The way to emerge from the gloomy economic prospects resulting from Covid, the pundits tell us, is to get ourselves into a darkly grey mood and prepare ourselves for calamity.
First they said that we are fast becoming a Myanmar, a military state, but when that prognosis started being seen as ridiculous, they have now changed tack to say we are poised to become a Lebanon.
We are no doubt facing an economic crisis that primarily has to do with Covid and the resultant global and local slump. But, we are not by a very long shot, anywhere near the dire straits that Lebanon is in.
That is a country with hardly any sources of income. So there is no point in dwelling on the fictitious Lebanon comparison that’s good for numbskulls and their fellow dunderheads.
The way out of the current economic crisis is not to parrot doomsday scenarios or cloak ourselves in a shroud of doom and gloom.
That’s the last thing that a V shaped recovery calls for. Why should we aim for a V shaped recovery, it may be asked? It’s because such a rebound is very much within the realm of possibility.
There are very simple reasons for a V shaped success, that the pundits are too purblind to see. For one, it has already been predicted that Asia will lead the world in the post Covid resurgence. We are geographically smack in the middle of Asia.
Then of course we should note the other prediction which is that China would lead the resurgent post-Covid global economic recovery. China, it is predicted, would eventually overtake the US as the world’s number one economy in 2021.
IMPORTS
The prognosis is good, all over Asia. India is poised to record the highest GDP growth in 2021 among the world’s major economies, and you read that right. This being the case in our immediate neighborhood and with China leading the charge, are we, relatively small as we are, supposed to cower and be left behind?
Our own V shaped recovery would occur if we have the faith that we could produce and innovate our way out of the current crisis. It is true that unpopular decisions would have to be taken as the new finance minister Basil Rajapaksa has said.
But they are not necessarily the unpopular decisions that some Opposition allied pro neo-liberal pundits have in mind. There are a variety of decisions that would be seen as radical and path breaking, and of course these would be unpopular among many folk who would expect the Government to do the conventional thing, such as biting the bullet.
The doomsayers would remember or would have to be reminded that the economies that recovered best post-Covid so far were those that gave their systems a generous stimulus. The greater the stimulus, the larger the economic recovery.
The problem with Sri Lanka is that we don’t have the type of resource base that could make it possible for us to afford any significant stimulus.
But the answer is not to do the opposite of a stimulus and starve the economy by over taxation and such. It is true that something has to give, and in certain areas of the economy, we could see contractions — and there would for instance be restrictions on certain imports.
We cannot do a stimulus of the European type, it is granted, but we can to the best of our ability simulate a stimulus.
When you can’t do the real thing, sometimes a little make believe helps. The people need to be given the idea that this is not the time for hiding under a rock, in fear that the sky would fall down. The economy would thrive on the chances that entrepreneurs would take.
The Covid-19 induced economic shock was supposed to be a supply shock and not a demand shock, by all reckoning. It is a supply shock because due to Covid there is no production or there is severely curtailed production which means there is a resultant shortage in the supply of goods.
However, there is nothing to stimulate the supply curve and increase production, so it is a negative supply shock as opposed to a positive one. With a negative supply shock, there is a shortage of supply as a result of which prices shoot up.
The answer of course is to send people back to work. This is imperative. The vaccinations would help. The point is that whatever the pundits may say, the pandemic caused both a supply shock and a demand shock. The economy has to be normalised, but it is easier said than done, which is why a stimulus is an imperative. However, a stimulus may not work in a country such as ours the same way it works in a developed nation.
RATING DOWNGRADES
Interest rate cuts for instance should also adjust for inflation, else there will be capital flight from our shores, and other repercussions. Rating downgrades could follow.
While necessary adjustments may have to be done, the perception should never be about doom and gloom. This country does not have many preexisting vulnerabilities. The health sector functions well despite the strikes etc that happened recently which aren’t the norm. That helps in keeping the population healthy and productive, despite everything, and also assists in the success of vaccination programs.
What the country has to guard against is a K shape recovery. K shape ‘rebounds’ are where on the graph some sectors of the economy flourish with the graph scaling upward, while other sectors keep lagging behind with the graph trending downward. Hence the K shape.
Obviously some of this K shape tendency in our potential recovery cannot be avoided. For example the tourism and hospitality sector recoveries are bound to be slower than in the area of commodity exports for instance.
But a K shaped rebound would have too many vulnerable areas of the economy lagging behind, and should be avoided at all costs. But if the pundits are to be listened to, and we raise interest rates drastically and remove all features of stimulus from the economy, what we will end up with is a L shaped recovery.
This is as a result of the sudden dip we experienced with Covid, and the recession from which there is hardly any recovery at all.
PREDICTORS
This will not happen if we have the correct policies in place, and at the moment the country has to aim for a V shaped recovery and nothing less. If certain adjustments have to be made, there is no doubt they would be.
We are starting to climb out of that hole, we are not going to be in it forever as some people suggest.
While the economy is suffering due to Covid, the Opposition and Opposition-allied pundits are trying to establish that this slump came out of nowhere because of the abandonment of their so-called economic policies.
They may be able to peddle this hilarious fiction, but the people are not about the respond to any of these partisan narratives.
The people would shoulder the burden of a V shaped recovery, even though the Opposition wants to make them pawns in a game of politically motivated inaction and non-cooperation. The people haven’t taken leave of their senses. The very Opposition that’s imparting advice on the economy these days, along with its acolytes, ruined the economy for five years when there was no pandemic and no adverse global economic circumstance to contend with on their watch.
Even though Covid was the reason for the current slump, things would have been better if the Opposition had not previously laid waste to the economy.
Nobody wants to listen to their types of pundits anymore, be they formerly from the Central Bank — or any other bunker or bunk-bed from which they surfaced. The work to be done does not need the distraction of Cassandras, and nobody would pay any heed to them.
The predictors of doom could refuse to cross that bridge to recovery with the rest of us if they want to, that’s fine, as nobody quite wants them aboard when there is work to be done, and miles to go before we sleep.