2022 Q1: Optimism falls to almost nothing amidst political-economic political crisis

May, 20, 2022

The Foundation of Economic Freedom in Sri Lanka (FEFSL) presents here a summary of perceptions of the people of Sri Lanka about their own and the nations’ future as at the first quarter of 2022. This monthly nation-wide tracking study, reported quarterly, is based on a unique measurement developed by FEFSL. Started in July 2011 this rich dataset can be used by itself or in conjunction with other data to analyze and correlated perceptions of Sri Lankan citizens on a range of issues.

The trend for the last decade is clear. The post-war euphoria that elevated the positive perceptions died down quickly. It is apparent that the incumbent government was unable to leverage on the golden opportunity to go beyond the military victory and build a genuine peace among the communities. On the economic front, the debt-fueled construction boom that started in 2010 ended abruptly by 2013 as needed structural and institutional reforms were not undertaken. Growth since then has been only moderate. But the series of events starting with the constitutional coup in October 2018, the Easter attack in April 2019 and the coronavirus pandemic since March 2020 made matters much worse for Sri Lanka. But a series of catastrophic blunders in economic policy at the end of 2019 and banning the import of chemical agricultural inputs triggered a massive collapse of the economy.

This regular measurement does not provide answers to the question on how perceptions on economic prospects can be improved or what the role of the government or any other stakeholder is in that process. However, it is hoped that necessary action will be taken to build back hope in the population; particularly among the young people who have now come out in their thousands in massive anti-government protests.

1.0 Methodology

The PEOI is calculated based on monthly data collected by PepperCube Consultants on an island-wide random survey of face-to-face interviews among 500 persons. For the first quarter 2022, surveys took place from 01 to 31 January; from 01 to 28 February and from 01 to 31 March, 2022. This quarterly report is therefore based on a total survey of approximately 1,500 persons over three months and provides an ongoing commentary on how Sri Lankans feel about their economic future at this present moment. It also provides the reader with the ability to compare this sentiment since July 2011.

2.0 Presentation of Findings

As always, monthly survey data is presented quarterly. The focus is on perception on economic opportunity. Perceptions on one’s ability to save and on corruption are regularly presented. The survey also tracks perceptions on cost of living, development of the country, media freedom and law and order among others. A selected assessment on one of these questions is reported periodically.

2.1 Perceived Economic Opportunity

The question posed to the respondents is whether they believe their economic opportunities, be it in the workplace or in their business, would increase, stay the same, or diminish in the year ahead.

people. A series of policy blunders led the economy to perhaps the deepest crisis in decades. Sri Lanka was running out of dollars and at the same time printing unprecedented amount of rupees. Having got shut out of the global financial market due to downgrades by the major sovereign rating agencies mainly due to the sharp fall in government revenue caused primarily by the deep tax cuts that caused the Treasury to forego more than a quarter of expected tax revenue Sri Lanka was unable to roll over its maturing foreign debt. It basically printed its way out of domestic debt. The government, instead of seeking a reform program with the International Monetary Fund to resolve the balance of payments crisis early on, or not initiating any debt restructuring activity even later as the crisis grew, used the foreign reserves of the Central Bank to make international debt payments. This caused Sri Lanka’s official reserves fall from just under USD 6.0 billion at the start of the year to USD 1.5 by the third week of December 2021. The obvious consequence was the inability to finance imports as the Central Bank was unable to release sufficient dollars to pay for imports ranging from cooking gas and kerosene to medicines, to milk powder to many other essentials.”

What we described as the problem was finally accepted by the Gotabaya Rajapaksa government. The Minister of Finance and the Secretary to the ministry were removed and so was the Governor of the Central Bank. The Government finally agreed to seek support from the International Monetary Fund and to restructure USD 51 billion of external debt owed by the Government, state owned enterprises with government guarantees and partly the Central Bank. However, this decision came far too late for the nation as economic activity had fallen to unprecedented depths with almost 13-hour long power cuts and kilometers long queues for fuel and cooking gas.

