One of the biggest lessons Malaysia can learn from Sri Lanka’s crisis is that it did not happen overnight, or in the last two years.
The island nation has severe structural problems but these were not effectively addressed by successive governments largely for fear of losing public support. Malaysia too has structural issues and it needs to rectify these if it does not want to go the way of Sri Lanka.
Rather than implementing sometimes painful but beneficial long-term policies, successive Sri Lankan leaderships went for populist, election-in-mind policies. That should sound familiar to most Malaysians.
The ruling Gotabaya Rajapaksa family and their cohorts, for instance, pandered too much to their own Sinhala race to the detriment of the nation.
Sri Lanka’s governments also took the easier short-cuts, such as issuing sovereign bonds without provisioning for repayment, and the island nation is paying the price today.
Sri Lanka’s environment minister Mahinda Amaraweera told the media in February: “The primary challenge our country faces today is the US dollar crisis. When we earn US$100, we must pay off US$115 in debt. The funds obtained by the country are insufficient to pay off the country’s debts.”
In 2017, the government spent 83% of its revenue on debt repayment, according to one report.
There’s no doubt that the debt burden has dragged down the Sri Lankan economy. The International Monetary Fund (IMF) noted in early March that Sri Lanka’s projected government debt had risen from 94% of its gross domestic product (GDP) in 2019 to 119% of the GDP in 2021,
Understandably, international ratings agencies have downgraded Sri Lanka’s credit ratings.
Successive governments borrowed money despite persistent fiscal and current account deficits, causing public debt to grow to such an extent that it has become unmanageable. The country faces a dilemma: Should it repay its debts or spend the money helping its suffering people? No wonder it is seeking a bailout package from the IMF.
The problem with Sri Lanka is that it has been living beyond its means for years and years.
And I’m afraid if we in Malaysia don’t manage our debts well, we may be headed in the direction of Sri Lanka.
The Dewan Negara was told in March that government debt stood at RM979.8 billion at the end of December 2021. This amounts to 63.4% of GDP.
Last October, finance minister Tengku Zafrul Aziz told Parliament the debt service charges for 2021 would hit RM39 billion and would go up to RM43.1 billion in 2022.
In October 2020, the Dewan Rakyat passed a bill to increase the statutory debt limit to 65% of GDP from 60% under the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (Amended 2021). Earlier still, the limit stood at 55%. Should we keep increasing the limit each time there’s a crisis?
Certainly, it’s not as high as Sri Lanka’s government debt which rose to 119% of the county’s GDP in 2021, and both Putrajaya and Bank Negara Malaysia seem to have control over it. But that doesn’t mean they can’t learn from Sri Lanka’s experience and be more prudent.
Importantly, Putrajaya must only go for debt that is productive, not use borrowings to construct something that becomes underutilised or is only for show, and certainly not for operating expenditure.
And let’s not forget that household debt stood at RM1.17 trillion, higher than the federal government debt, in 2021. Some economists warn that high household debt, apart from deleveraging economic activity, would make recessions more severe.
When things go wrong, who do you blame? Your predecessor, of course. Sri Lanka’s president Gotabaya Rajapaksa recently said the economic crisis was caused by previous governments.
Remember how Pakatan Harapan blamed our own woes on Barisan Nasional, and how the subsequent Perikatan Nasional and Barisan Nasional-led governments blamed PH?
Until the 2020 general election which saw the current government securing a two-thirds majority, Sri Lanka was awash in political turmoil. In 2018, for instance, major disagreements among leaders of the ruling coalition resulted in instability. In October that year, then president Maithripala Sirisena sacked his prime minister Ranil Wickremesinghe, plunging Sri Lanka into a constitutional crisis.
Claiming his sacking was illegal, Wickremesinghe refused to step down. But that didn’t stop Sirisena from appointing Mahinda Rajapaksa, brother of Gotabaya, as prime minister. To cut a long story short, after the Supreme Court declared that the dissolution of Parliament by Sirisena was “illegal”, Mahinda resigned and Sirisena reappointed Wickremesinghe as prime minister.
