PM spells out Sri Lanka’s third generation of economic reforms
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File pic of the PM in Parliament
Sri Lanka plans to overcome the current economic challenge by uplifting the country from a lower –middle-income country to a higher –middle income country in the first instance and thereafter to a high –income country within the next 3 to 4 years.
With the aim of achieving this target by doubling the personnel income levels by 2025 and escalate growth rate up to 7 percent per annum, Prime Minister Ranil Wickremesinghe unveiled the government’s 1500 day economic development programme in his policy statement made in parliament on October 27.
He made a comprehensive statement outlining key reforms the government was planning to introduce for the next 1500 days. This will be followed by the 2017 budget to be presented by Finance Minister Ravi Karunanayake on November 10.
Along with the IMF, the World Bank and the Asian Development Bank, lending institutions of the US, Europe and Japan have expressed their willingness to lend Sri Lanka funds at considerably low rates of interest. These funds would enhance and strengthen the economy, the Prime Minister revealed.
Commenting on the policy statement, several, economists said that it is essential to make this plan a reality by promptly implementing it with the necessary financial inputs from the 2017 budget.
The government should set in motion the proposals put forward in the policy statement and the two main parties in the government should reach a consensus and make a commitment towards this end, they pointed out.
“Doubling the current level of per capita national income from USD 4000 to USD is no magic trick – rather, it is setting in motion a planned effort to grow at a faster rate. If we continue to grow at our current rate of 5 per cent per annum we will only double our personal income levels by 2033,” the Prime Minister stated.
Inequalities
In 2015, the government addressed the inequality in income distribution at a national level. Consequently, it has been able to uplift the income levels of low income earners and public officials. At the same time, tax levies are being imposed on affluent groups to fund higher wages and minimise government borrowing, he added.
The Government also plans to create a positive investment climate that will generate jobs. Hurdles that stand in the way of achieving growth for business start-ups will be removed.
The processes of starting a business, getting construction permits, electricity connections and bank credit, registering property, protecting minority investors, the payment of taxes, trading across borders, the enforcement of contracts, the resolution of insolvency, and regulations governing labour market will be efficient mechanisms that will facilitate business growth. Additionally, the Government will also prepare legislations to establish a single window for investment approval. Further, the government will hold discussions with the trade unions and relevant stakeholders. The targeted outcome is to bring Sri Lanka within the top 70 nations of the Doing Business Index by 2020.
Towards creating newer markets for exports, the government is also negotiating three trade agreements – ETCA with India and two FTAs with China and Singapore.
These are significant developments even as these two large economic regions struggle to maintain economic momentum in their domestic markets, which have been traditional export destinations for our businesses.
Expressing his views on the economic policy statement, Shiran Fernando, Lead Economist at Frontier Research told the Business Times that this plan should be made practical as it will bring economic stability in the country.
He stressed that the plan and the budget should be agreeable to each without any mismatch.
The main budget proposals should not be counter to the plan put forward by the premier, he said, adding that next year will be crucial for the country to fast-track the economic reform agenda indicated in the policy statement.
Trade pacts
Sri Lanka needs to finalise trade agreements with China and Singapore as trade and FDI need to increase significantly and rapidly, he added.
Regaining the GSP+ facility is also a positive sign for the improvement of Sri Lankan exports, he pointed out.
Mr. Fernando noted that the government should be more clear and transparent on the debt to equity swap with Chinese investors in Hambantota port and Mattala airport. It is better if it comes as FDI, he said.
Referring to GSP+, the Prime Minister said: “In 2003, as the then Prime Minister, I set in motion the application process for GSP+, subsequently concluded by President Chandrika Kumaratunga. While Bangladesh also enjoyed concessional entry into the EU markets, Sri Lanka lost the GSP+ incentive in 2010”.
In his policy statement, Mr. Wickremesinghe noted that in 2003, the textile and garment sector in Sri Lanka stood at US$ 2.5 billion, while in Bangladesh; it was $ 5.2 billion. Last year Sri Lanka’s exports went up to $ 4.8 billion while in Bangladesh it stood at$ 26.6 billion.
“Most of us thought that our next generations would have to pay the debts incurred for Hambantota port and Mattala airport. Now, we have entered into a debt to equity swap. Chinese investors have made significant commitments to invest equity in the debt strapped Hambantota Port and the Mattala Airport as PPP ventures,” the PM added.
The Government plans to receive sufficient funds to offset these debts, he revealed.
The government’s development strategy will be aimed at capturing trading opportunities within these identified Indian Ocean markets via pursuing trade liberalisation agreements with their governments. Concurrently, we are focusing on defining the two development corridors across the country – this will be a focal area for investment by the public and the private sector.
The logistical and infrastructural facilities that provide faster, secure links to the global value chain empowering viable business ventures, will be spearheaded for the first time in Sri Lanka, in these development corridors.
The two development corridors will correspond to the two distinct halves of the country irrigated by the two monsoons. The South-Western corridor will have as its major axis the proposed Kandy-Colombo highway linked to the existing Southern highway. This region has the strongest potential to link up with global value chains, because of its close proximity to the Katunayake airport and the Colombo harbour.
This project envisages creating a Megapolis Development Authority to develop the entirety of the Western Megapolis an urban area of over 8 ½ million people.
Sub corridor
A brand new financial city centre is to be based at the new reclaimed land development project alongside the Port of Colombo.
A sub-corridor will stretch along the central highlands from Kandy via Nuwara Eliya to Badulla and linked to the Kandy-Colombo highway.
This will connect the revitalized plantations economy and modernized agricultural pursuits and will also lay emphasis on tourism and service delivery initiatives.
The second North-Eastern development corridor will connect the Eastern Province and the North Central Province to Jaffna linking the Trincomalee Port City to the Rajarata. The completion of the Moragahakanda and the Malwatu Oya reservoirs will create new vistas for the country and will result in the region gaining more land for agriculture. It will further result in the historic cities of Polonnaruwa and Anuradhapura emerging as modern urban centres. Trincomalee will be urbanized and transformed into a world-class Port City.
“The government’s intention is to create a lawful economic environment that will set the stage for sustainable development. It will incorporate a sustainable development entity that will provide the necessary framework and initiate mechanisms required. I called this the third generation of economic reforms,” the PM noted.
The first generation was introduced by President Jayewardene, the second by President Premadasa.
The new plan of the government is based on multifaceted economic linkages to global supply chains and the planned increase in trade development. Many qualified people prefer well-paying jobs that are given based on professional capabilities. It is not viable to maintain a low paying production based economy, he said.
When asked to make some comments on the trade and commerce perspective, Thilak Godamanna , President of the National Chamber of Commerce of Sri Lanka, said that they welcomed the policy statement of the Prime Minister but the important aspect is its implementation.
The government should allocate necessary funds to relevant state agencies and ministries to implement the programmes stipulated in the plan. Otherwise the whole exercise will become fruitless he added.
The economic success of the plan will depend on the ability to deliver its results to the people effectively and efficiently, he emphasised.
A practical methodology should be developed by the government soon to make this plan a reality, he pointed out.
New board to manage state enterprises
The government will establish a Public Commercial Enterprise Board by law which is an organization that will manage SOEs enabling them to be more efficiently run on a commercial basis ensuring value for money. “We are creating a Public Wealth Trust through which the shares in state-owned entrepreneur enterprises will be held in trust for the people,” the PM said.
Plans are underway to set up a fully empowered National Agricultural Marketing Authority to coordinate the marketing of agricultural products, and develop existing markets, transport and storage facilities. In addition, new infrastructure facilities such as cool storage will be added at a divisional and regional level, for preservation of food before or after purchase.
It is also planned to create 250 ‘polas’, farmer markets island-wide for farmers to bring their produce to local markets.
Under the education reforms, a fresh policy initiative for making 13 years of education mandatory is now in place.
A pilot project on providing 13 years of mandatory education will commence next year. Those who do not pursue higher education after O/Ls will be trained under an upper Secondary Vocational Education system.
The digital economy will empower the nation – through providing affordable and secure Internet connectivity to every citizen in any part of Sri Lanka, removing barriers for cross-border international trade.
A platform for cashless payments will also be created. Digital technology will be included as a new subject in the school curriculum. The government plans to foster entrepreneurship opportunities in digital commerce while providing training in cyber security monitoring and response.
Commenting on the digital economy and creating agencies for this purpose, Subhashini Abeysinghe, Head of Economic Research at Verite Research, noted that it is essential to eliminate bottlenecks that hamper successful implementation of a paperless trading platform and the main impediment is the non-acceptance of electronic documents and e-signatures.
In 2006, the Electronic Transaction Act No 19 was passed in Parliament, providing the legal framework for the country to accept e-documents, she said adding that there must be assurance the courts will accept the e-signature in the event of a dispute and the matter ends up in courts. This Act gives that validity to the e-signature. But it’s still not accepted in any transactions, she pointed out.
This was because of the inability to accept electronic signatures in situations where a signature is required for processing, she said. Even 10 years later, to clear cargo or process the documentation, hard copies of the documents, signed by hand should be physically submitted and e-documents are not accepted she revealed. - (Bandula)