the feeling of why there is no greater privatisation of these sectors.

The cash-strapped Government is struggling to find the money to sort out these demands which are salary-based. The Finance Ministry is frank enough to say the coffers are empty, but they will dole out the ' dough' in January next year -- after the Presidential election. The striking unions can see through this.

The Prime Minister this week said the Government will present a Rs. 500 billion financial package to the private sector "soon" to bail it out of the economic conundrum it is facing and blames the previous Government for the debt servicing crunch the country is confronted with, which, he says, will take till 2030 to sort out.

Tired of the constant blame being levelled at his Government for the country’s economic malaise because of the extravagant loans he took from abroad, the former President came out with a statement this week accusing this Government of enhancing the debt crisis. He went on to say this is the worst Government since Independence. Election rhetoric, all these accusations and counter-accusations may be, but that the country's debt servicing problem is for real - is a fact the citizens will have to reckon with.

The former President's comments are worthy of analysis as he probably hopes to be the supervising officer for the next President, if he is from his party. He says the debt crisis Sri Lanka faces is mainly due to foreign commercial loans being spent by this Government largely on consumption (i.e. not on infrastructure or health etc.).

There are two types of foreign commercial loans; short term loans at high interest rates termed commercial loans mainly utilized for recurrent expenditure, and the long term project loans spent on identified sectoral investments. In his statement, the former President seemingly contradicts himself by stating that his Government did not take foreign commercial loans (para 2 of his statement), and then says, he took them “sparingly” (last para of the same statement).

His assertion that this Government has borrowed US Dollars 26 billion from 2015 is a spin on numbers by his advisors. According to the Central Bank reports, the total Government external debt including project and commercial loans is USD 32 billion by end 2018, increasing from USD 24 billion by end 2014.

Foreign commercial loans (inclusive of loans taken by local state banks which partly financed the 2013 and 2014 budgets) rose from USD 10 billion in 2014 to USD 15 billion by 2018 (ST editorial of March 3, 2019). With the recent binge in foreign bonds less the repayment outstanding, commercial loans is approximately USD 18 billion by the first half of 2019. The fact that both Governments fudged the books to use high-cost commercial loans for unproductive expenditure and for political endeavours is also well known.

While the politicians engage in a war of words and statistics as elections near, and the blame game intensifies, the President has extended the term of the Commission of Inquiry into corruption and mismanagement during this Government. While again, it is to the credit of the Government to be willing to turn the searchlight inward (which the previous Government never did), damning evidence is pouring out before the Commission daily. For what ultimate purpose is the question.

Last year, a similar Commission of Inquiry sat on what has been commonly called 'the Central Bank bond scam'. The wheels of justice have moved ever so slightly to implement the recommendations and bring the culprits to book. Only a few months back, the Commission that probed SriLankan Airlines’ irregularities gave its report, only for it to start gathering dust in some Presidential archive. The annual report of the Finance Ministry for 2018 was released this week, and it contains some frightening figures for those interested in the direction the economy is heading. While the Presidential election is focusing on issues of national security or the Executive Presidency, one might say as once was said at a US Presidential election; "It is the economy, stupid".

Among what has been said in the Treasury report is that, of the 54 SOEs (State Owned Enterprises), 16 are running at losses totalling Rs. 156 billion, the Petroleum Corporation and SriLankan Airlines being among the biggest loss making institutions. The overall loss from the SOEs is Rs. 26 billion.

Never mind the election rhetoric. Sri Lanka’s SOEs are in bad shape and the country is on a downward spiral path as profligate commercial loans bite. And what solutions prospective Presidential candidates have to remedy these twin economic factors is in the realm of the unknown.