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Right time to get the economy on right track

Sri Lankan economy was never on a sustainable rapid growth path, due to the kind of anti-growth political-economic culture that has been developing in the past. As a result the politicians and the policy makers got interlocked. They often overlooked the problems at source and continued with short-term crisis management strategies. The few of them who tried to correct the situation, lost political support which resulted in reversals of their attempt. Intermittently the problems got aggravated pushing the economy towards near crises due to both external and internal factors.

If the political leadership of the country is looking forward to achieving a sustainable rapid development process, it is necessary to erase our anti-growth evils permanently. The global economic crisis that came in the middle of home-grown political economic problems, has pushed the Sri Lankan economy into one of its severe economic crisis in the history. Given this scenario, together with prospects of ending the three decades of prolonged war as well as the forthcoming political stability with a high degree of popularity of the government, now is the right time to take a historical turning point in the economic development process.

Rupee problem

In the first place, the fundamental problems of the Sri Lankan public finance and balance of payments need to be addressed not because the IMF or any other donor agency wants us to do so, but because we have to do so. The country faces a budget problem and foreign exchange problem. The government should not introduce anymore irreversible and unproductive expenditure patterns to government spending. At the same time, the government should carefully examine whether each rupee that the government spends is at least equivalent to what is paid by the tax payers in terms of its benefits to the economy and society. If not there is only little difference between robbing and taxing people.

It is sustainable and worthwhile to introduce ‘sense of commercial viability’ to the management of many public sector institutions and public sector services which have continued to sustain the tax payers. It is also the right time to cut down unproductive and wasteful expenditure, and allocate those savings to look after the hundred thousands of war-affected IDPs, and to undertake post-war rehabilitation and reconstruction activity. These expenses are temporary and the country does not have to carry forward such expenditure to the future, while it is also an investment which will generate government revenue in the coming years.

White elephant problem

Why should the country continue with maintaining huge herds of ‘white elephants’ – many public sector institutions which are hindering rather than facilitating the development process? Too many ministries and departments which do not know their working boundaries, continued to confuse the public and hindered development by introducing unnecessary inefficiencies and complexities in the economic system. Together with that, Provincial Councils combined with many other local level administrative bodies are another group of white elephants. There should be a unit of power devolution encouraging different provinces or districts to undertake their economic development competitively with others on the basis of recognising their local comparative advantages.

There is no question that first many of the white elephants need to be eliminated in reducing the size of the government. Secondly, when they are not eliminated, they should be put into work by giving them substantial autonomy and the scope for competition.

Dollar problem

The country should not depend on private remittances and foreign borrowings to cushion the continuing balance of payments problem. Thanks for these two sources of earning foreign exchange out of misery and poverty, the country did not feel that it has a prolonged foreign exchange problem. Export promotion, the term which has become outdated now, is the key to achieve sustainable improvement in balance of payments.

The balance of payments needs to be strengthened first with a rapid growth in exports in both goods and services including tourism rather than relying on Middle East remittances. Secondly, the country should look into attracting foreign investment rather than foreign borrowings. In all these cases, Sri Lanka has to improve its investment-friendly environment in which the country remains far behind many other countries in Asia. An improvement in an investment friendly climate requires regulatory reforms, efficient public sector, growth-friendly policies and their sustained predictability.

Community got closer to South India

One should ask the question why the Tamil people moved away from the Sri Lankan community and instead got closer to the South Indian Tamils. This is because we created that division, starting from the bottom – just to mention two examples from the bottom, the Year 1 admission to the schools with language divisions and the issuance of even different national identity cards.

The war does not put an end to the deep-rooted political conflict unless the different communities are integrated into one nation while respecting each ones cultural identity. The most important comparative advantage that Sri Lanka possesses is the ‘diversity’ in every way in a small island. But the ‘diversity’ has been exploited to make it our major weakness and, not the major strength.

Throughout the past two decades as well, we wasted so much of our time and resources to draft, to revise, to discuss and then to amend, re-draft, debate and finally to throw away the power-devolving packages. Even now the process is going on. Without waiting to end the war and to bring about a blanket package, why not gradually start with devolving more powers under the existing system and correcting the historical mistakes that the country has made? Now is the right time for this move which would help an independent and competitive development process across the regions.

Why is the right time now?

For a number of reasons, it is the right time now for correcting our fundamental and interrelated economic-political problems, to put the economy and the nation on right track. The country is looking forward to end the war, but this is only one reason. It together with many other instances, has also shown the strong leadership and the popular local political support to the government. And there is also no reason why the main opposition opposes to such a move, unless for playing petty politics, because in the history, the opposition is actually in line with a more pragmatic approach to economic and political problems. In addition, this move will also be welcomed by the international communities. And part of the international community which was concerned by the adverse effects of the war, may also be able to put aside their grudges.

Bold steps need to be taken now when it is easy to take them, because even for any popular leadership or government, it becomes more and more difficult when the time passes. We should also not forget that, economic hardships are yet due to come which can undermine the government popularity. When bold steps are delayed beyond the right time, we will be unable to win our political as well as economic battle. And the politicians and policy makers will again get inter-locked in our post-independent economic and political dilemma.