Pathfinder responds to IFC

The Pathfinder Foundation issued the following response to the IFC opinion piece on its Economic Alert No. 20 titled ‘Improving Sri Lanka’s Business Climate,’ published in the Daily FT:

The Pathfinder Foun-dation (PF) is grateful to the International Finance Corporation (IFC) – World Bank (WB) office in Colombo for the substantive comments that it published (Daily FT – 23rd December 2011) on our Economic Alert number 20, titled ‘Improving Sri Lanka’s Business Climate’.
We are encouraged by this engagement with the IFC, which is the world’s premier multilateral agency promoting private sector development.
The analysis for the USAID/VEGA study commissioned by the PF was completed in October 2011 and was based on the information available at that time. The IFC issued its 2012 report after the completion of our report.
We are pleased to have the updated information on the Doing Business Index and to hear about the latest methodological improvements. However, in our view the 2012 information does not substantially change our conclusions and recommendations in regard to the business climate in Sri Lanka.
The PF’s intention was not to critique the Doing Business Report, but “to identify the policy and regulatory reforms that are required to make Sri Lanka a leading country in investor friendliness” and to undertake advocacy to promote the necessary reforms.
The Doing Business Reports are an important input into understanding the priorities for reform.
In this connection, our study commended the Government, particularly the Central Bank of Sri Lanka, for improving significantly the country’s ranking on the Index.
However, as the IFC itself acknowledges (on its website) there are a number of cautionaries that need to be recognised regarding the Index. Most importantly, the DBI is not a comprehensive measure of the business environment.
As our study pointed out, critical areas such as the labour markets and land policies are not included in the Index. Furthermore, the Doing Business Reports are not compiled from data obtained directly from firms.
Instead, data are collected from intermediaries, mainly lawyers and accountants, who are asked to estimate the time and costs of laws and regulations as they are written, not how they are implemented.
The statement from the IFC Colombo office on the treatment of EPF and ETF registration illustrates very well the disconnect between what is supposed to be reality in terms of the law and data that are of practical value for businesses.
For instance, the required contributions to the EPF and ETF are enforced from the date of application.
The receipt of a piece of paper some weeks later is immaterial to any decision or action by real world businesses.
In our view, the Doing Business Reports make a significant contribution to policy making in relation to the business climate.
However, the reform agenda needs to go well beyond the insights provided by these reports. That was the main thrust of our study. We also believe the IFC itself recognises this.