Selim Raihan is a professor of the economics department at Dhaka University and executive director of the non-government research organisation SANEM (South Asian Network on Economic Modelling). When this interview was taken on Thursday night, he was in Sri Lanka attending a seminar. He speaks to Prothom Alo’s AKM Zakaria about disastrous economic situation in Sri Lanka, the reasons behind, things to learn for countries like Bangladesh, prices of essentials in Bangladesh, its pressure on poor people and the government’s steps to rectify the situation.
You’re in Sri Lanka now. The country’s disastrous economic situation is getting attention of global media. How are you seeing the situation there?
I have come to Colombo to attend a seminar. The situation here is horrible. The country is suffering from acute fuel crisis. There are long queues at the petrol pumps. The country is experiencing load shedding for around 10-12 hours every day. In such a situation the hospitals are not being able to conduct emergency surgeries. Local newspapers have been reporting the incidents. Food prices have skyrocketed. There are crises of food stuff as well. The country does not have the capacity to pay even 10 days’ export expenses with the current foreign currency reserve. Sri Lanka has lost the capacity to repay the loans taken from various countries and organisations. Overall, the situation is extremely woeful.
Could the situation of a country be so bad that it can’t even buy emergency products like fuel? Could’t it predict the situation would reach this point?
Sri Lanka was the leading country in different sectors in South Asia. After achieving such a base, it’s normal to think that there is no scope to fall. But Sri Lanka is the evidence of where a country could reach because of mistakes in economic policies, politics to cling to power, dynastic politics and corruption. Nowadays, Sri Lanka does not have the money to run the country. Many economists, who work with us, warned the government at different times, and gave advice but those were not heeded. As a result, Sri Lanka’s economy has plunged into this gorge. But it could not be predicted that the final situation would be so bad.
Sri Lanka is the evidence of where a country could reach because of mistakes in economic policies, politics to cling to power, dynastic politics and corruption
Many think unnecessary mega projects financed by foreign loans played the most important role for Sri Lanka reaching to this bankruptcy. What do you think?
Today’s crisis is a result of many past steps. They have made one after another mistake in adopting economic policies. They have also made mistakes in taking political decisions. Currently Sri Lanka is being governed by one family. The president, the prime minister are all are from one family. Many parliament members are also from this same family. While taking up economic policies, dynastic politics got priority over the balanced development of the country. Interestingly, when the economic crises appeared, they tried to resolve it by taking loans, not through policy steps. They have taken loans either from China or India and constructed mega projects. Those mega projects are responsible for the current crisis. Many big projects were introduced without any feasibility study. Sea ports, airports and roads were constructed but it was not considered how profitable those would be from the economic point of view. As a result, many projects have turned into white elephants.
As those projects were implemented by taking loans, they had to repay those with interests. Undoubtedly, infrastructural development is necessary but that has to be done by taking into consideration the mainstream economy, i.e., decreasing the cost of doing business, industrialisation and boosting export. But Sri Lanka did not consider the mainstream economy while taking up projects for infrastructural development. No initiative was taken to diversify exports. But I would hold the countries that gave loans to them also responsible for the situation. They constructed the Hambantota port taking loan from China but had to lease out the port to China as they could not repay the loan.
Would you identify this as a debt trap of China?
In most of the cases, China’s debt is connected to geopolitical strategies. In general they finance the projects which have geopolitical importance. On the other hand, the countries taking loans could not ensure proper use of the loans because of their inefficiency and adopting economic policies, which do not have any relation with the mainstream economic activities. The port Sri Lanka constructed at the financing of China could not play any role in Sri Lanka’s economy but has profited China. In many cases, studies are not done properly to ascertain the priorities of countries taking loans. Doing something ostentatious, implementing big projects – in many cases these are for showing off. A tower, Lotus Tower, has been constructed in Colombo at the financing of China. This huge extravagant tower is alright for showing off but it does not have any contribution to the country’s economy. The meaning of taking loans is you have to repay it. If you take loans to adopt projects which would not be economically viable, you will have to fall in the trap.
The meaning of taking loans is you have to repay it. If you take loans to adopt projects which would not be economically viable, you will have to fall in the trap
Do we have any lesson to learn from Sri Lanka’s situation?
