Sri Lanka has slipped three positions to languish at number 71 in the latest ranking of global competitiveness by the World Economic Forum whilst neighbouring giant India has emerged as the best performer.
Released yesterday, the WEF’s Global Competitiveness Report 2016/17 identified Sri Lanka as the most advanced economy in the South Asian region but noted the country has slipped three positions to 71st out of 138 countries assessed, but with a stable score.
“After years of conflict, the country needs to concentrate on triggering the efficiencies that will drive further growth—for example, by restructuring the labour market and investing in technological readiness, where it lags significantly behind economies at a similar stage of development,” the WEF’s GCR said.
Countries were assessed on 12 pillars and Sri Lanka’s performance was mixed under three sub-indexes Basic requirements ranked at 64, efficiency enhancers (83) and Innovation and sophistication factors (46). The pillars and Sri Lanka’s respective global ranking were Institutions (64), Infrastructure (57), Macroeconomic environment (73), Health and primary education (37), Higher Education and training (68), Goods market efficiency (66), Labour market efficiency (128), Financial market development (64), Technological readiness (101), Market size (60), Business sophistication (53) and Innovation (43).
In terms of most problematic factors for doing business, the WEF Executive Opinion Survey 2016 listed policy instability as the biggest concern followed by access to financing and inefficient government bureaucracy and tax rates.
As per the report, Switzerland, Singapore and the United States remain the world’s most competitive economies with India being the highest rising economy, climbing 16 places to be ranked at No 39.
It also finds declining openness is threatening growth and prosperity and noted monetary stimulus measures such as quantitative easing are not enough to sustain growth and must be accompanied by competitiveness reforms.
“Our data suggests that the degree to which economies are open to international trade in goods and service has been declining for ten years and that this could hurt prosperity in the future. We also consider the impact of competitiveness on monetary stimulus packages such as quantitative easing,” the WEF GCR said.
For emerging economies, the report said updated business practices and investment in innovation are now as important as infrastructure, skills and efficient markets.
Focusing on the region, the report said South Asia continues its upward trend and competitiveness improves in most economies in the region, which is experiencing positive economic momentum, and in 2016 is set to grow more quickly than China for the first time in more than 20 years. Over the past decade, the subcontinent has focused on improving overall health and primary education levels and upgrading infrastructure, areas of particular importance for future diversification and preparedness given the resource-driven nature of the regional economies.
In the health and primary education and the infrastructure pillars, South Asia’s average score has increased by 0.5 and 0.3 respectively since 2007, but infrastructure remains the region’s second weakest pillar, just after technological readiness. Investment in these areas will be vital to fully unlock economic growth. As they move up the development ladder, it will also be increasingly important for South Asian economies to establish competitiveness agendas to improve the functioning of their labour and financial markets, which have deteriorated over the last 10 years.
The region remains diverse, with a core of three heavyweight economies—India, Pakistan, and Bangladesh—surrounded by smaller ones such as Bhutan, Nepal, and Sri Lanka, each with its own peculiarities and unique development path. Since 2007, the gap between the best- and worst-performing economies in the region has increased in some of the drivers of competitiveness, mostly as a result of the deteriorating situation in Pakistan.
The quality of infrastructure has improved significantly (although from low levels) in India, Bangladesh, and Sri Lanka, while it stalls in Nepal and deteriorates in Pakistan. Pakistan is also the only economy that fails to improve its macroeconomic environment and health and primary education levels, falling behind other South Asian economies. Financial market development remains poor across the entire region, as does technological readiness; this last area improves significantly only in Bangladesh and Sri Lanka, which overtook India to become the best performer in this pillar in the region.
India leads the group of South Asian economies. Following its 16-point rise in our Global Competitiveness Index in 2015, India climbs a further 16 points this year, reaching 39th. This is the highest rise of any economy this year. India is now the second most competitive BRICS economy, behind China (28).
India’s improvement has largely been across the board, although stellar areas of improvement include; public institutions (up 16 to 42), increasing transparency in the financial system (up 15 to 38). However the WEF report noted that India is still long way from having in place all the competitiveness elements to realize its potential as a major global economy. Its labour market is still bound by rigid regulations and centralized wage determination (112); it ranks only 110th in terms of technological readiness (although here it climbs 10 places). Infrastructure 68th also remains a bottleneck even though it climbs 13 places.
The two Himalayan economies, Bhutan (97th) and Nepal (98th), both improve their positions this year, by eight places and one place, respectively. Infrastructure and connectivity are bottlenecks for both economies but, thanks to heavy investments in hydroelectric power, Bhutan can rely on a high-quality electricity supply (41st). Nepal boasts the best macroeconomic environment in the region and, after significant recent improvement, the second highest level of health and primary education.
Pakistan trails the group of South Asian economies. Its upward trend of recent years continues with an advance of four places to 122nd, although its score is still below the 2007 level. The climate of instability during this period has surely weighed down the country’s economic development.