Lessons from bankrupt Sri Lanka

SRI Lanka’s bankruptcy is a cautionary tale of a nation that goes bust in modern times. It is almost unthinkable any nation could be left with hardly RM7bil in its reserves. It can’t even pay for essential imports. With shortages and soaring inflation, the country is doomed economically.

Almost immediately, the government announced a temporary suspension of repayment of all external debt. For the record, Sri Lanka’s reputation of external debt servicing since its independence in 1947 has been nothing less than stellar. Understandably, the International Monetary Fund (IMF) is being called in to help design an economic recovery programme and for emergency financial assistance.

Blame it on Covid-19 pandemic or war in Ukraine, the fallout is shocking. Many are blaming the government for at least two years of denial of the economic conundrum it was facing. The nation of 22 million people is now facing insurmountable challenges, first and foremost from its own people who are angry and agitated.

What happened to Sri Lanka is sending shockwaves the world over. Most nations are still reeling from the aftermath of the Covid-19 pandemic. Many economies are devastated, businesses decimated.

A recent United Nations Conference on Trade and Development’s (UNCTAD) report shows that the pandemic has pushed more than 32 million people into extreme poverty in least developing countries (LDCs). UNCTAD believes that at least a third of these countries will need at least five years to regain the GDP per capita pre-pandemic levels.

In developing countries, the picture isn’t rosy either. In our case, the B40 bracket is swelling exponentially, as jobs are lost and earnings substantially reduced.

According to another finding, debt to global GDP will breach 365% as countries, businesses and individuals are borrowing significantly. Many countries, including Malaysia, are providing financial aids to support the people and businesses at a high cost. These assistance, while temporarily alleviate deepening economic crisis, will impact upon the country’s balance sheet.

Economic recovery is costly. Most nations are experimenting with various measures to revitalise the economy. There is no one-size-fits-all formula. Each nation has its own needs and wants.

In the case of Sri Lanka, it is proven those measures are off the mark and the repercussions are severe. It is a lesson worth learning, considering Malaysia’s national debt as of last December amounted to 63.4% of GDP. The amount is a staggering RM979.8bil as told to Members of Parliament recently.

Probably we can find comfort in the fact that most of the government debt is in the hands of Malaysians. In 2020, ordinary Malaysians held about 76% of government debt and 24% held by foreigners. Most of the debt is due in five years. Many of these debts are accumulated for infrastructural projects, including transportation, which constituted to 22% of the total development expenditure.

According to The Edge, the government will have invested more than RM100bil on rail infrastructure alone by the time the MRT3 is fully operational by 2030.

Perhaps such undertaking is money worth spending. But bear in mind, we have to take into consideration principals and interests accrued on the 1MDB debacle. 1MDB’s outstanding debt stands at RM32bil as of June 2021. It will have a considerable impact on government finances in years to come.

Moving forward, we need to rebuild our economy. So, less politicking, please. We need more than just politics for now to forge ahead in trying times like these. We must understand our priorities in managing the economy. We are looking at economic uncertainties and at the same time, new frontiers of opportunities. Building resilience is key to prosperity for all.

The government must be willing to look at new areas to promote sustainable economy. New metrics of sustainability must be used. National well-being is critical, not just notions about economic growth and robust share markets that will benefit only the privileged few. Inclusivity is critical and social inclusion must be taken seriously. The business community needs clarity, not more rules and regulations.

And more importantly is the willingness to have a deliberative platform for all to participate. We need a consultative sphere where government, businesses, civil societies and the people can have real conversations for the betterment of the country.

We need real reforms to address our inefficiencies during the downturn as the result of the pandemic. More importantly, we need a sound fiscal policy coupled with proper surveillance and governance. In short, we have to relook at the way we do things. It cannot be business as usual.

What happened to Sri Lanka can happen to any nation, not excluding ours.

Johan Jaaffar is a journalist, editor and for some years chairman of a media company, and is passionate about all things literature and the arts. And a diehard rugby fan. The views expressed here are entirely his own.