Economic reforms imperative for economic stability and growth

The main preoccupation of the Government and the concern of the people are the severe shortages of their basic requirements. These require immediate foreign assistance to resolve them.

At present assistance provided by foreign countries gives a breathing space to overcome the severe scarcities that threaten the lives of people. Much more of international assistance is needed for our survival in the next few months.

Foreign finances

However, the country’s foreign financial vulnerability is a fundamental disequilibrium that has to be resolved by reforming the economy. The way out of the country’s economic malaise is through a comprehensive programme of reforms.

Reforms

Immediate and short-term remedial measures could redeem the current problems to some extent. However, the fundamental problems of the economy could be resolved only by comprehensive economic reforms. Constitutional, economic, administrative, educational, and social reforms are essential for the country’s economic and social development.

Painful

Many of these reforms are painful and difficult to implement due to their political unpopularity and the ideological political culture of the country. However, they are imperative.

Many reforms are difficult to implement due to their political unpopularity and the ideologicalpolitical culture of the country. However, they are preconditions for the resolution of the county’s economic problems, economic stability and growth.

Political unpopularity

Hitherto successive governments of the past have failed to implement the much-needed structural economic reforms, though some have undertaken a few reforms. The political unpopularity of such reforms has been the main reason for this failure.

Privatisation

The privatisation of telecommunication has been an outstanding success. It transformed telecommunications to what it is today. The privatisation of the management of stateowned estates improved their production and reduced the burden of losses incurred by them on the state coffers. The reversal of the privatisation of SriLankan airlines has been a huge financial burden.

Unrecognised

What is seldom recognised is that the country’s political and social milieu makes such reforms impossible. This is especially so in respect of economic reforms. Reforms will continue to be the stuff of endless discussion. Their adoption and implementation will continue to be postponed till inevitable. The country will fail to adopt the needed reforms and remain underdeveloped and shift from crisis to crisis.

This is especially so with respect to economic reforms which will be focused on in this discussion. Have we come to that critical point in time when reforms are imperative?

Vested interests

Vested interests of politicians have been an important factor in not reforming state enterprises. This constraint was captured by a former Finance Minister when he said “All my cabinet colleagues are for privatisation, but no one is for the privatisation of enterprises in their ministry.”

Commissions

It is also common knowledge that in the allocation of Cabinet portfolios, there is a premium in obtaining a ministry where the Minister has control of many resources and possibilities of large commissions.

Opportunity

Will the severity of the economic crisis facing the country be an opportunity to transform the economy? Is the grave economic crisis an opportunity to undertake fundamental structural reforms? Are we at a turning point in the country’s economic development?

Reforms

Albert Hirschman, in his book, The Strategy of Economic Development, advances the thesis that countries adopt reforms only when they are in severe crises. This view is based on the economic development experiences of Latin American countries, where their deep- rooted economic problems could be resolved only by a wide spectrum of reforms.

It was only at the depths of their crisis when “deep surgery” was required that needed reforms were undertaken. This is the Sri Lankan predicament today.

Economic reforms

Economic reforms are essential for financial stability in the short term and economic growth in the long run. These must be complemented with comprehensive administrative, educational, and social reforms for an economic and social transformation of the country in due course.

Needed reforms

Among the needed economic reforms, are fiscal reforms, reforms of state-owned enterprises, trade reforms and social welfare programmes. All of these have difficulties of implementation.

These include economic hardships that make them politically unpopular. Others are difficult to reform owing to vested interests and political gains that ensure their continuation in inefficiency and corruption. Ideological biases too hamper the adoption of reforms. This is especially so in respect of the privatisation of loss making state enterprises.

Privatisation

Pivatisatisation is considered the sale of the family silver. There is a lack of understanding of the burdens these enterprises are on the population and their distortion of public expenditure and consequent adverse impact on the economy. A public awareness that these lossmaking enterprises have been among the causes for the current economic crisis is warranted.

Summing up

The main current preoccupation of the Government, and the concern of people, is the severe shortage of foreign currency and the consequent scarcities of essentials and soaring prices that make their livelihoods unbearable. These require immediate measures to resolve them.

The foreign assistance received provides a breathing space to overcome the severe scarcities that threaten the lives of people. Immediate and shortterm remedial measures could relieve the immediate problems to some extent.

However, the fundamental problems of the economy could be resolved only by compre h e n s i ve reforms. These are painful and difficult to implement due to their political unpopularity and political culture. They are however imperative.

The ultimate and sustainable solution to the balance of payments crisis is the adoption of macroeconomic reforms. The country’s foreign financial vulnerability is a fundamental disequilibrium that has to be resolved by reforming the economy.

In conclusion

In as much as economic and social reforms are essential, for immediate economic and financial stability, comprehensive administrative, educational and social welfare reforms are vital for the longrun development of the country.

The immediate task of the Government is undoubtedly to resolve the acute shortage of foreign exchange that is causing severe difficulties to people. The immediate task is to find ways and means by which essential food, fuel, medicines, fertiliser and raw materials for industry could be imported. Short-term methods must be found to replenish the reserves.

The most important and most difficult challenge is the adoption of economic reforms that would stabilise the economy. Macro-economic policies must stabilise the economy. These would include the containment of the fiscal deficit, reduction of money expansion and reduction of losses in state enterprises. Unless these reforms are effectively implemented, the country would continue to live beyond its means and the balance of payments would widen, reserves would decline and debt repayment difficult.

The ultimate and sustainable solution to the balance of payments crisis is the adoption of macroeconomic reforms. The country’s foreign financial vulnerability is a fundamental disequilibrium that has to be resolved by reforming the economy.