Features

There is no such person as ‘one- armed economist’

Published

3 years ago

2022/10/15

by Jayampathy Molligoda

The Sri Lankan government adopted a relaxed monetary policy coupled with lower taxes to stimulate economic growth since 2020 (beginning) till end of 2021. The objective was to provide relief to people and businesses in order to overcome negative effects due to COVID 19 and Easter Sunday attack in April 2019. However, whether the economy really produced goods and services to the extent that is required is questionable. It is true that during the year 2021 they have been able to convert the negative growth rate of 3.6% in 2020 into a positive growth rate of 3.7% in 2021. Commencing 2022, Central Bank (CBSL) has adopted a policy of tightening the monetary policy by increasing the interest rates and increase income tax and indirect taxes such as VAT and social security contribution levy in order to reduce inflation and inflationary expectations. One can argue that all these contrasting policy measures are in accordance with the accepted macro- economic theories put forward by eminent economists.

This year Nobel Price goes to Economist, Bernanke, Ex-Chief of Central bank, US:

Eminent economist, Ex-Fed reserve, Chief, US, Ben Bernanke, together with two other eminent economists, won the Economics Nobel price this October on the role of banks, particularly during financial crises and how to regulate financial markets. “In his role as Chief of the Central Bank, US, Bernanke was able to put knowledge from research into policy during the financial crisis of 2008-2009” the Nobel Committee said.

Bernanke has been previously credited and hailed for the Fed’s unorthodox response of slashing interest rates and flooding the financial system with liquidity and thus successfully handling the recovery after the 2008 recession, but at the same time, criticised for doing little to avert it, allowing investment bank Lehman Brothers to collapse. The award winners also showed how the financial institutions were vulnerable to so called bank runs. “If a large number of customers (savers) simultaneously run to the bank to withdraw their money, the rumour may become a self-fulfilling prophecy – a bank run occurs and the bank collapses” the Nobel Committee said. The Committee added this dangerous dynamic can be avoided by governments providing credit and giving banks a life-line by becoming a lender of last resort. “In a nutshell, the theory says that banks can be tremendously useful but they are only guaranteed to be stable if they are properly regulated,” Nobel committee chairman added.

Solutions to great depression in the 1930s:

This reminds me ‘Keynesian’ economics, which involves government expenditures while economics believe that government spending causes inflation and therefore need to control the supply of money that flows into the economy. In contrast, Keynesian economists believe that a troubled economy continues in a downward spiral unless a government intervention drives consumers to buy more goods and services. They believe in consumption, government expenditure and to change the state of the economy. In short, governments should balance out the cyclical movement of the economy by spending more in downturns and less in prosperous times (thereby preventing inflation). In fact, Keynes begins his general theory by attacking Say’s law, the view that ‘supply creates its own demand’. Keynes proceeded to turn Say’s law on his head, arguing that aggregate demand determines the supply of output and level of employment. (Post-Keynesian Economics (PKE) is a school of economic thought which builds upon John Maynard Keynes’s argument that effective demand is the key determinant of economic performance.) In the field of monetary theory, ‘post-Keynesian’ economists were among the first to emphasise that money supply responds to the demand for bank credit, so that Central Banks cannot control the quantity of money, but only manage the interest rate by managing the quantity of monetary reserves.

By the way, Bernanke previously received awards for his analysis, conducted in the early 1980s, of the ‘Great Depression’ in the 1930s, the worst economic crisis. For Keynesian economists, the experience of Great Depression provided impressive confirmation of Keynes’s idea which is consistent with Keynes’s argument. A sharp reduction in aggregate demand had gotten the trouble started. A reduction in aggregate demand took the economy from above its potential output to below its potential output, and, as we see in below the recessionary gap created by the change in aggregate demand had persisted for more than a decade, but expansionary fiscal policy had put an end to the worst macroeconomic nightmare.

