Forced frugality
As the first light of 2024 pierced through the turmoil of Sri Lanka, a new reality dawned upon its citizens. This year arrived not with a promise of renewal, but with the weight of increased taxes and soaring prices, shackling the everyday Sri Lankan to a reality of forced frugality.
Saliya Weerakoon, Senior Corporate Executive
From the bustling streets of Colombo to the tranquil villages in the countryside, the cry against this steep rise in the cost of living echoed, reverberating through the corridors of social media, where it garnered fierce criticism and widespread disapproval.
No one loves taxes; no political leader would love to tax the public. In a country that was not accustomed to paying direct taxes historically, this is steep by any account. The compulsory Taxpayer Identification Number (TIN) has driven the public to extremes, while many registered, not by choice, but out of sheer fear.
These are unprecedented times, and actions are severe. Are we paying for 75 years of sin in one year? Social media has become the greatest outlet for anger and Sri Lankans are creative in using sarcasm and humour to amplify the message.
Reflecting upon these turbulent times, I cannot help but observe that since the fateful Easter attacks of 21 April 2019, the nation has been grappling with a relentless economic downturn.
A tale of two leaders
This financial spiral, worsened by the global pandemic, political unrest in the country, and economic distress, culminated in a leadership change, bringing Ranil Wickremesinghe to the forefront of the presidency. Despite his efforts to steer the nation through crises of food, fuel, electricity, and financial shortages, Wickremesinghe finds himself at the epicentre of public ire, primarily due to the unbearable cost of living that continues to plague the country.
The repercussions of this economic strain are not confined to any single stratum of society. From the once-thriving upper middle class to the most impoverished, the majority of Sri Lankans are feeling the squeeze of heightened taxes and living costs. It is human to forget where the country was in 2022. In Sri Lanka, it’s customary to forget everything in two weeks.
The public outcry against Gotabaya Rajapaksa was severe, making him the first Sri Lankan leader to step down against a public revolt. Since his departure, he has not spoken a word against anyone or against any conspiracy to overthrow him out of power.
When he was in power, many hailed him as the Sri Lankan version of Lee Kuan Yew, but out of power, he is everyone’s villain. Even his closest people continue to betray him in public, so his silence is unfathomable. Defence Secretary Gotabaya and President Gotabaya were two characters and no one knows who he is. When Gotabaya Rajapaksa gave sweeping tax relief, many applauded while some were critical. Now, with Wickremesinghe imposing tax on people, many are crying and some are celebrating.
Economic mess and IMF recipe
The economic mess is real. Subsidies and bloated Government sector payroll for decades are hurting everyone. All political parties are against the tax burden, but no one is critical of the pay hike of Rs. 10,000 for approximately 1.3 million public sector employees. The trade unions have started agitations against restructuring State enterprises and demanding pay hikes. This is déjà vu! Same script, new actors, and in different colours. The International Monetary Fund (IMF) can prescribe anything; technically nothing wrong with the prescription, largely.
It is always the question of pragmatism in executing reforms in Sri Lanka. Even a politically-stable government would have struggled to execute the current IMF recipe. What Sri Lanka has now is the most complex government in post-independence Sri Lanka. Even the parliamentarians who voted for the Budget criticise the Budget proposals outside the chamber. The tax burden is amplified well by the Opposition parties and they are arousing the emotions of people.
The nation, historically known for its carefree and lavish lifestyle, is now witnessing an unprecedented shift. A country that revelled in celebrations, aspired to grandiose homes and luxury cars, is now being compelled to tighten its belt. The dreams of many are being deferred, as they grapple with the reality of loans, debts, and diminishing disposable incomes. It is particularly striking to see the upper middle class, who once epitomised the Sri Lankan dream, now being forced to alter their way of life.
