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Prostituting public service

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By Sonali Wijeratne

Once in a while, albeit at least a state minister tells the explicit truth. Dr. Nalaka Godahewa quoted in The Island of 06 August said: “There are over 1.4 million public sector workers. There are a large number of pensioners. Annually, we need about Rs 1.2 trillion to pay salaries and pensions. In 2020, our annual income was Rs 1.4 trillion. We are left with Rs 200 billion to provide health services, education, transport et al.” It is a fact that the annual public service wage and pension bill has surpassed the trillion-rupee mark for the first time in history with the budgetary outlay for both public sector salaries and pensions showing a significant rise from 2019 to date.

It is ironic that these extraordinary revelations are made in the context of the current government continuing to burden an already overstaffed top heavy public service of over one million with yet more massive injections of 150,000 public servants! This programme to offer jobs to 50,000 unemployed graduates and another 100,000 so called ‘poor’ applicants with educational qualifications below the GCE Ordinary Level was first mooted as a pre-election promise in 2019. However, the Chairman of the Elections Commission directed its postponement due to the declaration of the general election in 2019. The expectation of employment opportunities would no doubt have supported the poll in favour of the incumbent government which has now commenced the said programme without work study, or needs assessment, but presumably purely on the basis of amassing support for future victory at the elections! But where will such short term manoeuvrings, by politicians to keep themselves in power at the expense of the country’s steadily depleting resources, lead us the citizens of Sri Lanka?

The recruitment of unemployed graduates and others into the public service outside the required cadre cannot be healthy or useful when most of them find themselves in an overstaffed environment with little substantive work to do. The relative lack of challenging work occupations and inadequate training to go around leads to a gross misallocation of resources with a superfluous workforce engaged in repetitive replication of tasks. Sooner or later this huge multitude of public servants will find itself with no real opportunity, ideal or goal to make a worthwhile contribution. Their only recourse then is to latch on to the privileges of the public service such as security of employment, shorter work hours and extensive leave entitlement, pension and less work.

Many castigate the bloated public sector in Sri Lanka as generally lethargic, corrupt and parasitic. What else could one expect when politicians of every hue continuously use what was once an elite meritocracy as a job bank to get more votes for themselves to win in the short run to the next elections! Even the most enthusiastic, qualified youth selected to the public sector is bound to encounter demoralisation, and dissipation of his or her talents when faced with such self-defeating and destructive manner of recruitment often imbued with politicisation and nepotism to boot. We no longer have Permanent Secretaries heading Ministries which was the hallmark of the previous era of the Ceylon Civil Service. Even the Constitution was changed in the 1970s to facilitate all Secretaries of Ministries to be hand-picked for appointment and changed at will by the political authorities irrespective of their ability, seniority or official experience and qualifications! Therefore, in order to safeguard their prized privileges, position and perks of office, most Secretaries of Ministries are apt to take the easy way out by appeasing political authority and not taking a stand against irregularities.

Moreover, it is no surprise that in recent times, the government seems quick to placate a group of vociferous public servants in the education sector who take to the streets, howling vengeance on the State if their so-called demands for wage increase are not met without ascertaining whether there is a genuine justification or need for such a pay hike! It is a fact that these teachers wilfully neglect their helpless students in a crisis situation, virtually holding the people and government of this country to ransom and taking undue advantage of the pandemic situation by denying online education to innocent schoolchildren already bereft of a normal education. At the same time, they have become super spreaders of COVID-19 in public demonstrations disregarding all norms of curtailing the pandemic which is at its highest. All the while, it is a fact that after bringing formal online education to a standstill, they are engaging in the lucrative practice of private tuition online and earning a mint owing to increased demand for such services.

Since placating the teachers at any cost seems to be the intention of our politicians, even the simple fact whether there is any truth to the so called allegations of anomalous salary in the education sector is not the focus of the government or that giving an undue salary hike to teachers will upset the delicate equilibrium of the salary structure across the entire public sector and result in further anomalies and require an all-round increase of salaries to the entire public sector.

The previous so-called Yahapalana regime too had in turn feted the entire public service with more than 100 percent pension and salary increase between 2016 and 2020. It is now the turn of the present government, already saddled with a huge economic crisis replete with debt burden, intractable budget deficit and balance of payments woes, to promise another round of public sector salary increases with the next budget in November this year. Anything and everything to survive in power on the horns of the populist vote.

Such cynical callous disregard for economic imperatives seems designed to win the confidence of the masses in the short term in time for the next general and presidential elections. No matter that it may lead to galloping inflation when you feed the public service with paper money due to a myriad of problems facing one of Sri Lanka’s worst economic crises. The nature of government related services in public sector salary and pension expansions leading to rising recurrent expenditures is bound to increase aggregate demand without a commensurate increase in manufacture/supply. This will in turn result in an inflationary spiral owing to an increase in prices eroding the purchasing value of increased salaries and pensions. Once the aggrieved workers and unions start demonstrating for higher pay hikes on the streets, the government will no doubt start printing money amidst other short-term un-economic manoeuvres and accede to their various demands for yet another salary rise. The one million public sector is an all-important voter base for any prospective government. So, to hell with rational responsible governance and sound economic management for sustainable development since the deciding factor for politicians appears to be to stay in power at all costs.

