Thursday, 26 March 2015 00:51
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Since late last year the discussion platform regarding Sri Lanka has been dominated by politics. Given the deep links between politics and the economy the discourse is gradually shifting to the latter. The Asian Development Bank (ADB), in its latest report, has pointed out that the country’s growth is likely to slow down to 7% in 2015 amidst planned reforms by the new Government.
Change can come with challenges. Sri Lanka’s economy posted a growth rate exceeding 7.0% in every year since 2012 and continued to grow robustly in 2014 posting a rate of 7.4%, up from 7.2% in 2013. The reduction in growth rates can be argued on several levels as the new Government has contended growth rates were unrealistically inflated by the previous regime. Be that as it may, in the game of numbers Sri Lanka has to make the most of this period to reset its course in accordance with good governance.
The report says the election in January 2015 brought a new president into office on a mandate for political and economic change and with the parliamentary elections expected in June 2015 the year will be marked by political transition. Risks to economic growth arise from uncertainties during the transition and a wait-and-see approach adopted by investors, it says.
Construction is expected to slow after leading growth in recent years, driven by large Government infrastructure projects. Political uncertainty would retard private investment. While investment is likely to lose momentum in 2015, consumption is expected to pick up thanks to the concessions provided by the Budget.
Price reductions for food and fuel will encourage private consumption and Government consumption will rise with the shift in the Budget toward recurrent expenditure, the report adds. However, the outlook is for a continued strong economic performance aided by generally favourable global conditions, especially with tourism, remittances and apparel. The Government is also hoping that better engagement with the international community, streamlining investment processors and empowering law and order will spur greater foreign investment opportunities.
Engaging with the United Nations is one instance that the Government is hoping will yield fruit by returning the treasured GSP+ to Sri Lanka. The European Union has already made it clear that the Government will have to perfect its scorecard concerning 27 UN conventions and the upcoming report by the United Nations Human Rights Council (UNHRC) will be one instance where political and economic progress could well converge.
The cloud wedged in this silver lining is the investigations that the top powers of the Government have indicated it may initiate. These could include regulators, the stock market and top conglomerates along with a plethora of other allegations that are piling up daily. On a practical level how much of these will promote good governance without plunging the economy into chaos will have to be carefully managed.
As the political transition evolves it also needs to not be too self-involved and move towards giving confidence to the business community so that they too can move forward with their tasks. This is especially crucial as growth is an essential part of a stable Government. Such closely aligned sectors depend on each other for survival.
