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'The Island' Opinion of 12th July 2016
Blame for current economic crisis
July 11, 2016, 8:06 pm
Newspapers report "PM flays Rajapaksas for leaving country bankrupt" and PM says "we took over a nation with a pillaged economy in its wake". If the Yahapalanaya Government was so convinced, common sense surely required it when taking office to call for a period of austerity and simple living, while they put the bankrupt economy in order.
Instead the Yahapalanaya Government steered the economy straight to the rocks. First, it injected an enormous amount of cash into the hands of the public by way of increased salaries to government servants, reduced petroleum prices, and other financial "giveaways" including interest cuts. The Yahapalanaya Government had the choice of incentivizing the recipients to save the politically driven largesse by imposing prohibitive excise duties on luxury goods imports, including motor vehicles for, say a 18 month period, under the guise of sorting out the economic "mess" left by the Rajapaksa Government. Instead, the Government enabled the largesse to be spent immediately on luxury imports, notably motor vehicles, with relatively cheap credit. Consequently the fortuitous windfall of over $2 billion to the nation (2015 compared with 2014) because of the precipitous fall in world oil prices vanished, following payments for higher imports in 2015. If such imports had been curbed administratively, the deficit in balance of payments on current account would have narrowed significantly, national savings as a percentage of GDP risen, domestic economic activity boosted and servicing of foreign debt facilitated.
Second, the Chinese-funded Port City Project was halted by Government fiat. Thereby the prospect of swelling the currency reserves of the country by the inflow of $1.5 billion of Chinese money in 2015 and 2016 for work on the Project vanished at a stroke.
Third, Government economic management unsettled financial markets. $2 billion invested by foreigners in the securities and stock market during the Rajapaksa Government in 2014, exited with alacrity since the Yahapalanaya Government took office. Worse, the stock market indices have been falling, the currency depreciating with no end in sight, the annual migrant workers’ remittances stalling for the first time in years, the black market in currency booming and inflation bouncing upwards. What really takes the biscuit, however, is the fall in FDI since the Yahapalanaya Government took office.
In short, the Yahapalanaya Government`s obsession of pinning the blame on the Rajapaksa government for the current economic crisis does not stand up to scrutiny. It is time for the Yahapalanaya Government to recognize and learn from the mistakes made in managing the economy over the past 18 months.
Observer
Blame for current economic crisis
July 11, 2016, 8:06 pm
Newspapers report "PM flays Rajapaksas for leaving country bankrupt" and PM says "we took over a nation with a pillaged economy in its wake". If the Yahapalanaya Government was so convinced, common sense surely required it when taking office to call for a period of austerity and simple living, while they put the bankrupt economy in order.
Instead the Yahapalanaya Government steered the economy straight to the rocks. First, it injected an enormous amount of cash into the hands of the public by way of increased salaries to government servants, reduced petroleum prices, and other financial "giveaways" including interest cuts. The Yahapalanaya Government had the choice of incentivizing the recipients to save the politically driven largesse by imposing prohibitive excise duties on luxury goods imports, including motor vehicles for, say a 18 month period, under the guise of sorting out the economic "mess" left by the Rajapaksa Government. Instead, the Government enabled the largesse to be spent immediately on luxury imports, notably motor vehicles, with relatively cheap credit. Consequently the fortuitous windfall of over $2 billion to the nation (2015 compared with 2014) because of the precipitous fall in world oil prices vanished, following payments for higher imports in 2015. If such imports had been curbed administratively, the deficit in balance of payments on current account would have narrowed significantly, national savings as a percentage of GDP risen, domestic economic activity boosted and servicing of foreign debt facilitated.
Second, the Chinese-funded Port City Project was halted by Government fiat. Thereby the prospect of swelling the currency reserves of the country by the inflow of $1.5 billion of Chinese money in 2015 and 2016 for work on the Project vanished at a stroke.
Third, Government economic management unsettled financial markets. $2 billion invested by foreigners in the securities and stock market during the Rajapaksa Government in 2014, exited with alacrity since the Yahapalanaya Government took office. Worse, the stock market indices have been falling, the currency depreciating with no end in sight, the annual migrant workers’ remittances stalling for the first time in years, the black market in currency booming and inflation bouncing upwards. What really takes the biscuit, however, is the fall in FDI since the Yahapalanaya Government took office.
In short, the Yahapalanaya Government`s obsession of pinning the blame on the Rajapaksa government for the current economic crisis does not stand up to scrutiny. It is time for the Yahapalanaya Government to recognize and learn from the mistakes made in managing the economy over the past 18 months.
Observer
