The conference room at the BMICH was buzzing with anticipation as business and civil society leaders awaited insights from the economic advisors of the presidential candidates. The debate, organized by the Ceylon Chamber of Commerce, titled Defining the Vision: The Debate, featured Shehan Semasinghe representing Ranil Wickremesinghe, Harsha De Silva for Sajith Premadasa, Harshana Suriyapperuma for Anura Kumara Dissanayake, and Ranjith Bandara, who represented Namal Rajapaksa.
Bandara announced that Rajapaksa would soon unveil his manifesto, a repurposed Mahinda Chinthana, signalling a continuation of past policies, not warranting mention hereon.
Despite high expectations for clear policy distinctions, the debate offered little differentiation among the candidates (Wickremesinghe, Premadasa and Dissanayake). Each advisor (Semasinghe, De Silva and Suriyapperuma) reiterated similar themes: commitment to the IMF programme with potential minor renegotiations, honouring debt restructuring agreements, and reforming state enterprises. They also mentioned tax cuts, increased state-sector wages, support for the poor, investment in digital infrastructure, and fostering a level playing field for businesses—all familiar election pledges.
A closer examination of the manifestos of incumbent President Ranil Wickremesinghe and his challengers, Sajith Premadasa and Anura Kumara Dissanayake, reveals striking similarities in their economic visions, notably a shared commitment to increased government spending. Their stance on the IMF also showed little divergence: both the SJB and NPP hinted at renegotiation desires but conceded that they had no intention of derailing the programme. This uniformity underscored a reluctance to discuss the more painful reforms and structural adjustments ahead—a glaring elephant in the room.
From this magazine’s perspective, while each presidential candidate may intend to realign the economy and perhaps tackle corruption, the real question is who can effectively manage public expectations and maintain stability amidst necessary, but potentially painful, reforms. It’s not merely a question of who should govern, but rather how they will handle dissent once these reforms are implemented.
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Mishandling Reforms
If history is any guide, the consequences of mishandling economic reforms can be dire. In just two weeks between December 20, 2001, and January 3, 2002, Argentina had four Presidents, the fifth losing his seat in May 2003. In this period, on the last day of 2001, Argentina defaulted on $81.3 billion worth of sovereign debt held by private creditors worldwide. After defaulting on its debts and gaining an IMF bailout, Greece saw violent protests, with people set ablaze in their offices during general strikes against austerity measures. Even further back, France experienced a political upheaval that ousted both government and opposition in favour of young, educated parliamentarians—a move that, while initially promising, ultimately led to the Reign of Terror when economic hardships and anti-corruption fervour overshadowed practical governance. These cautionary tales illustrate the risks of poorly managed reform processes and the potentially explosive consequences of public discontent.
Non-exsisting Solution
Harsha De Silva, representing Sajith Premadasa, was forthright about Sri Lanka’s economic future and the role of the IMF. “In August 2020, on my first day back in Parliament, our party urged a move to the IMF to prevent bankruptcy,” De Silva stated. “At the time, our suggestion was dismissed in favour of a ‘homegrown solution’—a solution that never existed.” De Silva highlighted that while the opposition supported the IMF’s involvement as necessary, they had always advocated for amendments to the agreement.
He criticized the present economic strategy, noting that while emerging markets were increasing their global production share, Sri Lanka’s contribution had spiked only to plummet due to its closed economic stance. “We are one of the most closed economies globally,” De Silva said, emphasizing the need to shift away from import substitution and remove the anti-tradable bias. He argued that the IMF’s approach wrongly treats debt and growth as separate issues. “For them, debt is debt and growth is growth. We must consider external and domestic debt and differentiate between tradable and non-tradable growth.”
De Silva also underscored the need for a realistic growth outlook. “To achieve a per capita income of $23,000 post-IMF, we need consistent 10% growth year after year. Is this feasible? Let’s be realistic,” he said. His focus on tax equity and responsible fiscal management was clear: “We will not alter tax-free limits or the top marginal tax rate of 36%. Instead, we have calibrated middle-class tax cuts within existing fiscal parameters.”
Anti-corruption
Harshana Suriyapperuma, representing Anura Kumara Dissanayake, laid out the NPP’s nuanced stance on the IMF programme and Debt Sustainability Analysis (DSA). He emphasized the need for a country-specific DSA, arguing that Sri Lanka must negotiate on terms that reflect its unique economic situation. “We have developed our own DSA, incorporating inputs from industry experts and stakeholders,” Suriyapperuma said, positioning this as a more tailored approach than the IMF’s model.
Suriyapperuma highlighted systemic revenue leakages, citing the sugar scandal as a glaring example of political interference and mismanagement. “Addressing these issues requires comprehensive reform of revenue-collecting institutions like Customs and the Inland Revenue Department. It’s not just about changing leadership; it’s about fostering a cultural shift within these institutions,” he stated.
He criticized the IMF’s initial assumptions, which he argued were based on expectations of continued corruption and mismanagement. “We are advocating for a new governance culture, focused on responsible revenue generation, prudent expense management, and creating savings wherever possible,” Suriyapperuma said. He indicated that the IMF is open to further discussions if these principles are adhered to.
