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The launching of the government’s Vision 2025 (V 2025) was followed soon after by the Prime Minister’s statement on the economy in parliament. Are these twin events a turning point in the country’s economic performance?

The ultimate objective of Vision 2025 “is to make Sri Lanka a rich country by 2025.” And it will be achieved “by transforming Sri Lanka into the hub of the Indian Ocean, with a knowledge-based, highly competitive, social-market economy.” Can the objective of Vision 2025 of making the country rich in 2025 be achieved? Can the momentum of economic growth be accelerated to achieve this ambitious goal?

Vision not plan
Vision 2025 is not an economic plan. It is not even a detailed strategy for economic development. It is, as the title denotes, a vision. It does not spell out specific policies to achieve that vision. As Dr. W.A. Wijewardena described it, it is a wish list.

Are the ambitious targets of Vision 2025 realistic and achievable? The achievement of the ambitious targets require a whole range of policies to be effectively implemented. An important determinant of the success in achieving the goals is a consensus among the two constituent parties of the coalition to implement the required policies. Are both parties committed to implement the requisite policies and reforms?

Targets
The targets in Vision 2025 are over ambitious and unrealistic. They do not have an alignment with recent performance or trends. The targets on foreign direct investment, export earnings, tourist earnings, and employment generation are unrealistic. The economic growth required to achieve the high per capita income envisaged is impossible.

FDI
Increased foreign direct investment (FDI) is crucial for increasing exports, strengthening the balance of payments, providing job opportunities and a higher trajectory of economic growth. In fact the ultimate objective of making the country a rich country cannot be achieved without a substantial increase in FDI.

In spite of this crucial importance of increasing FDI, the targets set in V2025 are impracticable. It expects FDI to reach US$5 billion in 2020. This is a highly unrealistic figure as FDI between 2010 and 2014 (after the war) and in 2015 and 2016 (under the present government) was on average much less than US$1 billion. In the last two years FDI was less than US$700 million. Therefore the expectation of an exponential increase requires a complete difference in the investment climate.

That would be difficult to achieve in the next two years. An increase in FDI to about US$3 billion could be expected, if the Chinese investments in Hambantota materialise. Attracting Multi-national Corporations for export manufacture requires an improvement of a range of conditions and economic policies that inspire confidence.

Exports
Similarly, the expectations of export earnings is an extraordinary increase from current earnings. Vision 2025 expects exports to double from the current US$10 billion to US$20 billion in 2020.

There has been a spurt in exports since March this year due to increased exports of both agricultural and manufactured exports. The regaining of the EU market with the restoration of the GSP plus concession, as well as the improvement in tea prices have enabled this. On the other hand, the country’s main manufactured export–garments – has decreased.

Increasing exports exponentially requires higher FDI in export industries, the diversification of export products and markets and enhancing the export surplus of commodities that have an international demand. Many of our agricultural exports that have an international demand have limited export volumes. Only an effective strategy to increase such agricultural exports could enhance agricultural export earnings.

There is no doubt that exports must be increased substantially to reduce the trade deficit and improve the balance of payments for stability in the external finances. What is needed is a capacity to produce exportable goods at competitive prices and seek markets more aggressively. Foreign investments that have links to international value chains is a means of achieving a significant increase in exports.

Ambitious targets cannot be achieved without appropriate policies that are attractive to investors. The ease of doing business has to be improved and investors must have confidence in the continuity of economic policies. There is a need to reform labour laws and technical skills require to be enhanced.

Tourism
Tourist earnings are expected to reach US$10 billion in 2020. This too is rather unrealistic as the tourist boom since the war appears to be flattening out. There are both national and global reasons for this.

In the first seven months of this year tourist earnings are estimated at about US$2 billion. Although tourist earnings increased in the past two and a half years, there are signs of the growth decelerating. As a study by the Chamber of Commerce has pointed out, the figures on tourist arrivals may not be correct and the hospitality trade is facing difficulties. It appears that hotel rate are not competitive with those in other Asian countries. Unless the problems in the tourist sector are resolved, the growth in tourism is likely to be modest.

Per capita income
The most unrealistic expectation of V2025 is the increase in per capita income from the current US$4,000 to US$5,000 in 2020.This 25 percent growth in per capita income in three years requires more than a threefold increase in the current growth rate. This would probably be the highest growth rate of all countries. The increase in per capita incomes envisaged in Vision 2025 is not achievable.

Implementation
What is needed for higher economic growth is clear consistent policies effectively implemented. The government must determine the policies needed to spur economic growth and implement these speedily. Interestingly, Vision 2025 itself recognises the importance of implementation. Section 13 of the document states “We recognise that policies and projects will not come to fruition without effective implementation, which requires strengthened monitoring and coordination.”

Concluding reflection
All things considered, even a partial achievement of Vision 2025 would be significant. A consensus in the government ranks and political will are vital to implement the necessary policies. Will the much needed economic reforms, such as the restructuring of state owned enterprises be implemented? The country is looking forward to a serious effort at implementing policies that would spur economic growth rather than indulge in political rhetoric.