The negative effects arising from unbridled increases in excessive public sector employment expenditure have not been met by reducing recurrent government expenditure by way of rationalizing or downsizing the swollen public sector employment or increasing revenue. Instead, we have nonsense solutions such as non-sustainable recourse to additional borrowings, reliance on futuristic outputs from capital expenditure on a profusion of urban beautification projects, construction of gymnasiums and non-tradable flyovers and the acceptance of unsolicited tenders sans competitive bidding processes.

The case for public service reform to tame the monster of a hugely rotund and moribund public service devouring the nation’s resources sans a worthy contribution has been ably argued by veteran Public Servant, Deshamanya K. H. J. Wijayadasa, former Secretary to the President of Sri Lanka as well as a host of management gurus in the media, journals and other forums. First on the list is the need for de-politicisation, downsising, closure of non-profit making state owned enterprises, ridding the State of over-institutionalisation, duplication of tasks, that has resulted in the lack of coherence and fragmentation, the sheer scale of lack of professional integrity, discipline, accountability and resultant corruption and nepotism.

But it is questionable whether such rationalization is of any value to the politicians in government or those awaiting to form government, whose appeasement, at any cost, of the valuable voter base of over one million public servants is vital to their victory at periodic elections.

Irrespective of political differences, in general one of the first requirements of a politician in charge of a ministry is to find out how much recruitment, whether necessary or not, could be made. Often, the politician in charge of a ministry will single out compliant officers who will do his bidding, even those instructions that flout regulations and go against the best interests of the country. He will then call these officers and give instructions directly ignoring the Head of Department under whom they serve. There are instances where even officers, against whom there are well evidenced serious disciplinary matters pending, will be treated with kid gloves by their political masters and senior officers as Secretaries of Ministries and allowed to continue in privileged status without any inquiry.

The sad truth is that in a land of Lotus Eaters, there are significant numbers of ordinary people, as well as the businessmen and academia, who will lick the feet of politicians to get whatever benefits, privileges, opportunities for themselves and their kith and kin. The so-called Advisors, Consultants, and the hierarchy of senior officialdom surrounding the political authority will rarely utter a word against the dictates of their political masters even in matters of professional subject matter since they wish to hold on to their comfortable posts and enjoy the perks and privileges of office. Despite the fact that the state has given them free education and training both locally and abroad, these so-called professionals are seen flocking like veritable servant boys in their droves, round political authorities often aiding and abetting in deal-making and commissions or leading them down the garden path of policy blunders and national catastrophes. This is apparent, where some have diverted from their own field of qualifications and training and become pseudo authorities on every other conceivable subject!

Some recent examples bear the truth to this parlous state of affairs. For instance, the drastic decision to stop import of chemical fertilisers and replace it overnight with organic fertilizer when the country does not have immediate capacity and supply to service the same. The purported reason of chemical fertilizer being a causative agent for Chronic Kidney Disease and Cancer remains unproven in the international scientific community. Nor have our local pundits adduced scientific evidence in proof of the supposed correlation between ingestion of chemical fertiliser through food leading to carcinoma. The decision has been supported by some sections of the medical fraternity, not the agricultural scientists and growers! Now the farmers are up in arms predicting a poor harvest with food security gone to the whims of unprofessional decision making and implementation.

When import duty for sugar was slashed last year, the benefit was passed neither to the consumer nor the government, which lost revenue to the tune of Rs 15.9 billion. But insider information on the proposed reduction of commodity levy duty from Rs 50 per kilogram to 0.25 cents per kilogram enabled one specially favoured M/s. Pyramid Wilmar Pvt. Ltd. to sell more than 2000 metric tons of sugar, imported under the Rs. 0.25 levy to state-owned Sathosa for an exorbitant price above Rs. 125, per kilogram. The State owned Sathosa then sold the sugar to the consumers at a reduced rate of approximately Rs. 85 per kilo. Therefore, Sathosa purchased sugar at a higher price and sold it at a lower price. It is apparent that this is either due to negligence or official blundering for the purpose of defrauding the state for enrichment of certain vested interests. It was pitiful to see the mandarins of the Finance Ministry making feeble apologies over the media for such blatant debacles.

The heat seems to have died down on Sri Lanka’s most destructive environmental disaster of the X–Press Pearl and the previous New Diamond ships affecting marine life, livelihood of fisher folk, and most importantly the coastal and oceanic environment of a small island state. Questions remain as to why the Sri Lanka Ports Authority allowed an already compromised leaking ship to enter the port of Colombo with tons of toxic substances. Investigations have revealed deleted email communications, and a general delay, inaction, malaise, on the part of a number of state regulatory organisations responsible for this sector. The removal of the politically appointed Chairman of the Sri Lanka Ports Authority does not seem to absolve the responsibility for this great national disaster which also rests on several marine environment, merchant shipping regulatory organisations in the public sector as well as its political leadership.

