Could micro solutions solve Sri Lanka’s macro problem?

Tuesday, 3 September 2019 00:00 -     - {{hitsCtrl.values.hits}}

Election time has brought back the slogans. Politicians and self-proclaimed champions of people are listing out all the problems we have. Poverty, lack of housing, poor education, elephant-human conflict, lack of proper drinking water, weak transport facilities, absence of law and order, inefficiency in Government sector etc. The list is very long.

 

Too many problems, too little resources

However, does anybody offer a practical solution apart from mere slogans and a promise to put things right? Let’s try to analyse this logically.

To address the above issues, a vast amount of resources are needed. Apart from the obvious financial resources, has anybody tried to quantify the required human and other resources? The reality is, government expenditure is already higher than its revenue by Rs. 761 b (2018). It’s very likely to be even higher in 2019.  

Efficiency improvements would be marginal at best

While many have promised in the past to improve efficiency and thereby reduce government expenditure, it has not worked out. 

Therefore one has to reasonably assume that whatever the improvements in efficiency would bring in only a marginal reduction in government expenditure. And contrary to the popular belief, the expenditure on the president and the ministers is a minor proportion of total government expenditure. 

 

What’s the plan for budget deficit and government debt?

Therefore, if the government is to spend more to rectify the above issues, the budget deficit would increase further. Which means the government debt would increase further as the private sector or the foreign investors would not be incurring such expenditure. 

Assuming the government spends to rectify the above issues and let the debt burden increase, what’s the plan to service such debt in the future? What would cause the economy to revive and improve the income level of the people? How would jobs generate? These questions still need to be answered by the proponents who demand micro solutions.

 

Analyse deeply to simplify the complex problem

As the above factors point out, the problems are too many and too complicated. It is even more complicating considering the limitation in financial and other resources and the fact that the next president has just five years to make an impression. In my opinion, that is the prime reason which has perplexed successive governments in the past, rather than their inefficiency or corruption or any other factor.

Therefore the solution lies in analysing the complex problem deeply to figure out the root causes of the core problem. That is not an easy task, but an essential task in devising a practical solution nevertheless. That is the approach I’m suggesting in my recently-published book ‘A simple plan for Sri Lanka’. 

 

A master plan with few key measures

While I have argued that it is the low income status of the population that is the root cause for most problems, what is suggested is a top-down approach or a master plan to rectify that core problem. Only nine key measures are proposed to be implemented over the next five years.  

Therefore it is certainly doable in a span of five years for a capable implementer. It is not a solution to rectify all the problems faced by Sri Lanka in five years, but it is a practical approach to get us into a path within five years towards rectifying most problems in the foreseeable future.

 

‘A simple plan for Sri Lanka’ in a nutshell

While it is not easy to summarise what is addressed in the book in a few lines, the crux of the proposition is as follows: 

There are two key things for the next president to work on from the first day in office. Firstly, start negotiating with the two economic superpowers China and USA which are showing great interest in Sri Lanka. The end objective should be to acquire technology from one end and get access to market from the other, with a view to leapfrog the technological industries and SMEs in Sri Lanka. 

Simultaneously from day one, the government should commence an investment drive to set up training schools, academies and universities to ensure the availability of labour for the above industries. Apart from the above two sectors, tourism and port related industries should get focused support of government by setting up required infrastructure and other supporting measures. 

In this process, the budget deficit should be allowed to expand. The deficit financing in the initial years could happen predominantly through Central Bank intervention.

 

The desired outcome of the plan

The ideal outcome would be to strike deals with USA and China and to have the training colleges and universities ready for intake in two years. The investments from foreign and private investors could be expected in the third and fourth years which would open up job opportunities by the fourth and fifth years along with the passing out of labour from the newly set up training institutes. 

The focused support on tourism and port related industries should also result in job opportunities and foreign earnings from the fourth and fifth years. As a result, the external current deficit could narrow sharply by the fifth year which means a lasting solution could be in place for the foreign debt burden as well.

As stated earlier, the budget deficit would expand in the first few years but it could be addressed once the economy is in a stable, high growth trajectory beyond the fifth year.

 

A lasting solution for micro problems

An interviewer asked me whether this book gives a solution to issues such as the drinking water problem and the elephant-human conflict, etc. Being a master plan, it has not obviously gone into every single micro issue faced by Sri Lanka. While every single micro issue is important, how this macro solution addresses the micro issues is as follows:

As industries open up along with jobs, and the impact trickles down to all segments of the society, the income levels of a vast majority of the population would improve significantly. That would be a long term solution to poverty, lack of housing and most other economic problems. And once the economy revives, the government tax revenue would also increase which would provide the government with more resources to address problems such as the drinking water problem and the human-elephant conflict and so on. That would be a long-term and a permanent solution. 

Without a top down, master plan, trying to address micro issues would get us more and more entangled in this vicious cycle of economic difficulties which we have been experiencing for many, many decades.

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