Sri Lanka is currently facing a major economic crisis and as the economic crisis intensifies, it is inevitable that a host of major social problems will arise. If so, economists as well as social activists believe that theft, thuggery and murder will increase rapidly in the future.
Although some now point the finger at the seventy-four year political history, it should be emphasized that the foreign exchange crisis that has engulfed this huge debt trap was actually created during the Mahinda Rajapaksha-led family rule. This is evidenced by the fact that about 34% of the current total loan amount, being obtained in 2007.
By 2015, Sri Lanka's foreign exchange reserves and foreign debt management were heading for a similar crisis. Fortunately for the nation, Ravi Karunanayake, who won the award for Best Finance Minister in the Asia Pacific, became the Minister of Finance when the Good Governance Government came to power in 2015. He solved this problem very subtly and created the environment for Sri Lanka to stand up directly before the international community again. But in our view, Sri Lanka has gone backwards for decades because of the baseless allegations leveled against him as a result of which he lost that ministerial post.
The very short-sighted fiscal policy pursued by the present government and the President at the end of the Good Governance Government led to the reversal of the fiscal crisis which had been resolved by the Good Governance Government to some extent.
It is no secret that the beginning of the current crisis was due to the huge additional pressure on the state budget due to the reduction of VAT from 15% to 8% at the outset. Since then, the state treasury has lost 15.9 billion rupees due to sugar tax fraud. The first signal to the international community that Sri Lanka is a debt-ridden country came along with Sri Lanka's decline in international credit ratings as a result of cutting down VAT. It’s very clear form this that how short-sighted, foolish and stupid decision was that. Ravi Karunanayake and the government of Good Governance had never made such reckless acts for the short term benefit of the elections.
Also, the rupee is depreciating rapidly due to the current government printing billions of rupees without any discipline or understanding. This government has printed a total of 1.2 trillion rupees in 2021 alone. This amount is several times of the total amount printed so far. At the same time, the retention of the dollar rate fixed limited the flow of dollars further inland and encouraged foreign workers to use the Undial system. Making the dollar rate to flow In March 2022 all at once was closing the doors of the stable after the horse had run away. By that time the due devastation had already occurred.
But by then, the dollar suppliers had already entered the Undial market and are still operating in the Undial market by the time of writing this article. The reason for this is that in that market there is always an extra premium of about fifteen to twenty rupees. Therefore, the inflow of dollars into the banking system is still not enough. Therefore, even the importation of essential commodities has created a situation where there is no dollar at present.
When Ravi Karunanayake took over as Finance Minister Portfolio after the Good Governance Government came to power in 2015, the then dictatorial Rajapaksha family regime was pursuing a similar fiscal and foreign exchange policy. Even then, the rupee rate was fixed and maintained at 130-140 against the US dollar. If the dollar had remained the same, the situation would be much clearer today.
But as the Minister of Finance, Ravi Karunanayake and the government of Good Governance took appropriate market measures to gradually bring the dollar into equilibrium. This has made a significant contribution to Sri Lanka's export earnings. In doing so, he brought about a great relief to the people by abnormally lowering the prices of essential imports, including gas. Ravi Karunanayake once sought to maintain a dollar reserve for fuel price stabilization, but that move was opposed by opponents.
To expand the state tax base, new areas such as the communications sector were taxed in a way that the public would not feel it. He also took steps to increase the government revenue and thereby increased the salaries of public servants by Rs. 10,000.
Furthermore, to prevent the rupee from depreciating, printing of money was maintained at marginal level while settling loans by increasing the state revenue, rejecting the procedure of Rajapakshe of settling state loans from printed money.
He also took measures to rebuild Sri Lanka's image in the eyes of the international community and to regain international cooperation, such as GSP Plus, which had a significant impact on Sri Lanka's export earnings. That is why public debt as a percentage of GDP drastically could be brought down. Ravi Karunanayake also managed to create a surplus in the primary account after 63 years. That is why The Banker magazine awarded him the Best Finance Minister in Asia-Pacific in recognition of his efficient work.
“The Banker” annual appreciation is used by banks in Sri Lanka as well as international for their promotional activities due its global recognition and credibility. However, it is unfortunate that Sri Lanka as a country and the country's media and Good Governance government did not appreciate Ravi Karunanayake's international appreciation. Sri Lankans were unaware of these facts. The reason was the media being biased to the Rajapaksha family regime.
Unfortunately for the nation, we would not have faced such a crisis today if Ravi Karunanayake had not been falsely accused and removed from the post of Minister of Finance. His acquittal by the judiciary while the dictatorial Rajapaksha regime remains in power which had made false allegations to insult him, has opened the eyes of Sri Lankans. But now we think it's too late. The dictatorial Rajapakshe regime has almost always used their media to fool the people.
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