But the political manoeuvring continued, with MPs jumping from one party to another if the offer was good, and everyone was left guessing what would happen next. Sound familiar?
Sri Lanka’s politicians are still so engrossed in fighting for power that they have been unable to arrive at a consensus on the way forward for the drowning nation.
In this sense, I think Malaysian politicians can’t be that bad as they have been able to come together on some issues, despite fundamental ideological differences, to ensure political stability ahead of the next general election.
But it appears that the current dire situation, especially increasing public anger and protests despite an emergency and a curfew, is spurring Sri Lankan politicians into action. On April 3, Sri Lanka’s Cabinet, except for president Gotabaya Rajapaksa and his brother prime minister Mahinda Rajapaksa, resigned. There’s talk of an interim government comprising all parties, including the opposition, being formed.
One important lesson Malaysians should learn from Sri Lanka is not to tolerate nepotism and cronyism.
When Gotabaya became president, he appointed his brother Mahinda prime minister. Mahinda had, in fact, served as president from 2005 to 2015. Gotabaya and Mahinda were heroes to the Sinhala-Buddhist majority for crushing the separatist LTTE rebels in May 2009.
Until their resignations on Sunday, Gotabaya’s younger brother Basil was finance minister, another sibling, Chamal, was agriculture minister, Chamal’s son Shasheendra was a state minister while Namal, the elder son of Mahinda, was sports minister.
When family members and cronies control the government, any nation will be in trouble sooner or later, as Sri Lanka so clearly shows.
One of the major accusations against the Gotabaya government has been that it has abused its two-thirds majority to enrich its cronies and silence dissent. Sound familiar?
Another reason given for the crisis is Sri Lanka’s dalliance with big-ticket projects that did not produce enough value. Some critics say the country accrued more debts when, in the 2000s, it began undertaking massive infrastructure projects – but with low-returns. Many of these projects were undertaken by firms from China or backed by loans from China.
By promising to finance and construct mega projects, China, critics say, managed to get a strong foothold in Sri Lanka, right at the southern doorstep of its rival India.
One of these mega projects is the Hambantota port built by China-based companies. The government has leased a 70% stake in the port to China Merchants Port Holdings Company Limited for 99 years in return for US$1.12 billion to help manage its massive debt and financial problems.
Malaysian leaders, who have a tendency to go for multimillion and multibillion ringgit projects, should keep this in mind. They should also keep in mind that the public is aware that mega projects open up avenues for huge kickbacks.
Sri Lanka’s food sector has been mauled by the crisis, the main reason being its over-dependence on food imports. Ceylon Today reported environment minister Mahinda Amaraweera as saying in February: “Despite the fact that the country has facilities for growing vegetables, US$384.27 million was spent on vegetable imports. This represents a US$31.41 million increase over 2020. US$58.14 million was spent in 2020 to purchase fruits such grapes, oranges, and pears.”
Malaysia must learn from this and shore up its food security by implementing policies that encourage local food production, and also open up more land for farming.
Another lesson is the need for greater export diversification. Sri Lanka depends too much on tourism and exports of tea and garments, which have been adversely affected by the Covid-19 pandemic and now the war in Ukraine.
Malaysia cannot control external events – such as a pandemic or war, and the subsequent supply-chain disruptions – but it can implement measures to be more self-sufficient and resilient in the face of these and other threats.
The above are the more noticeable problems that have contributed to the current crisis in Sri Lanka and which have parallels to our politico-economic situation. But these are not all; there are some non-economic foundational issues too, which I’ll talk about tomorrow.
The more any nation is able to involve all its citizens actively in nation building, the better progress it will make. To do this, it must have an inclusive attitude and implement inclusive policies and programmes, not divisive ones.
An effective or sane government will get all its citizens on board and chart a direction in which everyone happily plays a role and where everyone shares equally in the benefits.