By end of March pockets of protests had begun in the suburbs of Colombo and a large protest of several tens of thousands organized by the main opposition party had brought the suffering of the people to the attention of the whole world. Friendly nations, particularly India lent substantial financial support to purchase essentials but that was nowhere sufficient to eliminate the power cuts nor the long queues.

Protest in front of the Presidential Secretariat; 16 March 2022

Photo credit: Ishara Kodikara/AFP

Public anger was growing as they were finding it increasingly difficult to make ends meet with inflation hitting 19 percent with food inflation going beyond 30 percent.  The frustration was more in cities and particularly in less affluent sections in Colombo where families lived cramped in high rise buildings with them having to purchase now expensive groceries (as opposed to the rural agricultural areas) added to no cooking gas making it impossible to even prepare a simple meal.

2.2 What will happen to the development drive?

We present here the trend in the perception on the progress of development activity in the coming twelve months. The negative perception of stopping or slowing down development projects fell dramatically from 60 percent to 20 percent with the change of presidency in November 2019 and again after the August 2020 general going up in the interim due most likely to the pandemic.

But consider the situation as at end of the first quarter of 2022. 78 percent believe development projects will suffer while only a mere 2 percent feel optimistic about their progress. Taking together with the earlier findings at the individual or micro context, the confidence of the people in the overall economic management of the government is crashing.

2.2 Perception on Ability to Save

Here our objective is to determine the perceptions on the ability to save; an inadvertent way to estimate cost of living as well. To assess the ability to manage the cost of living and to have something left over, we asked the respondents about their expected personal savings in the coming 12 months. The perception of the public’s ability to save a ‘little more’ than what they do at present has fallen to an all-time low of a mere 1.0 percent; this is after we thought the last quarter figure of 2.0 percent would be the lowest ever. This is a reflection on how difficult it is for the people of Sri Lanka to merely survive.

We opined in our last quarter report that the government’s view of a ‘homegrown solution’ to resolve the complex economic problem, without eliciting IMF support, was likely to fail. Now it seems it is only a matter of time before the catastrophe.

2.3          Perception on Corruption

The question posed is if the respondents perceive that corruption will lessen in the coming 12 months.

The positive sentiments among the people that corruption will become less fell from the record high of 64 percent after the general election in August 2020 to a very low figure of just 8.0 percent. This fall in confidence on corruption at such a rapid pace is a serious concern and goes to show the disappointment in the government relative to what was expected.

3.0          Concluding Thoughts

The positive feeling about the future that was seen with the election of President Gotabaya Rajapaksa in November 2019 fell somewhat soon thereafter and got worse with the onset of the Covid19 pandemic. Then again hope for better days rose with President Rajapaksa’s party winning the general election with the installation of former President Mahinda Rajapaksa as Prime Minister in August 2020 in the middle of the unprecedented disruption of the economy due to the Covid19 pandemic lock-down. By the end of 2021 that optimism had almost completely disappeared.

At the end of the first quarter 2022 the perceived ability to improve one’s economic opportunity recorded the lowest ever figure since the formation of this index over 11 years ago at an abysmal 1.0 percent. Our continuous monthly measurements suggested that while the pandemic had some impact on the level of confidence it was certainly not the reason for this total crash. It is now very clear that major policy errors of the government caused unprecedented suffering on the people.

We warned at the end of 2021 that “if the government continues to mishandle the situation, people’s frustrations could certainly boil over, and the peaceful situation turned in to one that would no one wishes to experience.” By end March 2022 this prediction seems to be coming true. Already street protests have begun and if the government continues to flounder a chaotic situation could arise.

 

The Foundation of Economic Freedom appreciates the generous support by the Friedrich Naumann Foundation for Freedom to undertake this work.

Video Story

Stock Market

Exchange Rates