President Wickremesinghe is brimming with satisfaction over his economic stabilisation and recovery efforts. Going by all available reports, whatever and whoever is ‘recovering’ or ‘stabilising’, it is neither the citizenry at large nor Ranil’s popularity.
The IMF is more lucid about future prospects than Wickremesinghe.
- “Social unrest could re-emerge, fuelled by falling real incomes, including from tax rate hikes and cost-recovery pricing in the energy sector, insufficient anti-corruption efforts, and delayed local elections” the report said.’
Another newspaper reported:
- “The IMF expects Sri Lanka’s economy to contract by 3.6% by the end of 2023, surpassing their earlier projection of a 3% contraction and the Central Bank’s expectation of a contraction between 1-2%…Moreover, it said that inflation is expected to edge up to 4.8% by the end-2023 following the 18% electricity tariff hike in October while further increases are projected in 2024 up to 6.6% due to tax policy measures such as the Value Added Tax (VAT) rate increases…”
According to the UNDP’s new report, we have nose-dived and crashed as a society in a cardinal respect: Inequality.
The presentation came from the UNDP’s Country Economist who is one of the island’s most crystalline minds and articulate speakers in the field of political economy: US-educated Dr. Vagisha Gunasekara.
‘Fragile and uneven economic recovery has further exacerbated income and wealth inequalities in the country, placing Sri Lanka among the top five most unequal countries in the Asia Pacific, according to the United Nations Development Programme (UNDP).
… “In the context of Sri Lanka’s economic crisis, multiple assessments and simulations speculate that previous poverty reduction gains may now be lost,” said Dr. Vagisha Gunasekara, Country Economist from the UNDP Policy and Engagement Team.
Even before the economic crisis, the country was grappling with prevalent disparities and enduring structural exclusions, including entrenched inequality, gender biases, and a sizable informal sector. These challenges were further exacerbated by the pandemic and economic crisis, compounded by rising inflation resulting from geopolitical conflicts. On top of this, the region and Sri Lanka are facing a triple planetary crisis— climate change, pollution, and biodiversity loss, which are hitting the most vulnerable populations the hardest.
Dr. Gunasekara highlighted that high income and wealth inequalities, which remain persistent, specially after the pandemic and economic crisis, are major concerns for the country.
“Sri Lanka is…in the top one third of the highest unequal countries in the world, and wealth inequality is also very high. For example, the top one percent of Sri Lankans own 31 percent of the total personal wealth in the country, while the bottom 50 percent only owns less than 4 percent of the overall wealth in the country. This provides us with a snapshot of how unequal our country is,” she noted.
These remarks were shared at the national launch of UNDP 2024 Asia-Pacific Human Development Report, titled ‘Making Our Future: New Directions for Human Development in Asia and the Pacific,’ held in Colombo.
According to the report, Sri Lanka is among the top five countries exhibiting the highest wealth inequality, as measured by the wealth share of the top 10 percent, along with Thailand, China, Myanmar, and India.
Although Sri Lanka scored 0.782 in the Human Development Index (HDI) in 2021, gaining 0.002 points over the previous year with a rank of 73, Dr. Gunasekara pointed out that the country loses 10.6 percent points when the HDI is adjusted for inequality.’
Dr. Gunasekara then focused on the phenomenon of galloping household indebtedness.
‘…she also expressed concerns about the looming indebtedness of the population, with 33.4 percent of the populace grappling with vulnerability and deprivation concerning debt-related metrics.
The primary catalysts behind incurring debt included economic activities (42.5 percent), housing construction or repair (32.8 percent), and basic consumption of food, fuel, and other household expenses (19.3 percent).
For households seeking funds for consumption, the primary sources of debt include pawning (31.1 percent), money lenders (24 percent), and banks (23.5 percent). In particular, urban areas had a higher proportion of households that borrowed for basic consumption (26.2 percent) compared to rural areas (17.9 percent).’ (ibid)
The UNDP Report crucially recommends a strategic policy re-set.
‘The UNDP report recommended mainstreaming human development, recalibrating growth strategy, and making change happen as the way forward.
To make this happen, Dr. Gunasekara stressed that the government needs to expand people’s choices by focusing on governance, enhancing civic engagement, and eliminating discrimination, while enhancing human security through social protection programmes and insurance and risk finance tools, and accelerating the transition towards carbon-neutral and climate-resilient development.’ (ibid)
The ‘inequality shock’ cannot be attributed to low income, because when we had a lower growth-rate and income, we didn’t have anything like this unconscionable level of inequality.
Meanwhile, people eat less, and badly.
‘…Clinical Nutrition Specialist Dr. Renuka Jayatissa…said “…We estimate that 70 per cent of people are having hardships to reach a healthy diet…During the current economic crisis, the micronutrient gap is getting wider due to high prices of foods…approximately half of the Sri Lankan population has some form of micronutrient deficiencies…Micronutrient deficiencies lead to potential impacts on human health and nutrition which are life threatening…Millions of people will be more vulnerable to micronutrient deficiencies due to diet with less diversity.”‘
The collapse in the wealth share of the bottom 50% as spotlighted by the UNDP’s Dr Vagisha Gunasekara reveals not merely appalling asymmetry but also explosive economic injustice.
- The bottom 50% contributes far more to the national income than the paltry 4% it receives of national wealth.
- The top 1% which has 31% of the wealth, doesn’t seem to be contributing 31% of the tax revenue.
- The VAT will hit both the top 1% and the bottom 50% equally, though with shatteringly unequal consequences.
The inequality chasm also reflects, and causes, a shrinkage of purchasing power and consumer demand, which accelerates the downward spiral.
Unlike in China and India, inequality in Sri Lanka doesn’t accompany a rapid rise in general prosperity, but does accompany plummeting growth, nutrition levels and school attendance.
Social indicators will worsen when the Wickremesinghe administration or a neoliberal successor accedes to the bond-holders demands next year.
‘Sri Lanka needs to enter into agreements with its official and private creditors before the second review of the Extended Fund Facility (EFF), which is expected to be concluded by the end of the first half of next year, IMF Senior Mission Chief for Sri Lanka, Peter Breuer said.
He said the agreements that have been entered with creditors in-principle need to be converted into real agreements before the second review. The IMF team …is expected to finish the second review by June.
Sri Lanka has entered into in-principle debt restructuring deals with the Official Creditor Committee (OCC)…However, Sri Lanka is yet to strike a deal with its commercial creditors or the bondholders…’
Excerpts from the article Economic injustice could make 2024 ‘Vimukthi Vasara’, Year of Liberation by Dr. Dayan Jayatilleka published on Daily FT 21.12.23. complete article is here.