Economist Danamath Fernando summarized the crisis in Sri Lanka by excessive borrowing in order to invest in non-investment projects, but he said that the need for lending today has become very urgent in order to provide basic materials such as food, medicine and fuel, and stressed that the economic crisis affected all sectors of society.
The danger that Sri Lanka faces - from the expert's point of view - lies in the debt exceeding the size of the national product, the government's inability to pay the outstanding debts estimated at about $7 billion, and the difficulty of accessing new loans in light of political instability.
The Sri Lankan economist - in his speech to Al-Jazeera Net - ruled out Sri Lanka's exit from the economic impasse without radical political and administrative reforms, and he also believes that the return to normal economic life will not be close.
To what extent has the economic crisis affected the average citizen?
The economic crisis has greatly affected the Sri Lankan citizens, including small and large enterprises, starting with power cuts, fuel shortages, declining people's incomes, and high inflation. The Sri Lankan rupee has declined to a large extent, and in general, the average citizen has been greatly affected by the crisis.
Are there statistics that can be considered an indication of the size of the effect?
The poverty rate was only 4%, and it has tripled in the current economic crisis, due to people losing their jobs and the depreciation of the rupee against the dollar.
Economist Danamath Fernando ruled out Sri Lanka's exit from the economic impasse without political and administrative reforms (Al Jazeera)
What are the most affected halls?
Small investments are the most affected, because their owners do not have alternatives to government electricity, which is cut off for long periods, then medium investments that depend on fuel and gas consumption. There is a shortage of fuel and its prices have risen, and it can be said that most of the vital sectors in the country have been affected.
Imported items that are bought with dollars usually serve the wealthy class, and are often luxury items. Was the rich class affected by the crisis?
The rich have been affected, but they have enough savings or investments to face the decline of the rupee, such as real estate and land and keep the dollar, but ordinary people depend on what they get in their day, and also many basic materials are imported in foreign currencies, such as powdered milk, gas and other foodstuffs and fuel.
Is Sri Lanka facing a food shortage?
We are still managing the crisis right now, we have received shipments of food aid from China and India, and the challenge is the basic foodstuffs.
After the ban on the use of chemical fertilizers, local production was affected, and he does not know how things will go in the next six months.
If there is no shortage of food, this does not mean that there are no difficulties;
Prices have become beyond the capacity of the citizen, such as cooking oil and fuel, and the current shortage may be in non-essential materials such as milk powder, and not the main foodstuffs.
What about medication?
There are reports that talk about a shortage of medicines, and the shortage of dollars has caused difficulty in importing, and I think that the problem can be solved in cooperation with India, and if we do not find a radical solution in the coming weeks and months, the health sector is exposed to great damage. red lines.
What about prices?
Prices are constantly rising, the inflation rate has reached 18 to 19%, and in some sectors, such as health, it has reached 30%, and the prices of all materials, including medical equipment, have risen.
Do you think that Sri Lanka will not be able to import medical equipment?
The challenge exists because we do not have dollars, and we cannot open bank credit, but the economic crisis came gradually, and then exacerbated, so there were expectations that we might face a shortage of life-saving equipment and medicines, and we have to look for solutions before reaching the disaster.
What are the roots of this crisis?
The roots of the problem are that we borrowed a lot of dollars in dollars without wisdom and awareness, and invested them in projects that do not generate returns, in addition to mismanagement for more than a decade, in addition to bad luck. In 2015 there was a collapse in stocks, and between 2016 and 2017 there was a drought In 2018, there was political instability and a constitutional crisis, in 2019 there was the Easter attacks, in 2020 and 2021 the Corona pandemic spread, and on top of that there was a significant tax cut that reduced the state’s income, and some of these factors are beyond our control such as drought.
There is an interaction between mismanagement and misfortune, but borrowing for projects that do not return with state resources was a grave mistake, as we cannot pay the debts because we did not recover the cost of these projects, then we lost our ability to borrow from the market, and we had to resort to the reserve to pay debts and other savings, and when Savings ran out and other reserves were used to buy necessities, which turned into a tsunami in no time, and paddling continued in the wrong direction until now.
Sri Lanka is unable to pay the bill for food and fuel, even those it imports from neighboring countries (the island)
who is in Charge?
Who is to blame?
I think that politicians and party leaders from all walks of life are responsible, because it is a crisis caused by mismanagement over the years, and I do not want to name a person or a party, but the group is responsible. Political and government formation, and therefore you find ministers representing the current and previous government, and over the course of 20 years, there are limited people who alternate power.
How can the problem be solved?
The solution lies in economic reforms according to market principles, and in the short term the situation is difficult, and we have to go to borrowing to ensure that we continue to breathe over water, in order to ensure the continuity of basic needs such as medicine and food, then we go to economic reforms, as we did not carry out these reforms according to Market demands from 30 to 40 years ago.
We have a large volume of government jobs, amounting to 1.5 million employees from the workforce, and many government economic institutions suffer continuous losses, and all of them are governmental such as airlines, water, fuel and electricity, and wherever the government intervenes, the market does not work, and we are not connected to global supply lines, and we Adjusting the banking supervision policy, and making the tax system consistent with current needs.
The export sector is not working well. Compared to our national product, exports, imports and trade have all been declining since the nineties of the last century. Our production is good and we have to stimulate our ability to compete in the international market, and this is the way, and it is long and there is no alternative to get out of the crisis.
Popular demands center around political change. How do you see that?
The nature of this crisis came in 5 stages:
First: What we are facing now from a shortage of foreign currencies, which has caused the inability to pay in dollars.
Second: the debt crisis, which is a fatal crisis, because there are independent debts, including one billion dollars in bonds, and we have to pay the interests at the same time from our few balances.
Third, there are repercussions for the financial systems because all investments are guaranteed by the government, even when they resort to borrowing in dollars.
Fourth: The political crisis, because these services, including airlines, energy and fuel, are all provided by the government. When we face a supply problem, people think that the problem is in the government, and therefore they pressure the government to take a decision, as we currently see that political pressures are growing.
Fifth: The fear of turning the political and economic crisis into a humanitarian crisis with the lack of food and medicine, and all these factors come together, and therefore there is popular concern about political instability.
Resolving these crises will take time, because even if we want to make reforms, the effects will remain for a long time because it affects many people. We have been suffering from a corrupt and inefficient system for a long time. This will affect the political situation.
The current economic crisis in Sri Lanka has doubled the poverty rate (Reuters)
So, you don't see the need for political change?
Change in the political system is required, because most of these politicians have been in power for a long time, and there is a need for change and reform of institutions, and I do not want to talk about who should go or who is coming, but certainly there must be reform at the political level, because the system lacks Accountability and transparency, which has brought us to the situation we are in today.
You criticized the borrowing policy and at the same time said that more borrowing is needed?
The problem is that if we don't borrow, the economic system will collapse;
On the human level, we are unable to provide medicine and food, and if there is a disruption in the supply in these two areas, we will drown, and we have to borrow to preserve our lives, we are in a very difficult situation and we have no other options, because all the medical equipment is manufactured abroad and we need dollars to buy it And someone has to come forward to help us get the dollar.
How big is Sri Lanka's debt?
According to the information we have, the debt constitutes - until 2020 - 117% of the national product, and the external debt has exceeded 51 billion dollars, all of which are linked to sovereign bonds, and there is a large amount of bilateral debt, then multilateral debt.