Pathfinder Foundation

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Taming the “Monsters”

State ownership of public utilities dates back to the colonial period. The early post-Independent years saw the state establish public enterprises that were involved in the production and distribution of key goods and services. The share of state ownership in the economy expanded steadily and gathered momentum in the 1970s when government policy, in the name of socialist or progressive reforms, sought to gain control of the “commanding heights of the economy”. State involvement in production and distribution was rolled back to a certain extent, during the period 1977 – 2005, as successive governments privatized a number of state enterprises. The privatization process has been halted since 2005. The state - owned enterprises sector still accounts for a significant share of the economy (see below).  Despite improvements in their performance, these enterprises continue to provide a very low or negative return on investment for the people of Sri Lanka.

Last Updated on Friday, 11 May 2012 10:11

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Exchange Rate Policy in Sri Lanka

The Government of Sri Lanka has set the target of doubling per capita GDP to US$ 4000 by 2015.  This requires accelerating growth to 10% and increasing the investment ratio to 40% of GDP.  In 2005 – 09, they averaged 6% and 27% respectively.

Last Updated on Sunday, 04 March 2012 16:16

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Monetary Policy towards increased Investment, Employment and Prosperity

Persistent fiscal imbalances have consistently complicated macroeconomic management, since the liberalization of the economy in 1977.  For much of the past three decades, the Sri Lankan authorities have found themselves in the position of a “one club golfer.”  

Last Updated on Tuesday, 06 March 2012 22:00

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A Stitch in Time Saves Nine

Facing the short-term economic challenges

The macroeconomic imbalances

Sri Lanka has achieved a growth rate of 8.3% last year and inflation fell to 4.9% year – on- year in December 2011. These are noteworthy achievements at a time when the global economic landscape has been hostile with a slowdown in the US and a crisis in Europe; key markets for Sri Lanka’s exports and tourism. The Central Bank and the Treasury deserve credit for their role in the attainment of such positive growth and inflation outcomes in the context of a difficult global economic landscape. However, there are balance of payments pressures that have emerged which require an immediate policy response. The Pathfinder Foundation (PF) has issued two Economic Alerts (no’s: 19 & 23) in recent weeks, drawing attention to the unsustainable trends in the country’s external account. In our view, the need for early remedial action is so pressing that the subject merits yet another call for the authorities to initiate decisivemeasures to address the excess demand in the system.  The difficult international economic environment will increasingly influence policy formulation in the period ahead. It will necessitate a re-thinking of the current policy stance.

Last Updated on Tuesday, 06 March 2012 22:11

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Excessive Salary Increases: Will the people and the country win or lose?

There has been a deficit in the current account of the budget (public dissavings) in every year since 1988. Can Sri Lanka afford to live beyond its means in this manner any longer? As a lower middle income country, it now has much less access to foreign aid and is more reliant on commercial borrowing. Capital markets are brutal in the way they deal with macroeconomic imbalances. This places a higher premium on maintaining macroeconomic stability than ever before. Fiscal consolidation has to be at the top of the economic policy agenda. It is essential not only for reducing government dissavings in order to help attain the investment necessary to place the economy on a higher growth trajectory but also for the demand management necessary to contain inflation and achieve low interest rates, as well as a stable and competitive exchange rate. This is essential for creating the enabling environment for rapid economic progress

Last Updated on Tuesday, 06 March 2012 21:42

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Let’s Face the Challenges


After thirty years of conflict, the people of Sri Lanka deserve better than continuing with the boom and bust cycle which has capped the country’s growth rate at 5-6% over the last three decades. There is ample historical evidence from both Sri Lanka and from around the world that inward-looking autarkic strategies do not result in accelerated growth and development on a sustained basis. This is particularly so for a relatively small economy like Sri Lanka. Export growth has, therefore, to play a major role in taking the economy to a higher growth trajectory. In a context of globalised markets for goods and services, this places a very high premium on the competitiveness of the economy.

Last Updated on Tuesday, 06 March 2012 22:00

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Achieving Double Digit Growth: Plugging into Asian Supply Chains

Unprecedented Opportunity

The current historical conjuncture offers Sri Lanka the prospects of achieving unprecedented prosperity and long-term peace and stability. However, a strategic approach is required, supported by decisive action on difficult issues, if hope is to be translated into optimism and potential into progress.

Last Updated on Tuesday, 06 March 2012 20:53

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Elevated Risks in the World Economy: What are the Implications for Sri Lanka?


Recent political developments in North Africa and the Middle East, and the destructive earthquake and Tsunami in Japan, have created major uncertainties related to oil prices and international trade, resulting in elevated risks for all countries. The impacts of these phenomena are global in reach and will, therefore, have ramifications for the Sri Lankan economy. There are several channels through which the effects are likely to be transmitted:  oil prices; tea and rubber prices; remittances; capital flows; changes in the value of the Yen; and businesses dependent on Japanese imports. At the macro level, prices (inflation), the balance of payments and possibly the budget are likely to be affected.

Last Updated on Tuesday, 06 March 2012 21:42

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CEPA: Betrayal or Transformative Opportunity

Lost Opportunities and Challenges

Recent press reports have indicated that all the ASEAN member countries have now ratified a Comprehensive Economic Partnership Agreement (CEPA) with India. This agreement is expected to come into effect by the end of 2011. Sri Lanka had a head start when the Indo – Sri Lanka Free Trade Agreement (ISLFTA) was implemented in 2000 and negotiations were commenced on an Indo – Lanka CEPA in 2003. The news of all ASEAN countries ratifying their CEPA with India, at a time when the Indo – Lanka agreement has stalled, raises the question whether Sri Lanka is about to miss a second transformative opportunity in a generation.

Last Updated on Tuesday, 06 March 2012 21:34

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Export Growth: The Challenge of Poor Logistics

Sri Lanka 137th out of 154 Countries


Over the last 50 years, the civil conflict, a dramatic decline in terms of trade, demographic pressures and misguided policies were major contributory factors to Sri Lanka’s economic underperformance. The current prospects are significantly more propitious not only because of the absence of major ‘drags’ on the economy but also due to favourable economic geography (previous Economic Alerts have elaborated on this). The government has set a growth target of 8% in the medium term. It also aims to double per capita GDP to over $4,000 by 2016. This would require average annual real growth rates in double digits.

Last Updated on Tuesday, 06 March 2012 21:46

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A New Paradigm for Providing Economic Services.


There was a significant policy shift, in 2005, when the government took the decision not to privatize any State Owned Enterprises (SOEs). Instead, priority was attached to improving their operations. In order to achieve this objective, all SOEs have been called upon to revisit their vision, strategies and business models in line with national objectives.  The government invested Rs. 635 billion in SOE’s during 2005 – 09. The return on investment to the government is generated through levies and dividends declared on SOE profits after tax. These rose from Rs. 5.9 billion in 2005 to Rs. 23.7 billion in 2009. The most significant contributors were the state-owned banks, the Telecommunications Regulatory Commission and the National Insurance Trust Fund. There has also been a turnaround in the performance of the non-functioning SOEs. This has enabled the government to reduce its subventions (recurrent and capital) to these enterprises from Rs. 2.8 billion in 2006 to Rs. 486 million in 2009.

Last Updated on Wednesday, 07 March 2012 11:24

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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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