Opinion

IMF may have changed, but Sri Lanka has not

Published

2 years ago

2022/09/8

The IMF has told us in no uncertain terms that corruption and waste have to be brought under control. Yet, a minister would directly solicit a bribe from a Japanese company and get away with it. Doesn’t the Cabinet have any control over officials who change the conditions in the tender, and decide to buy coal for two years with no thought for the price fluctuations.Although the IMF, the Paris Club, the US, the UK, Europe, China and Japan have all got together to help us. Do we deserve their help? The corrupt system needs a shake-up.

The IMF was formed in 1945 at the Bretton Woods Conference based on the ideas of Dexter White and John Maynard Keynes. At the beginning it had 29 members. The objective was to expedite the economic development of underdeveloped countries. It focused on three areas – policy development, financial assistance and capacity development. The funds came mainly from the US, western countries and Japan. Keynesian policies, which did not discourage welfarism and government intervention in economic policies, initially benefited many developing countries and also the poor in rich countries. From the end of World War II to about the early 70s, these policies were not harmful to the global poor.

In the 70s Margaret Thatcher came to power in Britain and Ronald Reagan in the US. They were of the opinion that welfarism and government role were an impediment to economic development. The basis of neo-liberalism is the idea that the market is the prime determinant of not only prices of goods, and matters related to trade and commerce, but also social characters and human values. This means there is no need for the government to intervene on behalf of the people, and market forces most efficiently guide the economy with benefits to all stakeholders. This theory was first mooted by Friedrich von Hayek, and it was more or less a refutation of welfare capitalism advocated by John Maynard Keynes, which had been in practice since the end of Word War II in 1945. Hayek advised Margaret Thatcher on the virtues of neo-liberal economic policies, and those were subsequently adopted during Reagan’s time in the US and Margaret Thatcher’s in the UK.

These policies virtually detached the government from economic management. During the era of welfare capitalism and Keynesianism, which existed from the late 40s to the early 70s, the governments in the western countries adopted measures to protect the ordinary people from the depredations of market forces. Reagan and Thatcher, however, viewed those policies as an impediment to economic development. They believed that unrestrained market forces were a better driver of the economy. Thus were born neo-liberalism and its offshoot globalisation, which was designed to force the rest of the world to fall in line and accept their open-borders, export-led growth policy. The IMF, WTO and the World Bank were reoriented to serve this purpose.

These neo-liberal policies prevailed until the outbreak of the international debt crisis in 1982. In the latter half of the 1970s, developing countries borrowed heavily to pay for increasingly costly oil imports and to finance ambitious investment projects, many of which turned out to be white elephants. The IMF traced their problems to poor policies, unproductive borrowing, and incomplete programme implementation. In disbursing funds, the IMF became more selective about the recipients of concessional support, and required stricter and more extensive conditionality.

The 1980s the world learnt that a programme was unlikely to succeed if the impact of economic reforms on the poor—and resulting social unrest and opposition—was not addressed. This prompted the IMF to focus its help not only on poor countries, but also on the poor within countries. Analysis of poverty issues in Policy Framework Papers became a standard part of programme negotiations. Programmes continued to emphasise fiscal consolidation as a prerequisite for macroeconomic stability, but there were growing pledges to strengthen social spending, especially for health and education.

In the meantime, however, many low-income countries faced the problem of debt accumulation beyond their repaying capacity. In 1996, the IMF and the World Bank developed the Heavily Indebted Poor Country (HIPC) initiative, under which low-income countries with multi-year track records of good policies, would qualify for grants in association with their concessional loans.

The HIPC initiative soon came under heavy criticism for “offering too little relief too slowly to too few,” with only four countries obtaining a full stock of available debt relief before the end of the century. In 1999, the Bretton Woods institutions “enhanced” the initiative, by lowering the bar for judging whether debt was unsustainable, and providing debt relief and grants sooner to qualifying countries. Within three years, enhanced HIPC could deliver almost US$1 billion in debt relief to 25 countries.

