R. Ramakumar Profile picture
Mar 27 24 tweets 6 min read
1/ <THREAD> How do we explain and understand the current economic crisis in Sri Lanka? In this thread, I try to follow some of the major events in the nation's economy over the last few years and situate the present crisis in a context.
2/ To begin with, Sri Lanka's economic growth rate was on a decline from around 2012 itself. Its GDP growth rate fell rather steadily after 2012. The post-war growth acceleration petered out soon, and the current account deficit widened in the absence of export growth.
3/ The economy was stuck with the colonial-era exports of tea and rubber, and garments. The exports of these commodities suffered as global commodity prices fell over the past decade. But two recent events in 2019 ended up imparting a major shock to the Sri Lankan economy.
4/ First, the Easter bomb blasts of 2019 in three churches and three hotels in Colombo, which killed about 253 people, led to a huge fall in the flow of tourists to Sri Lanka. The number of tourists fell by 18%. This led to major strains on the foreign exchange reserves.
5/ Secondly, the new President Gotabaye Rajapakse, in a thoroughly ill-advised move, cut VAT rates from 15% to 8% in Dec 2019. Also, the "nation building tax" of 2%, and the economic service charge and PAYE tax, were all abolished.
6/ As a result, Sri Lanka had one of the lowest indirect tax rates in the world prior to the pandemic. This led to a major fall in indirect tax revenues. GST/VAT revenues fell from 443,877 LKR million in 2019 to 233,786 LKR million in 2020 i.e., by close to 50%.
7/ The pandemic hit in March 2020, and it made the bad worse. Tourist inflows and tourism revenues fell further. Exports of tea and rubber declined due to lower demand. Remittances, another booster to the foreign exchange reserves, also fell as Lankans across the globe lost jobs.
8/ With the pandemic, the government was forced to raise budget expenditures. In the context of falling revenues, the fiscal deficit exceeded 10%. In Feb 2022, the IMF identified 3 reasons for this: pre-pandemic tax cuts, weak revenue performance and higher lockdown spending.
9/ This is where the organic farming lobby entered the scene to fish in muddy waters. Home-grown anti-science enthusiasts, and external advisors like Vandana Shiva, advised Rajapakse that the forex pressure could be relieved if Sri Lanka stopped importing fertilisers.
10/ Rajapakse obliged. He posed himself as an organic farming messiah, and banned all chemical fertiliser imports from May 2021. In a blog post in Sept 2021, I had described this in great detail and drawn the contours of its disastrous consequences: bit.ly/3LheruC.
11/ Rajapakse's organic misadventure was supported by many Western environmental groups. Let's call them the "green imperialists" - agents of Western efforts to continue colonising the global carbon budget, and deny the developing world their rightful due in carbon emissions.
12/ Sri Lanka's organic farming policy was a disaster. In most countries, agriculture held up during the pandemic. But it was the opposite in Sri Lanka. According to IMF, there was "worse-than-anticipated impact of the chemical fertilizer ban on agricultural production".
13/ The IMF went on: "the recovery...is expected to be dragged down by a temporary restriction on the use & importation of chemical fertilizer, with an adverse impact on agricultural production, & by the negative effect of...FX shortages & the suspension of certain imports".
14/ So, agricultural production fell; food shortages led to inflation; and food imports became necessary. Production & export of tea & rubber were hurt. Thus, a policy aimed at reducing pressure on forex reserves ended up, perversely, increasing the pressure on forex reserves.
15/ But the IMF's intentions were deeply suspect as usual. In 2016 itself, Sri Lanka had entered into a 36-month extended EFF arrangement with IMF for US$1.5 billion to support an economic reform agenda. The conditionality set by IMF was to reduce fiscal deficit to 3.5% by 2020.
16/ The other IMF conditionalities followed the classic Washington Consensus template: reform of tax policy & administration; control over expenditures; commercialise state enterprises; exchange rate flexibility; boost to competitiveness; and a free investment environment.
17/ After 3 yrs, in 2019, IMF praised SL for its "commitment to the EFF-supported program", "efforts to advance revenue-based fiscal consolidation, with a well-targeted 2019 budget", "strengthen reserves, under greater exchange rate flexibility" and "a prudent monetary stance."
18/ In reality, the 2016-19 experience with IMF reforms was acutely painful for the Sri Lankan people. GDP growth rates fell. Revenue/GDP ratio fell (btw, corporate tax rate was cut from 28% to 24%). Public debt rose by 30%. And then Rajapakse came in 2019 to wreak serious havoc.
19/ But this was not Sri Lanka's first encounter with IMF. It was the 1st South Asian country to embrace neoliberalism in the 1970s. These IMF-led reforms were accompanied by a suppression of minorities and an onslaught on trade unions and the Left. All this was before the war.
20/ There is an excellent Himal interview with Ahilan Kadirgamar on Sri Lanks's long tryst with IMF (bit.ly/3qGfwEh). Here, he weaves together narratives on economic crisis and the rightward shift in Sri Lankan politics, aided by conditionality-driven IMF programmes.
21/ Arguing for a radical departure from the past, Kadirgamar laments: "Sri Lankan economists have become lazy, regurgitating the policy prescriptions put forward by the IMF, World Bank...and have lost their capacity to rise up to the challenge to address this historic crisis."
22/ That the IMF template doesn't work anywhere is well-proven, but equally important is the sheer mismanagement of the economy by parties of all persuasions. And Rajapakse's embrace of pseudo-science in agriculture, profusely praised by Narendra Modi, made matters worse.
23/ In all probability, Sri Lanka will now take another new IMF loan with even more stringent conditionalities, and move into yet another deflationary spiral. This, and the rightward shift in internal politics, will only worsen the conditions of people's lives and work.