The dark-shaded area shows real GDP from 1929 to 1942, the upper line shows potential output, and the light-shaded area shows the difference between the two—the recessionary gap. The gap nearly closed in 1941 The chart suggests that the recessionary gap remained very large throughout the 1930s.

Inflation, money printing and unemployment:

Under the Monetary Law Act 1949 as amended, the economic and price stability and financial system stability were made the core objectives of the CBSL. Therefore, it should focus on maintaining stable price levels, means containing inflation and inflationary expectations. In order to attain ‘price stability’, CBSL is required to keep liquidity and money supply of the country at appropriate levels so that the total demand for goods and services known as the ‘aggregate demand’ is more or less equal to the total supply of goods and services called ‘aggregate supply’.

In 1958, economist A W Phillips published an article in the British journal of economica that would make him famous covering a relationship between unemployment and inflation. Phillips curve showed negative correlation between rate of unemployment and the inflation. When inflation is high, the rate of unemployment is low and vice versa. Practically policy makers use this by altering monetary & fiscal policies in influencing ’aggregate demand’ in the short run and achieve trade -off between employment and rate of inflation. The ‘Nobel Price’ winner in 2001, Economist George Akerlof once said “probably the single most important macroeconomic relationship is the Phillips curve.

New Keynesian approach has emerged as the preferred approach:

Steeply rising prices is a bigger threat to businesses than high interest rates which will have to be maintained for a time until inflation start to ease, Central Bank Governor Dr. Nandalal Weerasinghe said recently. He was quoted by the local media as saying. “Sri Lanka was now experiencing the result of past money printing and if rates are cut now, runaway inflation could be the result. Higher interest rates are cost to business, but inflation drives up all costs,” Governor Weerasinghe explained addressing concerns of businesses on high interest rates and raising taxes. However, the Columbia University professor, author of “The Price of Inequality” and “Globalisation and Its Discontents,” Joseph Stiglitz argued that the overwhelming source of inflation is supply-side disruptions leading to higher prices in oil and food. “Will raising interest rates lead to more oil, lower prices of oil, more food, lower prices of food? Answer is clearly not”.

This is in response to recent announcements by Federal Reserve officials in the US indicating that interest rate hikes will continue in order to bring down rising prices — but this may intensify inflationary pressures, according to the Nobel Prize-winning economist. “The real worry in my mind is, will they increase interest rates too high, too fast, too far?” Joseph Stiglitz told CNBC recently at a Forum in Italy. In fact, the real risk is it will make it worse; Why? Because what we need to do is to make investments to relieve some of these supply-side bottlenecks that are causing such havoc on our economy. It’s going to make it more difficult.” Unquote. According to Joseph Stiglitz, raising interest rates in non-competitive markets may lead to even more inflation.

While there is less consensus on macroeconomic policy issues than on issues in the microeconomic and international areas, surveys of economists generally show that the new Keynesian approach has emerged as the preferred approach to macroeconomic analysis. The finding that about 80% of economists agree that governments’ expansionary fiscal measures can deal with recessionary gaps certainly suggests that most economists can be counted in the new Keynesian camp. Neither monetarist nor new classical analysis would support such measures. At the same time, there is considerable discomfort about actually using discretionary fiscal policy, as the same survey shows that about 70% of economists feel that discretionary fiscal policy should be avoided and that the business cycle should be managed by the Fed (Fuller & Geide-Stevenson, 2003). Just as the new Keynesian approach appears to have won support among most economists, it has become dominant in terms of macroeconomic policy.

