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Fulfilling Budget 2013’s Aspirations: Lets Walk the Talk Regarding Reforms

Key Targets

It is encouraging that the Budget Speech 2013 sets out a fiscal framework that seeks to continue the trajectory of much-needed fiscal consolidation. If successful, it will address a perennial problem that has plagued macroeconomic management in Sri Lanka for over four decades. The budget also announced several measures to strengthen the supply-side of the economy (i.e. boost domestic production) in relation to SMEs, agriculture, other import substitutes and capital markets. The capital account of the balance of payments was also liberalized further. Despite these measures, the prospects of achieving the following two outcomes that are built into the budgetary framework are likely to prove extremely challenging:

Last Updated on Wednesday, 21 November 2012 09:50

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Reviving Growth –Let the political leaders and policy makers be serious

The Challenge- from borrowed to earned reserves and beyond

The challenge for Sri Lanka is to develop a policy framework that would stabilize the economy; boost investment and growth; and earn rather than borrow reserves. All shades of political opinion are now focused on these issues. The Pathfinder Foundation (PF) is, therefore, raising a number of issues in this piece to stimulate thinking and debate.

By 4Q 2011, it had become apparent that the country was headed for a serious balance of payment crisis. This may be attributed to adverse external developments and a misaligned macroeconomic policy framework involving an overvalued exchange rate, expansionary monetary policy and an unsustainable fiscal deficit (particularly when the 2% of GDP losses of SOE’s are included in the government balance sheet).

Last Updated on Tuesday, 11 December 2012 15:15

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Voiceless, Helpless and Powerless: Let’s Uplift and Integrate Them into the Mainstream of Economy and Society

Commendable Achievements

Over the years Sri Lanka has gained a considerable reputation for its achievements in social development. It punches above its weight on the UNDP's Human Development Index. It has also performed very well in meeting the internationally agreed Millennium Development Goals (MDGs) which focus on indicators related to poverty, health, education and gender parity.

There is also a positive narrative on poverty. The latest household income and expenditure survey (HIES) records that absolute poverty has declined to 8.9 per cent. This is an impressive figure for a country at Sri Lanka's stage of development. In addition, relative poverty, inequality, as measured by the Gini Coefficient, has remained steady at a time when there has been a sharp rise in inequality in countries ranging from the US to China. In fact, the Asian Development Bank has identified increasing inequality as the greatest threat to Asia's rise and the prospects of this being Asia's century. Recently, there has also been a trend towards greater regional balance in development across the country with the Western Province's share of national GDP declining.

Last Updated on Monday, 10 December 2012 09:28

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No Growth, Slow Growth or Great Leap Forward

Declining Trend

The Treasury has recently indicated that the country’s economic growth this year will be around 6.5%. As the recorded growth rate of the first half of this year was 7.1%, this means that growth in 2H 2012 is being estimated at 6%. The growth momentum will inevitably slow down steadily during the course of this year, as the restrictive measures, particularly the 18% credit ceiling set for banks (23% where they have been able to borrow the incremental funds from abroad), take effect. The re-phasing of public expenditure, announced recently, will further dampen economic activity.

Taking these developments into consideration, it is highly likely that the rate of growth will settle in the 5% - 5.5% range in the last quarter of this year. This is around the average growth rate achieved during the course of the conflict period. Hence, 5%-6% growth in post-conflict Sri Lanka is tantamount to no growth at all. It is also unlikely that growth impulses will be significantly stronger next year, particularly as tight macroeconomic policies will have to be continued due to the persistence of inflationary and balance of payment pressures. Recovery in the global economy is also expected to be sluggish. It is, therefore, now apparent that the government’s own medium-term growth target of 8% is unlikely to be a reality in 2012 and 2013. This is really an amber light (danger signal) that needs the urgent attention of the political leadership and policy-makers.