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More from @ramakumarr

Feb 2
@chandru_chawla 1/ I have only hastily gone through the report. I will make two preliminary points.

a) Organic farming is not the same as zero budget natural farming (ZBNF). In fact, the practitioners of the two methods dislike each other. I will offer a few quotes from Subhash Palekar.
@chandru_chawla 2/ According to Palekar, organic farming is "more dangerous than chemical farming" and "worse than an atom bomb". He calls vermicomposting a "scandal" and the red worm as a "destructor beast". The biodynamic farming of Rudolf Steiner is, for Palekar, "biodynamite farming"!
@chandru_chawla 3/ b) The comparisons attempted in the report are prima facie problematic. You cannot compare organic farming and inorganic farming, as if what goes on as inorganic farming is what agricultural science recommends. What is tested as inorganic farming is not scientific farming.
Read 7 tweets
Feb 1
1/ I will answer all the 3 questions.

1) I don't know what is "chemical farming". If you think organic farming is non-chemical, it would be wrong. Farmers use cow dung in soil to not just improve organic matter, but also get nitrogen (N). This N is no different from N in urea.
2/ I stand for scientific farming, where agricultural scientists argue for (a) integrated & balanced nutrient management (i.e., maintaining optimum soil fertility & nutrient supply by using both organic matter and chemical fertilisers, where required after soil tests);
3/ ... and (b) integrated pest management (IPM i.e., focus on natural pest control measures and use pesticides as a last measure, where natural measures are not controlling the pests to the desired levels. This (a) and (b) are what scientists have recommended for decades.
Read 10 tweets
Feb 1
<thread> 1/ The focus in the Union Budget 2022-23 on natural farming and chemical-free farming is a huge mistake and a misdirected policy path. Zero budget natural farming (ZBNF) is quackery, and has no sanction among agricultural scientists.
2/ Adoption of ZBNF will lead to a 20-30% fall of yields in agriculture. The only reason why the government appears to be intent on it is the rising subsidies on fertilizers, which in turn is due to rising international prices of raw materials.
3/ The government does not want to increase fertiliser subsidies and provide fertilizers at an affordable cost to the farmers. Hence, it is asking the farmers to not apply fertilizers at all.
Read 5 tweets
Oct 21, 2021
1/ <Thread on vaccination in India>

It is a matter of joy that India has administered 1 billion doses. Every Indian should be proud. However, it is equally important to mellow down and have a calm and dispassionate look at facts. I will attempt it in this thread.
2/ First, we should have reached 1 billion doses long back. We are actually late in reaching the target today. In the first week of April 2021 itself, India had showed that it had the capacity to administer 5 million doses/day (see data for 7 April).
3/ If India had maintained the rate of 5 million doses/day, it could have given 150 million doses per month. Accounting for the potential rise in production after April 2021, we would have reached 1 billion doses by June/July 2021 itself, if not August/September.
Read 14 tweets
Aug 7, 2021
1/ <Thread> on what is happening to Sputnik V vaccines. Something is strange and I do not know the reason. In the second affidavit to the Supreme Court, the Government of India (GoI) had said that, as on 26 June 2021, India had "received" 32.1 lakh doses of the vaccine.
2/ There are updates on this after 26 June. According to a reply given by GoI to Rajya Sabha, “India has imported 31.5 lakh units of Sputnik component 1 and 4.5 lakh units of Sputnik component 2 vaccine till date”. That makes a total of 36 lakh doses of the vaccine available.
3/ More than a month has passed since then, and as on 6 August 2021, India has administered only 5.52 lakh doses of Sputnik V. Why is it that these doses have been received long back, and still have not been administered? Is the meaning of "received" also "in the pipeline"?
Read 12 tweets
Jul 27, 2021
1/ <Thread> Here is the joke of the week. Press release by Government of India (GoI). bit.ly/37hWGtn. It says 51.6 crore vaccine doses would "indeed" be supplied between January & July 2021. All reports otherwise are ill-informed and misrepresentations. Are they?
2/ By June, about 33 crore doses were administered in India. In the affidavit to the Supreme Court on 26 June, GoI said it planned to administer 12 crore doses in July 2021. This target was later revised to 13.5 crore doses by the new health minister.
3/ My own view has been that India may not cross 12 crore doses in July. I have explained this point in detail here: bit.ly/371Svl5. Here, I had also tried to say how the 51.6 crore figure was arrived at, and the fallacies therein. Lets consider both the figures.
Read 11 tweets

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