Policy prerequisites for rapid development from the 70th year after Independence

Sri Lanka’s economic and social development in the 70th year after regaining independence and after would depend much on the adoption and effective implementation of pragmatic policies based on the current local and global situation. National unity and harmony and a consensus on economic and social policies are essential.

We must learn from the mistakes of the past, accept the realities of the present and pursue pragmatic policies for the country’s economic and social development.

Achievements

Admittedly there were many achievements in the 69 post independent years. The improvement of health and education has been a foremost achievement. The country has achieved self sufficiency in rice despite the population growing threefold from about 7 million at independence to 21 million in 2017. We have a diversified economy that is much less dependent on its agriculture alone. The country has achieved middle income status, reduced poverty and increased per capita incomes significantly.

Learning from the past

However it is agreed that the country could have done better and achieved higher levels of economic development. Countries in Asia that were at a lesser level of development at the time of our independence have gone far ahead. We have missed many opportunities to develop faster.

Communal tensions, ethnic clashes and a civil war; political ideologies that have prevented pursuance of pragmatic policies; bad policies and ineffective implementation of required policies; the lack of consistent economic policies to attract higher domestic and foreign investment; the inability to develop an investment friendly climate; widespread corruption; excessive politicisation and lack of discipline are, among others, the reasons for this lesser development.

Herculean task

Remedying these is a Herculean task. Yet improvements in these are vital for rapid development. The change of government two years ago raised hopes and expectations that there would be progress in these. There are pronouncements on reform but implementation has been disappointing.

Policy imperatives

The foremost priority is to build a united country free of communal tensions and violence. The severest setback to the economy has been ethnic violence. Without communal harmony the economic future is bleak in pluralist Sri Lanka. In as much as communal violence has impeded economic development, ethnic diversity has been an important impetus for economic development as ethnic minorities have contributed handsomely to entrepreneurial activities and the country economic development.

Ideology

Political ideology has blurred the nation’s vision on economic policies. Inward looking import substitution policies not only created scarcities and sluggish growth, but prevented the country from taking advantage of global trade. Malaysia, Singapore, South Korea, Thailand and other countries developed owing to their export-led growth.

It was only in 1977 that the country realised her folly and adopted outward looking economic policies. However communal violence in July 1983 setback the country’s economic progress.

Pragmatic policies

Pragmatic economic policies are crucial. Yet political motivations prevent the adoption of such policies in pursuing economic and social reforms that are vital for rapid development. The huge losses of state enterprise remain a burden on the economy and public. Yet their reform is politically difficult. There are echoes of failed import substitution policies in many.

Socialist countries

Socialist countries like Vietnam and China have gone ahead with pragmatic changes in their economies and increased efficiency and productivity and international competitiveness. Like them we must be outward looking, attract foreign investment and expand exports.

Consensus

Most important is a consensus in the coalition government on economic policies and their effective implementation. Unless such a consensus is achieved there would be policies proposed and opposed by elements in the government itself.

Conducive environment

One of the constraints to development has been the inability to develop an environment conducive to investment. Much was expected of the present government, but little accomplished. The rhetoric of encouraging private investment has not been backed up by policies that give confidence to investors.

The Budget of 2016 was a disaster in this respect as taxation measures were altered, amended and revoked. There have been statements that have discouraged investment in the stock market as well as in foreign direct investment. The inflow of FDI has fallen to as low as US$ 300 million that is an inconsequential amount compared to FDI inflows into other Asian countries like India and Vietnam and even Myanmar.

Political uncertainty, prevarication in policies, constant demonstrations, disturbances and strikes, account for this lack of confidence among investors. A clear statement of economic policies and signs of their effective implementation are vital to attract FDI.

Corruption

A vital prerequisite for development is the containing of corruption. By all accounts corruption has grown rather than diminished. Corruption raises the costs of public investment, distorts decision making, prevents release of lands and other resources owned by the government, delays investments and discourages investors. Widespread corruption is recognised by the government that has vowed to eradicate it. However rhetoric hardly achieves the eradication of corruption. There have to be meaningful actions to curb corruption. As the Leader of the Opposition Mr. Sambanthan pointed out in parliament there is corruption all over but hardly anyone has been found guilty.

Tourism

One of the country’s recent success stories has been the rapid growth of tourism in the post war years. Tourist earnings reached US$ 1.8 billion in 2014, increased to US$ 2.2 billion in 2015 and has reached US$ 3.5 billion in the first nine months.

It is however important not to kill the goose that lays the golden eggs as we did in 1983 by the ethnic violence. The protection of the environment, communal harmony and peaceful conditions in the country, especially the containment of harassment and violence against tourists, are prerequisites for tourist development.

Balance of payments

Tourist earnings together with remittances will exceed the expected trade deficit of about US$ 8.5 billion this year to generate a current account surplus. This is a significant achievement in the context of the growing balance of payments difficulties. However prudent management of the foreign debt is vital to tide over difficulties in 2019.

Conclusion

National harmony and elimination of communal violence, pragmatic economic and social policies that provide an environment for investment, economic and social reforms, improvement of social and economic infrastructure are vital for rapid economic and social development. It is essential that there is a consensus on economic policies and those policies are effectively implemented. Fiscal consolidation with appropriate fiscal measures and monetary policies that contain aggregate demand are vital for economic stability and development.