Sri Lanka’s bankrupt economy is starkly different from that of the Philippines, where macro-economic fundamentals like inflation, interest rates and the fiscal deficit are monitored to make sure they behave according to plan.
Tax revenues in the Philippines are being raised constantly to fund increasing expenses and infrastructure projects and keep the budget deficit manageable.
Subsidy suggestions to fund certain sectors of the economy will also have little success in the Senate and Lower House.
Sri Lanka, in contrast, went against basic economics—Colombo reduced taxes for a time, subsidized petroleum prices and heavily borrowed foreign money to finance big infrastructure projects without a clear plan to repay them with foreign exchange.
Sri Lanka in no time found itself bankrupt. It ran out of money to pay for imports of oil, milk, cooking gas and even toilet paper.
It failed to promote other sources of foreign exchange aside from tourism, which took a plunge after COVID-19 struck.
Tourism accounts for over 50 percent of the Sri Lankan economy, and with no major alternative sources of foreign exchange, the south Asian nation is virtually left with no international reserves.
Reports of 80 percent of Sri Lankans skipping meals to endure food shortages and lining up for hours to buy limited stock of petroleum products are clear evidence that the country was grossly mismanaged. The rupee has fallen 80 percent, making imports costlier, while food prices have jumped 57 percent.
The International Monetary Fund, the bank of last resort, has found Sri Lanka’s economy in tatters. The nation has a runaway fiscal deficit and widespread political corruption that led to an inefficient government.
The utter discontent among Sri Lankans has led to the ouster of President Gotabaya Rajapaksa. But his eviction and exile to Maldives will not solve Sri Lanka’s myriad of economic problems.
Sri Lankans must take the bitter economic pill before they can hope for a recovery. Inflation and prices will remain high for some months even with the formation of a new government. The nation needs a more diversified economy to shield it from external shocks.
Sticking to macro-economic fundamentals and the rejection of subsidies are a start, no matter how unpopular they are.