Sri Lanka in a Transforming South Asian Economic Landscape (Data as at 2018)0 1039
India remains the Global leader and among the fastest growing economies of the world with a population of 1,316 Mn and USD 2,689 Mn.
Bangladesh with 162 Mn people with a GDP of USD 286 Bn has also sustained high economic growth in recent times.
Pakistan With a population of 199 Mn people and economy of USD 306.0 Bn GDP has slowed down its growth momentum, but remains a potentially important player in the region.
Nepal with a population of 29 Mn and an economy of USD 28 Bn sustains 6 percent growth in GDP in its transition to a lower middle income country.
Bhutan and Maldives with smaller in terms of population as well as GDP sustain near 7 percent growth in their respective GDP. Maldives commands the highest per capita income status in South Asia while Bhutan commands one of the happiest country in the world,
Sri Lanka with 21 Mn people and a GDP of USD 92 Bn have lost its growth momentum and its development drive in recent years although it is still commanding the highest per capita income of around USD 4,000 in South Asia next only to Maldives.
Afghanistan with 30 Mn population remains as one of the poorest economies in the world with 2.5 percent growth in GDP and South Asia.
The decision of 29 October 2019 by the outgoing Cabinet to sign a compact with the Millennium Challenge Corporation (MCC) has given rise to extensive public discussion and debate. A new President has been elected on November 16, 2019, with a new Prime Minister and a new Cabinet sworn in soon after. The new government is bound to reconsider its predecessor’s decision to sign the MCC agreement.
The proposed MCC compact, once signed, would make a US government grant of USD 480 million available for expenditure in two Sri Lankan projects – a transport development project (costing $400 million) and a land project (costing $80 million). These two projects are supposed to address two binding growth constraints in the country: inadequate infrastructure of transport logistics and restricted access to land for investment purposes. The MCC grant funds will be disbursed in stages over a period of five years. Unlike other official grants, the MCC grant will not be disbursed to the Sri Lankan government. Instead, these funds will be channelled into a Sri Lankan private company specially set up in Colombo for this purpose by the MCC to be used in the implementation of the two accepted projects. This company will monitor the progress achieved in the projects concerned and grant funds will be released step by step if progress achieved in each stage is judged satisfactory. The US government reserves the right to terminate the operation of the project at any time if the MCC is not satisfied with project implementation progress.
It is good to begin this brief article about the desirability or otherwise of signing the MCC compact by placing the MCC in its proper global perspective. The “Western development establishment” led by the US has dragged increasing numbers of developing countries into the net of neoliberalism since the 1970s and 1980s. Sri Lanka has the dubious reputation of having been a pioneer to be so dragged into a neoliberal policy framework. The use of foreign aid conditionality has been the mechanism widely used by the Western development establishment to neo-liberalise developing countries.
The IMF and the World Bank have formed the institutional mechanism used in the process. Under conditionality, the countries receiving grants and loans on concessionary terms were required to gradually meet the laid down policy conditions after loans were authorized and dispensation commenced
in tranches. The grant “assistance” to a developing country1 through Millennium Challenge account of the US signifies a different way of converting the developing country victims into a neo-liberal policy framework. This method has been described as “preemptive” development assistance. It entails refusal and withholding of funds until demands made by the donor country are met.
The conditions to be met are listed under three broad headings, namely
1) ruling justly (good governance);
2) investing in people (health and education for all);
3) “economic freedom” (sound economic policies that foster enterprise and entrepreneurship)
Love and Compassion, was the response to Sri Lankans on the Easter Sunday attacks in several churches in Sri Lanka where people gathered to celebrate the risen Christ through worship and praise during holy mass.
The Arch Bishop of Colombo Malcolm Cardinal Ranjith condemned the Easter Sunday attacks as an insult to humanity and urged people to show kindness, restraint, love and mercy to others as a sign of respect for all the victims. In conducting his mass with an appeal to peace and unity he said that he will pray for this country so that there will be peace and co-existence and understanding each other without division.
