Bold Reform Process Vital For Economic Growth

By Hasitha Ayeshmantha

With the 2015 general election coming to a conclusion in the process electing the 8th Parliament for Sri Lanka, the immediate issues that draw the attention of the business community is towards the economic agenda of the new government. Especially at a crucial time where many state-run financial organizations and business chambers are raising concerns claiming that the country’s economy faces many challenges, the economic policies of the newly elected government will undoubtedly be put to test immediately.

When considering the economic policies of the United National Front (UNF) government, the factor that strikes at a glance is, ‘Establishing economic growth’ which is the first point of the UNF’s ‘Five Point Agenda’. The five point agenda was also the election manifesto of the UNF for the general election 2015.

As the United National Front won the general election last Monday, it is vital for the economic policies to be implemented as soon as possible.

In a recent interview with The Sunday Leader,renowned Economist Dr. Sirimal Abeyrathne said that in order to achieve a successful economic growth, the new government will have to bring forth a bold reform process. Further strengthening his argument, Dr. Abeyrathne said that the execution of the economic policies should be categorized into three stages.

1. Establishing a business development strategy

The first of the three stages will be establishing a business strategy. Dr.Abeyrathne suggests that in order to implement a strong business strategy, inclusion of two factors in the investment procedure is necessary. Accordingly, Sri Lanka will need to invest more in human resource development and should maintain a sustainable business growth.

He added that Sri Lanka is currently lagging behind when it comes to investing in human resource development and should procure more on that area. Higher technology will also play a key role in forming a good business development strategy.

2.     External Finance

When talking about external finance, the first thing that comes to mind is maintaining a healthy exchange rate. Dr. Abeyrathne believes that the new government should keep a close watch on the country’s exchange rate and make sure that the bar is raised high. In order to strengthen external finance, Abeyrathne identifies that two main aspects of the external finance sector should be reformed.

Currently the Sri Lankan economy is more focused on remittance growth and Abeyrathne believes that the time has come for Sri Lanka to divert from the traditional frame of mind and to look more towards export growth. Further elaborating on his comment he said that exports have become the spine of certain strong global economies. Therefore in order to keep up with the international competition, it will be a must for Sri Lanka to look for export sector growth.

When holding a key position at the trade route and being the exporter of many unique products, one would believe that the basic ground work has been laid and all that left to do would be to ensure that the process commences without obstruction.

The other aspect is to look for more Foreign Direct Investments (FDIs) rather than relying on foreign loans. Abeyrathne suggests that rather than increasing debt through foreign loans, it is more practical and beneficial if Sri Lanka welcomes more FDIs, as it will not only resolve the debt issue, but in the meantime will increase foreign investments inflow.

3.     Internal Finance

The next area of focus according to Dr. Abeyrathne is the Internal Finance sector, in other words, the government’s budget. On this subject, he strongly asserted that the taxation should be improved together with efficient tax collection methodologies.

“Taxes are a very important part of the economy; it is responsible to a large portion of the country’s income. Therefore it is absolutely a must to increase the efficiency in tax collection and make sure that everyone contributes in that prospect”, he added.

And in the matter of expenditure, the government will have to take‘hard decisions’ in order for the implemented policies to take effect.

However, commenting on the new government’s economic policies, stockbrokers from several financial institutions told The Sunday Leader that the stock market is expected to stabilize with the conclusion of the general election and much needed economic growth in a ‘financially healthy’ environment holds the key to getting out of this spot-of-bother. Our sources associated with the Stock Exchange believe that the United National Front government led by Prime Minister Ranil Wickremesinghe will bring about much needed reforms to the country’s financial sector.

They went on to add that whilst the conclusion of the general election brought about much needed stability to the stock market, the need of the hour is strong foreign investments. When the inflow of foreign investments starts to increase, the performance of the Colombo Stock Exchange too will be strengthened.