As for the performance of the public health sector, we are in the fourth wave of the pandemic reporting approximately 200 official deaths per day, many hundreds under wraps or undocumented, a dire warning from World Health Organization of a holocaust of deaths to come! The ‘Bubble Tourism’ and great economic resurgence expected to be ushered in by the new normal of carrying on ‘business as usual’ with all public servants requested to report to work on a daily basis now seems to have evaporated into nothingness! Thanks to the mayhem policy prescriptions of blowing hot and cold on regulating movement, the peniya (decoction) which received a temporary approval without adequate plan on bona fide data of COVID-19 spread, the relative absence of consistent implementation of restricting large crowd gatherings, inter district travel and Sinhala and Tamil New Year travel. Except for the still small voice of truth of the Sri Lanka Medical Council and a few upright academics, the pitch seems to be full of the blame game, some professionals casting cheap accusations of sabotage against other professionals for lack of data when all the while the truth is plain to see. Over 75 percent of approximately 8,000 deaths recorded due to COVID-19 are those above the age of 60 years with comorbidities such as high blood pressure, diabetes and kidney dysfunction. Why was this group not given priority in vaccination since the beginning of this year? Who is responsible for such manslaughter and criminal negligence? When the Sri Lanka Medical Council recommended a lockdown during the April New Year period, and subsequently, why was such informed recommendation rejected by the Government? When the admirable performance of the former Health Ministry Secretary, Dr. Anil Jasinghe showed a controlled management of the COVID-19 last year, why was a ‘push-up-and-kick-out’ strategy followed when he was moved as Secretary to an entirely different sector foreign to his medical training and experience as Environment?

The sad truth seems to be that behind every public servant stands the shadow and spectre of the politician. His is the desire for continued electoral victory, by hook or by crook, power and desire for personal wealth creation during term of office. The 1972 Constitution has ensured that the public service is at his disposal and command to achieve such objectives.

There are exceptions no doubt, but the brave and the honourable few who take a principled stand and try to work for the good of the country are invariably sidelined, undermined and ignored. These are the faceless public servants, quiet heroes and heroines who still serve and give their best, striving to make a difference for the better: They are those who trust in God and do their best for their fellow citizens despite all odds and being wearied and harried in the extreme! It is they who experience the ultimate bliss of certainty and quiet joy of knowing that come what may, their exertions have not been in vain and even in extremely limited and circumscribed circumstances and terrain, they have been able to deliver for the common good.

(The writer is a retired Public Servant with 34 years service as an executive  in varying capacities in Colombo State Sector and  Diplomatic Service.)



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Features

Banking Rules fail the elderly and informal sector

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Yesterday, I received a phone call from a well-known private bank. A polite female voice on the line asked whether I was interested in obtaining a housing loan. Knowing how things typically work in the Sri Lankan banking system, I decided not to waste her time—or mine. So, I responded candidly: “I’m over 60. Are you still interested in offering your service to me?”

As expected, she politely replied, “No sir, we offer housing loans only to customers below the age of 60.”

Now, let’s think about this for a moment. If you’re 59 years old, does that mean the bank will give you a housing loan with just a one-year repayment period? Apparently, yes. What kind of absurd banking logic is this? Such rigid age cut-offs do not reflect risk management, but sheer bureaucratic laziness.

Banks and other financial institutions follow rules set by the Central Bank of Sri Lanka. One of the main reasons for these rules is to protect the money that people deposit. Figure 1 shows one of those orders to regulate home loans provided by banks.

Employees are to provide banks with confirmation from their respective employer regarding the retirement date/age, as applicable. This requirement introduces administrative friction for the borrower and places unnecessary dependence on employer documentation. Many private sector employers do not maintain strict retirement policies, and contract-based employment has become common. Mandating employer confirmation becomes especially problematic in such cases.

Eligibility Criteria for Housing Loans Under the Terms of This Order (Effective from 10 December 2020) specify the following individuals are eligible to obtain housing loans:

Salaried Employees

* Individuals must be employed in either the public sector (e.g., government departments, state-owned enterprises) or the private sector (e.g., registered companies, private institutions).

Confirmed in Service

* The employment must be confirmed, i.e., the borrower should have completed any probationary period and be in permanent or long-term service. Probationary employees or temporary/contract workers may not be eligible under this order.

This eligibility criterion is narrow and exclusionary, especially in an evolving labour market where:

* Many skilled workers are self-employed, on a contract basis or work in the gig economy would find hard to provide evidence to prove their repayment capacity.

* Job confirmation timelines are often extended due to changing employment practices.

* Real estate investment is increasingly seen as a retirement or family-planning strategy, including among older or self-funded individuals.

While the intent may be to minimise risk for banks by ensuring repayment capacity and employment stability, this overly conservative approach may discriminate against capable, creditworthy individuals, especially older citizens or those outside traditional salaried employment structures.

