The Politics of Growth

Photo courtesy of Bloomberg

“The old order changeth, yielding place to new.” Tennyson

“… the old is dying and the new cannot be born.” Gramsci

The big question facing Sri Lanka today is not how growth can be sustained; it’s whether it can be sustained at all. By growth here I mean the kind that can readily transform the economy, not the sort that helps us to hang on until the next crisis. This week marks two years since Gotabaya Rajapaksa resigned as president and two years since the start of perhaps the most painful round of austerity and economic reforms in post-independence Sri Lanka. What are the mistakes that were made, the lessons learnt? How do we take them forward? More critically, will political officials take them forward?

Sustaining Transformative Growth in Sri Lanka 2025-2030, published under the auspices of ODI Global (UK) and the Centre for Poverty Analysis, combines in one slim volume the prescriptions of nine policymakers who try to answer these questions. Not all of them are economists but most are. All but one are Sri Lankans although not all of them are living here. They include Sirimal Abeyratne, Indrajit Coomaswamy and Ganeshan Wignaraja, who work today at the intersection of policy and academia.

It’s that combination of policy and academia which comes out in what these nine authors have to say, and although one may not agree with all their prescriptions, they are there for all to see and can serve as a blueprint for the future.

Unfortunately for us, the future does not look all that bright. From the word go, the report underlies our paradox: the economy has stabilised “remarkably well” but there remains “a substantial risk of a relapse.” Sri Lanka is hardly the first country to have weathered a major crisis and other countries that have gone through crisis have faced such relapses especially in Latin and Central America. The question whether Sri Lanka will follow suit or whether it will defy (economic) history will largely depend on the policies it adopts. This is a no-brainer yet it cannot be emphasised enough. That begs the question, however: what policies?

Sustaining Transformative Growth gives us 30 of them spread across six topics. These range from the practical to the idealistic, the doable to the doubt if we can get it done. They all try to factor the uncertain external environment, which obviously includes US President Donald Trump’s economic agenda, specifically his tariffs. One can question whether the report does enough to explain to us how its reforms will adjust to variations in the external environment – the most obvious scenario being an escalation in China-US trade wars – but as the authors point out, such contingencies can only be categorised as “looming risks.”

Not being an economist, I can’t really comment on the recommendations the authors have proposed. I will say, however, that much of what they recommend has been said in many ways by many people before and, so long as the country, the economy and the government operate the way they are now, many others will continue to highlight them. The challenge lies in the balancing act that Sri Lanka must achieve now – maintaining stability while enabling transformative growth. The problem, however, is that not everyone is in agreement over what must be done to achieve that balance.

Of course there is consensus over some issues such as engagement with the IMF. I come across as a critic of the IMF but even I recognise that, given the state of the economy in mid-2022, there wasn’t much of an alternative. Engaging with the IMF would have made more sense when our reserves were high in late 2020 and 2021 when calls were made by opposition MPs to go to the IMF. What happened in 2022 was an avoidable crash but it happened and there is nothing that can be done today to reverse it.

Considering all this, what is the road ahead? The report makes several recommendations revolving around three themes: economic, political and geopolitical.

The economic prescriptions are those which have been made before: debt restructuring, privatisation, broadening of the tax base and consensus over economic reforms. The political and geopolitical prescriptions are as important: among them, a recommendation to form an independent growth commission drawing on the lessons of South-East Asian economic giants. It is surprising not to see even a mention of BRICS, especially given the present geopolitical climate, but given President Trump’s belligerent threats to that group, the authors may have felt it wiser not to harp on it as a way ahead for Sri Lanka. In any case, economists are debating what must be done with President Trump’s tariffs; some argue we need to concede more to Washington, others contend that we need alternatives.

All in all, the report comes across as concise and succinct, qualities that documents of this sort usually do not have. However, its proposals underlie three distinct but somewhat interrelated challenges, which need urgently to be looked into.

The first of these is the significance of the political aspects of the crisis. As one political analyst implied, countries caught up in a polycrisis of the sort we are now risk reverting to the old political order. The truth is that Sri Lanka will face debt repayments from 2027 and it will face elections in 2028/2029. What happens then is left to be seen but the experience of other countries does not offer consolation, for the government or for those of us hoping for better days.

The second is the need to communicate these prescriptions and reforms and why they are important to the country at large. It is heartening to know that the report has incorporated the views of a diverse, representative segment, including not just trade and business associations and Colombo-based economists but also students and Sinhala and Tamil language communities outside Colombo.

But to hear them out is not enough: one must also be mindful of their weltanschauung, however much it may differ from the conventional wisdoms of the economic and policy elite. As I found out for myself while working on Beena Sarwar’s documentary on the crisis, Sri Lanka Beyond the Headlines (2024), in far off places people hold radically different views on issues like social security. Aswesuma, for instance, may be a roaring, visionary success for policy elites but villagers view it with almost uniform hostility, saying that in depoliticising social security, they have been disconnected from the political process, a problem they say they did not face with Aswesuma’s predecessor Samurdhi.

The third is the inadequate state of our education system. Our schools and universities do not produce thinkers; they produce rote-learners. University students do not seem to be curious enough about these matters. Such curiosity crops up only sporadically and temporarily; for instance, the constitutional crisis of 2018, which provoked people to think of the rule of law, and the crisis of 2022, which got them to reflect on, discuss and debate the economy.

Yet in the longer run, people seem to lose interest. The corollary to this is that students tend to lap up everything they are told in the lecture hall. There is hardly any attempt at questioning what is taught. Moreover, our economics departments remain outdated and ill-equipped to deal with the challenges of the present and the future.

It is these three challenges that run across and through the policies, prescriptions, reforms and recommendations in Sustaining Transformative Growth and for better or worse the authors leave them unanswered, perhaps because they cannot be answered in the first place. The truth is that economics cannot be discussed in isolation from politics or for that matter geopolitics and it cannot operate in an elite vacuum. Yet for far too long, this is how reforms have been discussed and implemented in Sri Lanka.

What I am trying to say here is that although it must remain in the hands of the experts, economic policy cannot always be the mainstay of economists: one must also consider political decisions and the compulsions that drive them.

It is true that political decisions do not always tally with economic practices. But in a country like ours, which has been a democracy for so long, there is no point pontificating on economic policy to the exclusion of politics. I know it is difficult to reconcile politics to economics. Yet unless our political system transforms into what they have in East Asia, in particular countries like Vietnam, regularly celebrated by our economists, I do not see how we can enforce economic reforms without factoring politics in.

Such transformations come at a hefty price. As 2022 clearly demonstrated, if Sri Lankans feel dissatisfied with the electoral process, they will protest in the streets and throw governments out. This is a trend that has become apparent even in the technocratic states of South-East Asia. No amount of wishful, idealistic thinking can belie such developments, a point which reports such as these would do well to acknowledge.