Sri Lanka, no more an ‘open economy’
Sri Lanka cannot be called an ‘open economy’ anymore, according to a top economist in the country.
This view was expressed by Prof. Sirimal Abeyratne, Prof of Economics, Colombo University addressing the Lakshman Kadirgamar Institute (LKI) Foreign Policy Round Table on Managing Effective Trade – Sri Lanka and International Experience held last week at the LKI Institute of International Relations and Strategic Studies in Colombo.
“Our people used to say that Sri Lanka is an open economy, but if you look at the statistics and analyse the data you cannot call it an open economy, anymore,” he said.
The second important point, he said, is the issue of the multiple tax rate affecting the country’s policy bias against exports.
He indicated that what he found was that Sri Lankans were proud that the country was one of the first countries in the region to open the economy to have undertaken liberalisation policy reforms and make it as an export oriented economy in 1977.
However, he asserted that throughout the years about a period of 10 to 15 years by the 1990s, that had changed. That has reversed, probably one important feature might be the escalation of the war. “I think there were macro-economic problems as well. What we found is that there was a policy bias against exports that has developed over the years.”
He invited all the round table participants to read about how Sri Lanka has imposed a variety of duties. And when they are combined, this would be a very high duty rate. He pointed out that it is also noteworthy as to how the US Department of Commerce advices US businessmen and the exporters and how they advise about Sri Lanka. US exporters should be aware of the fees incurred when exporting to Sri Lanka, he said.
When one analyses various Sri Lankan duties and tariffs, he said they include the Customs imposed tariff, Export Development Board levies, value added tax, port and airport tax, Nation Building Tax, cargo handling changes, agent commissions, all of this could add up to more than 100 per cent of the cost plus insurance and plus CIF value, etc.
Prof. Abeyratne pointed out that the US Embassy has received complaints from US exporters regarding these prohibitive tariffs. Sri Lanka receives GSP concessions from these countries and that is how they look at Sri Lanka’s trade regime. “These are important things to bear in mind – the way others look at our economy.”
He said: “On the way how others look at our economy. I want to highlight few more things and what should be done.”
He said that on challenges and opportunities more things have to be done at home and not outside. He said that even FTA’s should come and there is no disagreement on that. On FTA’s – bilateral or multilateral – if there is no fairly open and conducive trade regime even the FTAs would not bring about the anticipated positive outcomes, he added.
He said that all these things taken together there should be a policy reform, a reform process. To expand the local and international market there should be a couple of things that has to be done, pertaining to policy, political and investment, he said.
Prof.Abeyratne said: “Otherwise open the economy, liberalise the economy and have a fairly open liberalised trade regime. However (despite these changes) if the investors do not have that confidence to come and put money in to our economy then it is not going to work.”
Stressing on opportunities, he said that internally there were opportunities that Sri Lanka had lost after the end of the war.
“Then also in 2015 there (was a) great political opportunity we had by joining the two dominant political parties together and I thought that would be an opportunity – the opportunity Sri Lanka would never have had throughout the post-independent history.”
He said that looking at the external environment they have seen exponential growth of capital outflows of the world during the last 20 years or so and there are reasons that today an average of about US$1.5 trillion flows out particularly from advanced countries’ capital outflows.
The welcome address was made by Dr. Ganeshan Wignaraja, Executive Director and the Chair of the Global Economy Programme, LKI. Dr. Amitendu Palit, Institute of South Asian Studies Singapore made a video conference presentation while Ms. Elizabeth Ward, Department of Foreign Affairs and Trade Australia also made a presentation.