Any economy looking to grow fast in the world today has to be obsessed with competitiveness. At the core of Sri Lanka’s slow growth is the reality that the economy is simply not competitive enough to link to global value chains, attract investment and thereby increase the volume and diversity of exports. This is also the hardest aspect to implement reforms in and the Government having struggled with it for four-and-a-half years has effectively given them up ahead of Presidential Elections.
But the world is still engaged in the race. According to the World Economic Forum (WEF) Sri Lanka has fared well in South Asia, managing to rank in the 85th position out of 141 countries. But it has only managed to improve one ranking from the previous year and lags well behind India and other countries in East Asia, which should really be the benchmark Sri Lanka aspires to. Despite sliding 10 positions India is still ranked at 68.
Even more worryingly in terms of trade openness, Sri Lanka is the second worst performing country, being ranked at the 140th position, out 141 countries. Further, Sri Lanka has poorly performed in terms of property rights, labour market flexibility and quality of land administration, being ranked at 123rd, 132nd and 135th, respectively.
The stability of Sri Lanka’s financial system has also declined due to an uptick in non-performing loans, widening credit gap and a decline in the soundness of the banking system. Sri Lanka is ranked at the 92nd position in terms of the future orientation of the Government with weak performances in the legal framework’s adaptability to digital business models and the Government’s responsiveness to change.
These numbers will not come as a surprise to anyone who has a clear picture of Sri Lanka’s economic weaknesses. The imposition of tariffs and other protectionist measures that have been implemented over the decades, usually with no logic behind them, has reduced the competitiveness of the economy. A sluggish agriculture sector, which employs about 24% of the labour force together with a under productive public sector, economic activity concentrated in the Western Province, moderate human capital development, an aging population and limited infrastructure development are some of the challenges that successive administrations have grappled with.
Sri Lanka has made steady progress in key indicators such as corporate governance, transport infrastructure, labour markets, research and development, entrepreneurial culture, judicial independence, efficiency of legal framework in challenging regulations and freedom of the press.
Sri Lanka is ranked 50th, out of 141 countries, in terms of transport infrastructure and 56th in terms of corporate governance, despite a decline in the strength of auditing and accounting standards. The country is also ranked relatively high in terms of financing of SMEs and venture capital availability.
Sri Lanka’s public sector performance has also been enhanced mainly due to an increase in the efficiency of the legal framework in settling disputes. But these need to be supported by more important reforms that keep pace with global challenges.
In the latest ranking Singapore has replaced the US as the most competitive economy in the world. In a world riven with trade battles, political upheavals and other uncertainties Sri Lanka will have to find a way to improve its competitiveness to see stronger growth.