Hopes for 2019

Tuesday, 1 January 2019 00:00 -     - {{hitsCtrl.values.hits}}

The New Year dawns with many challenges for Sri Lanka. In 2019, Sri Lanka will have to face dual challenges of elections and large debt repayments. In many ways, these two realities counterbalance each other and create a narrowing space for crucial economic reforms necessary to deliver growth.

Many pages of writing have already been dedicated to debt repayments and the need to maintain stable macroeconomic fundamentals in 2019, even though elections generally trigger increased government spending as political parties go vote-hunting. However, the larger challenge remains to be growth and reforms needed to ensure Sri Lanka’s economy expands at a faster rate to deliver the expectations of its population. 

Growth in 2018 has been modest at best with the country likely to end the year with growth below 3.5%. This is largely due to critical reforms that are needed to boost trade competitiveness and attract investment internally failing to take off. As pointed out by the private sector, economists and others, the Government needs to establish holistic policymaking that has the buy-in of all stakeholders, especially the bureaucracy. If not, policies merely end up as talking points that are not practical and ultimately frustrate the public. 

One case in point is the push for Free Trade Agreements (FTAs) kick-started by the Government in 2015. The Committee of Experts appointed by the President in their report have highlighted the need for holistic policymaking that evaluates the needs of the Sri Lankan economy before moving ahead with negotiations. The report points out that Sri Lanka’s domestic industries struggle with the uncompetitive production environment caused by policy uncertainties, high energy costs, macroeconomic instability, labour market rigidities, and unsatisfactory infrastructure. 

They point out that considering these constraints, a desirable policy option would be to focus on targeted liberalisation so as to avoid interference with the growing industries, drawing from the successful experiences of Japan, South Korea and Brazil during 1965-80 before they became complete free traders. This committee is not the first to advocate for more practical policies and more space for engagement. Without the support of the bureaucracy, it is impossible to reduce red tape that is crucial for increased economic efficiency. This is a challenge for all governments but one that must be tackled for any real change on the ground. 

Reforms are difficult at the best of times. Given the challenging external environment, a depreciating currency and at least two elections in 2019, the Government will be hard-pressed to continue with reforms during the next 12 months. It is also not necessary to disengage from all trade agreement negotiations, as advocated by some segments, or demonise imports and liberalisation, but it is important to find a middle ground where realistic goals are established and achieved with clear time lines.

One positive element is that in an election year, economic and political objectives sometimes come together. Anti-corruption measures are a great example of this. Pushing ahead with policies to increase transparency, especially within the public service, will be a measure that will be appreciated by most voters. It would also bolster the business environment and encourage investors. In 2019, the Government could lead the way in creating genuine opportunities for the public. Many Sri Lankans will be hoping that this will be a year of such change. 

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