Conflicting theories on macro-economic policies put in to practice:

As can be seen, Sri Lankan policy makers tend to adopt economic policies going into two extreme ends, namely; relaxed monetary policy, coupled with government expenditure through excessive money printing and lower taxes on the one hand, and tight monetary policies coupled with high Income Tax and indirect taxes on the other hand. When interest rates are raised, availability of bank credit reduces and consequently overall economic activities tend to slow down. If they continue to adopt tight monetary policy framework and fiscal (high taxation) policies, it’s likely the aggregate supply will contract and may lead to lower production, which in turn end up in ‘stagflation’ or it could even end up in a recession. The economy is expected to contract this year around 8-9 percent of gross domestic product (GDP) as investment and consumption falls. Nevertheless, at the IMF and World bank annual sessions in Washington this October, the State Finance Minister Shehan Semasinghe was quoted as saying; “Sri Lanka’s ongoing IMF-prescribed reforms to come out of an unprecedented economic crisis will not be reversed in future unlike in the past as there is somewhat consensus among the current lawmakers for such reforms”; Unquote. Already the micro and small and medium enterprises have serious issues, where they cannot afford to borrow any more or repay the debts already taken. As a result, household indebtedness may gradually increase to unprecedented levels. This may intern, increase the instability of the financial and banking system. How the present government is going to address those serious socio/ economic issues is yet to be seen.

We need to reiterate the fact that the Sri Lankan economy can only be re-built in the medium term by successfully addressing the structural weaknesses, increase exports as a % of GDP and thus eliminating the twin deficits, namely government budget deficit and balance of payments with rest of the world. Simultaneously, the above stated vulnerabilities; household indebtedness, banking system stability etc. must be arrested in order to make a sustainable economic recovery possible. However, the challenge is the time it can take for the economy to adjust to these changes and how to manage the cash flows and social unrest during the interim period. USA President Harry S. Truman (33^rd President serving from 1945 to 1953) hated what he termed two-armed economists, those who would advise him first “on the one hand” and then “on the other hand.” Give me a one-armed economist, he demanded, an adviser who wouldn’t waffle.

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Features

The Easter investigation must not become ethno-religious politics

Published

12 hours ago

2026/04/7

Sahan Weerasooriya

Zahran and other bombers

Representatives of almost all the main opposition parties were in attendance at the recent book launch by Pivithuru Hela Urumaya leader Udaya Gammanpila. The book written by the PHU leader was his analysis of the Easter bombing of April 2019 that led to the mass killing of 279 persons, caused injuries to more than 500 others and caused panic and shock in the entire country. The Easter bombing was inexplicable for a number of reasons. First, it was perpetrated by suicide bombers who were Sri Lankan Muslims, a community not known for this practice. They targeted Christian churches in particular, which led to the largest number of casualties. The bombing of Sri Lankan Christian churches by Sri Lankan Muslims was also inexplicable in a country that had no history of any serious violence between the two religions.

There were two further inexplicable features of the bombing. The six suicide bombings took place almost simultaneously in different parts of the country. The logistical complexity of this operation exceeded any previously seen in Sri Lanka. Even during the three decade long civil war that pitted the Sri Lankan military against the LTTE, which had earned international notoriety for suicide attacks, Sri Lanka had rarely witnessed such a synchronised operation. The country’s former Attorney General, Dappula de Livera, who investigated the bombing at the time it took place, later stated, upon retirement, that there was a “grand conspiracy” behind the bombings. That phrase has remained central to public debate because it suggested that the visible perpetrators may not have been the only planners behind the attack.

The other inexplicable factor was that intelligence services based in India repeatedly warned their Sri Lankan counterparts that the bombings would take place and even gave specific targets. Later investigations confirmed that warnings were transmitted days before the attacks and repeated again shortly before the explosions, yet they were not acted upon. It was these several inexplicable factors that gave rise to the surmise of a mastermind behind the students and religious fanatics led by the extremist preacher Zahran Hashim from the east of the country, who also blew himself up in the attacks. Even at the time of the bombing there was doubt that such a complex and synchronised operation could have been planned and executed by the motley band who comprised the suicide bombers.

Determined Attempt

The book by PHU leader Gammanpila is a determined attempt to make explicable the inexplicable by marshalling logic and evidence that this complex and synchronised operation was planned and executed by Zahran himself. This is a possible line of argumentation in a democratic society. Competing interpretations of public tragedies are part of political discourse. However, the timing of the intervention makes it politically more significant. The launch of the PHU leader’s book comes at a critical time when the protracted investigation into the Easter bombing appears to be moving forward under the present government.

