Stabilization and Growth of the Economy Must Be the Top Priority of All Presidential Candidates
by Raj Gonsalkorale
Power does not corrupt men; fools, however, if they get into a position of power, corrupt power.” – George Bernard Shaw.
“It’s the economy, stupid” is a phrase coined by Jim Carville in 1992. It is often quoted from a televised quip by Carville as, “It’s the economy, stupid.” Carville was a strategist in Bill Clinton’s successful 1992 U.S. presidential election against incumbent George H. W. Bush.
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| People queue to buy liquefied petroleum gas (LPG) cylinders amid shortages of essentials in Sri Lankan capital Colombo on March 14, 2022 (Photo: Ishara Kokikara/AFP) |
As can be seen from the above graph, the disastrous situation in 2022 to 2023, when growth was negative, has been arrested, and the current trajectory presents more positive growth for 2024. A Central Bank national accounts estimate for the first quarter of 2024 also showed similar positive news.
These statistics must be good news for the country and all presidential candidates. However, the political reality will be such that only the government and candidate Ranil Wickremasinghe, the incumbent President, will acknowledge and celebrate them. However, voters should note these in the backdrop of acknowledgments and criticisms and make a careful decision on the 21st of September when they cast their votes as to who should be the President for the next five years.
Election promises made by candidates, with no indication of where funds will come from to implement them, will result in the opposite of growth and possibly an economy that will teeter towards negative growth. The above positive economic news is still akin to the country walking on thin ice. The overall debt levels are far too high, foreign reserves are still unhealthy and can only meet the country’s essential imports for perhaps just two to three months, and foreign investments and exports are still inadequate for continued economic growth. Tourism and remittances from overseas Sri Lankans have been healthy, thankfully, but they can be volatile, as previous experiences have shown.
The country’s debt-to-GDP ratio has been reported as 116% by the IMF based on central bank data. This, coupled with the foreign exchange reserves of the country (USD 5.56 billion), places the country in a very vulnerable position as it cannot raise more debt—not more than 5% of GDP, as per President Wickremasinghe—and cannot print any rupee currency, possibly as part of the agreement with the IMF. If these financial disciplinary measures are broken, it risks the IMF withdrawing its support to Sri Lanka, and the consequent reluctance by international agencies like the World Bank, ADB, and bilateral loan providers like India, China, Japan, and others to lend more money to Sri Lanka. The last resort borrowings that the country has been making, which incidentally has been the main cause of the economic bankruptcy of the country in 2022, namely International Sovereign Bonds, will attract substantially higher interest rates than the already high interest rates.
Economic consolidation, therefore, has to be the priority of any incoming President, as it would be grossly irresponsible and even bordering on economic treason for whoever is the next President to play around with the economy as someone lost at sea and in a boat without a paddle, so to speak. President Wickremasinghe has clearly outlined this priority should he win the election, but other contenders have not done so and instead made many promises that will cost large sums of money to implement. Some have taken great trouble to speak about long-term plans and long-term visions. These are no doubt necessary, and public pronouncements in this regard are welcome developments. Unfortunately, such statements are and will be hollow unless they also articulate their plans for consolidating the current, still shaky economy. The foundation for growth must be a more stable economy, with parameters like a debt ceiling (local and foreign), a debt-to-GDP ratio perhaps at a maximum of 75% of GDP, an increase in income without burdening the less advantaged segment of the people, but introducing legal measures to widen the tax net and catch tax evaders, and ensuring expenditure does not exceed income.
Voters should also give thought to what might happen if an incoming President acts contrary to the objective of consolidation and instead allows the slide of the current positive situation into negative territory through actions that are irresponsible, erratic, and just populist propaganda in preparation for the general election that will follow the presidential election. As much as voters will be made more and more promises during the presidential election by some contenders, the bidding war of promises will intensify during the general election as political parties and coalitions vie for power either to support the elected President or to thwart the elected President in Parliament.
Voters should also consider the background of candidates and the political parties they represent or those who are backing them. Besides the cancer of corruption that has spread far and wide among politicians and the country in general, violence perpetrated by some to win power in the past too needs careful consideration by voters. As quipped by many today, if the corrupt elements among politicians are to be eliminated from the political scene, there won’t be anyone left in the scene!
Many promises being made by contenders will no doubt require parliamentary approval, and a supportive Parliament will be required by whoever is elected to implement such promises. This needs to be noted by voters, as erratic and grandiose promises could turn out to be just that. They should weigh the realistic nature and economically possible promises against populist, unrealistic, and economically irresponsible ones prior to casting their votes, as they will be the ones who would have been misled by the latter category of promises. They and generations to come will pay a heavy price unless they do this evaluation.
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