Political stability crucial for economic recovery

People have spoken loud and clear. They want the President and the Government to go. The country is in a political crisis. It is time for an all-party national Government to be formed. Yet there are no signs of such a positive political development. We are a people who have united to oppose but oppose to unite.

Right decisions

The decision to seek the assistance of the International Monetary Fund( IMF), the appointment of a competent and independent Governor of the Central Bank and a three-member professional advisory council are important positive developments. However, a stable and credible government is vital to obtain immediate assistance from the IMF for an orderly restructuring of debt and undertaking of needed economic reforms.

Political stability

Political stability is a prerequisite for resolving the economic crisis. We cannot resolve the economic problems without a stable and secure government. Hopefully, early in the New Year, we would resolve the political crisis.

However justified the social upheavals are, they are detrimental to the economy. They are a further setback to the economy. They aggravate the economic conditions by reducing earnings from tourism, disrupting economic activities and increasing Government expenditure.

Crises

The severe economic crisis cannot be resolved without the formation of a competent, honest, and dedicated national government. The final outcome of the current political and social upheaval is uncertain. What is certain is that the grave economic crisis cannot be resolved without a stable and credible Government.

Recent changes

The recent political upheavals and changes in the cabinet will be of consequence only if the Government pursues the correct economic policies toward economic stabilisation and growth. What matters is the pursuance of correct policies.

Significant change

The appointment of a competent and experienced Governor to the Central Bank is a significant tipping point. Dr. Nandalal Weerasinghe has pledged to ensure the independence of the Central Bank. He brings to the high office a wealth of knowledge and experience of central banking.

Political will

Have we the political will, resolve, courage and capacity to undertake a serious programme of economic stabilisation and economic reforms? This is the pertinent issue.

IMF

The gravity of the economic crisis is such that there is no alternative other than seeking assistance from the International Monetary Fund (IMF) and entering into a structural adjustment programme. The delay in seeking such assistance has aggravated the problem and made the remedial measures more painful.

Hard times

The road ahead is a difficult one. It is not possible to continue our recent policies of excessive consumption, wasteful government expenditure, wrong policies and ineffective disorderly economic management. Neither is there a possibility of easing the hardships people have undergone in a short period. People will require bearing the hardships till the Government is able to resolve the shortage of essentials.

Immediate

Immediate relief would have to be from foreign assistance to obtain food, diesel, petrol, gas and pharmaceuticals. Several countries and international organisations have promised such assistance. These must be obtained speedily.

Electricity

The reduction of power cuts to a minimum and the availability of diesel, gas, and petrol are vital for most economic activities and livelihoods. Manufactures and services are adversely affected. Consequently, exports are declining. These shortages have to be resolved soon.Hopefully, this would be possible with the foreign assistance we are receiving particularly from India and from other countries as well. The recent rains in the catchment areas too may increase hydroelectricity generation.

Palliative

This relief is a palliative that is essential and yet of short duration. It is the pursuance of correct economic policies and a long term programmefor debt repayment and liberalisation of trade and payments that could redeem the situation. This is the rationale for an IMF programme of assistance that was unduly delayed owing to incorrect advice.

Hardships

Despite these measures, the burdens to people by the steep devaluation of the rupee and its depreciation by over 50 percent to the US dollar being over Rs. 300 will create severe hardships for people.

This change in policy together with pricing policies reflecting the higher import costs have heaped severe hardships to people. This cannot be avoided. In fact, the burdens of such a readjustment of the exchange rate and pricing policy are likely to heap increasing burdens on the people.

Relief

This implies and underscores the need for policies to relieve the lower-income groups through effective safety nets and subsidies. For instance, while fuel prices are increased public transport should not be costly. There should be methods of subsidising diesel and ensuring that rail transport for ordinary daily travel remains at earlier prices. The pricing structure of rail transport would have to be readjusted to increase higher class and luxury travel to more than reflect the increased costs.Similarly, there should be other policies that give relief to lower-income families. This would require higher taxation of the rich.

Structural adjustment

The inevitable structural adjustments for economic recovery should be accompanied by programmes of relief for the adversely affected low income earners. It should be a “structural adjustment with a human face.”

Summary and conclusion

The delayed decision to seek IMF assistance to restructure the foreign debt and obtain financial assistance to relieve the country’s financial distress is a significant and inevitable move. The appointment of competent and professional personnel to head the Central Bank and Finance Ministry and a body of highly competent and experienced advisors too are important developments.

Nevertheless, the road to economic recovery is long and painful. The hardships will fall on all, but the rich must bear much of the burden. Political unrest and social upheavals will undoubtedly weaken economic stabilisation and recovery. The inability to mount a united national effort is a serious weakness in the republic.

An early resolution of the political stalemate, a stable Government and the subsiding of the social upheavals are imperative for an economic recovery. The absence of national unity is indeed a serious impediment to economic recovery.