The image of senior corporate executives, who once took pride in driving to work, now resorting to public transportation, is a telling sign of the times. This shift, though a bitter pill to swallow, reflects the broader economic malaise that has enveloped the nation. The increase in personal taxation, which in some cases amounts to 36% of income, has particularly dampened the spirits of professionals. It is a harsh reminder of the economic dilemma that the country finds itself in, where the burden of taxation feels like a punishment for the fiscal mismanagement of others.
In this election year, President Wickremesinghe’s decision to impose such heavy taxes is indeed unprecedented. His actions, although necessary in the face of dire economic conditions, have not been without consequence. The backlash from the Opposition and the general populace is palpable, with many questioning the direction in which the country is headed. As Sri Lanka seeks support from the IMF, the path to recovery is fraught with challenges. Political parties, trade unions, and civil society are all in a state of unrest, each offering criticism, yet none offering a clear path forward.
The defence for Wickremesinghe came from Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe and Treasury Secretary Mahinda Siriwardana. Both eloquently spoke about the need for an increase in taxes to save the country. It was a clever move to get public sector officials to support policy decisions rather than politicians, who have all largely lost credibility in the public eye.
Governor Weerasinghe articulates well, but he has been the enemy of the Janatha Vimukthi Peramuna (JVP) narrative for a long time now. Weerasinghe and Siriwardana’s reasonable argument was lost in the anger of irrational critics. There was much misinformation about the tax hikes, and it was the fault of the Government for not proactively communicating the severe measures of this nature which affect all in the country. The real economic war has started.
Dr. Weerasinghe made an interesting statement that any future government has to work according to the IMF arrangement. This is a strong statement, given that the country is in a crucial election year. Anura Kumara Dissanayake (AKD) has openly opposed the privatisation/restructuring of State enterprises. The economic brain of the JVP, Sunil Handunnetti, goes beyond AKD and has a different narrative of the economic conditions, debt restructuring, paying off ISBs, and developing a production economy. From the Premadasa camp, will there be a shift in economic policy after the entry of Nalaka Godahewa to the Samagi Jana Balawegaya (SJB) fold?
Who holds the key?
The Sri Lanka Podujana Peramuna (SLPP), the key ally of Wickremesinghe, is the party that was in power during the economic downfall. As a party, it has criticised Wickremesinghe policies openly. However, its colleagues are running the majority of ministries under Wickremesinghe. If the SLPP had an alternative of its own, it should have resurrected the economy with ease. Many critics state that Wickremesinghe and Premadasa’s economic policies are no different. AKD’s economic policy is a mystery to be unfolded. All three above are the critical presidential aspirants in the 2024 elections.
The question then arises – who holds the key to navigating Sri Lanka out of this economic mess? Amidst this noise of voices, figures like AKD and Premadasa are taking centre stage, offering their visions for the nation’s future. Yet, in the complex trap of Sri Lankan politics, it remains to be seen whether these plans will materialise into actionable policies that can steer the country towards stability and growth.
As the nation is inching towards the next Presidential Election, the uncertainty and chaos only seem to intensify. Many still predict that Wickremesinghe will stay out of the presidential race. Will he retire from politics? Or is he playing his cards close to the chest? Is he deliberately sending mixed signals to unsettle the gullible politicians and creating anxiety among all stakeholders to showcase his importance?
Premadasa was busy luring defections from other parties. He seems to be happy building an alliance. The SLPP outcast Nimal Lanza – Basil Rajapaksa’s protégé and now Wickremesinghe loyalist – vows to break away from the Rajapaksas. It is inconceivable to many in the inner political circle that Lanza is operating on his own, betraying Basil. Is Lanza acting on behalf of Wickremesinghe and Basil Rajapaksa? The SLPP is already broken into pieces; what’s left if Lanza breaks off another faction? Sirisena broke away from Mahinda Rajapaksa at the end of November 2014. He was built up in 40 days to win the Presidential Election in 2015. Are we looking at a similar power play this year as well?
