Prioritize structural reforms for lasting economic prosperity - Economist

Sri Lanka could emerge out of the current sorry state of the economy provided the government treats key structural reforms as a top priority, an economist said.

While there are no quick fixes to boost Sri Lanka’s prosperity, Hayleys Group Senior Economist Deshal de Mel opined the present situation could be tackled to a certain extent if immediate focus is directed towards improving fiscal discipline, uncompetitive sectors, global competitiveness, and transforming the education system.

“Ideally the government should create an environment for private enterprises to compete to allocate scarce resources to its most productive use. The state should create a rule-based framework for this and provide infrastructure that would be under-provided by the market,” said the economist, pointing out that the government should play leading role in required reforms.

De Mel made these observations while delivering a public lecture organized by Advocata, an independent think-tank, on ‘What is Wrong with the Economy? And How to Fix it’.

To start the change process, he said that immediate kickoff is mandatory in the rationalisation of recurrent government expenditure, which can be achieved by cutting back on government sector cadre, targeting of transfers and subsidies, and improved management and ownership of SOES.

While enhancing government revenue is the need of the hour, equally needed is a shift towards more direct taxes with better use of information, simplification of taxes and returns to minimize room for discretion, and rationalisation of tax holidays.

Though these are a “fairly well” understood set of problems, de Mel asserted that politics have got in the way of the economy, hampering the outcome.

This has been so throughout the postindependence era, depriving Sri Lanka of many development opportunities.

“There is a need to re-orient the role of government to one that focuses on addressing market failure through smart, unobtrusive regulation. Instead what we see are attempts to replace the market by fixing prices and engaging in business,” he noted.

Over the months the government has signalled its willingness to enact reforms across diverse areas, but a credible economic plan to support the nation’s growth aspirations is yet to be presented.