Name : CATHERINE E.

JOAQUIN

SRI LANKA, A FAILURE IN GOVERNANCE OR JUST AN UNFORTUNATE EVENT?

The matter of domestic and external debt management is a major arena of debate in the Philippines and across the
globe. However, with the current crisis in Sri Lanka, pinpointing who in particular is accountable is a complex issue,
as described in the problem of many hands by Bovens (1998). Since accountability is a part of Public Administration
and Good Governance, this paper will try to examine the situation that affects the overall quality of governance of
Sri Lanka and the Philippines from a Public Administration perspective.

Sri Lanka’s problems can be attributed to its mismanaged economy, populist policies, and corruption. One of the
causes of the debt crisis in Sri Lanka is its budget deficit. The Philippines’ budget deficit for 2021 is 8.61% of GDP,
while Sri Lanka’s is 12.2%. When Mahinda Rajapaksa was elected in 2019, one of his campaigns was to lower taxes.
However, this was probably one of the wrong decisions he had made when he lowered its taxes during the pandemic
in 2020. Due to the pandemic and low tax revenue, the income is much lower than the expenditure resulting in a
budget deficit in Sri Lanka.

Another misstep of President Rajapaksa was when he chose populist policies over painful but necessary reforms.
While he may be popular, this move has pushed his country over the edge, leaving them with obligations that the
country could no longer meet. This is contrary to the President-elect Ferdinand R. Marcos, Jr. of the Philippines,
which has a proposal to raise revenues, improve tax administration, and cut unnecessary spending with fiscal
reformsi.

According to the new Finance Secretary Benjamin Diokno,ii as long as we can maintain the 6 to 7% GDP growth, We
can easily outgrow. Furthermore, an increase in GDP means that we are generally increasing collection for
government such as VAT, excise tax, income tax, etc. This will also mean a bigger financial space to handle our debt
and expenditures. At 8.3% GDP growth for the first quarter of 2022, the Philippines is one of the fastest-growing
economies in East and Southeast Asiaiii. Sri Lanka is at 2.4% growth only, as estimated by Asian Development Bank.
Therefore, the high GDP growth of the Philippines could significantly help in paying debts.

Since most of Sri Lanka’s debt is foreign, the government spent currency on servicing its debt obligation leaving the
country with not much left to import food, fuels, and other commodities. On the other hand, a vast majority of the
Philippines’ debt is domestic (69.9%) compared to its foreign debt (30.1%)iv , which means the country is shielded
from external shocks like exchange fluctuation. In addition to the cause of the debt crisis in Sri Lanka is the current
account deficit (CAD) of 4.2% of their GDP, which is far from the Philippines with 1.8% only. Economists said that the
huge CAD of Sri Lanka is due to the exchange rate volatility, low remittances, and low tourist arrivals due to the
pandemic. Although both countries are importing more goods than it exports, the two have different external debt
structures. The external debt of Sri Lanka is much higher than the Philippines. The short-term loans of Sri Lanka are
higher than the Philippines, while the Philippines have a higher long-term loans than Sri Lanka. Long-term loans have
lower interest than short-term loans, which can be restructured.

Another wrong move of Sri Lanka in the attempt to save foreign exchange is banning the imports of chemical
fertilizers to promote organic agriculture, resulting in a decline in the country’s crucial tea and rice harvests. Months
later, Rajapaksa banned importing luxury goods and supplies, which effectively killed the tourism industryv.

There is also a serious allegation of corruption against the Rajapaksa family, criticized for economic mismanagement,
corruption, and its brutal campaign to end the civil war in 2009. According to Transparency International’s (Anti-
Corruption Help Desk) study, Corruption lowers the tax to GDP ratio. In addition, it causes long-term damage to the
economy by increasing the size of the underground economy, distorting the tax structure, and corroding the tax
morality of taxpayers, which is likely to reduce further the tax revenue base of a country. Presently, Sri Lanka ranks
at 102, while the Philippines rank at 117 based on the Corruption Perception Index.

As presented, there are barriers to government decision-making that result in poor decisions about critical issues
that affect a country’s governance quality. Whether it is a bad decision, a series of unfortunate events, or poor
governance, there are also things in public administration that we cannot control. What we can do is simply wait for
things to happen. There are also times we cannot make things happen, but we can only watch things happen.
Name : CATHERINE E. JOAQUIN

References:

i
https://www.bworldonline.com/top-stories/2022/05/26/450950/marcos-urged-to-impose-new-
taxes/?fbclid=IwAR2rkFD_ktO65aEdypLwnxtwh5NP4152wFiZF6puxr8MRJIeRLSMDfVM240
ii
https://www.manilatimes.net/2022/05/28/news/national/diokno-plays-down-rising-debt-concerns/1845308

iii
Conflict analysis of The Philippines.
https://opendocs.ids.ac.uk/opendocs/bitstream/handle/20.500.12413/14661/648_Conflict_analysis_of_The_Philippin
es.pdf?sequence=5

iv
https://www.treasury.gov.ph/wp-content/uploads/2022/05/NG-Debt-Indicator-Mar-2022-2.pdf

v
https://www.philstar.com/opinion/2022/05/25/2183441/marcos-must-resist-going-sri-lankas-
way?fbclid=IwAR3OKHWGqOBtPYbDlV6xpP7yUiF10zXuGTZX46ryBbx06VAjm0n4bEC3Tb0