The epic economic fall: Bad policies consequences and sycophantic defence

Sapugaskanda flare stack burnt off after the government decided to shut the refinery for the first time in its 50-year history

Bad policies, more often than not, lead to bad outcome. Still, you might get out of the rot with a light touch, before it sets in,   of course, only if you are not demagogic enough to stick to your folly, despite their devastating consequences. Failing in that commonsensical decision leads to a certain disaster.

Look no further than the plight of the Sri Lankan economy.  The entire agricultural sector is in shamble. One ill-informed decision to ban chemical fertilizer has wreaked havoc. A succession of sycophantic manoeuvring to defend original stupidity, rather than addressing its disastrous consequences, has now decimated the domestic paddy and vegetable cultivation. A worse calamity is in the store for cash crops.  Industry experts warn that the yield of tea, which brings in US$ 1.5 billion in export revenue would reduce by 40% next year. Rubber would be wiped out by leaf disease in the absence of chemical pesticides.

"The budget offers no details as to how the government would repay the foreign loan payments next year against the country’s net negative foreign reserves. Sri Lanka has to repay US$4.3 billion in debt in 2022 and reserves are at their all-time low of US$2.27 billion at the end of October"

The extent of the disaster is laid bare. Most paddy farmers have given up farming in the ongoing season and vegetable prices are skyrocketing. The Central Bank’s index of selected food commodities now has first-world prices in a third world economy. Traders in the Peliyagoda Manning market, and Dambulla claim a 75% drop in quality, meaning products are scrawny and rotting faster than they ought to be. Blame the inclement weather for the shortage, which is politically convenient since at least the government is not behind it. But, the traders claim if the adverse weather is to be attributed for 25% of the shortage, the rest is due to the government’s own making; courtesy of the fertilizer ban. 

A government that fails to admit and rectify its self-inflicted folly is unlikely to address the larger economic emergency, the mother of all crises of the crippling shortage of foreign reserves. Its standard response has so far has been kicking the can down the road, in the mistaken belief that somehow it would find a miracle remedy-like its earlier patronage to a miracle tonic, Dammika Peniya, to cure Covid 19. 

"Sapugaskanda oil refinery has been shut due to the absence of crude oil. The failure to secure a loan from Oman to purchase fuel, which now hang in balance, is bound to lead to a major fuel crisis"

Yet, every fix has deepened the crisis and created a succession of new problems.  A default government-set exchange rate has effectively created a black market for dollars where it is traded at Rs. 235-240. It has created a regular shortage of essential food supplies as the importers are at a disadvantage of the lopsided exchange rate.  Cement, floor tiles and other building materials have vanished from the market and the local construction industry has crashed to the ground. 

Import restrictions, as it has happened elsewhere in the world where they were tried, has enriched a few political cronies, who switched to rent seeking import-substituting industries.  But a large part of ordinary folks is inconvenienced. The domestic industry is running out of raw materials. 
Sapugaskanda oil refinery has been shut due to the absence of crude oil. The failure to secure a loan from Oman to purchase fuel, which now hang in balance, is bound to lead to a major fuel crisis. 

"The repercussions of the temporary fixes have been proved to be harsher than strings that would have come with a debt restructuring plan under the IMF, the bitter pill, but the only practical way out from the deepening economic crisis.  Yet, that might not be politically palatable"

Humanity itself is losing amid the man-made economic crisis. A cooking gas cylinder that the victims of a fatal road accident had been transporting was stolen during the tragedy in Mahabage, last week.
The repercussions of the temporary fixes have been proved to be harsher than strings that would have come with a debt restructuring plan under the IMF, the bitter pill, but the only practical way out from the deepening economic crisis.  Yet, that might not be politically palatable. It might also pique the inflated egos of the political leaders. Yet, if the government proceeds in the current path, the country would be insolvent by next year.

If the just presented Budget 2022 is any guide, that is more than a remote possibility. Basil Rajapaksa, the finance minister who was lauded as having eight brains by his acolytes completely avoided the elephant in the room: The budget offers no details as to how the government would repay the foreign loan payments next year against the country’s net negative foreign reserves. Sri Lanka has to repay US$4.3 billion in debt in 2022 and reserves are at their all-time low of US$2.27 billion at the end of October.

"Basil Rajapaksa has made some efforts at consolidating state finance, another area that was wreaked havoc by his presidential brother’s extensive tax concessions. But the economic rot is so deep that such measures have little practical effect on the immediate crisis"

Basil Rajapaksa has made some efforts at consolidating state finance, another area that was wreaked havoc by his presidential brother’s extensive tax concessions. But the economic rot is so deep that such measures have little practical effect on the immediate crisis. Even whatever the intended revenue rise is squandered on vast sums, around Rs. 80 billion, allocated to prop up political patronage systems, in the name of village development under the so called Gama Samaga Pilisandara. Those allocations have historically had sub-par economic returns and are better known for commissions and shoddy contracts meant for the local political bosses.

With or without the current political leadership, Sri Lanka would have come to face the long term consequence of its unsustainable foreign debt this time around. However, a series of ill-informed and ego-driven policies of the president has placed the country in an aggravated crisis than it ought to have been under a saner political leadership. Worst still, his sycophants have been lauding this idiocracy as if ignorance is strength. Yet, though a familial cabal could dig itself into the worst-ever crisis, it takes a lot more than a sycophantic inner circle of cavemen to speak the sense out of the government.
No one seems to be doing it. Not even the political opposition.  

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