Mismatch between Sri Lanka’s potential and performance

Sri Lanka's unprecedented economic crisis in 2022 was not a sudden occurrence.

- SUNIL ABHAYAWARDHANA

It was in the making for decades and exploded when the contradictions could not be sustained any longer. The Governor of the Central Bank expects the economy to reach 2018/19 levels next year, meaning that we are sliding back by almost a decade.

The inability to have seen this earlier is a heavy indictment on the economists at the Central Bank and officials of the Ministry of Finance. Those same officials are now the main advisors to the government. They are not trained in development economics and most of them rely on econometrics and mathematics, which makes them vulnerable to neoliberal 'mythematics'.

Sri Lanka's true potential was not understood by local leaders and officials. Many outsiders did express the 'great potential' that the country possessed, particularly with regard to its strategic location. The major task the governments, past and present, face is to reduce the gap between the country's real potential and its performance. To do so one has to know what the real potential is, which requires an expanded thinking process. Another way would be to observe others in the region and how they exceeded their own expectations in development.

The thinking of officials over the years has been to borrow now and expect the situation to improve later. After the 1950s in Sri Lanka, there were no more 'Korean booms' only busts which led to seeking IMF support as well as other forms of borrowing for consumption rather than developing industry.

What is amazing is that many officials expect the same thinking that got Sri Lanka into its worst mess will help us get out of it. If the IMF programme were focused on export development and the balance of payments rather than the budget, perhaps the thinking would have shifted.