The stockbrokers, while commending the accuracy and practicality of the UNF’s manifesto, insisted that the country’s economy will rely on the proper implementation and execution of these facts. They also added the fact that the government is willing to invest in the country’s infrastructure, which will become a vital aspect in the years to come.

The stockbrokers strongly believe that the execution of the aforementioned policies will be the key scenario and that giving utmost priority to ventures that will attract foreign investments will ensure high fluctuations in the Colombo Stock Market. They also took time to urge the new government to implement their Foreign Policies at the earliest as it will directly affect the rate of investments.

Earlier, it was in the grapevine that with the general election in the picture and with the appointment of the new government in January after President Maithripala Sirisena’s ascension, a level of uncertainty prevailed in the investment sphere. As a result, many financial organizations and chambers of commerce requested the new government to implement their economic policies and jump-start the finance sector.

Thereafter, with the introduction of the new reforms to the Constitution, the uncertainty that shadowed the investment sector was eventually lifted and the government announced that the investments have started flowing in to the country.

At the time, Minister of Finance Ravi Karunanayake claimed that Sri Lanka was written off from the investment destination lists of global investment giants. He strongly asserted that the Rajapaksa government has not diverted enough attention towards procurement options and maintaining financial stability while carrying out development projects.

 

Solution

 

As a solution to the country’s situation, the United National Front’s election manifesto for the general election 2015 looked across vital areas such as growing the country’s economy, investing in infrastructure and allocating 6% of the GDP for education.

Commenting on the UNF’s election manifesto prior to the election, renowned economist and former Deputy Minister of Economic Development and Policy Planning Dr Harsha de Silva pointed out that the UNF’s economic game-plan is not solely based on brick-and-stone development, but mainly focuses on developing the resources available to an individual so that individual will be able to contribute to the country’s economy.

The Deputy Minister believes that in order to drive the economy forward more professional education institutions and vocational training facilities should be implemented.

It was clear that the UNF’s ultimate goal was to invest more in the education sector as well as ensuring that more professionally qualified individuals contribute to the economy at a good pace.

Meanwhile on a similar note, the Ceylon Chamber of Commerce (CCC), whileissuing a statement to the media after the general election,highlighted the challenges the country had to go through in the past.

The CCC statement asserted that the country is faced with many challenges such as ensuring harmony and national integration, strengthening democratic institutions, maintainingrule of law and governance while adopting inclusive development strategies to the financial sector.

 

Work together

 

The Ceylon Chamber also stressed that the most critical responsibility of the new government will be to work together with all the concerned stakeholders and develop prudent strategies and plans to overcome the critical challenges that the nation is faced with.

Various arms of the Ceylon Chamber, while commending the new government on their recent victory at the general election, requested that the government should ensure co-orporation between all the stakeholders of the country’s economy. They specifically pointed out that involvement of both state sector and the private sector in the economic agenda will also play a pivotal role when moving forward.

Adding to that, many associations such as the Exporters’ Association of Sri Lanka (EASL) stated that it is vital to address the constraints that stifle development and growth within the country which compels Sri Lankan companies to set up bases in other hubs in the region, in order to achieve their growth potential. Capacity building through education and development of skills within the industry together with dialogue and transparency in decision making processes by export-related organizations within the government will ensure their relevance going forward.

In a recent statement Sri Lanka Shippers’ Council alsoasserted that they are confident in the government’s supportive policy framework, and that Sri Lanka can work to reach towards an appropriate export target by the year 2020. Sri Lanka Shippers Council, which consists of both local exporters and importers, said that they are willing to pledge their support to the new government, in its endeavor to set in right policies and framework to seek growth in key economic sectors including the shipping sector.

In relation to Dr. Sirimal Abeyrathne’s statement on the importance of the development of the exports sector, organizations such as the Sri Lanka Shippers’ Council who have already pledged their support to the new government, will have to actively contribute to the country’s economy and especially towards the goal of achieving much needed economic growth.