When Sri Lanka was declared a middle-income country in 1997 or thereabout it barely registered on the political Richter.
But it was acknowledged by the world that we had become reasonably ‘prosperous.’ Eventually it’s this ‘prosperity’ that led to our downfall. The bestowal of middle-income status meant that we didn’t get soft loans as ‘aid’ or grants to service our external debt and tide over any balance of payment problems.
As a result we had to get into the shaky territory of commercial borrowings at high interest, and of course we were newly anointed prosperous, and it shouldn’t have been a problem?
The point of this article is to underline this issue of prosperity. Were we really prosperous? Well, the world thought so because it was not us that promoted Sri Lanka to middle-income status but the relevant global actors concerned, including the World Bank. It’s not to be taken lightly because in many sub-Saharan African countries or other countries in Asia and Latin America, commercial debt or even making plans for commercial debt is unthinkable.
They don’t have the required ‘prosperity,’ crudely put. So we were deemed middle-income and there were commercial lenders readily lending to us which meant that we had reached a certain status where we were given enough rope to hang ourselves.
That’s just a joke but was our prosperity real or was it some sort of label that came our way as part of an economic hit job? Though conspiracy theories are generally to be debunked, isn’t it possible that we were goaded to ruin ourselves running up high interest commercial debt, the repayment of which one day we wouldn’t be able to honour?
ECONOMISTS
But the point is that our middle-income status was not misplaced. Our economy was performing and we had the numbers to prove it.
Al Jazeera reported in 2022 after the meltdown that Sri Lanka has requested to retain its middle-income status but had asked that the country nevertheless be given loans that are generally given to poorer nations. It turns out this is the absolute truth and not a case of misreporting. You couldn’t make these things up even if you tried.
It was predicted on the other hand by top economists that Sri Lanka would reach upper-middle-income status by the year 2021, but this did not happen and the Cabinet in fact approved that the country requests to be downgraded to low-income country status again after the 2021 meltdown. We had acquired the upgrade to middle-income status in 1997.
So our relative prosperity wasn’t an accident or some sort of accident waiting to happen. It was real. We had reached some sort of income level and to think about it, India was classified as a middle-income country in 2020, something we had achieved a full 23 years before them. But here we are, India was bailing us out after our meltdown, and that’s how the cookie crumbles.
Taking for granted that our lower-middle-income country promotion in 1997 was deserved — after all it being a World Bank classification — it has to be asked why instead of parleying that status to upper-middle-income country status we went into a tailspin and ended up with a meltdown in 2022?
It’s a valid question and almost everybody in Sri Lanka has a ready answer. But in the context of our current curious middle-income status despite our meltdown, we have to ask ourselves what we need to do to remain rich? Just joking again.
But levity aside, this country can technically recover fast because we have a relatively healthy GDP per capita which was the reason we were granted lower-middle-income status in the first place.
But we managed our external debt badly. Our budget deficit could have always been managed but we just couldn’t service our external debt which had to be paid in the currency it was borrowed. But could we despite this stark reality, trade our way back to prosperity?
Prosperity? What kind of prosperity was it may be asked, if we couldn’t manage our balance of payments and crumbled like a house of cards with the first sign of adversity?
This is the inherent issue with statuses such as middle-income that we are asked to cope with. Can it be said that we had to borrow in excess in order to keep our middle-income standards? That would be hilarious and somewhat akin to saying some wealthier families are ‘worse’ off than poverty stricken families because they are in debt up to their gills as they have to keep up with the next door Joneses, or is it the Jinapalas?
The bottom line however, is that we reached a certain status and shouldn’t have to compare ourselves to lower-income countries provided that we manage our finances properly.
Though the point needs to be laboured in the context of the low depths we plunged after the meltdown, the fact is that we cannot discount the relative prosperity we had reached before that, which means that if we handle things properly we could get close to ‘trading our way back to prosperity.’
Perhaps the BBC editors who headlined the recent article ‘Can Sri Lanka trade it’s way back to prosperity?’ were thinking about our middle-income status. They didn’t headline the article ‘could Sri Lanka wriggle it’s way out from the bad soup they’ve fallen into?’
The article was titled ‘Can Sri Lanka trade it’s way back to prosperity?’ which presupposes that we were prosperous before we melted down? Or are we taking the semantics too literally and reading too much into the word ‘prosperity’ there?
We’d have to ask the BBC editors what they intended, but be that as it may, our mentality should be to recover to our middle-income status and not think of ourselves as a basket case. This is not to say that we should be complaisant because being that is anyway out of the question when we are waiting for a bailout to get out of the woods.
Could we take satisfaction in believing that it was adverse global events that brought us to this pass even though we were a relatively ‘prosperous’ middle income nation? No, because we couldn’t manage our debt and let it balloon to dizzy heights.
We couldn’t manage our balance of payments situation. Our commercial borrowings were not viable, even though we were just beginning to get used to the idea of such commercial loan-taking.
But yet we cannot pillory our entrepreneurs and our exporters and of course we certainly cannot pillory our migrant workers abroad, because they did their job. No, despite what Lee Kwan Yew said, we are not relying only on our workers abroad including housemaids. Though they do yeoman service we have a great set of entrepreneurs and exporters with initiative who have weathered the storms and managed to bring in the dollars despite everything, which is what got us promoted to middle-income status in the first place.
Particular
It’s not fair to pooh-pooh that modest success all at once. We can’t lose morale just because we have hit one bad patch because of a particular set of circumstances. Yes we have had loads of corruption and intemperate policy and all that is mostly down to bad politics and bad politicians.
But those who throw in the towel and go abroad at the drop of a hat, though nobody will particularly blame them under current circumstances, will realise that there is an entrepreneur class that sticks around no matter what happens. They don’t have a choice; it’s not as if they can open up businesses after migrating. They have to do their business here and weather all the storms and that’s exactly what they have done.
We earned that promotion to middle-income status. Let’s not discount the ability to prove once more that we can make things happen, despite the forecasts of gloom and doom.