This article was written by Yolani Fernando from Arutha in partnership with Factum. It originally appeared in The Morning newspaper. The views expressed are those of the author and do not necessarily reflect the views of Arutha.
Despite elections slated to be held only towards the latter part of the year, Sri Lankans are already abuzz with debates on candidates, alliances, hopes, and fears. The main topic of our hopes and fears is the economy and the reforms implemented since 2022. For most, finding ways to deal with the cost-of-living crisis is the chief concern, while for others it is staying on the reform course.
Neither concern is invalid. But it’s not pragmatic to preach about the values of macroeconomic stability and long-term recovery when families are struggling to make ends meet. Instead of dismissing these concerns, we should be trying to bridge the gap between them.
There are no quick fixes for our economic woes, which means that people need to buy into the reforms. Without clear communication on what the reforms are and why they are necessary and without sufficient social protection for the most vulnerable sections of our population, reforms are bound to fail in the long run. The lack of consensus on the reform agenda is already clear at the political-party level with Opposition parties vowing to overturn some, if not all, reforms.
This potential lack of policy stability has prompted President Ranil Wickremesinghe to announce his intention to bring in an ‘economic transformation law’ to ensure the continuity of the current reform agenda. It is highly unlikely that such a law is the correct mechanism to use, but the purpose behind it is clear; to keep Sri Lanka on the road to reform and recovery.
We need a middle ground
Crisis and post-crisis situations are often when countries embark on ambitious reform programmes. However, policy decisions made at the height of crises are made hastily and are not generally up for debate. Most would agree that harsh adjustments brought an end to the symptoms of the economic crisis, such as the severe shortages.
The underlying condition, however, is yet to be treated. The reform agenda, much like any other long-term treatment, requires commitment. But why would anyone commit to hard reforms unless the benefits of those reforms are communicated to them?
Active communication is needed to build consensus. While a few members of the Government are taking ownership of their reforms and communicating them to the public, there is a general unwillingness to build awareness among the public about the reforms.
The importance of consensus appears to be more readily acknowledged outside of Government. The Common Minimum Programme for Economic Recovery compiled by the National Movement for Social Justice was the first such initiative to build consensus on the reform agenda. More recently, NextGenSL started work on a cross-party governance and economic development framework. The initiative will advocate for its recommendations to be included in election manifestos of all political parties.
None of this is to say that parties should abandon their ideological differences. But our situation is too precarious to not find a workable middle ground. Of course, as citizens in a democracy, we have the right to debate and discuss specifics of reforms.
Increasingly-polarised debates rage on about every aspect of economic policy such as, State-Owned Enterprises (SOE) – national assets, or national burdens? Taxes – unjust, or necessary? However, the more pertinent question is, what can we agree on? Or better yet, are there some things too vital to disagree upon?
To reform or not, is not the question
The analogy of being at a crossroads does not work for Sri Lanka’s current situation. The question is not whether we need reforms or not. Without long-term economic and governance reforms we risk another, deeper crisis. The only real choice is in the details of the reforms where we are at liberty to disagree. What we cannot disagree on are three fundamental commitments:
- The external debt restructuring deal with creditors
- Targets set out by the current International Monetary Fund (IMF) programme
- Governance reforms to address systemic issues
On the first point, there is hardly room for debate. While we can and should advocate for greater transparency in the ongoing debt restructuring negotiations, there is no question that we must eventually repay what we owe. Despite the discussions around debt cancellation and debt justice, there is no precedent for outright cancellation of debt from private creditors.
If Sri Lankan policymakers were to take such an extreme stance on this issue, it would signal serious political risks and instability to investors and creditors. While debt cancellation is off the table, debt restructuring can, in fact, involve a reduction in the debt burden through principal haircuts and interest rate reductions.
On the question of the IMF targets, there is of course widespread disagreement. Opposition parties such as the National People’s Power (NPP) and the Samagi Jana Balawegaya (SJB) have indicated on multiple occasions that they would renegotiate the IMF programme if they came into power.
As addressed in Arutha’s previous article, the reality is that the IMF targets are largely unmovable. It is worth remembering that under the current IMF targets, Sri Lanka will still exit the programme with quite a high level of public debt as a percentage of Gross Domestic Product (GDP), so the room for manoeuvring is slight, if not non-existent.
Where there is room for negotiation are the specific ways in which the targets are achieved. It is essential that both political parties and voters understand this, and breaking off the IMF agreement would not just delay but in fact derail our economic recovery.
Turning economic recovery to prosperity will require political consensus on governance reforms. Without long-term reforms to tackle issues such as corruption vulnerabilities, we risk treating symptoms while ignoring the underlying disease.
Sri Lanka’s sovereign default was a breakdown of trust; which means that the Sri Lankan State must not only prove its trustworthiness to the world but also to its own citizens. Honouring these three commitments is the way to rebuild trust on both fronts.
Recovery vs. relapse
As Sri Lankans try to decide which horse to back at the upcoming elections, the economy is clearly the favourite point of contention. But the choice at the polling booth isn’t whether to reform or not to reform. It is a far more crucial choice of recovery or relapse.
Within our political ideologies, we can and must debate the specifics of the reforms, but there is a bare minimum we must do to ensure economic recovery. Voters across the spectrum must then demand pragmatic policies rather than false hopes from their candidates. A road without reforms is one that will end with us falling back into a cycle of default and crises, the burden of which will fall on ordinary Sri Lankans.
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