The performance of the three previous governments at investigating the bombing was desultory at best. The Supreme Court held former President Maithripala Sirisena and several senior officials responsible for failing to act on prior intelligence and ordered compensation to victims. This judicial finding gave legal recognition to what victims had long maintained, that there was a grave dereliction of duty at the highest levels of the state. In recent weeks the investigation has taken a dramatic turn with the arrest and court production of former State Intelligence Service chief Suresh Sallay on allegations linked directly to the attacks. Whether these allegations are ultimately proven or disproven, they indicate that the present phase of the investigation is moving beyond negligence into possible complicity.

This is why the present moment requires political sobriety. There is a danger that the line of political division regarding the investigation into the Easter bombing can take on an ethnic complexion. The insistence that the suicide bombers alone were the planners and executors of the dastardly crime makes the focus invariably one of Muslim extremism, as the suicide bombers were all Muslims. This may unintentionally narrow public attention away from the unanswered questions regarding intelligence failures, possible political manipulation, and the allegations of a broader conspiracy that remain under active investigation. The minority political parties representing ethnic and religious minorities appear to have realised this danger. Their absence from the book launch was politically significant. It suggests an unwillingness to be drawn into a narrative that could once again stigmatise an entire community for the crimes of a handful of extremists and their possible handlers.

Another Tragedy

It would be another tragedy comparable in political consequence to the havoc wreaked by the Easter bombing if moderate mainstream political parties, such as the SJB to which the Leader of the Opposition belongs, were to subscribe to positions merely to score political points against the present government. They need to guard against the promotion of anti-minority sentiment and the fuelling of majority prejudice against ethnic and religious minorities. Indeed, opposition leader Sajith Premadasa in his Easter message said that justice for the victims of the 2019 Sri Lanka Easter Sunday attacks remains a fundamental responsibility of the state and noted that seven years on, both past and present governments have failed to deliver accountability. He added that building a society grounded in trust and peace, uniting all ethnicities, religions and communities, is vital to ensure such tragedies do not occur again.

Sri Lanka’s post war history offers too many examples of how unresolved security crises become vehicles for majoritarian mobilisation. The Easter tragedy itself was followed by waves of anti-Muslim suspicion and violence in some parts of the country. Responsible political leadership should seek to prevent any return to that atmosphere. There are many other legitimate issues on which the moderate and mainstream opposition parties can take the government to task. These include the lack of decisive action against government members accused of corruption, the passing of the entire burden of rising fuel prices on consumers instead of the government sharing the burden, and the failure to hold provincial council elections within the promised timeframe. These are issues that touch the daily lives of citizens and the health of democratic governance. They offer the opposition ample ground on which to build credibility as a government in waiting.

The search for truth and justice over the Easter bombing needs to continue until all those responsible are identified, whether they were direct perpetrators, negligent officials, or political actors who may have exploited the tragedy. This is what the victim families want and the country needs. But this search must not be turned into a partisan and religiously divisive matter such as by claiming that there are more potential suicide bombers lurking in the country who had been followers of Zaharan. If it is, Sri Lanka risks replacing one national tragedy with another. coming together to discredit the ongoing investigations into the Easter bombing of 2019 is an unacceptable use of ethno-religious nationalism to politically challenge the government. The opposition needs to find legitimate issues on which to challenge the government if they are to gain the respect and support of the general public and not their opprobrium.

by Jehan Perera

Features

China’s new duty-free regime for Africa: Implications for Global Trade and Sri Lanka

Published

12 hours ago

2026/04/7

Sahan Weerasooriya

Image courtesy The Global Times

* The new duty-free regime for Africa, announced by Chinese President Xi Jinping in February, is the most generous unilateral nonreciprocal trade concession offered by any country to developing countries since the beginning of the modern rule based international trading system.

