Vision 2025: From a diagnosis to removing constraints to economic growth

Removing a number of constraints to economic growth is imperative to achieve rapid economic growth. Vision 2025 recognises that there are numerous constraints that must be removed to achieve economic growth. These include the reduction of fiscal deficits to achieve macroeconomic stability, reforms in trade regulations, change in labour laws, the improvement in the quality of public service delivery of stateowned enterprises (SOEs), removal of regulatory barriers and reforms in land policies.

In addition to the constraints mentioned in Chapter 2 of Vision 2025 titled Constraints to Growth, there are political, ideological and economic constraints that are serious hurdles to implementing rational economic policies. The lack of a consensus on economic policy reforms within the government and the obstructionist actions of the joint opposition could vitiate the implementation of economic policies for economic development.

Constraints

Several changes in economic policies are imperative to achieve rapid economic growth. These consist of removing constraints to investments, the liberalisation of trade by the reduction of effective rates of import taxation, the release of government land for economic enterprises, reform of state owned economic enterprises, changing dysfunctional land policies and speedy and effective implementation of economic policies. These are vital to achieve the goals of Vision 2025 or to even achieve a higher than current level of economic growth.

Of these the reform of state owned enterprises would be the most difficult owing to opposition from within the government, the ‘joint opposition’ and trade unions. Innovative policies that overcome these obstacles are essential to reduce the enormous financial burdens of SOEs on the public that also distort government expenditure.

Trade liberalisation

The liberalisation of trade is vital to enhance exports. “Export performance has been weak. The strong anti-export bias in the economy is a result of often uncompetitive exchange rates alongside high effective protection rates.” This diagnosis implies the need to reform the highly protectionist trade regime by eliminating para tariffs (non-tax charges and levies and special taxes and fees on imports).

Protectionist regime

Although the liberalisation of the economy in 1977 reduced import duties to make the country have the most liberalised trade regime in South Asia, over time, additional levies on imports have made the country one of the most protectionist countries in the region. Protectionist policies since November 2004, mainly through the proliferation of a variety of para-tariffs, has made the country highly protective. There have been port fees, defence levies, and a number of para tariffs that have made imports very costly.

A little understood fact is that the cost of imports increases input costs of manufactures and renders Sri Lanka’s exports uncompetitive. The protectionist trade policies have damaged the country’s export potential and economic growth. Not everyone recognises this and consequently there are ministers and parliamentarians, who are for import protection.

Government efforts

The government is currently taking steps to remove these para tariffs. This is an important measure in the right direction to make the country’s exports more competitive. It may also encourage foreign investors to set up manufacturing plants for exports. However, there are difficulties in removing para tariffs, as these are revenue measures. If Budget 2018 finds new revenue sources the removal of para tariffs would be more feasible.

Release of land

The government has recognised that one of the serious constraints to both industrial and agricultural development is the unavailability of land. “Some of the most critical constraints are the dearth of land available for commercial and other productive purposes.” There is therefore an urgent need to ensure the availably of land for industry, agriculture and agribusiness enterprises. Government owns land The crux of the problem lies in the fact that government is the main owner of land in the country. This includes a large extent of land owned by the railway that remains unutilised. Many foreign investors have been turned back owing to the long delays in, and inability to obtain land. There are allegations of large bribes demanded to lease government land for economic enterprises.

Lost opportunities

Foreign investors and local entrepreneurs will not be able to undertake large scale export industries and cultivate and process food crops that have an export demand. There is a huge foreign demand for fruits and vegetables such as pineapple, mangoes, coconut products, murunga (ladies fingers), cashew and medicinal herbs that cannot be met without large scale scientific cultivation.

The availability of land is therefore an urgent necessity to increase our agricultural exportable surplus. Now that this is recognised, the government must set up a mechanism for the speedy release of state lands for such export enterprises.

New land policy

There is a need to urgently examine the land utilisation pattern in the country and enable the most productive use of land jettisoning obsolete land laws. As the government has recognised the archaic nature of land regulations, the change in land laws must be swift and holistic in approach with due consideration to environmental factors as well.

Serious obstacles

The obstacles to economic growth are political, ideological, social, educational, administrative and cultural. These are the main obstacles to a rational path of economic development.

The ideological differences within the government itself are a serious constraint to implementing the wide spectrum of economic policies, especially economic and other reforms so vital for rapid growth.

Is there an agreement among both parties of the government to implement the policies envisaged in Vision 2025? The symbolic arrival of the President and Prime Minister in one car for its launch is of no value unless there is a collective agreement on the economic policies to be implemented to achieve the Vision for 2025.

What matters is whether the members of the coalition are committed to a common economic programme. This lack of consensus on economic policies has dragged economic policy implementation in the past two and a half years. What is needed is not a complete agreement on all policies that would be difficult to achieve, but a consensus on a core set of policies and a firm commitment to them are imperative.

Obstructionist opposition

In a parliamentary democracy the political opposition would criticise government policies, vote against particular policies and in some cases cajole the government to amend or alter some aspects of an economic policy. This was so till recently.

What we have now is obstruction campaigns in the country that has jeopardised the implementation of key economic policies. Two glaring instances are those of the Hambantota Port and the Hambantota industrial zone.

Both these projects appear to be on hold as the Chinese investors require the resolution of the opposition to be resolved. These acts of the opposition have had an inhibiting impact on foreign investment as the country is seen as an inhospitable location for foreign investment. This is a serious threat to attracting FDI. Furthermore, it is affecting the country’s capacity for foreign debt repayment and the balance of payments.

Conclusion

The government has identified the many constraints to economic growth, but their removal is no easy task, Foremost among the prerequisites to resolving these is an agreement within the coalition government to remove these by appropriate reforms. A strong political will to implement reforms and firm action against obstructionist actions of the opposition are imperative.