Just eight months into office, the Sri Lankan administration is already facing a host of political and economic problems that have badly dented public confidence. Neville de Silva takes a look at a government in crisis.
‘April is the cruellest month’ wrote T.S. Eliot in his celebrated poem ‘The Wasteland’.
If Sri Lanka’s eight-month-old government has not realised the truth of Eliot’s observation, it soon will as the country heads toward mid-April, when the two main ethnic communities will observe the Sinhala and Tamil New Year with all their traditions.
But New Year 2016 will not be much of a celebration for the average Sri Lankan struggling to keep their head above water as more crushing taxes, imposed by the new government a month earlier, send the prices of some consumer essentials sky-high and utilities become more and more beyond their reach.
Some predict a severe drought in April, which will slowly dry up the waters in the reservoirs providing hydro-power, historically the oldest and principal source of electricity generation in the country. What compounds the problem of an impending power shortage is the island-wide power failure twice in February and March and three times in the last six months.
Suddenly the country was plunged into darkness at midday, leading the Sunday Times to headline its editorial on March 20 ‘Darkness at Noon’, reviving the title of Arthur Koestler’s magnum opus. At least two transformers at different locations were reported to have exploded on different days and a coal-powered station at Norocholai in northwestern Sri Lanka, which was providing some of the power, also broke down.
While Sri Lanka was suffering in the excessive March heat (two degrees higher than normal) and also feeling the heat in its pocket following increased VAT and other taxes, the country’s rumour mill, which grinds exceedingly quickly and exceeding well, took over. Colombo’s chattering classes took to social media with great alacrity to spread the word: sabotage. The gossip mongers were helped by a government that seemed to see a saboteur behind every transformer and pylon carrying high tension cables. President Sirisena soon deployed the army to guard the transformers, apparently from some perceived technical fifth column.
Former president Mahinda Rajapaksa and his avid followers had a belly laugh, claiming such breakdowns never happened on their watch. But it seems that in politics, memories are short. The former leader and his supporters have conveniently forgotten that the Norocholai coal-powered plant inaugurated during their time in office has suffered multiple breakdowns. It is rumoured—and there seems to be some truth in this—that the Norocholai plant was built using poor quality or second-hand equipment and those who brokered the deal had made a lot of money.
As far as the Ceylon Electricity Board (CEB), which monopolises the power sector, was concerned, there were excuses and more excuses. Nobody seemed to offer a plausible reason and take responsibility. After the second island-wide blackout, the chairman of CEB said he would resign as soon as electricity was restored. A disgusted public could not understand why he did not resign immediately. Ultimately some wag thought up a reason: the chairman, he said, was waiting for the lights to come on because could not sign his resignation letter in the dark.
While sections of Colombo’s rich guffawed and returned to their cocktails under generator-driven lights in their clubs or in exclusive restaurants, it was no laughing matter for the country’s urban and semi-urban middle and working classes, who had to return to darkened homes, their children forced to temporarily abandon school studies and their electrical equipment in danger of going bust .
The biggest blow, however, was to the National Unity Government (NUG), which was holding high-level seminars and promotional campaigns at home and abroad to attract foreign investors to the country. But island-wide power failures twice in a month or so were bound to make any prospective investor hesitate over initiating projects that require steady sources of power.
This is particularly so since successive governments provided continuous uninterrupted electricity over an expanding footprint, yet this one now seems unable to deal with the problem of sudden breakdowns or offer credible explanations for what happened in February and March.
Whether it is sabotage, as alleged on the government side, sheer neglect and poor maintenance by the CEB, or lack of capital to replace outdated equipment, the recent events have caused a serious dent in public confidence, with the government’s popularity fast dissipating after just eight months in power.
As this was being written, the All Ceylon Bakery Owners Association announced a rise of four rupees on a 450-gram loaf of bread, following the government’s decision to increase the import tax on wheat flour—a sign that it is trying to boost revenue by tampering with taxes as the country’s economy faces a crisis situation.
Analysing the first year of the Maithripala Sirisena presidency in the February issue of this magazine (‘Storm clouds gather over a nation’), I quoted an editorial in the country’s prestigious Sunday Times which said ‘the more immediate issue that this country faces… is the state of the economy; buffeted as it is by declining balance of payments, large repayable loans, a rupee that is on the edge of a precipice and a collapsing world economy to boot’.
As I mentioned in that article, the government was seeking a standby loan facility from the IMF. It was thought to be for US$1 billion. But it now transpires that the loan sought has been jacked up to $1.5 billion.
The United National Party headed by Prime Minister Ranil Wickremesinghe, the major constituent of the NUG, has not come clean about how much has been asked for from the IMF or the conditions demanded.
But the Sri Lanka Freedom Party (SLFP), a partner in the NUG, claimed that the price increases being imposed are a prelude to the IMF agreeing to a loan that will probably be agreed to in June/July. This is bad news for the UNP, which has been accused of turning to the West for succor.
