The Sunday Leader

A Warning Sign Of Things To Come

  • Proposed 20 Percent Aid Cut To Sri Lanka By The US

By Mandana Ismail Abeywickrema

US Secretary of State John Kerry

The proposed 20 percent cut in US aid to Sri Lanka sent a warning signal to Sri Lanka that the government’s actions could have an impact on the country’s economic growth and further push the country towards an abyss.

Despite claims by the government that the proposed aid cut would not have a bearing on the Sri Lankan economy, the actions of the US would send a negative message to other donors and lending agencies.

Warnings by members of the international community that continuous resolutions on Sri Lanka in the international fora and the Sri Lankan government’s failure to address issues like human rights, democracy and follow proper fiscal policies would have a drastic impact on the country’s economy are now showing signs of becoming a reality.

The move by the EU to withdraw the GSP Plus trade concession offered to Sri Lanka in 2010 and now the proposal by the US to cut its annual aid to the country together would add to an impending stand by the international community to demand action on continuous issues raised by them with the government in the past few years.

It was US Secretary of State John Kerry who proposed a 20 percent cut in American aid to Sri Lanka.

This move is viewed by foreign analysts as part of the unease in the ties between Sri Lanka and the US over issues related to human rights, reconstruction and reconciliation in Sri Lanka following the end of the civil war.

Foreign media reported that the aid cut to Sri Lanka is believed to be the highest drop for any South Asian country in Kerry’s budgetary proposals, which were sent to the Congress last week for approval.

In actual terms, Kerry has proposed US$ 11 million in aid to Sri Lanka for 2013, which, according to a senior State Department official, is a “drop of 20 percent” from the actual spending in the 2012 fiscal year.

While the actual US development assistance to Sri Lanka in 2012 was US$ 8 million, Kerry has proposed only about US$ 6 million for 2014.

Economist and UNP parliamentarian Dr. Harsha de Silva has said that despite claims by the Sri Lankan government that the aid cut does not matter much, because the amounts cut are very small, it is the thinking that matters.

“It doesn’t matter whether the amount is big or small,” he observed.

He has pointed out that the US has been a friend of Sri Lanka during the period of the war and helped crack down on the LTTE funding mechanisms in the West.

What the government has failed to comprehend is the underlying message sent out by the US through its move to cut aid to Sri Lanka.
Economists also warn that the country would be faced with a difficult situation if other countries also try to follow the EU and the US and withdraw concessions and aid given to the country.

Economist Muttukrishna Sarvananthan said that the country’s economic growth is decelerating, government revenue is declining, exports are declining and inflation is rising.

In this backdrop, the government that is having balance of payment issues would have to be concerned about preventing the country from experiencing spiraling inflation.

The loss of the GSP Plus facility has resulted in many foreign investors in Sri Lanka moving out to other markets.
Most of the investors in the country’s apparel sector have shifted their businesses to other countries in the region, especially to Bangladesh.
The overall income from apparel exports in 2011 was US$ 4,100 million, which had declined to US$ 3,850 million in 2012.
Joint Secretary of the Free Trade Zones and General Services Employees Union, Anton Marcus has said that Sri Lanka enjoyed the benefits of the GSP Plus concession since 2003.

“As a result of this from the year 2000 there were about 835 garment manufacturing factories in the country, employing a huge workforce, but now there are only around 314, employing only around 283,000 workers,” he has observed.

Meanwhile, President of the Inter Company Employees Union (ICEU), Wasantha Samarasinghe said that contrary to claims made by the government, the loss of the GSP Plus facility has affected many private sector businesses in the country.
He observed that the closure of two garment factories in the Gampaha District had affected the direct employment of 1,500 persons while a large number of indirect employment opportunities have also been affected.

He said that Chrystal Sweater (Pvt.) Company in the Malwatta Investment Promotion Estate in Nittambuwa was closed down on January 2nd and Firefox Pvt. Ltd. in Pamunugama in Wattala was closed down on the same day.
According to Samarasinghe, these factories have been established with Board of Investment (BoI) approval.

“The government assured that the country would not face any economic fallout due to the loss of the GSP Plus facility. But now factories are closing. The government needs to provide solutions to the current crisis,” he said.
Samarasinghe added that the government has failed to address the issue of people losing their jobs.

“Although some employees have received some form of compensation payments due to the intervention of traded unions, some other workers have lost their jobs even without proper compensation,” he said.

The EU’s GSP Plus tariff concession allowed Sri Lanka to sell over 7,000 products to the EU countries tax-free. The country’s garment industry benefited most from the facility.
It is learnt that 10 garment manufacturing factories have been closed in Biyagama, Nittambuwa and Katunayake investment zones.
Therefore, considering the domestic economic conditions, Sri Lanka cannot afford to lose its image with the international community as well.
The government has already boasted about not taking any loans in future from lending agencies at concessionary interest rates, but has opted to borrow monies from the commercial banks at higher interest rates.
The onus is on the government to step up and take the necessary action to prevent the country from falling further into an economic abyss.