* Yet, it is a clear violation of the cornerstone of the multilateral trade law, the Most-Favoured-Nation (MFN) principle.

* Hence, its implications on developing countries, without duty-free access to China, will be extremely negative. Sri Lanka is one of the few developing countries without duty-free access to China.

On 14 February, 2026, Chinese President Xi Jinping announced that China will grant zero-tariff treatment to 53 African nations, effective 01 May, 2026. Under this new unilateral policy initiative, China would eliminate all import tariffs on all goods imported from all the countries in Africa, except Eswatini. China already enforces a zero-tariff policy for 33 Least Developed Countries (LDCs) in Africa. Now this policy would be extended to non LDCs as well. This policy initiative clearly aims at reducing the continuously expanding trade deficit between China and Africa. In 2024, China’s trade surplus against Africa was recorded at US $ 61 billion.

This trade initiative, a precious gift amidst ongoing global trade tensions, is the most generous unilateral nonreciprocal trade concession given by any country to developing countries, since the beginning of the modern rule based international trading system.

Though this landmark announcement has far-reaching implications on global trade, as much as President Trump’s “Liberation Day” tariffs, it was almost overlooked by the global media.

Implications for Global Trade

This Chinese policy initiative, though very generous, is a clear violation of the Most-Favoured-Nation (MFN) principle and the “Enabling Clause” of the International Trade Law. The MFN principle is the cornerstone of the multilateral trading system under the World Trade Organisation (WTO) and is enshrined in Article I of the General Agreement on Tariffs and Trade (GATT). It mandates that any trade advantage, privilege, or immunity granted by a WTO member to any country must be extended immediately and unconditionally to all other WTO members. Though, the GATT “Enabling Clause” allows developed nations to offer non-reciprocal preferential treatment (lower tariffs) to developing countries without extending them to all WTO members, this has to be done in a non-discriminatory manner. By extending tariff concessions only to developing countries in Africa, China has also breached this requirement.

This deliberate violation of the MFN principle by China occurs less than 12 months after the announcement of “Liberation Day” tariffs by President Trump, which breached Article I (MFN) and Article II (bound rates) of the GATT. However, it is important to underline that the objectives of the actions by the two Presidents are poles apart; the US objective was to limit imports from all its trading partners, and China’s objective is to increase imports from African countries.

Though the importance of the MFN principle of the WTO law had eroded over the years due to the proliferation of preferential trade agreements and unilateral preferential arrangements, the WTO members almost always obtained WTO waivers, whenever they breached the MFN principle. Now the leaders of the main trading powers have decided to violate the core principles of the multilateral trading system so brazenly, the impact of their decisions on the international trading system will be irrevocable.

Implications for Sri Lanka

China’s unilateral decision to provide zero-tariff treatment to African countries will have a strong adverse impact on Sri Lanka. Currently, all Asian countries, other than India and Sri Lanka, have duty-free access, for most of their exports, into the Chinese market through bilateral or regional trade agreements, or the LDC preferences. Though Sri Lanka, India and China are members of the Asia Pacific Trade Agreement (APTA), preferential margins extended by China under APTA to India and Sri Lanka are limited.

The value of China’s imports from Sri Lanka had declined from US$ 650 million in 2021 to US$ 433 million by 2025. However, China’s exports to Sri Lanka increased significantly during the period, from US$ 5,252 million to US$ 5,753 by 2025. This has resulted in a trade deficit of US$ 5,320 million. Sri Lanka’s exports to China may decline further from next month when African nations with duty-free access start to expand their market share.

