Political and economic uncertainties and global crises overshadow economic prospects
Political uncertainties, unfavourable economic conditions and the global recession are serious downside economic risks. The performance of the economy is being overshadowed by unfavourable global economic developments that could severely undermine the country’s export income, import capacity, tourist earnings and inward remittances.
Dependence
Sri Lanka’s import-export, remittance, and tourist-dependent economy could be adversely affected by the deterioration of the global economy. The cessation of the escalating Gaza and Ukraine wars is crucial to avert an economic crisis.
Global risks
A deterioration of global economic conditions is most likely if the two wars continue. Already, the recessionary conditions are having an adverse impact on the country’s declining exports. Furthermore, a recession in European countries and North America would reduce manufactured exports significantly, and the trade deficit could widen to an unsustainable amount.
International prices
Fortuitously, import prices have not yet risen sharply. Petroleum prices have remained at around US$ 90 a metric tonne. This is attributed to the recessionary conditions and an increase in oil production.
The expansion of the Palestine-Israeli war and the engulfing of other countries in West Asia in the conflict could escalate fuel prices. The current Israeli bombing of Gaza could result in such an expansion of the war.
External finances
There is every likelihood of petroleum, fertiliser, and food prices escalating if the wars drag on and expand, especially in West
Asia.
This would mean that in addition to our exports being adversely affected, import costs would rise considerably, making a large dent in our trade balance and adversely impacting our fragile external finances.
Wars
There can be no doubt that the continuation and expansion of the two wars could have serious consequences for the Sri Lankan economy. The depressed demand for our manufactured exports could worsen with the recessionary conditions in Europe and North America deepening. It would lead to the further closure of export industries. Recessionary conditions in Europe and North America could also jeopardise tourism, which is a mainstay of the economy.
West Asia
The expansion of the West Asia war could reduce inward remittances as workers flee home for safety. Also, our migration to West Asian countries would dwindle, or even cease, till peace is restored in the region.
Initially, remittances would not decrease owing to returnees bringing in their savings. It is only a matter of time before labour migration to West Asian countries dwindles and remittances decrease sharply.
Hope
We can only hope that the two wars will cease soon and the adverse impacts on the global and Sri Lankan economy will be eliminated.
Political conditions
The run-up to the presidential and parliamentary elections and their outcomes could create political conditions that are setbacks to economic recovery. The run-up to the elections is a period of political unrest, protests and demands that cannot be met. All opposition parties would be mounting campaigns to discredit current economic policies and making promises that are economically impossible to implement or, if implemented, would seriously destabilise the economy.
Outcome
The final outcome of the presidential election remains in doubt. The large number of candidates who have announced their intentions to contest makes it unlikely that any candidate would secure a majority of votes.
The ensuing political situation of a political stalemate could be the worst possible condition for economic stability and growth.
No policy
Most political parties are not likely to propose a viable and pragmatic economic programme. They are highly critical of the current policies that have caused hardships and are opposed to the IMF conditionalities. This is very much a popular stance. The lack of an alternate policy to get out of the economic crisis is not of much popular concern.
Economic uncertainties.
The stark reality is that the continuation and implementation of the IMF programme is the only way out of the current economic crisis. Some modifications on taxation, reductions in government expenditure, and effective revenue measures could, however, be adopted.
Economic growth
No one could deny that the economy has recovered from a serious economic crisis and is moving from a state of bankruptcy to economic stability and growth. However, the transformation of the economy from one of economic stability and recovery to one of growth and development is dependent on the implementation of economic reforms that are wrought with uncertainties and risks that we have discussed.
Summing up
The country is entering a period of political and economic uncertainty owing to the upcoming presidential election in 2024 and parliamentary elections thereafter. The election campaigns of most parties would oppose several key reforms, such as higher taxation and economic reforms, especially the privatisation of state-owned enterprises. In addition to the difficulties of implementing these, the global recessionary conditions could hamper the revival of the economy in several ways. Hopefully, the two wars will not drag on and undermine the economy. Equally important is that political protests, strikes, and opposition to reforms do not derail efforts towards economic stabilisation and the implementation of reforms.
Future
It is difficult to envisage the political developments next year. However, there is little doubt that most political parties are likely to oppose the ongoing IMF programme. The uncertainty in the country’s political developments in the next year is a serious concern for the continuity of economic reforms and fiscal and monetary stability, which are preconditions for the country’s economic stability and growth.