Sri Lanka embarks on a new private sector – driven growth model: CB Governor
Sri Lanka embarks on a new private sector – driven growth model according priority to exports and Foreign Direct Investment (FDI) with an ambitious economic target of 6-8 per cent growth over 10 – 15 years, says Central Bank Governor Dr. Indrajit Coomaraswamy.
Delivering the fourth Gamani Corea Memorial lecture at the BMICH in Colombo recently, he noted that with a domestic market of only 21 million people and per capita income of US$ 3,825 it is not possible to achieve sustained growth of 6-8 per cent without a transformation in the country’s export performance.
Exports have fallen from 32 per cent of GDP in 2000 to 12.7 per cent in 2016. Sri Lanka’s share of global exports fell from 0.09 per cent to 0.06 per cent. There is a lack of product (2/3 were apparel, tea and rubber products in 2016) and market (US and EU accounted for 58 per cent) diversification.
The share of external commercial borrowing has increased from 2 per cent of GDP in 2007 to 13 per cent in 2016.
This clearly is an unsustainable, and potentially dangerous set of circumstances, he said adding that it can only be addressed by policy reforms which promote export transformation to generate non-debt creating earnings to both service the debt and support growth as well as employment generation.
This places a high premium on getting the exchange rate; effective protection rates, particularly reducing para-tariffs; trade policy, including trade agreements; and trade facilitation right. It is noteworthy that the success of the countries of East and South-East Asia has been based on transformation of their export performance – whether they are as large as China or as small as Singapore, he said.
Sri Lanka is located 20 miles from India, the fastest growing large economy in the world. Access is particularly easy to the five fast growing South Indian states.
In addition, the country is at the centre of China’s Maritime Silk Route. Furthermore, countries like China, Japan, India, Singapore and South Korea have indicated their willingness to support Sri Lanka’s development process.
It is also important to factor in that geopolitics in the Indian Ocean has increased the potential for Sri Lanka to leverage its excellent location for its commercial advantage, he pointed out.
Referring to trade policy framework, he said that the most significant trade policy measure is the negotiation of bilateral Partnership Agreements.
The FTA in goods with India is being deepened and it is being broadened to include services, investment, technology and training. In addition, an “early harvest” is being pursued to address some of the shortcomings of the existing FTA, including some NTBs and quotas.
Similar partnership agreements are being negotiated with China and Singapore. In addition, GSP +has been restored providing preferential market access for 6000 items.
If things proceed according to plan, it is possible the narrative will be that Sri Lanka has preferential access to a market of over three billion people: China, EU, India, Pakistan and Singapore.
In a world where over 190 countries are competing for FDI, this preferential market access can be a unique differentiator; he said pointing out that it will greatly enhance Sri Lanka’s capacity to leverage.