Firstly, I think economic matters must be considered from the angle of political economy. Overall economic interests need to be considered. If the country’s economy runs to protect the interests of family or dynasty, then the situation is bound to worsen. In 2019, Sri Lanka’s status declined from the high middle income country to lower middle income country. That means, Sri Lanka could not maintain their achievement. From the Sri Lanka’s instance we realise, growth will not necessarily be automatic if economic development is achieved. Taking lessons from Sri Lanka, we must remain cautious about dangers if the country’s turns into cronyism.
Secondly, surely there is necessity of infrastructural development and mega projects, but considering their economic viability is extremely necessary. Maybe unnecessary big projects have not been as yet in our country, but those undertaken could become burdensome if the expenses are exorbitantly high and it takes much more time to implement those. We must remember that big projects are implemented by taking loans and we pay interest for that.
Thirdly, China and India are two biggest players in terms of geopolitics in this region. They are our neighbours and closer countries. We have strong trading and economic relations with them. It is not possible for us to ignore any of them. Maintaining the balance is very important here. What we have seen in case of Sri Lanka is that, more often than not the country tilted towards this way or that way. This was because of the country’s internal politics. Their politicians could not show the maturity of maintaining balance while dealing with two large countries. We have to take a cautious stance in this regard. We have to strike a balance in this regard.
Coronavirus has made many new poor in the country. You have worked on this as well. How many people are living below the poverty line, you think?
It’s hard to say how many people are living below the poverty line right now. The Bangladesh Bureau of Statistics should have conducted a survey about this. We from SANEM conducted a survey about this at the fag-end of 2020. That showed 40 per cent people living below the poverty line. I don’t know the current estimates. Government documents, however, mention about 20 per cent such people.
People are curtailing their necessities especially about food. They have been taking more carbohydrates and depending less on protein. When we have been talking about development, at that very moment many people have been compromising with their quality of life style
The coronavirus situation has improved. Do you think the situation is conducive to recovering the losses?
There are several facets of this. People are themselves trying to fight the situation. But overall, the situation would depend on the flurry of economic activities. People’s income would increase if it is there. Many people survived on their savings during the time of Covid-19 pandemic. As a result, reaching the previous state would take time even if the income is increasing of beginning. Besides, there is the government assistance. The government has taken initiatives to help the poor people. This suggests the government has acknowledged that the people have been sufferings. It could be said that the government has acknowledged the situation though the government is not saying anything about the poverty rate.
How much pressure has the current price hike been putting on our low income people? Is it beyond their endurance level?
The pressure of current price hike is beyond their endurance level. That’s because, a large number of people were already under a huge pressure. This is an added pressure for them. People are curtailing their necessities especially about food. They have been taking more carbohydrates and depending less on protein. When we have been talking about development, at that very moment many people have been compromising with their quality of life style. Though as per the government estimation the inflation rate is 6 per cent, in actuality people have been facing double the rate while buying food stuff. The government fixes the inflation rate depending on 2005 survey but the food habit of people both in cities and villages have changed a lot in the last 17 years. Poor people do not even buy the food stuff that has been made the basis of estimating the inflation rate. One can’t consider the actual situation following the government calculation of inflation rate.
The government has given TCB cards to 10 million families. How do you see this step? Do you have any suggestion regarding increasing its scope or any other issue?
The government’s step to sell products at a relatively cheaper rate by distributing TCB cards among 10 million families is praiseworthy. I think the reach has to be increased. Many lower middle income families, even poor families are still outside of this benefit. Queues of these people behind the TCB trucks are long. Alongside the TCB trucks, sales centres could be opened at different spots in the country for people who have got the cards. If necessary, the help of FBCCI or BGMEA or business organisations like them could be taken to set up the sales centres. Transparency and accountability have to be ensured in the whole process. There must be opportunities for people who have not got the cards, to buy products from the TCB trucks.
Prices of many products including the fuel have increased in the international market a lot since the beginning of Ukraine crisis. Do we have anything to do considering the uncertain international situation?
It is tough to say what would happen in the future. The situation is very uncertain. In such a situation we have to observe the international market round the year. Different incidents around the globe have been putting pressure on one or another product. It is necessary to set up a permanent system or cell to monitor the international market. This would help taking policies. If the situation worsens, any hustle and bustle does not provide good result. The dependency on any single country for importing products also should be decreased.
* The interview, originally published in the print edition of Prothom Alo, has been rewritten into English by Shameem Reza