Tenure of a loan

Figure 2

is an excerpt from the directive issued by CBSL, highlighting the restrictions imposed on the tenure of home loans.

Interestingly, Deshamanya Lalith Kotelawela was one of the few who had the courage—and arguably the foresight—to challenge such irrational norms. While some of his business decisions were controversial, especially the appointment of non-professionals to key financial roles, his thinking on housing loans for older customers was progressive. He proposed that housing loans should be extended even to individuals aged between 60 and 70, with repayment periods of 20 to 30 years. However, he also recommended attaching insurance to these loans—an approach that could benefit his own insurance companies. Naturally, the premiums would be significantly higher for older or higher-risk borrowers.

His reasoning was rooted in both financial logic and social realism: in most Sri Lankan families, children would never allow their parents to lose the family home. In the worst-case scenario, the property—often the most secure asset one can offer—serves as reliable collateral. From a regulatory standpoint, too, this makes sense. According to the Basel framework for banking supervision, residential mortgage loans carry a risk weight of only 50% when calculating capital adequacy. That means such loans are already considered relatively low risk.

So, why are banks clinging to these outdated, “one-size-fits-all” rules that ignore real-world dynamics, demographic shifts, and even their own financial regulations?

These are not just outdated policies—they are stupid banking rules.

Age Discrimination and Financial Exclusion

This condition is fundamentally age-based and introduces structural discrimination against older borrowers. By linking repayment tenure strictly to the borrower’s retirement date, it disproportionately excludes capable individuals nearing retirement—even if they are financially stable, have substantial savings or collateral, or have alternative income sources such as pensions, business income, or rental properties. It presumes that retirement equals financial incapacity, which is not always true in the modern economy. Today, some retired government employees receive monthly pensions exceeding Rs. 100,000.

Ignores Multigenerational and Alternative Repayment Scenarios

This policy does not account for cases where a housing loan is taken for the benefit of the family, and repayment responsibility can logically transfer to a younger family member (such as an adult child or co-borrower). In South Asian cultures especially, joint-family structures and intergenerational financial support are common. Denying long-tenure loans, based on an individual’s remaining years of employment, ignores these sociocultural realities.

Penalises Those Who Start Later

Not everyone begins salaried employment early in life. Some people shift careers, pursue entrepreneurship, or even migrate and return to salaried employment later. Under this rule, a 45-year-old starting a government job would be eligible only for a 15-year loan, regardless of income or asset base. This rigid approach fails to reflect the dynamic nature of modern work and life paths.

Common sense

Banking is often celebrated as a sector driven by logic, data, and risk mitigation. Yet, it is riddled with regulations and practices that are outdated, unempathetic, and at times, downright illogical. A prime example of this is the age discrimination embedded in housing loan policies in many Sri Lankan banks—and indeed in banks across much of the world. The author’s anecdote of receiving a call from a reputed private bank offering a housing loan, only to be told that customers over 60 are ineligible, highlights a major flaw in modern banking systems.

At the heart of this issue lies a fundamental contradiction: while banks are supposed to be institutions that assess individual risk, they often make blanket decisions based on crude demographics such as age. If a person is 59 years old, they are technically eligible for a loan, but only for a tenure of one year, assuming the cut-off age is 60. That assumption, of course, is absurd. Imagine a healthy, wealthy 59-year-old customer being allowed to borrow only on terms designed for a dying man. This “stupid banking rule” lacks nuance and punishes individuals who might otherwise be low-risk borrowers with good collateral.

The Need for Reform

Age should not be the sole determinant of loan eligibility. In an era where people live longer, work well into their seventies, and often own significant assets, banking institutions must adopt more flexible, holistic credit assessment methods. Factors like health, income stability, family support, insurance coverage, and asset base must be considered alongside age.

Additionally, banks should be encouraged—or even regulated—to adopt inclusive lending practices. Policies that facilitate family-based guarantees, property-backed loans with transfer clauses, or reverse mortgage models can ensure that elderly individuals are not financially excluded.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@sliit.lk and www.researcher.com)

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Features

Trump tariffs and their effect on world trade and economy with particular

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Apparels

reference to Sri Lanka – Part III

(Continued from yesterday)

Textile Industry Significance

The textile and apparel sector holds outsised importance in Sri Lanka’s economy. It accounts for approximately 40% of the country’s total exports and directly employs around 350,000 workers, predominantly women from rural areas, for whom these jobs represent a crucial pathway out of poverty. When indirect employment in supporting industries is included, the sector supports the livelihoods of over one million Sri Lankans.

The industry’s development was initially facilitated through quotas assigned by the Multi-Fiber Agreement (1974-1994), which allocated specific export volumes to developing countries. When this agreement expired, Sri Lanka managed to maintain its position in global apparel supply chains by focusing on higher-value products, ethical manufacturing practices, and reliability. The country has positioned itself as a producer of quality garments, particularly lingerie, activewear, and swimwear for major global brands.

