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.
The recent floods affecting several districts of Sri Lanka and other weather related events in several parts of the world have brought to the fore a number of public policy issues. Major challenges are looming up on the horizon, both within Sri Lanka and globally. A holistic package of reforms would be needed to address both the short-term food crisis and increasing concerns related to longer-term food security. The upward pressures on food prices are also being amplified by rising oil prices which impact on the former through a number of channels.
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.
Fiscal performance is an important determinant not only of macroeconomic fundamentals but also the overall trajectory of the economy. Increased government involvement in the economy, over several decades, has led to a sharp rise in government expenditure. At the same time, revenue collection has been weak. As a result, for much of the post-Independence period, Sri Lanka has experienced a structural budget deficit.
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.”
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.