Stabilization and growth of the economy must be the top priority of all Presidential candidates
Posted on September 15th, 2024
By Raj Gonsalkorale
It’s the economy, stupid – Bill Clinton”
It’s the economy, stupid” is a phrase that was 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 –Wikipedia
As can be seen from the above graph, the disastrous situation in in 2022 to 2023 when growth was negative has been arrested and the current trajectory presents a more positive growth for 2024.
A Central Bank National Accounts estimate for quarter 1 of 2024 also showed similar positive news
These statistics must be good news for the country and all Presidential candidates. Of course, political reality will be such that only the government and candidate Ranil Wickremasinghe, the incumbent President, will acknowledge these and celebrate them.
However, the voters should note these in the backdrop of acknowledgements 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 where funds are coming 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 as a whole walking on thin ice. The overall debt levels are far too high, foreign reserves still unhealthy and able to meet the country essential imports perhaps for just two to three months, foreign investments and exports still inadequate for continued economic growth. Tourism and remittances from overseas Sri Lankans have been healthy, thankfully, but they can be volatile as previous experience has 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 places at risk the IMF withdrawal of their 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 anymore 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 the economy as a someone lost in the sea, and someone 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 what their plans are for consolidating the current, still shaky economy. The foundation for growth must be a more stable economy, with parameters like for at least its fundamentals like a debt ceiling (local and foreign), a debt to GDP ratio perhaps at a maximum of 75% of GDP, 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 allow the slide of the current positive situation to negative territory through actions that are irresponsible and erratic and just populist propaganda activity in preparation to 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 the political parties and coalitions will be vying 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 political parties they represent or those who are backing by them. Besides the cancer of corruption that has spread far and wide amongst 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 amongst 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 who gets 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 economical possible promises against populist, unrealistic and economically irresponsible ones prior to casting their votes as the they will be the ones who would have got misled by the latter category of promises. They and generations to come will pay a heavy price unless they do this evaluation.
Power does not corrupt men; fools, however, if they get into a position of power, corrupt power. – George Bernard Shaw,