Suriyapperuma also outlined the NPP’s vision for the independence of state institutions. “Independence isn’t just about a nameplate on a door; it’s about having competent people who can resist political pressure,” he asserted, questioning why the Central Bank’s Monetary Board felt compelled to print money under political pressure. “Was it due to the structural issues within the Board or external pressures?” he asked, suggesting deeper reforms were needed.
The NPP’s stance is that state institutions must be managed by professionals with the requisite skills and autonomy to operate independently. “The government’s mandate should be implemented with respect for the independence and professional integrity of these institutions,” Suriyapperuma emphasized.
Stability vs Growth
Shehan Semasinghe, representing President Ranil Wickremesinghe, focused on Sri Lanka’s economic turnaround due to comprehensive reforms. Semasinghe highlighted the achievements, including reversing a substantial budget deficit into a surplus and dramatically reducing inflation.
By 2023, Sri Lanka had transformed a primary budget deficit of 5.7% of GDP in 2021 to a surplus of 0.6%. Inflation dropped from 70% to 2.4%, with food inflation down to 1.5%. Additionally, reserves increased significantly, and state-owned enterprises turned from losses to profits. “These outcomes are a result of systematic economic management,” Semasinghe stated, underscoring the decline in prices for essential goods as evidence of the reform programme’s success.
He warned against deviating from the current reform path, citing Sri Lanka’s history of economic crises that often resulted in repeated IMF programmes—this being the 17th. “We have a plan to prevent the need for an 18th IMF programme,” Semasinghe declared. He emphasized the necessity of maintaining stability alongside growth, with a focus on productivity and strategic trade agreements.
Meanwhile, Central Bank Governor Nandalal Weerasinghe issued a cautionary note, stressing the importance of sticking to the ongoing reform agenda to avoid backsliding. “The progress we have made is the result of coordinated, transparent, and robust measures,” Weerasinghe said in a public statement in late August. He highlighted the need for continued fiscal discipline, prudent debt management, and structural reforms to maintain economic stability.
Weerasinghe warned that macroeconomic stability alone was insufficient to propel Sri Lanka to high growth. “The government lacks the fiscal space to drive growth through higher spending or lower taxes. Therefore, the private sector must lead the charge, with the government creating a conducive environment,” he said. He called for addressing structural issues in labour and land markets and emphasized increasing female labour force participation.
Indecision
The debate revealed a lack of focus on reforms and structural adjustments, which would no doubt be painful.
Plans to tackle Sri Lanka’s most pressing financial challenges remain vague. For 2024, the estimated tax revenue stands at Rs3.8 trillion, while recurrent expenditure is projected to reach Rs5.3 trillion. This includes a hefty Rs1.1 trillion for public sector wages, Rs2.6 trillion for debt servicing, and Rs1.2 trillion for subsidy transfers. The Advocata Institute also pointed to the immense burden of State-owned Enterprises (SOEs), which racked up losses of Rs744.6 billion in 2022 alone. These losses translate to a staggering per capita cost of Rs1.7 million for each registered taxpayer, Rs33,949 per citizen, and Rs141,809 per household.
The NPP, SJB and UNP are now proposing more spending.
However, the line is drawn. The election is about corruption, with the NPP gaining momentum on their clean track record. But this focus alone may not be enough.
Alal Rafi, an economist, has argued that while corruption is undeniably a problem in Sri Lanka, attributing the economic crisis solely to it is an oversimplification. The current focus on corruption, fueled by the IMF’s governance report, risks overshadowing critical reforms in fiscal and monetary policies, trade, state-owned enterprises, public sector efficiency, digital transformation, entrepreneurship support, labour laws, and land ownership. These structural issues are vital for economic recovery, and ignoring them in favour of a single narrative of corruption being the root of all problems is shortsighted, Rafi warns.
This is a crucial point, one that neither the SJB nor the NPP seems to be addressing adequately, prioritizing the fight against corruption while simultaneously promising to reduce the impact of necessary reforms on the population. The front-running political alliances in the next election are focusing on dismantling corruption and reducing income taxes—a strategy likely to attract middle-class votes but which should give us pause.
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What Next
History offers a stark warning. Over 230 years ago, the French Revolution embarked on its quest for “Liberté, Egalité, Fraternité,” dismantling corrupt power structures and even barring older former parliamentarians from office, replaced by young educated people – not a white hair was seen in the new forum. In youthful exuberance, they cut taxes, controlled food prices, and fell upon church properties and lands of the rich for redistribution. But instead of bringing stability and growth, these changes led to economic chaos followed by social unrest. The populace, disillusioned, blamed the economic turmoil on corruption (and not bad economics), leading to the downfall of many revolutionaries, who ended their careers on the guillotine.
The challenge is not just rooting out corruption but ensuring economic stability and social trust.
However, the biggest risk lies ahead: political instability. If the NPP rises to power, can they implement the necessary reforms without alienating their base and key unions? Will the defeated parties lead another Aragalaya, this time against the NPP’s painful measures? And if the NPP loses, will they support the reforms or take to the streets in protest? Whichever party comes to power, would they use the mandate to clamp down hard on dissent, and to what extremes would everyone go? Our path forward is uncertain unless citizens are prepared for the hard reforms, and hold their leaders accountable to deliver on them.