SLEA President Dr. Upananda Vidanapathiran handing over the first copy of the trilingual book titled ‘Reviving COVID-19 Affected Economy: Reflections of Sri Lanka Economic Association’ to Central Bank Governor Professor W.D. Lakshman at the Central Bank on 5 October. Also seen are (from left): SLEA General Secretary Dr. Maringa Sumanadasa, SLEA Chief Editor Sarath Vidanagama, and the book’s Editor-in-Chief and SLEA Vice President Rev. Professor Wijitapure Wimalaratana
SLEA’s professional responsibility
The Sri Lanka Economic Association, commonly known as SLEA, has always been in the forefront of making objective policy recommendations for Sri Lanka’s policy authorities. Its forte is that it is not guided by any political or personal hue. To gauge this, one should only look at the papers presented in its annual sessions in the past. It has been constructively critical of the policies adopted by governments of different political alienations.
When corruption was rampant, governance system eroded, the rule of law violated and scarce resources were wastefully employed, SLEA considered that it is its duty to pinpoint the dangers so that the policy authorities could re-consider their planned actions. For this, it has earned the respect of all.
Policy briefs on reviving the ailing economy
SLEA has done it again in this uncertain state of COVID-19 pandemic that has engulfed the entire global community. When Sri Lanka had been locked down by prolonged curfews and people’s movements restricted, it has assembled 35 of its leading members to come up with policy briefs on 15 different sectors of the economy. This it has done totally unsolicited as its professional social responsibility.
The outcome has been the release of a trilingual policy brief titled ‘Reviving COVID-19 Affected Economy: Reflections of Sri Lanka Economic Association’ last week. The volume has been edited by Rev. W. Wimalaratana as the Editor-in-Chief and assisted by Sarath Vidanagama and Menuka Udugama. But this has been done before the second wave of the pandemic hit Sri Lanka in October. Hence, had this policy brief been written today, some of the analyses would have taken a different form.
The sick economy
The former World Banker, Sarath Rajapatirana, has set the ground for the policy brief by taking the reader through an overview of Sri Lanka’s economy. By the time the economy was hit by COVID-19 pandemic, it had been in a weakened state with a slowing growth rate and mounting debt servicing obligations. Aggravating this, both the fiscal and external sectors had been in a critical state.
When a negative external shock of this magnitude is delivered, the rescue should naturally come through fiscal incentives. But the weak budgetary situation in the country had not provided the safe fiscal space to perform that job. The problem had been exacerbated by the uneven delivery of the negative shock to low-income groups which are aplenty in the country.
If one goes by a destitute income level of $ 3.40 or Rs. 613 per head per day, that number is as large as 74% of the population, according to Rajapatirana. Hence, the foremost responsibility of the Government has been to provide an effective safety net for this group, but it has no fiscal space to do so.
The trilingual policy brief titled ‘Reviving COVID-19 Affected Economy: Reflections of Sri Lanka Economic Association’
The crisis in the fiscal sector
The fiscal side of tackling the shock has been analysed by Rev. W. Wimalaratana and UPP Serasinghe. The two economists have found that the Government’s policy intervention has been hampered due both to the increase in expenditure and the fall in revenue. The revenue decline has been traced back to the slowing down of the economy which Rajapatirana had highlighted and the generous tax cuts offered to taxpayers by the present government.
The Government’s recourse to borrowing from the banking sector, according to them, would result in the undesirable consequence of generating inflation at a time when the economy has been subject to a recession. Hence, the duo have recommended as policy briefs, among others, a cut in expenditure through selective austerity measures and increasing tax revenue by expanding both direct and indirect taxes. This is a set of recommendations which the Government has either rejected or denied when the same was proposed by international rating agencies when they cut Sri Lanka’s ratings recently.
Of the other policy briefs, the promotion of special foreign currency deposit schemes offered to Sri Lankan Diaspora has been recommended. But the progress so far with only less than $ 100 million mobilised has shown that it is a non-event. Hence, the pragmatic government has gone for large-scale quick fund mobilisation schemes like SWAP facilities, syndicate loans and temporary overdrawing facilities from central banks that maintain Sri Lanka’s external accounts.
Accelerating economic growth
According to Sirimal Abeyratne, the COVID-19 pandemic has brought in catastrophic results on the already slowing economy. Three factors have contributed to this: the lock-down of the economy, delinking with the global economy and economic recession being experienced elsewhere.
To come out of this malaise, Abeyratne recommends that Sri Lanka should strive to push up the growth rate above 5% and sustain it at that level. Since it now appears that the recovery of Sri Lanka’s economy is not V-shaped but prolonged W-shaped, reaching even 5% growth will be a distant target. Accordingly, he has recommended in his policy briefs, medium to long term policy directives to raise the country’s growth rate to required levels.
