Defining progress

Independence Day is a day for celebrations and soul searching. Admittedly self-reflection as a nation is a challenging task and often difficult to do on a common issue but the economy is one that encompasses everyone and is important for any Government to get right. 

The optimism from the Presidential Elections and multiple programs that have been announced by the Government has encouraged the public to start 2020 in a somewhat positive frame of mind. The wide ranging tax cuts announced in the stimulus package, the moratorium for Small and Medium Enterprises (SMEs), faster reductions in interest rates and large employment programs have created an environment for faster growth. 

But there are clearly concerns that growth needs to be balanced with challenges created by Sri Lanka’s unique debt situation and stronger reforms will be needed to put the economy on a sustainable footing in the long term. 

Many economic experts agree that the Government to remain focused on continuing fiscal consolidation by broadening the tax base and aligning spending with priorities. The stimulus, while encouraging, also eats into public revenue and concerns have already been flagged by international rating agencies. 

This may not be quite so important if not for Sri Lanka’s large debt, which will continue till 2023 and restart in 2025 with just a year of respite in between. In 2020 the Government is estimated to have to repay $ 4.8 billion but the next large payment will be in October, giving some breathing space. 

The Government is also aiming for 4% growth in 2020, which is ambitious given 2019 growth is estimated by the Central Bank to be just 2.6%. But with inflation, especially food related inflation inching up at in the past two months the Government will have to be careful to ensure that loosening policy to push up growth does not lead to overheating of the economy. 

This is also important in the context that Sri Lanka has traditionally focused on internal consumption and growth in non-tradable areas such as construction to boost growth rather than pushing exports and encouraging investment, which would be more sustainable.    

Shifting to a private investment-tradable sector-led growth model by improving trade, investment, innovation and the business environment remains a challenge for Sri Lanka. Closely linked to this is improving governance and State Owned Enterprise (SOE) performance. 

Restructuring large loss making SOEs such as the Ceylon Electricity Board (CEB), Ceylon Petroleum Board (CPC) and SriLankan Airlines has been a challenge that successive governments have struggled with but remain important to the country’s economic health.  

Addressing the impact of an aging workforce by increasing labour force participation, encouraging longer working lives and investing in skills to improve productivity is another sphere that Sri Lanka will have to tackle sooner rather than later. Equipping a rapidly aging population to deal with the challenges brought by technological advancement, a gig economy and deep changes to the very nature of work will require strong policies. 

Linked to this is mitigating the impact of reforms on the poor and vulnerable with well-targeted social protection spending. This will always be a thorny issue and with good reason but as Sri Lanka sees improvements in its absolute poverty and unemployment data it will need to fight other inequalities and challenges in different strata of society. These key issues together form the bedrock of the economic challenges facing Sri Lanka. In a new decade there is more onus on finding solutions.