‘However recourse to such official funding also highlights the fact that Sri Lanka’s foreign exchange earnings and reserves fall short of its external financing requirements,’ said top rating agency Moody’s.
Moody’s said that on March 19 Sri Lanka received a US$700 million currency swap from India through the Reserve Bank of India (RBI), two days after securing a US$400 million swap under the RBI’s South Asian Association for Regional Cooperation (SAARC) swap facility.
The fact is that Sri Lanka’s external finances are in dire straits. The depletion of foreign reserves is due to substantial trade deficits, together with declining remittances from Sri Lankan workers abroad, one of the main sources of foreign exchange for the country. This situation has been compounded by capital outflows.
The crucial question is whether this year’s trade performance, earnings from tourism and ICT services and remittances by Sri Lankan workers will generate a balance of payments surplus. Initial predictions by economic analysts suggest that, despite some adverse conditions, these three determining factors might still bring this about.
But the government has had to navigate some rough seas. The UNP, which has taken charge of economic wellbeing, went through unprecedented budget reversals. Finance Minister Ravi Karunanayake presented the 2016 budget in parliament last November. Following its presentation, President Sirisena and the SLFP members behind him wanted some of the proposals withdrawn and others altered.
The group of MPs calling itself the Joint Opposition, which backs former president Mahinda Rajapaksa, also demanded changes. The result was that hardly any of the revenue-earning proposals and other reforms remained at the end of the day.
There is a joke doing the rounds in Colombo. It says that the only things remaining from the Finance Minister Karunanayake’s budget were the opening words ‘Mr Speaker’.
With the original budget in tatters, Prime Minister Wickremesinghe told parliament last December that a ‘contingency liability bill’—a mini budget, in other words—would be presented to parliament in March, which it was.
With the finance minister’s job taken from his hands, Wickremesinghe’s mini budget revised the existing tax structure and introduced new taxes or hiked those proposed previously to raise additional revenues, in order to implement amendments made to the original budget proposals.
The changes now made to the original budget leave a black hole of 70-80 billion rupees in revenue, which has to be made up if the amendments are to be carried out. Admittedly, not all this is the fault of the present government. Financial profligacy during the Rajapaksa era, when loans were taken out at high interest and there was spending on massive projects that brought no returns, has left the huge debt-servicing task in the hands of the new government.
An international airport built in the deep south of the country and named after Rajapaksa, where hardly a plane lands except when diverted due to bad weather, is referred to as a ‘white elephant’. The description is apt, though those manning the airport and living nearby have seen more grey pachyderms, which now and then stray onto the runway from their sanctuary, and it was recently reported that workers were employed to chase away herds of deer roaming around the newly laid tarmac meant for aircraft. The only birds that land there appear to be those with feathers.
But part of the fiscal deficit that the government now faces it brought upon itself by making extravagant election pledges. For instance the promise to raise the monthly salaries of public sector employees by 10,000 rupees has now become a major strain on government revenues.
It is not just the economy that is troubling the Sirisena-Wickremesinghe administration.
Sirisena tried to consolidate his position by offering portfolios to SLFP parliamentarians—even some who were rejected by the people at the August general election—and drawing some of Rajapaksa followers into his fold. But he does not have the charisma of Mahinda Rajapaksa, nor the former president’s public persona that attracts people to him.
With political talk that Rajapaksa loyalists are preparing to launch a new party, which he has been invited to lead, the public, disillusioned with the ‘yahapalanaya’ (good governance) administration are beginning to compare the two regimes and ask whether what is on offer is good governance or no governance.
Rajapaksa has hitherto generally been lying low, only occasionally surfacing to make a comment or castigate the government for what he calls political revenge against his family.
The Joint Opposition planned a major rally in Colombo in mid-March to alert the public to the economic crisis facing the country. Luckily for them, the island wide power failures added fuel to the fires that had already been lit. With nearly 40 SLFP parliamentarians supporting Rajapaksa due to attend the rally, Sirisena, who controls the levers of power within the SLFP, threatened disciplinary action against any member who participates in the rally.
This provoked Rajapaksa himself to attend the meeting, along with his 40 or so SLFP parliamentarians. ‘If you cannot govern the country, hand it over to me and I’ll show how to do it,’ he challenged, speaking to a large crowd that cheered him on.
Now Sirisena is caught in a cleft stick. If he takes disciplinary action against party MPs who attended the rally, as the party leadership threatened, it could hasten the formation of the new party, causing a split in the SLFP.
That Sirisena does not want, as he will then be accused of being the architect of the breakup of a party that goes back to 1951.
On the other hand, to ignore the whole affair would make him look impotent and politically inept in dealing with a resurgent Rajapaksa. True, Sirisena is there for the long haul as president and Rajapaksa cannot oust him. But the former president can tear away at the underbelly of the government itself, urging those who supported a new administration and the ousting of Rajapaksa to at least take a second look at what is presented as a mess in governance.
Though local government elections are due this year, they are unlikely to be held because Sirisena fears grassroots SLFPers will vote for Rajapaksa in large numbers and undermine his tenuous hold on the party.