Two policy briefs that should be read together with accelerating economic growth are the management of state-owned enterprises or SOEs and ensuring economic sustainability.
Manage SOEs efficiently and profitably
Three economists, Chandrasena Maliyadda, Malraj B. Kiriella and B.M. Raja Korale have come up with policy briefs for improving the management of SOEs. They include measures to oversee them more effectively and reforming them to meet the demands of the market and improving management skills.
Singapore has proved that SOEs can be run efficiently and profitably if they are managed in the same prudential way a private company is managed. Hence, these policy briefs are important at the present state of economic development in the country.
Rev. W. Wimalaratana and M. Sumanadasa have presented policy briefs for ensuring economic sustainability. Sustainability has been defined here from the viewpoint of UN appointed Gro Harlem Brundtland Commission which issued its report in 1987 under the title ‘Our Common Future’. Accordingly, the sustainable development is ‘using resources today by the present generation without compromising the ability of future generations to do so’. The policy briefs therefore cover all aspects of using environment and human beings for economic progress.
Hence, it has become necessary to rejuvenate the three major sectors in the economy, agriculture, industry and services.
Agriculture, the ailing giant
Udith K. Jayasinghe-Mudalige and Menuka Udugama have prepared the policy briefs for making agriculture sustainable. Presently, agriculture has been adversely affected by the disruption that occurred in its supply chain. Hence, the two economists have recommended that, while concentrating on tackling this disruption, medium- to long-term measures should be taken to make the sector economically vibrant by removing the chronic backward features that it cherishes dearly. The strategies recommended are both extensive and intensive.
On the extensive side, while promoting urban agriculture, the cultivation of marginal lands in the dry zone has been recommended. With increased urbanisation and use of land for housing and commercial purposes, Sri Lanka is losing land-mass available for cultivation every year. But urban agriculture should not necessarily take the form of urban home-gardens. The experimental high-rise farming project introduced by Thailand’s Thammasat University is an eye-opener for Sri Lanka in this connection (available at: https://www.timeshighereducation.com/hub/p/thammasat-university-asias-largest-organic-rooftop-farm).
On the intensive side, the two economists have recommended that Sri Lanka should go for ‘green’ and ‘clean’ technology to improve yield rates. Sri Lanka in this respect is far away from the global best practices. Its backward agricultural practices are neither ‘green’ nor ‘clean’ since they wastefully overuse water, fertiliser, pesticides and lands.
The big data that help farmers to deliver these inputs in correct amounts and at the correct time to crop plants could be adapted by Sri Lanka if its universities get connected to world’s renowned research universities.
An important development that is taking place today is the new project of yield enhancement–dubbed Mineral – implemented by Google’s holding company, Alphabet (available at: https://singularityhub.com/2020/10/14/alphabets-new-moonshot-is-to-transform-how-we-grow-food/?utm_campaign=SU%20Hub%20Daily%20Newsletter&utm_medium=email&_hsmi=97537863&_hsenc=p2ANqtz-8gm24Cqad2BwmbPf1UWmhVtdC5WraX_y9lWtW1mjZ20zzozt8WiKVbJ25769NVAQV48RtHdebRAVYS8US-_bkHpdKR2w&utm_content=97537863&utm_source=hs_email).
Industry and need for high-tech products
Policy briefs for inventing industrial leadership have been proposed by Sunil Chandrasiri and Tikiri Herath. Since industry is the future growth deliverer to Sri Lanka, its disruption by COVID-19 pandemic has been disastrous. But every disaster is an opportunity and Chandrasiri and Herath have highlighted that Sri Lanka should use it to reorient the sector to meet the requirements of the post-COVID-19 merchandise goods.
The policy brief has recommended that a new industrial policy strategy should be formulated to link Sri Lanka’s industry to the global markets. In that context, while broad-basing industrial exports, the two economists have recommended that Sri Lanka should go for high-tech industrial products that are in greater demand in the global markets today. If Sri Lanka does not do it, it will be another instance of missed opportunities.
Leapfrog to Industry 4.0 from Industry 2.0
But the answer to this question has been given by Ajith Priyal De Alwis who has provided policy briefs for Fourth Industrial Revolution, code-named Industry 4.0. Industry 4.0 is now on and Sri Lanka is still in the Second Industrial Revolution or Industry 2.0. Hence, Sri Lanka is required to leapfrog over Industry 3.0 to Industry 4.0. In essence, it is a fast-forwarding strategy.
To build an inventive Industry 4.0 mind among Sri Lanka’s students, both at schools and universities, education should be reoriented to Science, Technology, Engineering and Mathematics or popularly known as STEM system, according to De Alwis.