By the turn of the century, the IMF’s engagement with low-income countries centered on three pillars: better funded and designed programmes, debt relief to facilitate poverty reduction efforts, and technical assistance. Although the IMF had long offered technical assistance to its members, the focus shifted to African countries, which by the early 2000s were receiving more than one-quarter of the IMF’s technical assistance. These efforts paid rich dividends. By 2019, 36 out of 39 eligible countries had received debt relief totaling some $125 billion, allowing them to increase social spending, especially on health and education, while remaining within budgetary envelopes. While most did not fully achieve their UN Millennium Development Goals, many made substantial progress.

Sri Lanka, to begin with, was better in terms of economic development than the African countries. It achieved middle income status. From 2010 to 2015 it recorded the highest GDP growth in South Asia, and was well on the way to prosperity. But the economy was like a wounded animal, burdened with so many unproductive projects and huge unsustainable debts. We were living beyond our means. Consumerism and aggrandizement became the order of the day. Few blunders by the government in 2020 and 2021 made the economy go bankrupt.

Apart from living beyond means, corruption, bribery, mismanagement and waste ate in to the vitals of the country. Yahapalana committed the Treasury bond scams. Then came the sugar scam under the new regime. And the most recent coal scam. Nether politicians nor bureaucrats have changed!

N.A.de S. AMARATUNGA

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Opinion

Sally Hulugalle

Published

19 hours ago

2024/12/8

Thilina Walpola

Sally Hulugalle

Sally Hulugalle was a vibrant presence, and I am only sorry that I got to know her only over the last fifteen years or so. This was because her husband, Arjuna Hulugalle, who was distantly connected to my family through a Kurunegala link, got in touch with me in the aftermath of the war, for he was involved in various projects to help the people of the north.

I was able to get for his very worthy initiatives a lot of support, all on a small scale, from the Japanese government, through their hyper-active Deputy Ambassador, Mr Ishizuka, with whom I had bonded well from the time I took over the Peace Secretariat.

I would visit Arjuna at his house, and there I met his wife Sally, the daughter of a Civil Servant whose distinguished children included Barbara Sansoni. Sally was dedicated to social service, and was deeply concerned about the plight of women and children who suffered from neglect.

Having seen the appalling conditions at Mulleriyawa, where many women were incarcerated arbitrarily, given abuse of the Vagrants’ Ordinance, she set up NEST along with my old friend Kamini de Soysa. It worked at what is called the half way house for women meant to be released, but who rarely were, because they had nothing to go to. NEST gave them occupational therapy which provided a purpose in lives that were otherwise empty.

NEST also set up centres round the country which provided support to women and children in need. There were four of these when I first found out about them, though the one in Galle had to close. The other three, in Hendala and Dumbara and Kahatagasdigiliya, continue to provide yeoman service, the first two in houses belonging to NEST, the one in Dumbara having been set up after Sally received a cash prize from Norway for her work. Using what was given to her personally for those less fortunate was second nature to her.

Sally understood, in a way many of those in government responsible for those who fall through the net do not, the need for counseling, for listening to people in need, and for providing often very little things that made a substantial difference to their lives. She participated readily in the committees I set up when I was Adviser on Reconciliation to look into the plight of women and children, our recommendations extending to the rest of the country too, for I realized that government had not tried to coordinate the work of social service officials at divisional levels, and a few simple guidelines would have worked wonders.

But Mahinda Rajapaksa was not really interested in my advice and, though we had a thoughtful Ministry Secretary, Eric Illapayarachchi, he had to work with a neanderthal Minister who could not care less for the deprived. I could only think it sheer wickedness, that those in authority would not work swiftly to get rid of the Vagrants Ordinance, an archaic British law, which I was told was the only way prostitution could be stopped. That other women were swept into the net, and the way to stop prostitution was to make it illegal, not take in anyone on suspicion, were concepts beyond them.