No PR firm on earth can white wash this

Development Economist, Principal Researcher, Point Pedro Institute of Development, Muttukrishna Sarvananthan said the government is concerned about the waning economic euphoria although the proposed 20 percent aid cut by the US would have only a marginal impact on the country’s economy. “Having failed to whitewash the human rights violations and weakening Rule of Law in the country through a PR firm in the UK, the government is attempting to whitewash the economic decline through a PR firm in the US,” he added.
Following is a brief interview with Sarvananthan:

Q: How will the proposed 20 percent aid cut for this year by the US affect the Sri Lankan economy?
A: Only marginally because bilateral American aid (grants and loans) to Sri Lanka is very small. American aid cut to Sri Lanka is part of huge reduction in public expenditure and tax hikes in the USA in order to reduce their budget deficit. In 2012, American grants to Sri Lanka was just Rs. 3.1 billion (US$ 24.5 million) or 15.7% of the total grants received by Sri Lanka (Rs.19,708 million). There was American aid cut to Bangladesh as well in the region. Besides, Sri Lanka has not got any loans from America for a long time now.

Q: The government says it would not have an impact on the economy. Do you agree?
A: The aid cut by America will have only a marginal direct impact on the Sri Lankan economy. Sri Lanka depends much more on exports to the US and portfolio investments from the US primarily in government securities. The US is the single largest market for exports from Sri Lanka and source of the single largest portfolio investments in Sri Lanka.

Q: The government said the same thing when the EU withdrew the GSP Plus facility. What impact has the loss of GSP Plus had on the economy?
A: EU countries accounted for 38.5% (US$ 2.7 billion) of the total exports from Sri Lanka in 2009, which dropped to 34% in 2011 (US$ 3.6 billion) and 33% in 2012 (3.2 billion $). However, in absolute value there has been an increase in exports to the EU by Sri Lanka after 2009; US$ 2.9 billion in 2010, US$ 3.6 billion in 2011, and US$ 3.2 billion in 2012.

Q: What is the current state of the economy?
A: Economic growth is decelerating, government revenue is declining, exports are declining and inflation is rising; however, private foreign remittances and earnings from tourism are also rising.

Q: Should the government be worried about the country’s economic conditions?
A: Of course, the government is concerned about the waning economic euphoria. That is, why the Central Bank has hired a public relations firm in the US (largest market of Sri Lanka’s exports and the largest portfolio investor in Sri Lanka) to whitewash the economic decline. Having failed to whitewash the human rights violations and weakening Rule of Law in the country through a PR firm in the UK, the government is attempting to whitewash the economic decline through a PR firm in the US. Lies never die. Sri Lanka has amply proved to the world that her Chief Executive, Chief Justice and Chief Banker are a pack of liars.

6 Comments for “A Warning Sign Of Things To Come”

  1. Charitha

    ismail abewikrama? who the hell is that?

  2. The US itself is bankrupt ( it is spending more than it earns) how come they are able to give aid..Best for SL to knuckle down and live within it’s means before the aid dries up altogether

  3. Johann Gunasekar

    US & EU will bark, but MR will not flinch, if they hope for an uprising like the Arab spring, they are mistaken as the common man is with MR. With only 53 of 200 countries signing up for the UNHCR charter, it is a joke to call it pressure from the international community. The focus of the US resolution being the inquiry into the last months of the war is clearly focused on discrediting and toppling the MR regime which is pro China and Russia.
    A classic example of US double standards in HR is it’s own (Guantanamo) and it’s ally Singapore…who is not a signatory to the UNHCR and beneficiary of huge US investment, arms partner etc…but has a deplorable HR record, refer Human Rights Watch (Singapore) – QUOTE “Government authorities still curtail rights to freedom of expression, association, and assembly. They deny legitimacy to associations of ten or more, if they deem the groups “prejudicial to public peace, welfare or good order. ” The government requires police permits for five or more people planning a public event, and it uses contempt of court, criminal and civil defamation, and sedition charges to rein in critics” UNQUOTE.

  4. M. Chan

    So called AID from any country from East or West is detrimental to growing one’s own economic potential. Sri Lanka will grow faster if it focuses on developing commercial business relationships overseas – like Singapore, Taiwan and Korea. Sri Lanka needs to grow hi tech manufacturing ? SL has a far bigger work force than Sweden, Israel, Singapore or Taiwan. Grow your knowledge economy and technology industries and drop low end industries such as garments, coir etc.

  5. Oh my Singapore is far worse than Sri Lanka ?..! My My …

  6. @Charitha

    What’s your problem ? !
    A Muslim middle name of the article’s writer ?
    Probably Nandana “Ismail” Abeywickrema is from a family of mixed race. But why are you worried ? Leave it to BBS, keep quiet and mind your business without irritating them. Be wise and what do you thing the BBS is here for ? ha !

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