However, as I have pointed out in my previous writings, to make the students creative, creative art should also be added to this converting STEM to STEAM. I also opine here that STEAM should be introduced to everyone to convert Sri Lanka to a creative nation.
De Alwis has identified 11 new areas coming under Industry 4.0 for Sri Lanka to exploit in this connection. If Sri Lanka is to get the best out of Industry 4.0, it is necessary to create a critical pool of inventive minds supported by appropriate market incentives.
Modernise the services sector
The services sector in Sri Lanka’s economy has become the most dynamic and robust growth deliverer in the recent past. In 1950, its contribution to GDP was just 37%. Today, it is 58%. Even the low economic growth which Sri Lanka recorded in the recent past had been attained due to the expansion of this sector. But COVID-19 pandemic had delivered a deathblow to services. Hence, the resuscitation of this sector to previous levels and modernisation of the same on modern lines have been foremost needs of the economy.
Indunil Dayaratne and Sarath Vidanagama have presented policy briefs for this. The recommendations, numbering 15 in all, cover areas like bus and railway transportation, aviation and shipping facilities, education that includes professional diplomas, online degrees and private universities, digitisation of deliveries and payments and inclusive IT services.
The chronic external sector crisis
Sri Lanka’s external sector crisis has been both chronic and acute. The policy briefs on this issue have been prepared by M. Ganaseshamoorthy and Sarath Vidanagama. The crisis has been manifested by a growing trade deficit, an unmanageable current account deficit, overreliance on remittances inflows and increased debt financing to cover the wide overall deficit in the balance of payments.
The two economists have recommended a policy package covering all these areas. Of them, an important recommendation has been that Sri Lanka should not restrict the import of inputs needed for production, namely, the intermediate and capital goods.
Contrary to this, in the present import restriction regime, some of the intermediate goods and capital goods has been restricted. In the case of maintaining a stable exchange rate, the vital recommendations have been improving productivity and maintaining domestic price stability.
Let thousands of tourists come
The tourism sector which comes under both the services in GDP and the balance of payments has been the worst hit economic subsector in the economy. DAC Suranga Silva has presented policy briefs for building a resilient tourism sector for the country.
These recommendations cover the immediate measures to be taken to keep the sector live and medium- to long-term measures to uplift it to new heights. It has been suggested that the development of the sector should be inclusive by going for public-private and people partnership, dubbed as PPPP. Poverty alleviation, human development and the revitalisation of micro, small and medium enterprises, called MSME Sector, are vital policy strategies for this inclusive development.
Alleviate poverty sustainably
In this connection, policy briefs for sustainable poverty alleviation have been prepared by Seetha Bandara and Menuka Udugama. Poverty has been a chronic issue in Sri Lanka despite the anti-poverty policies adopted by successive governments throughout the post-independence history.
One reason is the spill-over of the poverty targeting funding to non-deserving individuals. This is evident in both the Janasaviya and the Samurdhi projects implemented by the Government in the past. Hence, the two economists have recommended that, before venturing into any program, it is necessary to identify the actual poor who deserve support from the Government. The recommendations do not advocate giving handouts to the poor. Instead, policy briefs have endorsed measures to create jobs as a sustainable poverty alleviation strategy.
Don’t ignore MSMEs
The largest sub economic sector in Sri Lanka has been MSME sector. S.P. Premaratne and H.M.S. Priyanath have presented policy briefs to revitalise this sector. The strategies to be adopted have been presented in short, medium and long-term perspectives.
The short-term strategies cover the need for rebuilding the disrupted supply chain. The medium-term strategies require the Government to adopt digitalised identification methods to deliver social protection to these enterprises. The long-term strategies include measures for MSMEs to upgrade themselves to large enterprises. Since that is the natural evolution of these enterprises, it is of importance to support such graduation.
Human capital development
H.D. Karunaratne has presented policy briefs for exploiting human resources for both coming out of COVID-19 malaise and ensuring long-term sustainable economic growth. The policy strategy covers both entrepreneurial development and skills enhancement. Thus, these policy briefs should be read together with policy briefs for sustainable economic growth, export development, MSME revitalisation and preparing for Industry 4.0.
The laudable attempt of SLEA should not be ignored
SLEA’s attempt at identifying main issues and recommending major policy briefs for Sri Lanka to come out of the present economic malaise aggravated by COVID-19 pandemic is laudable. It is not exhaustive, but it can be used with other recommendations that have been made by other bodies like the Institute of Policy Studies or IPS.
But the caveat here is that SLEA was largely ignored by Sri Lanka’s policymakers in the past. Hence, all recommendations made by it in its Annual Sessions were reduced to just academic exercises. I feel that the same fate should not befall on this report too.
(The writer who is a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected])