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The President’s inaugural address to parliament reiterated his commitment to good governance, national reconciliation, eradication of corruption, a compassionate and egalitarian society and environment protection. These are desirable objectives and have a bearing on economic performance.

However, the presidential address was not a statement of economic policy, such as President Chandrika Kumaratunga’s policy statement of 1994 that affirmed the Government’s continuity of open market policies with change, which she characterised as “Structural Adjustment with a Human Face”. The coalition government’s economic policies and programmes should be disclosed in the 2016 Budget Speech in November. It must present a considered and agreed upon blueprint of the consensual economic policies.

Human resource development
The President emphasised the need for development of human resources for sustaining high economic growth as a priority. “I believe that human resources are the most valuable resource our country has. It is only by improving human resources that we can develop this country on par with other developed nations in the world. Our country has already achieved middle income earning stage and moving further from there is only through the capacity building of human resources and converting this country’s work force into trained labour that can accept any challenge in both local and foreign labour market,” he said.

Geo political advantage
The President highlighted the importance of taking advantage of the country’s geopolitical location. “I would like to remind you that the 21st century is the century of Asia. We should make use of Sri Lanka’s geopolitical location to the maximum in the context of Asia rising in the world. We should prepare our national economic policies keeping this in mind”. This implies the need for economic and social reforms.

Equity in incomes
President Sirisena promised that his government would work to minimise economic disparities between the rich and poor as much as possible. He contended that a country could not be called a developed nation if a few rich people were enjoying the dividends of development, while the majority remained poor.

Environment improvement
President Sirisena’s holistic vision places an importance on the protection of the environment. “Many countries had achieved fast development at the cost of environment. Now they had realised the ill-effects of the speedy march towards development. It had resulted in many unintended consequences. Therefore, we will plan our development giving priority to green policies.” Recent damages to the environment, deforestation and inappropriate location of industry and environmentally unfriendly technology use have to be reversed and avoided in the future.

Economic challenges
The economic challenges facing the country are daunting. The reduction of the public debt, decreasing the trade deficit that may reach US$ 9 billion this year and reducing the massive foreign debt are difficult challenges. Foremost among the coalition government’s challenging tasks is the reduction of the fiscal deficit. This is essential for economic stability and finding fiscal space that would enable public expenditure for long run economic development.
While cutting wasteful, extravagant and unproductive expenditure provides savings, it is imperative to increase government revenue from its current level of about 12 percent of GDP to 15 percent in 2016 and increase it progressively to about 20 percent of GDP by 2020. This requires significant tax reforms and increased efficiency of the tax administration.
The next budget should propose a rational and effective taxation system for economic stability and growth.

Improving investment climate
Improving the investment climate is a precondition for economic growth. Improvements in governance, law and order, political stability and predictable policies could play an important role in increasing domestic and foreign direct investment. The coalition government must be agreed on foreign investment policy and reforms needed to attract higher foreign investment.

Reforms
A wide range of reforms in education, health, public administration and agriculture are needed to enhance productivity. The efficiency of government institutions is important for economic development. The efficiency of the public service is important for doing business. Without administrative reforms and the enhancing of institutional capacities and drastic changes in the management of state enterprises that are a huge burden on the public finances, productivity cannot be enhanced to achieve the country’s potential development.

Divergent views
The reform agenda could face obstacles as there could be divergent views and objections by coalition partners to some reforms. Pragmatic policies are difficult to implement due to political considerations overriding economic imperatives. Since the challenges facing the economy are formidable, a consensus that enables agreement on policies, a single-mindedness of purpose and strong resolve to implement reforms are needed to achieve economic stability and growth. Only time will tell whether the consensus arrived at between the UNP and the SLFP will ensure good economic governance.

Coalition governments
Good economic governance is likely to be compromised by a coalition of diverse ideological persuasions and views on economic policies. Coalition governments are reputed for internal disagreement on economic policy, as was the case in the 1956 MEP government and the SLFP-led coalition government of 1970. Agreement on even fundamental economic policies among coalition partners is difficult when views and approaches to economic issues have been different.

Many best economic policies and practices are unlikely to gain a consensus. Compromised economic policies and divergent approaches to the economic challenges and reforms would weaken economic policies. A more optimistic view is that the powers and persuasions of the President and the Prime Minister would ensure good economic governance and that the combined strength of the two parties would strengthen the capacity of the Government to take good economic decisions ignoring immediate political popularity.

In conclusion
The President recognised that the country had fallen behind many Asian countries that we were ahead of us five or six decades ago. This underscores the critical need for reforms that enhance economic efficiency. Reforms are difficult for any government to implement owing to vested interests, ideological factors and an anti-reform culture in the country. Will the coalition government be a strong single minded government that could undertake reforms that are unpopular in the short run? Will the coalition be a help or hindrance to reforms?