Resorting to price controls ‘idiotic’- Prof. Sally
A top economist, while charging that the country’s economic policy has deteriorated to the ‘supreme idiocy’ of resorting to price controls, called on the new administration to aim for ambitious trade agreements and not focus on the usual suspect countries to ink deals.
“There has been the supreme idiocy of imposing price controls, which I thought was something we had left behind in 1977,” Razeen Sally, Chairman of the Institute of Policy Studies and a professor at the Singapore National University, said addressing the first panel discussion at the 'Sri Lanka Economic Summit 2016 on Tuesday. The government by creating inflation and by having import protection put burdens on consumers and then put burdens on producers and entrepreneurs with price controls, he said criticising the excessive spending in the public sector, increase in salaries, and the deterioration of the tax system seen during the last year.
Sri Lanka has had two ‘bad budgets’ last year and the IMF programmes which were to reverse this bad wicket that the country was in, but they didn’t as there were some unwelcome developments that happened in the country, Dr. Sally said adding that the Central Bank policy was too loose.
Fiscal policies
Welcoming the new Central Bank (CB) Governor’s appointment, he said that the new chair at CB would concentrate more on fiscal policies on price stability as was done in the past. “I wish him godspeed in discharging his duties and not paying much emphasis on Treasury bond auctions,” he said taking a dig at the last governor (Arjuna Mahendran).
Dr. Sally put down four areas as the first priority in order to get the economy right. He said initially it is important to bring in legislation to liberalise trade in a productive fashion and public expenditure needs to be curtailed. His second step was to treat fiscal consolidation as key with adequate tax reform where there’s a system of simplification and rationalisation of VAT, indirect taxes and income taxes. "It should preferably be on one to two bands."
Next according to Dr. Sally was a new package to improve the business climate, not by just reducing the number of approvals for projects. “There is work in the pipeline and I hope it gets implemented very soon,” he said noting that liberalising two critical sectors - shipping agencies and tea blending should be done. "This will turn Sri Lanka into a logistics hub."
As the last in the top things to-dolist, he said was to have proper trade agreements with the big guns. “It is good that we are having trade agreements with China, India, Singapore, but those are not going to make a fundamental difference in the domestic front. We need to be more ambitious than that. We need to have trade agreements with our main exports markets, the EU, UK, and the US. None of this is of course going to happen in the economic wish list without some important political changes which we haven’t seen so far,” he said.
Criticising car permits granted to public servants, top economist and former CB Deputy Governor W. A. Wijewardena urged the Treasury and the CB to read publications and get IPS's insights when setting policy. “Interest rates were made to make money more expensive to people so that they wouldn’t import as much and thus maintain stability in the external sector. But then we see the public servants are given car permits. We are negating the policy increase. We are then forcing a second round increase,” he said.
Sexy story
Performance Management and Delivery Unit (PERMANDU) Malaysia Chief Executive Officer (CEO) Dato Sri Idris Jala shared the Malaysian example of running brainstorming labs where public servants and companies sit down for eight weeks to plan out every single component of an investment project, which will then be implemented after publicly announcing it.
“Malaysia faced much the same situation in 2009 that Sri Lanka faces now. We had a high budget deficit with debt of 53.5 per cent of GDP. The story line from our finance minister is very much like what your finance minister says. We need to live within our own means. But it was not a sexy story. The private sector didn’t like the story. But I must say we couldn’t tell the story the same way that your finance minister did since we didn’t have the luxury of blaming the previous administration. But we knew that if we wanted to change this situation we had to act.”
Malaysia did a revolutionary thing to get the Government to focus on a few sectors and got the large players of the private sector and for eight weeks they planned the investment in precise details, he said. In 2010 Malaysia locked together 500 people, and at the end of the planning session the private sector committed 400 billion Ringgit in investment.
“The projects were specific commitments and in the past six years these projects were implemented. Government revenue increased at record levels each year and the budget deficit shrank to 3.2 per cent (of GDP) in 2015 and we passed laws in parliament to ensure that debt could not exceed 55 per cent of GDP because policy makers felt that the Europe model was unsustainable.”
He said that policy making cannot be done at 33,000 feet (ft), it has to be done at 300 ft. "These have to be in sync with the Government plan and private sector targets. We all know 90 per cent of the problem of any government is implementation. I think the time has come for moot private sector investment.”
He said that in Malaysia they had to remove many subsidies. 'Fuel subsidies for a three-year period were removed; it was very painful. We had to do it to contain inflation. We introduced VAT much later. Some of these measures have to be taken. Some things just need to be done. But the story line of growth, projection, and what you are willing to do to for the happiness of the people will capture interest. That is why I suggest that when you walk away from here, have in place the laboratory concept where in eight weeks you will have concrete plans on what you want to do," he said urging Finance Minister Ravi Karunanayake to find a way to get the private sector into a room for eight weeks and run the labs and bring the recommendations that anybody can view. The existing people in Government can do more provided the plan is brought down. If it is very detailed then even a monkey can do it.” (Duruthu)