Last Updated on Tuesday, 11 December 2012 15:15

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Urban World: Cities and the Rise of the Consuming Class

This article is based on selected extracts from an analytical study from the McKinsey Global Institute (MGI), research arm of McKinsey & Co. The goal of the research conducted by MGI is to provide leaders in the commercial, public and social sectors with the facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economic and management, employing the analytical tools of economics with the insights of business leaders.

Current research focuses on six themes: productivity and growth, financial markets, technology and innovation, urbanization, labour markets and natural resources.

Last Updated on Tuesday, 16 October 2012 21:44

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Economic Governance: The High Costs of Poor Performance or High Returns of Sound Management.

The Standard and Poor’s (S&P) Rating Services assigned a score of 8 (very high risk) to the Sri Lankan economy and banking industry last week. The role of ratings agencies in the lead-up to the global financial crisis (2008) was certainly highly questionable. There are also issues related to their accountability. Despite this, and setting aside the merits or otherwise of S&P’s assessment, this episode serves to highlight the following:

Last Updated on Wednesday, 18 July 2012 15:22

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Faltering Growth: Urgent Reforms or Stagnation?

Declining Growth

The balance of probability is that growth will decelerate sharply by the fourth quarter of this year to about 5% and inflation will be at a double digit level. There is urgent need for a mix of policies that not only curtail aggregate demand but also create the impetus for a robust supply response.

Last Updated on Wednesday, 18 July 2012 15:21

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Infrastructure Development: The Case for Maintaining Momentum

Role of Infrastructure


Development economists and Agencies have considered infrastructure and human resource development to be at the centre of the development process. Infrastructure refers, in this note, to physical structures, such as roads, electricity, irrigation, water and sanitation and telecommunication.  These infrastructure facilities not only support the production of goods and services in an economy but they also facilitate day-to-day living of the populace.  Infrastructure, therefore, constitutes an important part of the capital stock that is a crucial determinant of any country’s development prospects through the provision of essential public goods and services.

Last Updated on Monday, 18 June 2012 11:45

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Maximizing the Benefits from Chinese Funding Lessons from Latin America

 

Sri Lanka has recently mobilized very substantial loans from China to fund large infrastructure projects (e.g. the Norochcholai power station and the Hambantota port). It would, therefore, be useful to understand better the manner in which the Chinese authorities administer their foreign loan programs.

Last Updated on Wednesday, 16 May 2012 10:07

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New Instrument for Financing Sri Lankan Development For the Attention of Bankers and Financiers.

Sri Lanka, which was a low-income country (per capita income below $2,000) until a few years ago, has now reached lower-middle-income country status ($2,840).  Of course, while Sri Lanka can be proud of this achievement, middle-income country status requires it to operate within a new paradigm.  In the 80’s and to a lesser extent in the 90’s Sri Lanka was the ‘Darling’ of donor agencies who were generous in providing concessionary financing to poor countries which had liberal economies and polities. However, as a lower-middle-income country Sri Lanka is no longer entitled to such finance. The country is now more dependent on international capital markets to finance its development work.

Last Updated on Friday, 11 May 2012 09:58

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Accelerating Growth: Catching the Wave or Missing the Bus

The Central Bank, in its latest Annual Report, has downgraded its growth forecast for 2012 from 8% to 7.2%. This is due to a combination of adverse global developments and the negative effects of domestic policy misalignments. The contractionary measures introduced to address the imbalance in the trade account (ie to encourage the country to live within its means) may well result in growth being less than the 7.2% forecast by the Central Bank. It is important, therefore, that reforms are introduced to accelerate recovery in order to achieve the government’s own growth target of 8% or more. The Pathfinder Foundation (PF) is putting forward some suggestions to begin a discussion/debate on how this can be achieved. 

Last Updated on Thursday, 19 April 2012 09:44

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Economic Alerts Introduction

 

As of October 2010, the PF has been issuing monthly Economic Alerts which have sought to highlight emerging economic challenges & opportunities. These Economic Alerts have gained wide publicity in print and electronic media.

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