THE FORUM

CSF is pleased to announce a strategic partnership with the National Innovation Agency Sri Lanka, to advance ideas and solutions to strengthen the science, technology and innovation agenda in the country. CSF signed an MoU with NIA in September 2022 to leverage our joint expertise and local and global networks, to bring new knowledge, analysis, and policy initiatives. Both CSF and NIA believe that innovation must be inclusive, sustainable, and it is central to Sri Lanka's economic transformation, beyond recovery from the current crisis.

In May 2022, the Sri Lanka – Singapore Free Trade Agreement (SLSFTA) marked four years since coming into force - an FTA that was a landmark one for Sri Lanka in many respects. It was the country’s first bilateral free trade agreement (FTA) in over a decade, the first FTA with an ASEAN country, and the first ‘comprehensive FTA’ in the country’s history, which meant that it went beyond goods, to include services, investment, and economic and technology cooperation. This Working Paper reviews bilateral trade performance, explains some of the key domestic economic policy contexts during and after the FTA was signed, discusses some of the key issues that emerged, and takes an initial look at prospects. Research for the paper was drawn not only from published grey material but also from extensive primary interviews with key informants. Insights shared in this paper would be of particular relevance now, following the bilateral meeting between the Sri Lankan President and the Singaporean Prime Minister (on the sidelines of the former's visit to Japan), during which the two leaders recommitted to benefiting from the SLSFTA and advancing its implementation. This Working Paper is produced under the 'Trade and Economic Competitiveness' thematic pillar of CSF, and is co-authored by Anushka Wijesinha (Co-founder, CSF) and Janaka Wijayasiri (Visiting Fellow, CSF).

To mitigate the rise in food insecurity,  “home gardening” has emerged as a popular buzzword amongst policy makers. In May, the Minister of Agriculture encouraged the public to start growing food in their home gardens. Whilst home gardening can help improve dietary diversity and reduce the severity of food insecurity, it will, in no way, completely eradicate food insecurity for Colombo’s working class poor. It also cannot be the Government’s way of absolving themselves from Colombo’s food crisis. For those living in Colombo facing a burden of duality of both food insecurity and space restrictions, instructions to “stay at home and grow food”, is simply not enough. There needs to be more targeted focus on supporting communities that don’t have the space or resources to grow. In order to better support Colombo’s working class poor to grow food to help increase dietary diversity, and to reduce the impact of food insecurity, we have detailed some recommendations based on empirical evidence from our field work.

The debate on whether biodiversity should be economically valued remains highly polarized and a more nuanced contextual approach is required. This method is essential for successful conservation as it calls for integration of biodiversity-related data in policy making and decisions. However, there are barriers to operationalizing this and economic metaphors such as ‘natural capital’ and ‘ecosystem services’ are yet to enter mainstream economic and political decision-making. Although the approach needs to be developed further, it is on a promising step towards striking a balance between environmental, social and economic objectives.

In Part One of this article, we considered the proposed electricity tariff revision from the perspective of the urban poor in Colombo, arguing that the revisions failed to account for ground realities faced by domestic consumers, both in terms of understanding the financial pressures of the economic crisis as well as how electricity usage has changed in response. In light of the approved tariff increase that averages at 75% in all categories, we take a closer look at low-consumer tariffs, and offer recommendations that uphold principles of energy justice.

Earlier this year, Sri Lanka’s census and statistics department released a new version of the country’s Gross Domestic Product (GDP) calculation. The existing National Accounts had been ‘rebased’ from the year 2010 to the year 2015. In explaining the re-basing, the department noted that “a number of improvements” to GDP compilation was done, the first item on the list was ‘Inclusion of generated value addition from the reclaimed land of Colombo Port city project’. The fact that the creation of an 269 hectare artificial land parcel attached to the capital, with sand extracted from nature, materially changed the country’s GDP base was startling. It triggered within us, again, a growing discontent we have felt for a while on how we think about economic growth and an unease with how we assess progress. For some years now, stemming from a love for the natural world, interest in biodiversity, and enthusiasm for photography, we had begun to think about critical issues with our current approach to economic growth. Particularly, there was little appreciation for the value of nature - for instance the emerging agenda of the valuation of natural capital.

