Flawed formula to mitigate regional disparity and poverty

By Professor Willie Mendis,Senior Professor of Town & Country Planning, University of Moratuwa

Economists have noted that the Sri Lankan economy has been going up and down, averaging at approximately 5 percent and never reaching the desired growth rate. It has prompted them to articulate that a rate of 7 to 10 percent was needed to resolve the country’s problems of poverty, low incomes, and unemployment, which they identified as the underlying reasons for social tensions that often ends in a disruption of economic activities.

Yet, they have contended that maintaining such a growth rate for over a decade or so “has become more a dream”. Nevertheless, the challenge has been confronted by President Mahinda Rajapaksa who in his 2007 Budget Speech asserted that “we have to create an economy that will sustain over 8 percent annual growth over the next 10 years”. Meanwhile, the economy grew at around 7.4 percent in 2006, and a rate of over 7 percent has been predicted for 2007. It may however be too early to conclude that it is a break from the past trends.

A key reason attributed by many analysts to Sri Lanka’s struggle in achieving the desired economic growth rate, has been the missed opportunities related to the 24-year war-like internal conflict. Undoubtedly if a durable peace is attained, there will be every likelihood of achieving higher rates of growth.

Nevertheless, economists have also contended that peace alone will not drive growth. They have indicated the need for many other pre-requisites for maintaining the growth momentum, such as the rates of investment and efficiency of capital. The latter in turn will be determined by a number of associated factors including correct macro-economic policies, infrastructure, education, skills, management abilities, technology, political stability, work ethics, and law and order. Therein lies the difficulty. Some analysts have added that, “the social engineering required to enable higher sustained growth has been difficult in our cultural and political milieu”.

The aforesaid has prompted an immediate enquiry on whether Sri Lanka’s development has reached a `roadblock,’ or whether the methodology adopted to date has an inherent `systemic defect’ that needs to be rectified. The rationality of a `roadblock’ cannot be condoned for a variety of reasons. Consequently, it will be profitable to examine the notion of the `systemic defect’ in the processes which now steer development. Thus higher economic growth rates will continue to remain an intrinsic imperative.

The key issue will therefore be to focus on the places from where growth can be stimulated across the country, without reliance only on one overheated oasis. An outcome of the latter will be the challenges of “lagging regions”. This became particularly evident in the political domains of Sri Lanka and India at the last general elections held in the two countries. Each of its incumbent governments was defeated due to the little impact their promises had on the lagging regions across the country wherein a significant share of the constituents lived in poverty.

Thus, in these two neighbouring countries, high in its respective political barometers was the challenge of overcoming `regional imbalances’. The new governments in both countries perceived the latter in the context of the `urban – rural’ divide, on the basis that the lagging regions were pre-dominantly rural.

In Sri Lanka, the government’s Mahinda Chintana policy framework for development has as its key objectives, the acceleration of the economy towards 8 percent growth in the medium term, coupled with the empowering of the people by establishing a Jana Sabha for the benefit of each village under the Gama Neguma concept, and by incentivising the development of the less developed Provinces.

It follows that in both countries its policies and strategies for economic growth have been correlated with targets of poverty reduction and in mitigating regional disparities. In India, the vehicle to accomplish same has been mandated in its constitution which requires the establishment of a District Planning Committee in each District of every State to prepare a District Plan which consolidates the plans prepared by the Panchyats and the Municipalities.

Such consolidation is envisaged as a task that goes beyond compilation, and connotes a degree of value addition through the integration of urban and rural plans, which is particularly important in the light of increasing urbanization. The Sri Lankan situation which too has focussed on the rural areas for poverty reduction and in mitigating regional disparities, has however omitted to capture the rural – urban integration in its planning process. The latter is at the heartland of the `systemic defect’ in planning for higher growth targets.

The emphasis on the rate of economic growth must therefore shift to capture its impact across the spatial fabric of the entire country. Its concentration mainly in one province signifies a meaningless economic performance. Thus, in 2005, the Western Province contributed almost 51 percent of the national GDP, while it’s outermost four provinces of Eastern, Uva, Northern, & North-Central contributed less than 5 percent each to the national economy.

Meanwhile, the four provinces neighbouring the Western Province produced contributions to the total GDP in the range of 6 – 9 percent each. Analysts have reasoned that the dominance of the Western Province in value addition has been due to its greater integration with global markets, and its easier access to the country’s main seaport and the only international airport, besides convenient access to related support services.

However, other analysts have pointed out that, “the main productive sectors, such as agriculture, forestry, livestock, and fisheries, industry including mining, and tourism, etc., are widespread throughout the country. Therefore, its development has become vital to achieving balanced regional development necessary to eradicate poverty to improve the quality of life of the people of the nation as a whole.”

It is however noteworthy that the Central Bank has reported that historical data on per capita provincial GDP demonstrates that the agro-based economies in the provinces outside the Western Province, had failed to expand through industry and services due to relatively poor infrastructure, despite the availability of human capital.

It further reported that the agriculture sector on its own failed to prosper throughout, due to a host of reasons such as excess labour and low productivity, vulnerability to weather conditions, poor product diversification, and market inefficiencies for key commodities and inputs.

In these circumstances, the Bank contends that improvements in infrastructure, especially better roads and telecommunications, in the economically weaker regions would encourage investors to penetrate into such areas, taking advantage of lower land prices. The magic in balanced regional development is thus not only reliant on its “economic growth” wand.

The spatial integration of its rural and urban areas by the infrastructure networks and judicious land-uses to ensure environmental sustainability, are complementary measures. In the latter context, the integrated planning of the economic, social, physical, and environmental aspects of land, assumes great significance.

It constitutes the domain of physical planning which at the provincial scale, provides the spatial framework of the Regional Physical Plan. It’s statutory character under the provisions of the Town & Country Planning Ordinance No:13 of 1946 as amended by Act No: 49 of 2000, permits the incorporation of the promotional as well as regulatory features of physical development. Consequently, its harmonious partnership with economic planning processes has become crucial for achieving balanced regional development.

In Sri Lanka, the vehicle to consolidate the urban and rural areas is the aforementioned Regional Physical Plan. It’s preparation by the Regional Planning Committee of the respective Provinces, includes the Chief Secretary of the Provincial Council as its Chairman, and the representatives of the Local Authorities and the District Secretaries within the Province.

Consequently, it’s accountability cuts across the major stakeholders responsible for steering development at the provincial spatial scale. The legitimacy of the Regional Physical Plan is also inherent in its mandatory consideration by an Inter-Ministerial Co-ordinating Committee comprised of Ministry Secretaries, which transmits its recommendations to the National Physical Planning Council chaired by the Head of Government.

The employment of the aforesaid mandate for achieving balanced regional development has however eluded the economic planning process to date. On the other hand, the creation of Provincial Councils and its related Article 154R (5) of the 13th Amendment to the Constitution obligating the Finance Commission in formulating fiscal devolution principles towards balanced regional development, have breathed life into its dormant state.

The Commission’s recently published Annual Report has revealed the gravity of regional disparities and the insignificance of the impact of the country’s economic growth on government transfers to meet the needs of the provinces. In this situation, the conclusion is explicit: economic growth sans physical planning is a flawed formula to mitigate regional disparity and poverty. The `systemic defect’ in the segregated processes of economic and physical planning therefore needs immediate eradication, and substituted by its integration.