An economist warned of the dangers of foreign portfolio investments and foreign investments into government securities saying that they could go out as fast as they came in.
Dr. Muttukrishna Sarvananthan, Principal Researcher, Point Pedro Institute of Development, a private think tank, speaking at the 106th birth anniversary lecture of Dr. N.M. Perera on Monday cited the crisis that beset the country in 2008 when there was a sudden outflow of foreign capital, causing reserves to be in a very low state, and forcing the Government to turn to the IMF.
He further said that an 8% growth rate was insufficient to take Sri Lanka to a big leap of development on the basis that other countries which had recovered from conflicts grew in double digit terms.
Sarvananthan said that though per capita GDP income had doubled from US$ 1,000 to US$ 2,399 in the five year period from 2005 to 2010, public debt too had doubled during this period.
“So this is borrowed growth, so the growth and sources of growth are important,” he said. Sarvananthan also challenged the position taken by economist Dr. Saman Kelegama at this lecture, that the economy would be boosted if the country struck oil and won the contract to host the Commonwealth Games at Hambantota, which Kelegama said would lead to a construction boom.
He also said that the oil bill comprises 5% of GDP.
Sarvananthan here warned about possible corruption eating in to the island’s oil wealth, and cited the Nigerian example in this regard, which has kept that country poor despite its oil.
He further said that developing a backward district like Hambantota, such as building a harbour and an airport, does not guarantee any business coming in. Sarvananthan said that before embarking on such development works, a feasibility study had to be done first.
Drawing an analogy, he said that both Mullaitivu and Hambantota are backward districts. “But just because one builds a port and an airport at Mullaitivu that doesn’t mean that wealth will flow in,” said Sarvananthan.
Kelegama said that when Changi became an air hub, Malaysia’s then Premier Mahathir Mohamed invested heavily in Kuala Lumpur so as to beat Changi. But that didn’t take place.
Sarvananthan claimed that while Singapore was corrupt free, the same could not be said of Malaysia.
He pointed out the failure in the country’s education system where 50% or 250,000 of those who sit for their O’Levels, failed that exam. He therefore said that education reforms should not be restricted to the tertiary level only, but should also cover schools.
Sarvananthan also expressed the need to cut down on defence and expansion of the public sector for sustainability.
He said that good governance structures instituted are conduits to attract foreign investments.