However, this success has created a structural dependency on continued access to markets in wealthy countries, particularly the United States. As the Secretary General of the Joint Apparel Association Forum, the main representative body for Sri Lanka’s

apparel and textile exporters, bluntly stated following the tariff announcement, “We have no alternate market that we can possibly target instead of the US.”

This dependency is reinforced by the industry’s integration into global supply chains dominated by U.S. brands and retailers. Many Sri Lankan factories operate on thin margins as contract manufacturers for these international companies, with limited ability to quickly pivot to new markets or product categories. The industry has also made significant investments in compliance with U.S. buyer requirements and sustainability certifications, creating path dependencies that make rapid adaptation to new market conditions extremely challenging.

The textile and apparel sector’s significance extends beyond its direct economic contributions. It has been a crucial source of foreign exchange earnings for a country that has consistently run trade deficits and struggled with external debt sustainability. In the ten years leading up to Sri Lanka’s default on external debt (2012-2021), debt repayments amounted to an average of 41% of export earnings, highlighting how vital steady export revenues are to the country’s ability to service its international obligations.

The sector has also played an important role in Sri Lanka’s social development, providing formal employment opportunities for women and contributing to poverty reduction in rural areas. Many of the industry’s workers are the primary breadwinners for their families, and their wages support extended family networks in economically disadvantaged regions of the country.

Given this context, the imposition of a 44% tariff on Sri Lankan goods, with the textile and apparel sector likely to bear the brunt of the impact, represents not merely an economic challenge but a potential social crisis for hundreds of thousands of vulnerable workers and their dependents.

SPECIFIC IMPACT OF TRUMP TARIFFS ON SRI LANKA

The imposition of a 44% tariff on Sri Lankan exports to the United States represents a seismic shock to an economy still recovering from its worst crisis in decades. This section examines the immediate economic consequences, the implications for Sri Lanka’s debt sustainability, and the broader social and political ramifications of this dramatic policy shift.

Immediate Economic Consequences

The most immediate impact of President Trump’s tariffs will be a severe erosion of Sri Lankan goods’ competitiveness in the U.S. market. A 44% price increase effectively prices many Sri Lankan products out of reach for American consumers and businesses, particularly in price-sensitive categories like apparel, where margins are already thin and competition from other producing countries is intense.

Economic analysts project significant declines in export volumes as a result. The PublicFinance.lk think tank estimates that the new tariff rates will lead to a 20% fall in exports to America and an annual loss of approximately $300 million in foreign exchange earnings. Given that Sri Lanka’s total merchandise exports in 2024 were around $13 billion, this represents a substantial blow to the country’s trade balance and economic growth prospects.

The textile and apparel sector will bear the brunt of this impact. Industry representatives have warned that numerous factories may be forced to reduce production or close entirely if they cannot quickly find alternative markets for their products. The Joint Apparel Association Forum has indicated that smaller manufacturers with less diversified customer bases and limited financial reserves will be particularly vulnerable to closure.

These production cutbacks and potential closures would translate directly into job losses. Conservative estimates suggest that tens of thousands of workers in the textile sector could lose their livelihoods if the tariffs remain in place for an extended period. Given that many of these workers are women from rural areas with limited alternative employment opportunities, the social impact of these job losses would be particularly severe.

Beyond the direct effects on textile exports, the tariffs will have ripple effects throughout Sri Lanka’s economy. Supporting industries such as packaging, logistics, and input suppliers will face reduced demand. The loss of foreign exchange earnings will put pressure on the Sri Lankan rupee, potentially leading to currency depreciation that would increase the cost of essential imports including fuel, food, and medicine.

The timing of these tariffs is especially problematic given Sri Lanka’s fragile economic recovery. After experiencing a GDP contraction of 7.8% in 2022 during the height of the economic crisis, the country had only recently returned to modest growth. The IMF had projected GDP growth of 3.1% for 2025, but this forecast now appears overly optimistic in light of the tariff shock. Some economists are already revising their growth projections downward, with some suggesting growth could fall below 2% if the full impact of the tariffs materializes. We must hope they will be proven wrong.

Impact on Sri Lanka’s Debt Sustainability

Perhaps the most concerning aspect of Trump’s tariffs is their potential to undermine Sri Lanka’s hard-won progress on debt sustainability. After defaulting on its external debt in April 2022, the country has undergone a painful restructuring process that concluded only in December 2024. This restructuring was predicated on assumptions about Sri Lanka’s future ability to generate foreign exchange to service its remaining debt obligations.

The IMF’s debt sustainability analysis, which formed the basis for the restructuring agreement, focused almost exclusively on debt as a share of GDP while making insufficient distinction between domestic and foreign debt. This approach has been criticized for ignoring the structural trade deficit and the critical importance of foreign currency earnings to Sri Lanka’s ability to meet its external obligations.

The $300 million annual reduction in export earnings projected as a result of the tariffs directly threatens these calculations. Sri Lanka’s external debt stood at approximately $55 billion in 2023 (about 65% of its GDP), and even after restructuring, debt service payments will consume a significant portion of the country’s foreign exchange earnings in coming years.