The SJB says Wickremesinghe won’t run for the elections and the United National Party (UNP) General Secretary says Premadasa won’t run from the SJB. The Rajapaksas are saying they have four options. AKD is in the race and JVP has stayed away from accepting any defections from other parties. Media mogul Dilith Jayaweera is in the race as well. Also, many candidates are flirting with the idea without any concrete declaration.
The confusion is real. The island of intrigue is at its best. However, the public is suffering. The suffering is real. The once vibrant Sri Lankan spirit, characterised by its happy-go-lucky attitude and aspirations beyond means, now faces its greatest test.
Geopolitical play
Amidst all the chaos, the geopolitical play is increasing. The power centres of Beijing, Delhi, Washington, and Tokyo are deeply concerned about what is taking place in Sri Lanka. The island of intrigue is a mystery for superpowers. Indian Finance Minister Nirmala Sitharaman’s visit to Sri Lanka had the eyeballs of the international community. Next week is Japan’s time.
Japanese Finance Minister Shun’ichi Suzuki will be in Colombo next week. His visit is significant to Sri Lanka as Japan plays a key role in the debt restructuring. Suzuki is a seasoned Japanese political leader who has significant influence in the Kishida administration and is a key influencer in the economic revival of Sri Lanka. The Finance Minister is an ex-officio board member of the IMF as well. What a time for him to be in Colombo.
It is no secret that Japan-Sri Lanka relations have taken a nosedive in the recent past. President Wickremesinghe’s multiple visits to Japan helped to repair the damage. In the absence of serious diplomacy for four years, Japan is back in Sri Lanka. Suzuki is visiting the county with a powerful 10-member delegation to offer support on debt restructuring, economic revival, digital economy, and more importantly, to restart infrastructure development in Sri Lanka.
Japan has always been a friend of Sri Lanka and a noncontroversial political actor in the public eye. Japan is a silent contributor to Sri Lanka in many forms. Through the Japan International Cooperation Agency (JICA), the Japanese Government is actively participating in the well-being of Sri Lanka’s economy and its people. Ongoing projects such as strengthening the transportation network, improving power and water supply, improving living environment, institutional reforms and human resources development, improving ICT, supporting fishing and agrarian villages, and improving livelihood in conflict areas are serious contributions to Sri Lanka.
Just like China, India, and the US, Japan has played a significant role in shaping Sri Lanka. However, Japan is the least vocal whereas the other three superpowers have carved a strong public narrative. Perhaps the Japanese may not understand the Sri Lankan way of things. In fact, Sri Lankans are also finding it hard to understand the Sri Lankan way, so outsiders can be forgiven. Finance Minister Suzuki spearheaded the Tokyo Olympics and Paralympics initiative and there could be more value in his expertise for sports in Sri Lanka as well. In particular, paralympians are a forgotten lot in the country, without much support from the authorities and sponsors. This visit is crucial for Sri Lanka, not only to strengthen bilateral ties but also to seek support from a friend who had been there in good times and bad times – especially bad times.
There is no better time for China, India, the US, and Japan to lift Sri Lanka out of the economic mess. An unstable Sri Lanka in the Indian Ocean is a recipe for disaster for all. There is no free lunch, but lunch should be served with the right intentions. Year 2024 is an election year in Sri Lanka. Whoever wins will be required to navigate external and internal politics but, more importantly, needs to take the country’s citizenry out of dire economic conditions.
Will this period of forced frugality usher in a new era of pragmatism and fiscal responsibility or will it be another chapter in the nation’s history of unheeded lessons and missed opportunities?
As we ponder over these questions, the future of Sri Lanka hangs in the balance. The choices made today will not only determine the economic trajectory of the nation but will also shape the social and cultural fabric of a country that once dreamt beyond its means. The path forward is not just about economic reform; it is about redefining the Sri Lankan dream – a dream rooted in sustainability, resilience, and a realistic assessment of its potential and limitations. Only time will tell if Sri Lanka will emerge from this crucible stronger, wiser, and more united.
