Economic recovery derailed by political unrest and social upheavals

The economy that was showing signs of recovery is being thwarted by strikes, protests, political unrest and social upheavals. The course of these actions and the counter actions of the Government could result in a malfunctioning of the economy and serious economic consequences. These drawbacks would be to the country’s external finances and the production of goods and services.

The expected improvement in the external finances that are vital for a resurgence of the economy may face several setbacks, while the production of goods and services are reduced. The current situation of political unrest and people’s protests against higher income taxes and high prices are not conducive for an economic recovery. There are several ways by which the current conditions are not conducive to an economic recovery and development.

Political unrest

The duration and repercussions of the current political unrest and protests against the Government’s not holding the local council elections are uncertain. At worst, it could end in chaos, bloodshed and political instability. It would certainly be a setback to an economic recovery.

It will not only affect the external finances of the country, it will reduce employment, incomes and increase poverty, hunger and malnutrition of people.

External finances

At the beginning of this year there was a prospect of an improvement in the country’s balance of payments owing to increased earnings from tourism and higher inward remittances. Tourist earnings of about US$ four billion and inward remittances of about US$ five billion, were expected to offset a higher trade deficit of about US$ seven billion to yield a balance of payments surplus of around US$ two billion or more. These expectations may not be realised if the country’s political unrest continues and escalates to thwart tourism.

Tourism

The most vulnerable foreign exchange earner is tourism. From time to time, external shocks have set back tourism.

In January this year tourist earnings are estimated to have been more than US$ 400 million. The tourist industry expected a further boost to tourism at the end of the year and the year’s earnings to reach more than US$ five billion, perhaps even more.

At risk

This expectation is now at risk. If the political upheaval continues and becomes more violent, the country could be deemed an unsafe travel destination. This would be a serious blow to tourism and the country’s external finances.

Remittances

In 2022 remittances increased to US$ four billion from US$ 2.5 billion in 2021.This increase reflected mostly the lesser differential in the official and informal exchange rates and incentives offered by banks. Therefore, we may receive a slightly higher amount this year. Hopefully, the unrest in the country will not be of concern to those sending remittances.

Trade balance

This year’s trade performance is likely to be adversely affected by the current global economic conditions and exogenous factors over which we have no control. This year’s trade deficit is likely to widen mainly owing to a decline in exports. Manufactured exports are expected to decline owing to recessionary conditions in our markets abroad. There are however, signs of an improvement in global conditions that would lead to a resurgence in international demand.

However, the current conditions in the country are not at all conducive to the economy’s functioning. The steep increase in electricity charges has increased costs of production of manufactured exports and reduced our international competitiveness. A lowering of the electricity tariff for industry should be implemented speedily.

Foreign investment

Foreign Investment would [NS1] be deterred by this climate of political upheavals, unrest and uncertainty. In fact, foreign investors in the country are relocating their enterprises in other countries.

Nevertheless, government sponsored large foreign investments in ports, energy and infrastructure are being implemented.

Production capacity

One of the most serious long term adverse impacts of the current economic and political situation is the erosion of the nation’s production capacity. The production capacity of the country is seriously threatened by a large exodus of trained personnel. In fact the economic and developmental capacity of the country for years to come is being seriously eroded.

Summary and conclusion

The prospects of an improvement in the country’s economic conditions are being eroded by the current strikes, protests and political upheavals. Neither their course, duration nor impact are certain. What is certain is that it would be a setback to the external finances and production capacity of the country. It is a threat to the expected improvement in the balance of payments and external finances and foreign investment.

Apart from the adverse immediate impacts on the economy, the long-term prospects of an economic recovery too would be jeopardised by the political and economic uncertainty. The large exodus of trained personnel will undoubtedly weaken the nation’s developmental capacity and long term growth potential.

The sooner the end to strikes, protests and political instability, the prospect of economic recovery, increased employment and incomes and reduction of the hardships of the people.

Can we restore political and stability soon?