I had another chance to make a difference when, as Chairman of the Tertiary and Vocational Education Commission, I set up a Health Sector Council. That did good work, under Dr Narme Wickremesinghe, but when I was sacked it, though it did much for nursing and pharmacology, lost interest in the counseling component of its brief, and Sally and her great friend Kusala Wettasinghe ceased to go to meetings. And since I lost my position on the National Education Commission, the efforts I had been making through the Sub-Committee on General Education to develop counseling in schools also came to naught.

But when I reflect on the failure of these efforts, I think too of the great work done by private initiatives, and how the intensity of Sally’s commitment has made such a difference to so many. This year, seeing the work of the centres at Hendala and at Kahatagasdigiliya, and the devotion of the staff to her memory, I was struck again by the way she transformed her passion for social welfare into practical support for so many. She will be greatly missed by hundreds outside the charmed circle in which she was born.

Rajiva Wijesinha

Opinion

Blueprint for economic empowerment in Sri Lanka’s gig economy

Published

4 days ago

2024/12/5

Sahan Weerasooriya

“Creating 300,000 Online Jobs:

By Dammike Kobbekaduwe,
FIPM (SL), Member-CIPM-SL, MBA(HRM)

Objectives of the Article

Assess

the viability and economic impact of creating 300,000 online jobs in Sri Lanka.

Present

a bankable business plan for investment support from financial institutions.

Outline

a detailed cost-benefit analysis, supported by viability ratios for funding eligibility.

Establish

a sustainable financial and operational model for building a skilled gig workforce.

Sri Lanka’s gig economy presents a compelling solution for youth employment, targeting 300,000 online jobs for young people, particularly those who completed GCE OL. With a goal of generating substantial monthly income streams, this project seeks to address the country’s economic challenges and stimulate growth through digital employment. While a monthly earning a realistic starting income of $300–$500 is achievable and scalable, infusing approximately $50 million monthly into the economy once the workforce reaches full capacity.

To ensure financial viability and attract investment, we conduct a comprehensive economic analysis. This document highlights key investment metrics, including viability ratios, projected cash flow, and a cost-benefit breakdown to support the proposal as a bankable doEconomic Analysis and Viability

This project’s financial feasibility and appeal for funding rely on assessing profitability and return potential. Calculations are based on the cost of infrastructure, worker setup costs, and recurring expenses.

1. Capital and Operational Costs

Capital Setup Per Worker

Laptop (16GB RAM):

LKR 300,000 (one-time purchase)

Data Plan:

LKR 8,000 per month

Electricity:

LKR 8,000 per month (solar option as a long-term cost-saving measure)

Annual Cost Per Worker

One-time Equipment Cost:

LKR 300,000

Recurring Monthly Costs:

LKR 192,000 (LKR 16,000 x 12)

Total Yearly Cost Per Worker

Year 1:

LKR 492,000

Year 2+ (Excluding Laptop):

LKR 192,000 per year

Total Initial Investment for 300,000 Workers

Laptops:

LKR 90 billion

Year 1 Recurring Costs:

LKR 57.6 billion

Initial Year Investment Requirement:

LKR 147.6 billion

2. Projected Revenue and Cash Injection

A monthly earning potential of $300–$500 per worker in Sri Lanka’s gig market (based on average entry-level online job earnings globally) provides realistic targets for cash generation.

Monthly Cash Injection at Full Capacity

Minimum Revenue Goal (300,000 workers at $300):

$90 million/month

Maximum Revenue Goal (300,000 workers at $500):

$150 million/month

Expected Economic Contribution:

$50 million/month as a sustainable average.

3. Viability Ratios and Business Metrics

To validate the project’s financial health, banks and investors can consider the following key metrics:

A. Return on Investment (ROI)

The ROI assesses the profitability relative to costs.