In the decade preceding Sri Lanka’s default (2012-2021), debt repayments consumed an average of 41% of export earnings, an unsustainably high ratio that contributed directly to the eventual crisis. The loss of export revenues due to President Trump’s tariffs risks pushing this ratio back toward dangerous levels, potentially setting the stage for renewed debt distress despite the recent restructuring.

This situation highlights a fundamental flaw in the approach taken by international financial institutions to debt sustainability in developing countries. Unlike the treatment afforded to West Germany through the London Debt Agreement of 1953, where future debt repayments were explicitly linked to the country’s trade surplus and capped at 3% of export earnings—Sri Lanka and similar countries are expected to meet rigid repayment schedules regardless of their trade performance or external shocks beyond their control.

The tariffs thus expose the precariousness of Sri Lanka’s economic recovery and the fragility of the international debt architecture that underpins it. Without significant adjustments to account for this external shock, the country could find itself sliding back toward debt distress despite all the sacrifices made by its people during the recent adjustment period.

Social and Political Implications

The economic consequences of Trump’s tariffs will inevitably translate into social and political challenges for Sri Lanka. The country has already experienced significant social strain due to the austerity measures implemented under the IMF program, including tax increases, subsidy reductions, and public sector wage restraint. The additional economic pain caused by export losses and job cuts risks exacerbating social tensions and potentially triggering renewed protests.

The textile industry’s workforce is predominantly female, with many workers supporting extended family networks. Job losses in this sector would therefore have disproportionate impacts on women’s economic empowerment and household welfare, potentially reversing progress on gender equality and poverty reduction. Many of these workers come from rural areas where alternative formal employment opportunities are scarce, raising the spectre of increased rural poverty and potential migration pressures.

Politically, the tariff shock presents a significant challenge for President Anura Kumara Dissanayake’s government, which came to power promising economic revival and relief from the hardships of the crisis period. The administration has appointed an advisory committee consisting of government officials and private sector representatives to study the impact of the tariffs and develop response strategies, but its options are constrained by limited fiscal space and the conditions of the IMF programme.

The situation also raises questions about Sri Lanka’s foreign policy orientation. The country has traditionally maintained balanced relationships with major powers, including the United States, China, and India. However, the unilateral imposition of punitive tariffs by the United States may prompt some policymakers to reconsider this balance and potentially look more favourably on economic engagement with China, which has been a major infrastructure investor in Sri Lanka through its Belt and Road Initiative.

Such a reorientation would have significant geopolitical implications in the Indian Ocean region, where great power competition has intensified in recent years. It could potentially accelerate the fragmentation of the global economy into competing blocs, a trend that President Trump’s broader tariff policy seems designed to encourage despite its economic costs.

The social and political fallout from the tariffs thus extends far beyond immediate economic indicators, potentially reshaping Sri Lanka’s development trajectory and its place in the regional and global order. For a country still recovering from political instability triggered by economic crisis, these additional pressures come at a particularly vulnerable moment.

BROADER IMPLICATIONS FOR DEVELOPING ECONOMIES

Sri Lanka’s experience with Trump’s tariffs is not unique. The sweeping nature of these trade measures has created similar challenges for developing economies across the Global South, revealing structural vulnerabilities in the international economic system and raising fundamental questions about the sustainability of export-led development models in an era of rising protectionism.

Comparative Analysis with Other Affected Developing Countries

While Sri Lanka faces a punishing 44% tariff rate, it is not alone in confronting severe trade barriers. Bangladesh, another South Asian country heavily dependent on textile exports, has been hit with a 37% tariff. Like Sri Lanka, Bangladesh has built its development strategy around its garment industry, which accounts for more than 80% of its export earnings and employs approximately 4 million workers, mostly women.

Other significantly affected developing economies include Vietnam (46% tariff), Cambodia (49%), Pakistan (29%), and several African nations that had previously benefited from preferential access to the U.S. market through programs like the African Growth and Opportunity Act (AGOA). Many of these countries share common characteristics, relatively low per capita incomes, heavy reliance on a narrow range of export products, and limited domestic markets that make export-oriented growth their primary development pathway.

The pattern of tariff rates reveals a troubling dynamic, some of the highest tariffs have been imposed on countries that can least afford the economic shock. While wealthy nations like Japan or Germany certainly face challenges from these trade

barriers, they possess diversified economies, substantial domestic markets, and financial resources to cushion the impact. By contrast, countries like Sri Lanka or Bangladesh have far fewer economic buffers and face potentially devastating consequences from similar or higher tariff rates.

This disparity highlights how President Trump’s “reciprocal tariff” formula, ostensibly designed to create a level playing field, actually reinforces existing power imbalances in the global economy. By treating trade deficits as the primary metric for determining tariff rates, the policy ignores the vast differences in economic development, productive capacity, and financial resilience between countries at different stages of development.

