Economic and political challenges for the next president

By Dinesh Weerakkody
As we move into the second half of the decade, the future of Sri Lanka’s economic health will largely depend on political stability, technocratic efficiency, return to genuine peace, good governance and continued policy reforms – particularly in the area of fiscal discipline and management.
The 30-year conflict and high government expenditure have contributed to Sri Lanka’s high public debt load (75% of GDP in 2013). Sri Lanka from now on will need an economic growth rate of around 7-8% and investment levels of about 30% of GDP for a sustainable reduction in poverty.
In the past 10 years, investment levels have averaged around 25% of GDP. Sri Lanka depends on a strong global economy for investment and expansion of its export base, and the global slowdown has proved to be detrimental to Sri Lankan growth.
Sri Lanka’s exports to the European Union increased sharply between 2006 and 2008 under the EU GSP Plus market access program, granted in 2005 to help Sri Lanka rebuild after the 2004 tsunami. However, after a protracted review process, the European Union decided in February 2010 to withdraw the GSP Plus market access benefit, due to Sri Lanka’s alleged human rights violations.
GSP Plus had allowed for duty-free export of Sri Lankan goods to European markets. Some Sri Lankan exporters have however improved their productivity and have remained competitive despite restrictions.
But certainly an improvement in EU-Sri Lanka relations would help to strengthen trade between the two parties. However, there is no dispute that Sri Lanka needs to strengthen the country’s economic links with Asian and Middle Eastern countries in general and, fast growing large economies such as India and China.
Foreign assistance and trade deficit
Sri Lanka’s exports are expected to be around $ 12 billion in 2014 and $ 13.8 billion in 2015. Imports (mainly oil, textiles, food, and machinery) are expected to be around $ 19 billion for 2014 and be in excess of $ 21 billion in 2015. The large trade deficit is generally financed primarily by remittances from Sri Lankan expatriate workers, foreign assistance and commercial borrowing. Therefore we need to increase GDP in tradables as opposed to the non-tradables at present and not merely as per capita GDP. The trade gap is identified as -9.5 for the current year and forecast to improve to -7.2 (2016).
Presently the trade gap has widened (2014) to more than -12.0. Therefore it will be a challenge to reduce this gap in just two years to -7.2.
Sri Lanka must diversify its exports beyond garments and tea into services. Garment exports face increased competition since the 2005 expiration of the worldwide Multi-fiber Arrangement. The tea industry is challenged by a shortage of plantation labour and growing competition, not to mention constant political pressure to increase wages in a sector where we are at the mercy of international market forces.
Sri Lanka is a large recipient of foreign assistance, with the ADB, World Bank, Japan and other donors disbursing loans. China has also become a major lender for infrastructure projects, such as a new port, roads and coal power plants. Therefore, Sri Lanka’s dependence on foreign assistance and support will continue and that will depend to some extent on how the Government continues to manage political reconciliation in the country and its ability to balance global powers.
Political reconciliation
However, for the Government of Sri Lanka there are the many challenges of resettlement and reconciliation but neither of these can be seen in just the political context or in the limited framing of ethnic harmony. They are both related to a process of democratisation and a political settlement.
During the decades of war the problem in Sri Lanka was construed as an ethnic problem. Indeed the political problems of Sri Lanka cannot be limited to those of ethnicity. The most serious challenge in Sri Lanka has been a problem of democratisation. Social exclusion also follows a lack of a balanced democracy. Democratisation needs to distance itself from excesses of power and authoritarianism and the need is for liberal democracy in Sri Lanka.
A process of political reconciliation centred on democratisation would have to involve reforming the State through a new Constitution that allows for the devolution of power to the regions with power sharing at their centre.
It would have to advance the devolution debate in ways to address class, caste, gender and the rural-urban divide. There needs to be substantive demilitarisation involving not only demobilisation and reduction of the size of the military.
This is not easy to accomplish and strategies have to be planned for absorbing de-mobbed forces into civil society through adult education programs as well as skills training. Thus political reconciliation cannot just be about humanitarian issues and ethnic harmony. Nor can it be limited to the current Government’s vision of reconstruction and economic development. Rather it has to take seriously the challenges of democratisation and a political settlement.
Such political reconciliation will not be possible without a constructive debate and the free expression of opinion which challenges the Sri Lankan State and the ruling regime, and the implementation of our national plans, that openness and engagement is what the electorate now genuinely wants from the next President.
Against this backdrop, the presidential election has given fresh hope to the lives of many people in the country. The next President will need to engage and understand the problems of the under privileged and demonstrate a willingness to focus much more on poverty alleviation plans by investing more in education (currently 1.5% GDP) and health, and influencing and promoting political reconciliation. Finally he needs to make a genuine effort to help all communities to work together as one nation to ensure that as a country we can realise our full potential.
(The writer is a thought leader)