“We are not fully aware as to who is actually behind this. Just like the tip of the iceberg, we do not know the whole picture. There might be a more powerful group behind this unfortunate group of youth. Maybe those involved might not belong to the said nationality. Therefore we must not make this an opportunity to harass or assault anyone. If any wrong was committed by anyone, such individuals should be brought before the law. The law must be enforced”.
Sanctions on Oil Supply
The US government announced that it would end waivers granted to several countries including China, India, Japan, South Korea, Turkey and several other nations to import Iranian oil. This move could alter the outlook for trade flows, access to financial markets and currency movements.
The US administration introduced sanctions on Iranian oil last year. The expiry of concessions on May 2nd could reduce the global supply of oil. Asian economies led by India and China are most affected as Asian consumption accounts for more than 35 percent of global demand. China and Turkey have opposed the imposition of unilateral sanctions. Oil supply concerns are also affected by US sanctions on Venezuela.
Oil prices continued their upward trend approaching the Brent crude price towards USD 75 per barrel in the last week of April 2019 – the highest in six months
Elections in Two Large Emerging Economies
On April 17th nearly 192 million Indonesians went to cast their election vote. For the first time, the Presidential, and the People’s Consultative Assembly (i.e. Parliament) and regional elections were held on the same day. Official elections results are expected by 22nd May. Indonesia – the world’s most populous Muslim country is projected to become the fourth largest economy by 2030 with a GDP of USD 10 trillion. Experts predict that it will be three times the size of the Australian economy by that time.
Additionally, from April 11th to May 19th about 900 million voters in India are expected to cast their votes in the Indian general elections that take place in seven phases of which already 4 phases have been conducted. The counting is scheduled on 23rd May and results are expected on the same day. India – the world’s most populous democracy is projected to be the third largest economy by 2030 with a GDP of USD 46 trillion. It is projected that India will surpass China as the world’s most populous country.
Polarization in Belt and Road Forum
The second Belt and Road Initiative Forum which was concluded on 26th April in Beijing, promising to work together as a global initiative to promote trade and investment is expected to enter the next phase. The first forum held from 14th -15thof May 2017, was attended by 29 Heads of States while the second forum was attended by 45 with Portugal, Austria, UAE, Singapore, and Thailand among new signatories to the joint communiqué.
However, India remained a notable absentee. Germany, France and the United Kingdom did not sent their top leaders and particularly Germany and France have been the most vocal in expressing concerns. Top leaders of Djibouti, Egypt, Ethiopia, Kenya and Mozambique were present at the forum. South Asia remained notable in abstaining with top level representation. India was no show as it was deeply concerned that the China, Pakistan economic corridor passes through territory occupied by Pakistan but claimed by India. Among South Asian countries only Pakistan and Nepal sent their Heads of Governments. The Japanese Prime Minister and South Korean President were notable blank spots. The United States did not send any representation from Washington to this gathering. The newly appointed President to the World Bank too did not attend the forum.
Sri Lanka Tourism to Take a Heavy Toll
The Sri Lanka Government indicated that the income from the tourism industry may suffer by USD 1.5 billion in 2019 or a reduction of earnings by 35pct, following the devastating attack on Easter Sunday. The US, Canada, UK and India have cautioned their citizens about travelling to Sri Lanka. The Hotels Association of Sri Lanka has indicated that about 20% of hotel bookings are being cancelled with more expected.
The industry has expressed concerns as this is the first time tourist hotels have been targeted in this manner. However, Hiran Cooray Chairman of Jetwing hotels investments said that the tourism industry will come out of the impact of this calamity which even during the 26 years of war Sri Lankan has not experienced. Sri Lanka recorded 2.3 million tourist arrivals with USD 4.2 billion foreign earnings in 2018 – a sharp scale of expansion in comparison to the arrivals of 300,000 with USD 400 million earnings prior to ending the war in May 2009.