Quality of leadership matters for a country’s governance, equities expert says
For a country to grow inspite of the form of governance whether it is democratic or authoritarian, it is the quality of leadership of the country that matters, according to Ruchir Sharma, Morgan Stanley Investment Management USA, Managing Director for Emrging Market Equities and Global Macro.
“By looking at 100 countries which have grown by five per cent or more in any decade over the last 30 years, half of them were democratic and the other half was authoritarian countries. It is not the system of government, but the quality of leadership that matters for a country’s growth,” said Mr. Sharma while delivering the key note address at the 63rd Anniversary Oration of the Central Bank of Sri Lanka last week.
He said the first term of a new government tends to be the best time to carry out economic reforms. “In the leadership circular rule we find that the best time for economic reforms in any country is the first term of a new government. That is when you have the maximum pull of capital that the government can put in with exceptional ideas and energy and especially when it is coming out of a crisis whether economic or political. People are prepared to support such measures that are needed to get the economy back on track,” he added.
He noted that Sri Lanka is doing a remarkable job coming out of the civil war. During the time of conflicts the country tends to lose about 30 per cent of its economic output over 15 years. But the economy kept growing at four per cent, which was unprecedented for other countries that were facing conflicts of similar nature. After the conflicts the potential was a lot more.
Elaborating on the credit growth Mr. Sharma said, “Many countries have excessive credit growth which is very bad for any economy. When credit growth as a share of GDP increases rapidly for five years, it will end up in an economic trouble. China has shown the largest debt in history as a share of GDP over the last five years. It increased by 60 per cent from 150 per cent to 210 per cent.”
“Investments to the share of GDP are doing well in Sri Lanka. The manufacturing sector has become somewhat low to 18 per cent but higher than other countries in the region and compared to other frontier markets.”
He said Sri Lanka’s economic growth rate has picked up quite sharply compared to other emerging markets.
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