Structural Vulnerabilities of Export-Dependent Economies

The tariff shock has exposed fundamental vulnerabilities in the export-led development model that has dominated economic thinking about the Global South for decades. Since the 1980s, international financial institutions have consistently advised developing countries to orient their economies toward export markets, specialize according to comparative advantage, and integrate into global value chains as a path to economic growth and poverty reduction.

This model has delivered significant benefits in many cases. Countries like Vietnam, Bangladesh, and, to some extent, Sri Lanka have achieved impressive poverty reduction and economic growth by expanding their manufacturing exports. However, President Trump’s tariffs reveal the precariousness of development strategies built on continued access to wealthy consumer markets, particularly the United States.

Several structural vulnerabilities have become apparent,

1. First, export concentration creates acute dependency on a small number of markets and products. When Sri Lanka sends 23% of its exports to the United States and concentrates 40% of its total exports in textiles and apparel, it becomes extraordinarily vulnerable to policy changes affecting that specific market-product combination.

Diversification, both of export markets and products, has often been acknowledged as desirable in theory but has proven difficult to implement in practice due to established trade patterns, buyer relationships, and specialized production capabilities.

2. Second, participation in global value chains often traps developing countries in lower-value segments of production with limited opportunities for upgrading. Sri Lanka’s textile industry, while more advanced than some of its regional competitors, still primarily engages in contract manufacturing rather than controlling higher-value activities like design, branding, or retail. This position in the value chain yields lower returns and creates dependency on decisions made by lead firms in wealthy countries.

3. Third, the mobility of capital relative to labour creates a fundamental power imbalance. If tariffs make production in Sri Lanka uneconomical, global brands can relatively quickly shift their sourcing to other countries with lower tariffs or costs. However, Sri Lankan workers cannot similarly relocate, leaving them bearing the brunt of adjustment costs through unemployment and wage depression.

4. Fourth, developing countries typically lack the fiscal space to provide adequate social protection during economic shocks. Unlike wealthy nations that can deploy extensive safety nets during trade disruptions, countries like Sri Lanka, already implementing austerity measures under IMF programmes, have limited capacity to support displaced workers or affected industries. This exacerbates the social costs of trade shocks and can trigger political instability. (To be continued)

(The writer served as the Minister of Justice, Finance and Foreign Affairs of Sri Lanka)

Disclaimer:

This article contains projections and scenario-based analysis based on current economic trends, policy statements, and historical behaviour patterns. While every effort has been made to ensure factual accuracy, using publicly available data and established economic models, certain details, particularly regarding future policy decisions and their impacts, remain hypothetical. These projections are intended to inform discussion and analysis, not to predict outcomes with certainty.

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Opportunity for govt. to confirm its commitment to reconciliation

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Minister Herath at UNHRC

by Jehan Perera

The international system, built at the end of two world wars, was designed with the aspiration of preserving global peace, promoting justice, and ensuring stability through a Rules-Based International Order. Institutions such as the United Nations, the UN Covenants on Human Rights and the United Nations Human Rights Council formed the backbone of this system. They served as crucial platforms for upholding human rights norms and international law. Despite its many imperfections, this system remains important for small countries like Sri Lanka, offering some measure of protection against the pressures of great power politics. However, this international order has not been free from criticism. The selective application of international norms, particularly by powerful Western states, has weakened its legitimacy over time.

The practice of double standards, with swift action in some conflicts like Ukraine but inaction in others like Palestine has created a credibility gap, particularly among non-Western countries. Nevertheless, the core ideals underpinning the UN system such as justice, equality, and peace remain worthy of striving towards, especially for countries like Sri Lanka seeking to consolidate national reconciliation and sustainable development. Sri Lanka’s post-war engagement with the UNHRC highlights the tensions between sovereignty and accountability. Following the end of its three-decade civil war in 2009, Sri Lanka faced multiple UNHRC resolutions calling for transitional justice, accountability for human rights abuses, and political reforms. In 2015, under Resolution 30/1, Sri Lanka co-sponsored a landmark commitment to implement a comprehensive transitional justice framework, including truth-seeking, reparations, and institutional reforms.

However, the implementation of these pledges has been slow and uneven. By 2019, Sri Lanka formally withdrew its support for UNHRC Resolution 30/1, citing concerns over sovereignty and external interference. This has led to a deepening cycle with more demanding UNHRC resolutions being passed at regular intervals, broadening the scope of international scrutiny to the satisfaction of the minority, while resistance to it grows in the majority community. The recent Resolution 51/1 of 2022 reflects this trend, with a wider range of recommendations including setting up of an external monitoring mechanism in Geneva. Sri Lanka today stands at a critical juncture. A new government, unburdened by direct involvement in past violations and committed to principles of equality and inclusive governance, now holds office. This provides an unprecedented opportunity to break free from the cycle of resolutions and negative international attention that have affected the country’s image.

