| The
Sunday Times Economic Analysis
By
the Economist
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Economy, room
for improvement Sri Lanka's
economy is heavily dependent on trade. When our export performance
is poor the economy is in bad shape. In the first quarter of the
year exports continued to fall. The first quarter's total exports
were 15 per cent less; industrial exports were 17 per cent less;
and garment exports, the country's most important export, was 16
per cent lower than in the first quarter of last year. These figures
indicate a poor performance of the economy. Why is the economic
performance below expectations? No doubt the change of government
generated higher hopes and expectations than could be realised.
We say so because the fundamental weaknesses of the economy continued
to have their impact and the capacity of the government to reverse
these was indeed limited. The fiscal
imbalances and the low state of public finances continued to assert
a severe strain on the government's ability to stimulate the economy.
A second factor of utmost importance was the global conditions.
Although 2002 signalled a global economic recovery, the waves of
that recovery does not appear to have reached our shores to any
significant extent. The impact of the US economy's recovery is bound
to result in other economies too registering higher growth and this
in turn providing a far more hospitable climate for our exports
than in 2001. Yet this impact is likely to be later this year and
in the next year. However to benefit from the global turn around,
the country must be competitive in international markets. The expectation
of stable crude oil prices was shaken by the uncertain conditions
in West Asia. The war in Afghanistan and the tensions in the sub
continent made the region an inhospitable area for investment inflows.
The higher energy costs for industry are no doubt a factor that
would affect our industrial exports. We must however not place the
entire blame on the international environment. Apart from the overhang
of the economic conditions of the previous year that cast its shadow
on the economy's capacity to grow, the approach of the government
to economic policy too contributed to a lesser recovery than the
potential. The UNF government
repeated the mistake of the PA in selecting an irrational and dysfunctional
allocation of ministries. The allocation of ministries remains a
mystery. It is not the number of ministers that we are referring
to, but the bifurcation of functions, as well as the appropriateness
of the selections for particular portfolios. The government's implementation
of economic programmes could have been better. There is also a lack
of a clear-cut policy thrust in the government economic policies.
Consequently
each minister appears to be doing his own thing rather than acting
in concert with an agreed government policy. This means that the
effectiveness of government remains vitiated. There is a need for
the government to articulate a consistent policy framework and plan
out an economic strategy. The government is probably relying far
too much on the policies of the IMF and the World Bank, many of
which are not relevant to our context or impractical to implement
owing to our social and political context. The government
may have placed too much of its focus on the peace effort and too
little on the economy. Admittedly peace is an essential requirement
for the economy to come to its full potential. Yet, there has to
be a realistic approach to this thorny issue. To place most of the
eggs in this one basket may neither be prudent nor pragmatic. One of the most important and inescapable fact is that in the political context, the political culture and the unstable political conditions it prevents the government from taking bold and meaningful economic policy decisions. This is of particular relevance for long term economic growth, but even measures important for immediate stabilisation of the economy are not taken owing to possible political repercussions. The danger is that the economy may continue to slide while we keep repeating about the harm done to the economy by the previous government in the last seven years. The first quarter's
economic performance has not been satisfactory. The indications
are that this unfavourable trend has continued into the second half.
We hope that the government will take this as an indication of the
need to provide support measures and improve its implementation
of economic policies to generate a more efficient industrial performance
in the second half of the year. It is vital that our industry is
efficient and competitive to make the best of the global economic
recovery.
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