Life expectancy has reached 74.9 years in Sri Lanka today. This reflects the considerable successes the country has achieved in its social development during the post – independence era. These include the control of Malaria, free education and health, provision of welfare services, and delivery of basic infrastructure services, including transport connectivity, electricity and water and sanitation to a wide cross section of the people. This has, in turn, been reflected in Sri Lanka achieving the Millennium Development Goals (MDG’s) before the 2015 deadline and its impressive ranking on the UNDP’s Human Development Index. The quality of life of families has also been improved by a successful voluntary population policy program. Much of the improvement in the social indicators that have led to the rise in life expectancy may be attributed to the impressive progress that has been made in educating the girl child. There is considerable evidence from around the world of the great impact a mother’s education has on the welfare and life chances of a family.
It was reported in the media recently that there were concerns regarding the signing of Free Trade Agreements (FTAs) on the basis that such moves might endanger the import substitution industries, which produce internationally uncompetitive goods for the domestic consumers. This brings to our memory the 1960s and 70s policy prescriptions of infant and import substitution industries. These protectionist policy maneuvers brought disastrous consequences to the countries that blindly followed them, including Sri Lanka. Therefore, it may be opportune for us to refresh our memories regarding our past.
Any grossly underutilized factor of production, whether it be land, labour or capital is equivalent to an economic crime as it deprives people from opportunities for wealth creation and gainful employment.
After the disastrous consequences of the anti-export bias and import substitution polices, Sri Lanka, since 1978, has implemented many strategies and programmes to promote export oriented industries and agriculture. Nevertheless the country’s export performance during the four decades that have ensued has been disappointing. This is partly due to the widespread violence and disturbances which discouraged foreign investors and buyers. In spite of this lackluster performance, a few initiatives and a couple of sectors have proved successful. This includes the performance of the apparel sector and the establishment of export processing zones.
Sub-Saharan Africa has become one of the fastest growing regions in the world. The 1990’s was seen as the “lost decade” for the continent and Africa was written off as a basket case. Since then, there has been a “silent revolution” (Michel Camdessus, former Managing Director of the IMF). Conflict has abated, the macroeconomic policy framework has been strengthened and the investment climate has improved.
Sri Lanka and China have had historical links that can be traced back several centuries. The Rubber-Rice Pact (1952) was a major watershed in forging close, cordial and durable relations in the post-independence era. China provided steadfast support to Sri Lanka in the fight against Terrorism. It was also prompt in providing generous support in financing development following the end of the conflict, particularly the unprecedented infrastructure development program which has addressed a key bottleneck constraining Sri Lanka’s growth prospects for decades. China has provided unhesitating support at times when other friends of Sri Lanka have shown reluctance.
The growth momentum in the Sri Lankan economy has slowed down significantly. It is important to examine its performance subsequent to the necessary stabilization measures introduced in Feb/March 2012 to address the overheating of the economy. This was reflected in the severe balance of payments/reserves and inflationary pressures at that time. Trends in indicators that are often used as proxies for growth, such as electricity consumption, shipments (total cargo handled minus transhipment) and cement consumption (domestic production plus imports) seem to point to growth of less than 5% in 2H 2012 i.e. the period when the stabilization measures would have taken effect.
The government is to be commended for its highly courageous decision to adjust electricity prices towards cost reflectivity. The political leadership and pragmatic policymakers have to be given considerable credit for setting aside short term political expedience and addressing a fundamentally unstable situation that could eventually have had a very negative impact on the financial viability of the two state banks and consequently the entire financial system. It is not just the broader financial system but the real economy involving SMEs and farmers for whom, the People’s Bank was created, who are being adversely affected by the huge losses of public enterprises
Land is an emotional issue in all countries. It is particularly so in a relatively small country like Sri Lanka.
Land is also a crucial factor of production. When the share of agriculture in GDP declines, as an economy modernizes and becomes more complex, issues related to the availability and value of urban land becomes more urgent. In addition, issues related to food security, competitiveness and the impact on domestic prices place an increasing premium on the productivity of agricultural land. Land related issues are not only complex in nature but are also entrenched in a web of primordial emotions which are difficult to manage. It is now timely to take a holistic view of the challenges related to land and conduct an open and constructive debate on the subject. The pressures on both rural and urban land are likely to be amplified as the country seeks accelerated development in the post-conflict era.
The latest LMD/Nielsen Business Confidence Survey shows that the percentage of people concerned about the economy more than doubled in 4th quarter 2012. The proportion of people indicating that the economy was their biggest or second biggest concern increased from 22% to 46 %. This sharp deterioration in public sentiment reflects the slowing down of the economy that has taken place following the implementation of the necessary stabilization measures that were introduced a year ago to address the overheating of the economy. That overheating was due to a combination of misaligned domestic macroeconomic policies in the wake of the euphoria associated with the war victory and adverse developments in the world economy.
The Pathfinder Foundation (PF) welcomes the recent adjustment in fuel prices and the anticipated further reforms in the power and energy sector. It has advocated institutional changes, competitive industry structures and PPPs as in the case of the telecom sector. The massive accumulated losses of the CPC and CEB, amounting to about Rs. 400 billion, have seriously undermined not only the health of the state banks but ultimately public finances as a whole.
The announcement that negotiations between the Government of Sri Lanka (GoSL) and the International Monetary Fund (IMF) have been halted raises a number of concerns. It has been indicated that a major issue discussed related to budgetary support through an IMF Extended Fund Facility (EFF) Arrangement. Reports have also stated that the amount being negotiated was $1.5 billion over three years. The GoSL has adopted the position that it did not require any balance of payments support as its gross reserve position was adequate. From its perspective, the conditionality attached to an IMF arrangement would only be judicious, at this point in the political cycle (i.e. electoral calendar), if there was budgetary support forthcoming at a time when fiscal space is been squeezed sharply, most notably by a significant decline in revenue. Expenditure pressures also continue unabated and are likely to increase as major elections begin to loom up on the horizon.