Are Malaysia’s leaders prepared to do this? Are they matured enough for such a promising adventure?
I don’t know if it’s too late for Sri Lanka, but Malaysia can certainly learn and return to better times.
Source : FMT
7 Facts Why Malaysia Is Heading Towards A Failed State
How did things get so bad? What went wrong? So many Malaysians are angry, frustrated, jaded and are at their wit’s – and their will’s – end.
Just when we thought that we had emerged from the Covid-19 nightmare bruised but not beaten, the virus managed to ensnare us in its venomous tentacles and pull us into the seemingly bottomless abyss.
Sure, the Covid-19 virus is what has caused Malaysia’s descent into despondency, but I can’t help but feel that it only accelerated the rot that had been festering for decades. Just like a diabetic who only needs an ordinarily harmless papercut to have a fatal gangrenous infection set in, Covid-19 has exposed our disease-riddled body politic, which, if unrectified, would invariably lead to its – and our – untimely demise.
I also can’t help but draw parallels between the situation in Malaysia to that of Lebanon, which is mired in a financial crisis, with large swaths of its population deprived of food, money and basic supplies.
A recent article in The Economist quoted Lebanese caretaker Prime Minister Hassan Diab as saying: “Lebanon is days away from a social explosion.” The report added: “For nearly a year the country’s politicians, divided by sect and notoriously corrupt, have failed to agree on a new government – and failed to make reforms called for by foreign leaders.”
Sure, our situation isn’t nearly as dire as Lebanon’s… yet. But it does feel like we’re heading in that direction, as a recent article in Bloomberg titled “Malaysia Is Staggering Down The Road To Failed Statehood” suggests.
That got me thinking. Are we really heading towards becoming a failed state or is the article mere hyperbolic clickbait? To find out, we need to look at the definition of “failed state” and find out if Malaysia fits the bill.
According to the authoritative Encyclopedia Britannica, a few conditions need to be met for a nation to become a failed state. We’ll look at them one by one and decide if Malaysia is indeed a failed state.
Inability to fulfill the administrative and organisational tasks required to control people and resources, and one that can provide only minimal public services.
Thankfully, the government still has control over its people and resources, and most public services are still functional, albeit functioning at a compromised capacity. The glaring exception to this is, of course, our healthcare system that has been inundated and is on the brink of collapse due to the recent avalanche of Covid-19 cases.
Plus our vaccination drive has been far from seamless, with only around 10% of the population having been fully vaccinated as of yet. Our poor vaccination rate even pales in comparison with nations such as Mexico, Brazil and Colombia.
In addition, one could also make the case that our national education system has been steadily deteriorating for decades, causing so much disillusionment that parents are sending their children to private and vernacular schools in record numbers. The recent debacle with the subpar study aid phones doled out by the ministry exploding and catching fire is emblematic of the systemic rot that has set in.
Verdict: Partially failed
Its citizens no longer believe that their government is legitimate, and the state becomes illegitimate in the eyes of the international community.
The raging bendera hitam and #kerajaangagal movements strongly indicate that many, if not most, Malaysians no longer believe that the current unelected government is legitimate. Malaysians, who aren’t typically known for their outspoken nature, seem to have had enough of what they deem to be governmental incompetence and apathy and are railing for change.
A large part of this loss of confidence in the government stems from its inability to curb the climbing Covid-19 cases, in spite of the ever heavier lockdowns it has introduced. Instead of making the situation better, the lockdowns seem to have worsened it, with thousands, if not millions being deprived of their livelihoods and the financial means to keep their families fed.
This in turn has led to an alarming spike in suicides, with around 1,100 people deciding to forfeit their own lives in desperation between last year and now.
Almost every day, we see snaking lines of starving Malaysians lining up to collect food and basic supplies at soup kitchens and from random good samaritans. Never did I think I’d see such deeply unsettling sights in Malaysia.
However, in the eyes of the international community, the current government has not lost legitimacy.
