The year that has just dawned is one of huge expectations. Will it be the year that heralds the much longed for economic prosperity? Will we seize the new opportunities that have arisen owing to the peace achieved last year? Will there be an equitable and durable settlement to the ethnic and language issues that have been the most significant distraction from, and constraint on economic development?
Will the economic management of the country be one that is realistic, pragmatic, prudent and wise or will we fritter away the opportunities the country has to develop in a peaceful environment? Will the Presidential elections and the later parliamentary elections clear the way for an environment of good policy making that eschews immediate political gains for long term economic stability, growth and developments? These are the questions in the minds of most Sri Lankans at the beginning of another year. They are hoping for the new year to usher in economic policies that ensure economic growth and development that raises their incomes to higher levels, where unemployment, especially of youth is brought down to minimal levels and the levels of poverty reduced to those of South East Asian and East Asian levels. These have been the aspirations for many decades and yet they have eluded us in the past. For the last three decades their achievement was not possible mainly owing to an expensive long drawn out war. Now that the war and terrorist activity has ended, hope springs in the nation’s breast that they could be achieved.
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Short term gains that are expected are lower rates of inflation, especially a year where the basic items of expenditure of a household are brought down from the very high levels of the past two years. Last year was a relief compared to the previous year but the high prices of several basic commodities remain high. These high prices, despite announcements of reduced prices, could play a significant role in the election outcomes, as has been the case in neighbouring countries.
In as far as expectations of economic growth and development are concerned the objectives have already been stated. These vary in their magnitudes but are in the same direction. They are ambitious and difficult to achieve, but targets that are desirable. Two targets of economic policy have been stated. One is to achieve a doubling of per capita incomes by 2020. The other is a still more ambitious one of achieving a doubling of per capita incomes by the end of the President’s second term of office, a period that remains ambiguous owing to the dexterity of our constitutional makers. In any event, the achievement of a doubling of per capita income is itself a rather ambitious one, though admittedly not an impossible one.Economic development cannot be achieved by pious hopes and fertile imagination. As a nation we have been rich in rhetoric and poor on efforts. There will surely be plenty of promises in this year of elections, as in past elections. Promises there would be, efforts there must be for results that are hoped for.
The fact is that only an effective programme of economic development could ensure stable prices and higher real incomes. Good governance is the key to the formulation and implementation of sound economic policies.
President Obama on his first visit to Africa said that what Africa required was not strong men but strong institutions and good governance. President Obama underscored the importance of eradicating corruption to ensure rapid economic growth. It is now widely recognised corruption retards a country’s economic development. President Rajapaksa too has emphasised the need to eliminate waste and corruption. Corruption has been a central concern of the current election by the main contenders. Therefore people are looking forward to a country where high levels of corruption are brought down.Rapid economic growth requires considerably higher investment. This in turn requires much higher domestic savings that have to be supplemented by a trebling of current rates of foreign investment. For the achievement of these economic conditions there is a need to focus on the economic fundamentals, as well as issues of good governance. It is only a society where there is rule of law, guarantee of property rights, an efficient public service and an educated, skilled and disciplined workforce that can achieve a high trajectory of economic growth. Educational, health, administrative and other reforms are needed to place the country on a path to economic progress.
High rates of economic growth that are expected will not occur automatically. Apart from the factors that have been discussed, economic policy actions are needed to set the economy on a path of high trajectory of growth. As the Institute of Policy Studies has advised: “a coordinated and prudent approach to macroeconomic policy management in the coming months will be essential. Public institutions need to be strengthened by reducing corruption and wastage to ensure that the greater part of the reconstruction effort is mobilized through domestic resources.”
The IPS advises that “Sri Lanka should now pay greater attention to the many reforms that are needed - restructuring of public sector/public enterprises to allow fiscal consolidation, labour market reforms to improve flexibility to respond to market needs, reforms to education policy to improve marketable skills, etc. - to sustain higher growth over the longer term. A reconstruction related economic boom can lift Sri Lanka's economic growth in the medium term. But, if it is not accompanied by efforts to improve overall efficiency in the economy - that retains the confidence of investors - the boom can be relatively short-lived, and leave behind macroeconomic instability in its wake. What is required is to ensure that a reconstruction related economic impetus is allowed to transform into a sustained long term growth path through an appropriate economic reform process.”
The government alone cannot achieve economic development. Yet the government must provide the environment and policies for economic growth. Its policies must look towards the interests of the economy in the long run rather than do short term solutions to avert economic crises. Political stability and certainty in economic policies are vital. The outcomes of the two elections we hope will provide these vital conditions. The end of the war must be seized upon as an opportunity for a durable peace and settlement of the ethnic problem that has plagued the country for many decades. If we fail to develop a robust pluralistic society we cannot develop a robust economy. The focus on the economic development of the country cannot be distracted by ethnic issues. The establishment of political stability must then be complemented with the resolution of the fundamental issues in the economy.
The New Year is certainly one of hope for the country. Yet those hopes and expectations can only be achieved by measures that stabilise the polity and provides the environment for economic growth. New economic perspectives that strengthen macro economic fundamentals, especially fiscal prudence and economic reforms are essential to achieve 8 to 10 percent economic growth over the next decade.
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