See FIG 1

For Year 1 (Initial setup + recurring costs):

Total Annual Revenue:

$90 million * 12 months * 300,000 = LKR 324 billion (at $300/month per worker) See FIG 2

Interpretation:

A 119.5% ROI suggests strong profitability, with returns significantly outpacing the initial investment within the first year, making it attractive for lenders and investors.

B. Break-even Point (BEP)

The BEP indicates when revenue will cover initial costs.

See FIG 3

For a $50 million monthly injection:

Interpretation: A break-even within three months reflects a rapid recovery period, underscoring the project’s viability. See FIG 4

C. Debt-Service Coverage Ratio (DSCR)

To ensure sufficient earnings to cover debt obligations, DSCR is critical for bank funding. See FIG 5

Assuming monthly operating income of LKR 3.24 billion and an estimated debt service of LKR 1.5 billion:

Interpretation:

With a DSCR above 2, the project is well-positioned for loan approval, demonstrating strong debt repayment capacity. See FIG 6

Implementation Plan for the National Gig Workforce

Phase 1: Training and Equipment Setup

Digital Literacy Programs:

Partner with local institutions to offer foundational training.

Laptop Financing:

Government-backed financing for laptops and solar installations for sustainable power solutions.

Phase 2: Skill Development and Placement

Skill Development Centers:

Partner with international e-learning platforms and host training boot camps.

Placement Programs:

Establish online job-matching platforms to connect workers with international clients.

Phase 3: Scaling and Economic Integration

Tax Incentives:

Offer tax breaks to local businesses hiring from the gig workforce.

Freelancer Support Network:

Create a national freelancer association for continued training and mentorship.

Resources Required For Workers:

Training:

Digital and language skills to enter global markets.

Equipment:

Laptops with financing options.

Connectivity:

Affordable data plans or subsidies.

For Stakeholders:

Government Initiatives:

Funding for training and incentives.

Private-Sector Partnerships: Skill development programs and job portals.

Financial Institutions: Loan products tailored for workers’ needs.

Conclusion

This plan offers a scalable solution to Sri Lanka’s unemployment crisis, particularly for young people with limited formal education. By creating 300,000 online jobs and targeting a monthly cash inflow of $50 million, the initiative supports economic resilience while empowering youth with valuable skills. A financial model based on solid viability ratios makes this project attractive to lenders, ensuring a rapid return on investment and sustainable growth.

References

International Labour Organization. (2023). The Gig Economy: Opportunities and Challenges for Youth Employment in Developing Economies. Available at: https://www.ilo.org/

Upwork. (2023). Freelancer Earnings and Trends Report. Available at: https://www.upwork.com/research

World Bank. (2022). Digital Jobs and Economic Growth:

A Guide for Developing Nations. Washington, DC: World Bank Publications.

Fiverr. (2023). Freelancer Earnings and Skill Development:

A Global Perspective. Available at: https://www.fiverr.com/research

Coursera. (2023). Skill Trends in the Digital Economy:

A Report on Online Education in Emerging Markets. Available at: https://www.coursera.com/research

Sri Lanka Department of Census and Statistics. (2023). Youth Unemployment and Educational Attainment: Annual Report.

Opinion

Hospitals and corruption

Published

4 days ago

2024/12/5

Sahan Weerasooriya

On December 2, in The Island Cassandra CRY saw the state of hospitals and corruption as separate issues, but I believe they are deeply interconnected. The dismal condition of hospitals is a direct consequence of systemic corruption. Over the past several decades, trade unions, driven by self-interest, have focused solely on advocating for their members’ rights, often at the expense of their responsibilities. This trend has affected not only hospitals but also other government and some private sector institutions.

Currently, the country is led by a political party that has heavily relied on its trade unions for promotion and political gain. Given this close relationship, restoring order should be relatively straightforward. A simple directive from the relevant ministers to their allied union leaders could be enough to initiate meaningful reforms.

S K Muthukumara