Verdict: Partially failed
The executive barely functions, while the legislature, judiciary, bureaucracy, and armed forces have lost their capacity and professional independence.
Arguments could be made for how the toxic culture of politicking, manoeuvring and party-hopping seem to have taken precedence over the governing of the country, effectively stymying the decisive actions we need to get us out of the Covid-19 hell we’re in, but on a technical level, our executive, judiciary and armed forces are still functional. However, the issue of whether some or all of them maintain their professional independence is certainly up for debate.
Verdict: Partially failed
Suffers from crumbling infrastructures, faltering utility supplies and educational and health facilities, and deteriorating basic human-development indicators, such as infant mortality and literacy rates.
Our infrastructure is largely intact, utilities are functional, infant mortality is low and literacy rates are high, which are all good things. Although the Covid-19 carnage has exposed the frailty of our medical and educational sectors, as previously elucidated, most others are operational. So let’s give it the benefit of the doubt.
Creates an environment of flourishing corruption and negative growth rates, where honest economic activity cannot flourish.
At number 62 out of 180 countries, our corruption ranking isn’t something to be particularly proud of. However, it still isn’t dire enough that economic activity can’t flourish. We have a decent entrepreneurial culture and enough success stories to prove that businesses can thrive and succeed in Malaysia.
However, the government’s bungled handling of the resurgence of Covid-19 cases has foreign investors worried and seriously considering relocation. Japanese, German and Dutch trade groups have panned the government’s haphazardly orchestrated lockdowns and vague, inconsistent guidelines.
For instance, in a letter to Johor menteri besar Hasni Mohammad, the Malaysian Dutch Business Council said: “Any further closures from the EMCO areas mentioned above will result in the HQ of these established companies to rethink current and future investments in Johor. We call on you to help stop the flight of those investors that have trusted Johor with their investments. We urge you to be precise and targeted in action, using data not as a sentiment but as a guide”.
Echoing this, the Malaysian-German Chamber of Commerce and Industry wrote to the prime minister saying: “Most importantly, consistent and clear communication is necessary, so that enforcement, publication of SOPs and recovery plans are well-aligned. We suggest executing stricter controls at manufacturing facilities and related dormitories, rather than closing down all facilities and harming the entire economy.”
Verdict: Partially failed
Cannot maintain a monopoly on the legitimate use of violence and minimise internal conflict.
The government still has a monopoly on the legitimate use of violence and there aren’t any major conflicts, besides occasional gang fights and pockets of criminal activity.
Cannot provide for the representation and political empowerment of its citizens or protect civil liberties and fundamental human rights.
According to think tank Freedom House, Malaysia has a history of “maintaining power by manipulating electoral districts, appealing to ethnic nationalism, and suppressing criticism through restrictive speech laws and politicised prosecutions of opposition leaders”. Citing these reasons, it gives our nation a freedom rating of 52 over 100 – a barely passing grade.
In addition, Malaysia was recently moved down to the lowest tier possible by the US State Department’s Human Trafficking Report. At Tier 3, we rank lower even than Bangladesh and Thailand and are brushing shoulders with the likes of North Korea and Afghanistan. Quite the company we keep these days.
The report said that: “…the government continued to conflate human trafficking and migrant smuggling crimes and did not adequately address or criminally pursue credible allegations from multiple sources alleging labour trafficking, including in the rubber manufacturing industry and palm oil sector, with the government owning 33% of the third largest palm oil company in the world”.
In addition, local activists have slammed the government for clamping down on dissent and criticism, noting that even cartoonists are being investigated by the police.
Also, the government declared a state of emergency and suspended Parliament in January. It was only after pressure from both the Rulers and the public that the government scheduled a sitting of Parliament for five days from July 26.
Verdict: Partially failed
In conclusion, out of the seven metrics that Encyclopedia Britannica prescribed for a “failed state”, Malaysia passes only two and partially fulfills five. So it’s apparent that even though Malaysia isn’t a failed state now, it certainly seems to be heading in that direction.
Source : FMT