Even though the Government and Central Bank of Sri Lanka have to date remained mum on the matter, Bangladeshi media has been making a song and dance about that country now assuming the mantle of a monetary lender, thereby joining a select group of nations to achieve that status. That “achievement” comes at the expense of its South Asian compatriot, Sri Lanka, which had sought assistance to overcome its worsening financial headaches.
Sri Lanka is a country that boasts of a written history spanning 2,500-plus years while Bangladesh will be commemorating 50 years since its founding in 1971. Bangladesh was born out of what used to be East Pakistan, as a new nation that had to start basically everything from scratch, following the genocide unleashed by Pakistani forces that led to the creation of the country. Therefore, Sri Lanka is the more senior of the two nations, and was way ahead on economic terms when Bangladesh was born. But today, the senior has gone crawling to the newborn, seeking a bailout from its financial woes.
More than the fact that Sri Lanka has had to obtain a three-month currency swap facility from Bangladesh, what has got eyebrows raised is the quantum of the facility – $ 200 million, which is equivalent to a day’s GDP output. Could Sri Lanka be that desperate, is the unspoken question lingering in many an economist’s mind. The Bangladesh facility comes on the back of two similar facilities obtained from two other Asian countries in the past two months, namely South Korea and China, each of whom have committed to disbursing $ 500 million loans.
While the Korean facility is more accommodative, with a 40-year repayment period at a concessionary interest rate of 0.20 and inclusive of a 10-year grace period, not so with China, which has been only too happy to lend all the money that Sri Lanka wants, but on “competitive terms” – which in effect is a pseudonym for commercial terms, meaning that this particular Chinese loan has to be paid back in 10 years. This comes on the back of a credit swap with China to the tune of $ 1.5 billion, which deal was inked just this February in order to overcome an acute foreign exchange crisis, the worst since 2008, that also sent the rupee crashing.
While Chinese funds are there for the asking, the caveat is that if and when Sri Lanka fails to repay, they will walk away with an asset of equal or greater value in lieu of the funds. And that in essence is how the now-infamous Chinese debt trap ensnares its victims, a system that has worked well for Beijing across many third world nations from Asia to Africa, including Sri Lanka, where the Hambantota Port became the first of such acquisitions.
So how is it that a country that shares many similarities of a South Asian nation, and has been on the world map for a mere 50 years, today boasts of being a frontier global market and one of the top 10 fastest-growing economies in the world, with ten times the foreign reserves of Sri Lanka, which from an economic perspective should be the one doing better? The answer must surely lie in the quality of leadership in the two nations, whose peoples and economies share many parallels.
Bangladesh’s phoenix-like growth in the last decade can be attributed to enlightened and astute leadership. A clear roadmap for growth and stability, relentlessly pursued by successive governments, has placed the country on a firm foundation for economic take-off. Today, Bangladesh is the new darling of the global apparel trade and Sri Lanka risks losing out on its breadwinner if it fails to get its act together, quickly. Already, there are reports of some of the bigger apparel producers based here shifting production to Bangladesh, if for no other reason than its investment-friendly, pro-business operating environment.
Not so long ago, Bangladesh used to be considered the laughing stock in this part of the world due to what seemed like perennial political problems, but all that is now history. That same joke is now on us. Today, the only companies that see investment potential in Sri Lanka seem to be the ones from China. The big boys from the West are flocking to places like Bangladesh, Vietnam, Thailand, etc., and the reasons are not that hard to fathom.
Our politicians have refused to see the writing on the wall, simply because they have been unable to see beyond their collective noses. It is unfortunate that “visions” and “missions” that abound during election time go no further once elected. The disconnect that occurs from one elected government to the other is another issue. The other danger lies in getting the investment mix wrong, because it could potentially affect export revenue. China does not import anything significant from Sri Lanka; 90% of Sri Lanka’s exports head to the West, not the East. Therefore, it is important to keep this equation in mind for obvious reasons.
The fact of the matter is that Sri Lanka’s economy shrank by 3.6% last year, the biggest contraction since the Central Bank began keeping records in 1950. While the pandemic is naturally at the root of it, it is noteworthy that the slide began before the pandemic kicked in, pointing to bigger, systemic issues. The end result has been a foreign exchange crunch that has had far-reaching implications on every aspect of the economy.
Notwithstanding this reality, prominent Cabinet Ministers have gone on record in the past few days that the Treasury has enough and more cash to purchase whatever it deems necessary, be it luxury vehicles for MPs, or vaccines to fight Covid-19. It is regrettable that despite the ministerial bombast, much of the vaccination that has taken place so far has been due to donations received from India, China, Russia, and the WHO’s Covax. Only 500,000 of the vaccines actually purchased have arrived in the country, while the millions that have supposedly been purchased remain mere orders on paper. To add to the contradictions, we have some other ministers directly appealing to the people for private funds.
Be that as it may, the controversy surrounding the utilisation of funds from the Government’s official Covid response fund, Itukama, has not helped the cause either, with the Government, by its own admission, stating that Rs. 1.3 billion from the fund remains unutilised, while the limited amount spent has also been shrouded in controversy. The contradictions don’t end there. Last week, a key Covid Task Force media briefing was presided by the Highways and Tourism Ministers, while the three health ministers were conspicuous by their absence.
The time has come to focus on substance rather than the superfluous to keep the masses happy. It is this recipe that has resulted in Sri Lanka Inc. becoming an underperforming asset and a liability for its 21 million citizens, who now have a debt exceeding Rs. 700,000 on each of their heads.
Politicians will come and politicians will go, but it is the people that have to face the consequences of their short-sighted actions for generations to come. Playing to the gallery is not going to bring in investors or pay back loans. For that to happen, the economic fundamentals need to be strengthened – and the only way to do that is to let professionals do what they do best while politicians take a backseat.
The need of the hour is to strengthen and ensure the independence of public institutions, which in the end, is the only thing that will create confidence for investors, not incentives. That is the only way the rule of law can be ensured, and the only way that progressive nations have succeeded. The Shipping Minister “issuing instructions” to port officials on extinguishing the fire on board the X-Press Pearl no sooner the fire began, is a moot point. The rest is now dark history in the making.
In short, if this country is to come out of the hole it has dug for itself, politics will have to take a backseat. That is what the people voted for at the last presidential election.