Let me illustrate the challenges Sri Lanka will face in the Chinese market with one example. Tea (HS0902) is Sri Lanka’s third largest export to China, after garments and gems. Sri Lanka is the largest exporter of tea to China, followed by India, Kenya and Viet Nam. During the last five years the value of China’s imports of tea from Sri Lanka had declined significantly, from US$76 million in 2021 to US$ 57 million by 2025. Meanwhile, imports from our main competitors had increased substantially. Most importantly, imports from Kenya increased from US$ 7.9 million in 2021 to US$ 15 million in 2025. For tea, the existing tariff in China for Sri Lanka is 7.5% and for Kenya is 15%. From next month the tariff for Kenya will be reduced to 0%. What will be its impact on Sri Lanka exports? That was perhaps explained by a former Ambassador to Africa, when he urged Sri Lankan exporters to “leverage duty free access from Kenya” to expand their exports to China!

(The writer is a retired public servant and a former Chairman of WTO Committee on Trade and Development. He can be reached at senadhiragomi@gmail.com)

by Gomi Senadhira

Features

Daughter in the spotlight …

Published

12 hours ago

2026/04/7

Sahan Weerasooriya

Jeevarani Kurukulasuriya was a famous actress and her name still rings a bell with many. And now in the spotlight is her daughter Senani Wijesena – not as an actress but as a singer – and she has been singing, since the age of five!

The plus factor is that Senani, now based in Australia, is also a songwriter, plays keyboards and piano, dancer, and has filmed and edited some of her own music videos.

Says Senani: “I write the lyrics, melody and music and work with professional musicians who do the needful on my creations.”

Her latest album, ‘Music of the Mirror’, is made up of 16 songs, and her first Sinhala song, called ‘Nidahase’, is scheduled for release this month (April) in Colombo, along with a music video.

‘Nidahase’,

says Senani, is a song about Freedom … of life, movement, love and spirit. Freedom to be your authentic self, express yourself freely and Freedom from any restrictions.

In fact, ‘Nidahase’ is the Sinhala translated version of her English song ‘Free’ which made Senani a celebrity as the song was nominated for a Hollywood Music in Media Award in the RnB /Soul category and reached the Top 20 on the UK Music weekly dance charts, as well as No. 1 on the Yes Home grown Top 15, on Yes FM, for six weeks straight.

Senani went on to say that ‘Nidahase’ has been remixed to include a Sri Lankan touch, using Kandyan drums and the Thammattama drum, with extra music production by local music producer Dilshan L. Silva, and Australia-based Emmy Award winning Producer and Engineer Sean Carey … with Senani also in the scene.

The song was written (lyrics and melody) and produced by Senani and it features Australian musicians, while the music video was produced by Sri Lanka’s Sandesh Bandara and filmed in Sri Lanka.

First Sinhala song scheduled for release this month … in Colombo

Senani’s music is mostly Soul, Funk and RNB – also Fusion, using ethnic sounds such as the tabla, sitar, and sarod – as well as Jazz influenced.

“I also have Alternative Music songs with a rock edge, such as ‘New Day’, and upcoming releases ‘Fly High’ and ‘Whisper’“, says Senani, adding that she has also recorded in other languages, such as Hindi and Spanish.

“As much of my fan base are Sri Lankans, who have asked me to release a song in the Sinhala language, I decided to create and release ‘Nidahase’ and I plan to release other original Sinhala songs in the future.

Senani has a band in Australia and has appeared at festivals in Australia, on radio and TV in Australia, and Sri Lanka.

She trained as a vocalist, through Sydney-based Singing Schools, as well as private tuition, and she has 5th Grade piano music qualifications.

And this makes interesting reading:

“I graduated from the University of Newcastle in Australia with a Bachelor of Medicine and I work part time as a doctor (GP) and an Integrative Medicine practitioner, with a focus on nutrition, and spend the rest of the time dedicated to my music career.”

Senani hails from an illustrious family. In addition to her mum, Jeevarani Kurukulasuriya, who made over 40 films, including starring in the first colour movie ‘Ranmuthu Duwa’, her dad is Dr Lanka Wijesena (retired GP) and she has two sisters – all musical; one is a doctor, while the other is a dietitian/ psychotherapist.