The Government is busy preparing Budget 2018 to set policies that will ease debt and deliver growth but there are deep global trends and changes that need to be considered while setting policy frameworks.
Sri Lanka’s post-2015 economic policies have been centred on encouraging investment and exports though trade liberalisation and greater integration through trade agreements.
To this end the Government has pledged considerable resources and aims to put Sri Lanka among the top 40 countries in the World Bank’s Ease of Doing Business rankings as well as deepening markets to attract foreign investment. These policies make great sense but there are still overarching challenges that could make the transition harder than expected for Sri Lanka.
The International Monetary Fund (IMF) releasing its mid-year World Economic Outlook report last month highlighted growing protectionism, wage stagnation, low productivity and declining global trade as major challenges for growth. The report, which downgraded US and UK growth, nonetheless was bullish of sustained growth in India, Japan, the European Union and China to maintain momentum. Much of this growth depends on policy and financial market reform in China. Overall, developed countries are only expected to grow by 3.5% while emerging markets are faring slightly better at 4.6%.
Sri Lanka has so far concentrated on expanding its basket of exports and attracting investment, mostly in the categories of light manufacturing as well as concentrating on a handful of promising sectors such as tourism and IT. The Government is also banking on its workforce to attract investment. However, many other countries in the region including South Korea, Malaysia and Singapore that have very open economies and attractive human resources are struggling to maintain growth as declining trade, slowing productivity and wage stagnation hits their countries.
Wage stagnation is partly driven by technology and globalisation. Artificial intelligence is already being deployed to replicate human logic and judgment in specific applications. According to the OECD, 9% of jobs are at high risk of being replaced by automation, and a quarter of the workforce requires major re-skilling. Currently, only 42% of the workforce has the necessary skills to thrive in tech-rich landscapes. In Malaysia and many other countries, technological advancements have reinvented many processes and displaced many functions in diverse sectors. Automation will replace conventional labour and this trend will go unabated.
Close collaboration between the public and private sectors is critical to ensure that workers, especially adult workers, are retooled and equipped with new skills. This is the only way Sri Lanka can attract more investment. Sri Lanka can address labour displacement by investing in education, skills re-training and increasing women’s participation in the workforce. The Government needs to take a hard look at the current landscape of social safety nets and draw best practices – both those tried and tested, and practices that can best respond to new challenges and the needs of society.
In a world that is moving at lightning speed Government policies need to evolve alongside challenges and not just follow decades-long measures adopted by neighbouring countries, no matter how successful they have been. Obviously some overarching principles remain true but their successful adaption relies heavily on new trends emerging in the world, especially since Sri Lanka has a unique combination of developing and developed world problems. All countries want to grow but how remains an individual endeavour that demands progressive minds and nimble policies.