Asked to explain the circumstances that led Sri Lanka to become one of the poorest countries, from the status of ‘Wonder of Asia’ in the 1950s ahead of many now developed Asian countries, Dr Sarath Amunugama, Minister of International Monitory Cooperation however avoided an answer saying that to respond to that question he would require another session like the present one as the time is insufficient.
The query was raised by K Amirthalingam, Senior Lecturer in Economics, University of Colombo at the ‘First Open Forum Development’ organized by Friedrich Ebert Stiftung, Sri Lanka Office, held in Colombo this week.
Introducing the programme, Joachim Schilutter, Resident Representative, Friedrich Ebert Stiftung said that the Forum would discuss the topic ‘Becoming the emerging Wonder of Asia: Opportunities, Challenges and Risks’ and said that the current conjuncture offers Sri Lanka the prospects of achieving unprecedented prosperity, but a strategic orientation needs support by decisive action to be translated into optimum and potential into progress.
With regard to opportunities, he said that there is a favourable economic geography within the fast-growing Asian region; end of the 30 year war, parliament with a decisive majority and the fade-away of terms of trade decline and demographic pressures of previous decades.
Of challenges he said that to reach a growth rate of 8-10%, these are required -- an increased investment to be originated from the private sector; local private sector lacks sufficient resources and foreign investment should be doubled; high raising of national savings; Sri Lanka to borrow from commercial markets to improve per-capita-income; to maintain creditor confidence with transparent fiscal and debt management; improve export performance and the need for inclusive growth across income groups and regions.
He said that significant risks lie on maintaining sound macroeconomic fundamentals focusing on twin problems of the budget deficit and public debt; offering relief measures to flood victims would be an added risk to price stability and fiscal sustainability. Among other risks food and energy prices will also rise as incomes grow in the large emerging economies like India and China.
Thus he said that answers should have to be found for: How can savings and investment be improved? What is constraining and what fosters Sri Lanka’s exports? How can fiscal consolidation be maintained in the face of urgent new demands on the public purse? How can we ensure inclusive growth?
In an exhaustive explanation Dr Amunugama listed out the major achievements of the country and the economic progress and said that the end of the war while being an example to the world as to how terrorism could be eliminated the consequences, has helped to give a great boost to the economy and the North and East would contribute about 2% to the GDP growth. He said that today those entering the hotels of New Delhi are body searched and that is the level of fear of terrorism all over. He said as a result of settling the war the North and East are joining the economic development of the country and they are contributing to agriculture, fisheries and tourism.
Nevertheless he was rather pessimistic on the now developing volatility in the Middle East as if it escalated it would affect not only Sri Lanka but all the countries that depend on imported fossil fuel, though he said Sri Lanka has been resilient and responsive in the worst of times. The country is dependent on world oil prices and on the global outlook for exports and even it might affect the foreign remittances as well as tourism largely involved on external factors.
He said that though the country’s growth rate dropped to 4% at the worst times, the rate has been maintained between 7 and 7 ½ % throughout. The government is thinking of 8% growth and subsequently lift it to double digit.
He said that now the country is well equipped with adequate power supply and they are in a position to assure the investors even in writing for an uninterrupted power supply with no shortage. He said that Sri Lanka is one country in Asia that has done extremely well in building infrastructure. In the case of power supply, Dr Amunugama said that Sri Lanka is ahead of countries like India China, Philippines, Nepal and Pakistan. He said that power shortages have been a major concern for investors in Asia and Africa. Therefore Sri Lanka now is in an enviable position where the power supply is concerned.
He said that constructing the Hambantota Harbour is a major boost as it lies only several kilometers away from a major sea route adding that developing other regions would ensure equitable spread of economic growth to the provinces. He said that as far as foreign investment is concerned they are in a strong position. On indebtedness, the earlier figure was 120% of the GDP and now it has come down to 80%. He said that when the world expands it is natural that the percentage of debt will be proportionately reduced.
Dr Anila Dias Bandaranaike, former Director of Statistics, Central Bank contested the views of Dr Amunugama and said that though the Minister said that there is enough foreign investment, government members are contradicting each other and therefore foreign investment is not coming. She also said that the some statements made by Dr Amunugama are contradictory. Dr Amunugama conceeded that though they expect as much foreign investment they are late to come. He also agreed that banks are not fully geared and even for local investors it is a difficult process and bureaucracy is not helpful.
He said that there are problems of strategic investment legislation and the government is planning to bring in a new law with drastic changes to abolish tax concessions given under BOI and to bring that under the Inland Revenue Department. The proposed law would override all existing legislation in this regard. He agreed that lot more can be done. Dr Bandaranaike said that it is a question of confidence and a large number of potential private investment would back-off. Dr Amunugama agreed that there should be a proactive attitude.
One of the members of the audience said that the government while emphasising the service economy found nothing about the industrial sector and whether losing GSP+ was deliberate or for any other reason. Dr Amunugama said that GSP+ was basically given owing to the tsunami.
Another member of the audience pointed out that the BOI was created to negotiate foreign investment and it has been dealing on these matters as a one-stop shop, but since late some powers override BOI and there has been lot of harassment and this agency has been sidelined. He questioned whether any investor would go to the Inland Revenue Department to get tax concessions as the IRD is meant to collect revenue and not to grant concessions.
The Minister said that BOI is only a facilitator and is not there to issue certification for taxation. To be a facilitator a small institution would suffice, adding that the BOI is inefficient.
Another member of the audience pointed out that while Sri Lanka is boasting about becoming the wonder of Asia, China and India are playing an active role in Sri Lanka: China is developing Hambantota Harbour while India is involved in Kankesanturai. He said that Sri Lanka is trapped by India and China. He said that recently Wikileaks has reported that India has sought American assistance to ensure Chinese activities stop in Sri Lanka.
Dr Amunugama said that there should not be any such fear and said that the government accepts anyone who comes to undertake development activities in the country. He said that, that does not mean that anybody could come in. But anybody coming in for investment would be going though their contracts carefully and if the conditions agree they accept the investment. He said that those countries who grant funds go through all matters concerning the investment and would be extremely careful in granting them if the project is not feasible they would not accept the contract.
Dr Indrajith Coomaraswamy, former Director, Economic Affairs, Commonwealth Secretariat, moderated the proceedings.
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