In April 2022, our country declared it would be defaulting on its external debt of $51 billion. A result of domestic economic mismanagement and a drop in foreign currency reserves. In turn this led to shortages of imported food, medicines as well as fuel and gas which devastated living standards in the country.
The country’s hospitals began running out of even basic medicines, while at the same time surgeries could not be performed due to a rolling power cuts which at times were extended to up to 12-hour periods.
Desperation stalked the land triggering silent mass protests which turned violent as groups with political motives hijacked the peaceful protest movement. Arson and attacks on homes of government ministers and supporters began to gather momentum.
A violent response by supporters of the then Prime Minister (PM) resulted in an escalation of violence. Unable to control the situation, the then president demanded the premier’s resignation and appointed Ranil Wickremesinghe as PM
With violence escalating the then president fled the country. As per the constitutional process premier Wickremesinghe was elected president by Members of Parliament. Using the police and the armed forces he was able to arrest the spread of violence. He then commenced negotiating with creditor nations, the International Monetary Fund (IMF), the World Bank (WB) and other multilateral agencies to restructure the foreign debt.
The success of the negotiations and an Indian credit line enabled limited quantities of goods and services to be enter the local market. The worst of the shortages were successfully overcome. But they came at a price. Though goods were available, many cannot afford them.
Wages have remained static. The Family Health Bureau’s Nutrition Month Summary Report 2023 shows, 15,763 children are suffering severe acute malnutrition. While it is lower than the previous year’s figure of 18,420 the situation remains dire.
Last week creditor nations reached agreement regarding the restructuring of our foreign debt. Speaking at the Ceylon Chamber of Commerce Sri Lanka Economic Summit 2023 President Wickremesinghe confirmed Sri Lanka had been able to successfully navigate the process of debt restructure.
He emphasized the country was relying heavily on the long-term extension of debt, which meant the economic principles on which the country operates in the future would be based on these negotiations.
In other words, unlike in the past, political parties would not be able to derail the deal to fulfill populist electoral promises. In such an event, creditors are entitled to pull out of the agreement. Creditors backing off would take us back to the dark days of April 2022.
Given the financial and economic circumstances of our country there is no escaping the need for a radical restructuring and widening the base of the economy to bring fresh inflows of foreign currency to ensure sustainability and repaying of outstanding loans.
Our present dependence on traditional exports are not sufficient to fulfill this need. New avenues of income generation need to be explored. China’s Belt Road Initiative offers an opening for our country to become part of a global production chain.
The increased pace of globalisation has brought about new opportunities and challenges driving producers to seek more efficient ways to manufacture their products. The search for cost reduction and profit maximisation has made it increasingly common for manufacturers to outsource parts or even all of their production process to different companies which can be located in any number of different countries.
Wickremesinghe has emphasised the need for Lanka to be part of this production chain as a means to attracting more foreign investment into the country.
But here, we face a major problem – bribery and corruption.
Not so long ago we heard how a business delegation from Oman left the country in disgust at the level of corruption and bribes demanded at every step of the investment process. The example is only one of many.
If the president is serious in enabling Lanka to become part of the global production chain, he needs to take serious and stern action to rid the country of corrupt officials, and politicians who are in fact driving investors away from the country.
Disclaimer: Will debt restructuring efforts flounder on rampant corruption? - Views expressed by writers in this section are their own and do not necessarily reflect Latheefarook.com point-of-view