Even though much of the recent foreign media coverage of Sri Lanka’s economic crisis and external commentary or analysis of it has focussed rather narrowly on the policy missteps in the last two years, the country’s economic problems have been at least a decade in the making. The debilitating economic collapse Sri Lanka is experiencing today is in no small part due to the flawed economic model followed in the years after the end of the civil war in 2009. This article serves to provide an international reader with a more useful reference point for the recent origins, evolution, and dimensions of Sri Lanka’s economic crisis, and selected perspectives on the policy issues and path ahead. It is written largely from an economics lens, and would need to be read alongside work by others that focuses more closely on human rights, the environment, and social justice issues.

The Ceylon Electricity Board (CEB) in July sought an increase in tariffs from the Public Utilities Commission of Sri Lanka (PUCSL), proposing a regressive scheme of tariffs that will see the lowest consumers burdened with the highest increases in rates. The rationale for this revision is that the CEB (excluding LECO costs) requires an 82.4% increase in revenue to meet their forecasted costs for 2022. The proposed raise is likely to increase energy poverty among a population that is already burdened by inflation with a Consumer Price Index (CPI) that is nearly at 60%. Domestic consumers who use fewer than 30 units of electricity per month will have their bills increase by 835% to Rs. 507.65 from the current Rs. 54.27. Overall, it has been identified that 50% of domestic electricity consumers in Sri Lanka – 3.14 million households who use fewer than 60 units a month – will face the greatest increase in electricity bills due to the proposed increase in tariffs.  Women who already perform the majority of housework will bear the brunt of the planned price increase. The gendered impacts of energy poverty will constrain a generation of women and girls, stripping them of time and inhibiting their access to education and the workforce. In a deteriorating economy that places a massive and disproportionate burden on the urban poor, these tariff hikes represent an additional cost that will increase energy poverty and even threaten access to the grid. The tariff hikes are insensitive to the changing consumption patterns of electricity among residents in urban areas, as well as to the significant debt that many households have already fallen into. Beyond the tariff hikes, any policy recommendations regarding support to families during this crisis period must be mindful of these diverse consumption patterns.

While steady growth in exports was recorded in the year 2021, Sri Lanka’s deepening economic crisis runs the serious risk of impacting the export recovery achieved to date. In March 2022, merchandise exports, consisting largely of industrial and agricultural exports, recorded a decline of 3.4% in earnings, compared to the previous year, due to a reduction in both volume and prices of exports. In addition to this, industry representatives predict a decline of about 20% - 30% in total exports as a result of the current crisis, with tea exports being among the lowest it has been in 23 years, and the apparel sector expecting a 20% - 25% drop in output by August 2022. Latest figures for June indicate that apparel sector has exceeded expectations and pre-Covid export numbers. In the context of the economic crisis, escalating now to a de facto lockdown across the country, understanding the challenges posed to the country’s external sector performance, one of Sri Lanka’s main sources of foreign exchange, is crucial. At present, exports of goods and services, which account for 17.7% of GDP as of 2021, have been adversely affected by several factors including most significantly, the worsening fuel and energy crisis.

Sri Lanka has let public financial management slip dramatically over the last couple of decades, resulting in weak government finances and the lack of fiscal space to support the economy during times of economic downturns and distress. As the ongoing public protests have also shown, people have lost confidence in the ability of successive governments to effectively manage people's money collected via taxes. As an IMF programme agreement draws closer, tax increases and spending cuts have already been implemented, and ad hoc changes to public sector work (like cutting down the working week by 1 day, with no change in pay) are tried out, more sustained and urgent reforms to public finance remain unfinished. In this discussion, an international public financial management (PFM) expert - who has worked in Sri Lanka and in over 14 other countries around the world - shares some insights on the challenge of PFM reform, the imperatives in doing it, and the need to couple it with meaningful civil service reform.