KEEPING GSP+

The NPP government has emphasised its commitment to treating all citizens equally, regardless of ethnicity, religion, or region. This commitment corresponds with the spirit of the UN system, which seeks not to punish but to promote positive change. It is therefore in Sri Lanka’s national interest to approach the UNHRC not as an adversary, but as a partner in a shared journey toward justice and reconciliation. Sri Lanka must also approach this engagement with an understanding of the shortcomings of the present international system. The West’s selective enforcement of human rights norms has bred distrust. Sri Lanka’s legitimate concerns about double standards are valid, particularly when one compares the Western response to Russia’s invasion of Ukraine with the muted responses to the plight of Palestinians or interventions in Libya and Iraq.

However, pointing to hypocrisy does not absolve Sri Lanka of its own obligations. Indeed, the more credible and consistent Sri Lanka is in upholding human rights at home, the stronger its moral position becomes in calling for a fairer and more equitable international order. Engaging with the UN system from a position of integrity will also strengthen Sri Lanka’s international partnerships, preserve crucial economic benefits such as GSP Plus with the European Union, and promote much-needed foreign investment and tourism. The continuation of GSP Plus is contingent upon Sri Lanka’s adherence to 27 international conventions relating to human rights, labour rights, environmental standards, and good governance. The upcoming visit of an EU monitoring mission is a vital opportunity for Sri Lanka to demonstrate its commitment to these standards. It needs to be kept in mind that Sri Lanka lost GSP Plus in 2010 due to concerns over human rights violations. Although it was regained in 2017, doubts were raised again in 2021, when the European Parliament called for its reassessment, citing the continued existence and use of the Prevention of Terrorism Act (PTA) and broader concerns about rule of law.

The government needs to treat the GSP Plus obligations with the same seriousness that it applies to its commitments to the International Monetary Fund. Prior to the elections, the NPP pledged to repeal the PTA if it came to power. There are some cases reported from the east where trespass of forest had been stated as offences and legal action filed under the PTA in courts which had been dragging for years, awaiting instructions from the Attorney General which do not come perhaps due to over-work. But the price paid by those detained under this draconian law is unbearably high. The repeal or substantial reform of the PTA is urgent, not only to meet human rights standards but also to reassure the EU of Sri Lanka’s sincerity. The government has set up a committee to prepare new legislation. The government needs to present the visiting EU delegation with a credible and transparent roadmap for reform, backed by concrete actions rather than promises. Demonstrating goodwill at this juncture will not only preserve GSP Plus but also strengthen Sri Lanka’s hand in future trade negotiations and diplomatic engagements.

INTERNATIONAL PARTNERSHIP

The government’s recent emphasis on good governance, economic recovery, and anti-corruption is a positive foundation. But as experience shows, economic reform alone is insufficient. Political reforms, especially those that address the grievances of minority communities and uphold human rights, are equally critical to national stability and prosperity. There is a recent tendency of the state to ignore these in reality and announce that there is no minority or majority as all are citizens, but which is seen by the minorities as sweeping many issues under the carpet.

Examples give are the appointment of large number of persons from the majority community to the council of Eastern University whose faculty is mainly from the minority communities or the failure to have minority representation in many high level state committees. Neglecting these dimensions risks perpetuating internal divisions and giving ammunition to external critics. The government’s political will needs to extend beyond economic management to genuine national reconciliation. Instead of being seen as a burden, meeting the EU’s GSP Plus obligations and those of UNHRC Resolution 51/1 can be viewed as providing a roadmap.

The task before the government is to select key areas where tangible progress can be made within the current political and institutional context, demonstrating good faith and building international confidence. Several recommendations within Resolution 51/1 can be realistically implemented without compromising national sovereignty. Advancing the search for truth and providing reparations to victims of the conflict, repealing the Prevention of Terrorism Act, revitalising devolution both by empowering the elected provincial councils, reducing the arbitrary powers of the governors as well as through holding long-delayed elections are all feasible and impactful measures. The return of occupied lands, compensation for victims, and the inclusion of minority communities in governance at all levels are also steps that are achievable within Sri Lanka’s constitutional framework and political reality. Crucially, while engaging with these UNHRC recommendations, the government needs to also articulate its own vision of reconciliation and justice. Rather than appearing as if it is merely responding to external pressure, the government should proactively frame its efforts as part of a homegrown agenda for national renewal. Doing so would preserve national dignity while demonstrating international responsibility.

The NPP government is unburdened by complicity in past abuses and propelled by a mandate for change. It has a rare window of opportunity. By moving decisively to implement assurances given in the past to the EU to safeguard GSP Plus and engaging sincerely with the UNHRC, Sri Lanka can finally extricate itself from the cycle of international censure and chart a new path based on reconciliation and international partnership. As the erosion of the international rules-based order continues and big power rivalries intensify, smaller states like Sri Lanka need to secure their positions through partnerships, and multilateral engagement. In a transactional world, in which nothing is given for free but everything is based on give and take, trust matters more than ever. By demonstrating its commitment to human rights, reconciliation, and inclusive governance, not only to satisfy the international community but also for better governance and to develop trust internally, Sri Lanka can strengthen its hand internationally and secure a more stable and prosperous future.

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