|
|
 |
 |
| Sunday, 14 July 2002 |
 |
|
 |
Features |  |
| News Business Features Editorial
|
Excerpts from a Paper presented at the Asia Civil Society Consultation on the 2002 Commonwealth Finance Ministers Meeting (CFMM) by Seneka Abeyratne (Poverty Advisor, Government of Sri Lanka) This is a critical year in Sri Lanka's history. A major opportunity is within reach to restore peace and bring an end to the 19-year conflict that has held back the social and economic advancement of this country. A ceasefire has stopped the killing and careful steps are now being taken towards the opening of peace talks. However, it is clear that this process will be neither rapid nor simple and its eventual success will depend a great deal upon the efforts of all sections of society and the support and goodwill of the international community. One of the central objectives of the Government is to restore economic growth and thereby effectively eliminate poverty in Sri Lanka. With the attainment of a lasting peace there will be much better prospects to significantly improve the economic and social welfare of the people of this country than has been the case for a generation. It should be recognised, however, that the challenges that must be overcome to achieve major improvements in social and economic conditions will be substantial. An average of 4 to 5 per cent GDP growth since Independence has not been sufficient to provide full employment at acceptable incomes for our people. It is clear that much higher rates of economic growth will be needed to bring about the required improvements in opportunity and living standards. The Government has set a target growth rate of 10 per cent. This will be necessary not only to substantially reduce poverty, but also to carry out the necessary reconstruction and rehabilitation to ensure a permanent end to the conflict in the North and East. A Poverty Profile Between 25 and 39 per cent of the population can be classified as poor, depending on whether or not poverty is measured with a low or twenty per cent higher poverty line. Poverty is predominately a rural phenomenon with nearly 90 per cent of the poor residing in rural areas. Farmers cultivating small plots of land, with few off-farm sources of family income, and casual workers account for a large share of the poor. The vast benefits of globalisation and increased opportunities for trade and investment have been captured largely by the Western Province, which accounts for only about one-tenth of the population. In the figuratives sense, Sri Lanka could be viewed in terms of three islands - the Western Province, the rural hinterland, and the North and East - which are disconnected due to the lack of adequate economic and social infrastructure facilities. Connecting to growth means linking the isolated areas to growing domestic and international markets through far-reaching structural reforms combined with broad-based infrastructure development. High, persistent poverty is simply unacceptable to Sri Lanka. There is an urgent need to redefine strategies for reducing poverty in all its many dimensions. The Poverty Reduction Strategy (PRS), prepared by the Government in consultation with a wide range of stakeholders,including donors, NGOS, the private sector, and civil society is based on an assessment of the extent, causes and consequences of poverty in Sri Lanka. In addition to defining the main pathways for a broad based poverty reduction effort, it also provides a detailed set of policy and programmatic interventions designed to connect the poor to economic growth. The policies and priority actions identified in the PRS will be refined and a deeper set of reforms for achieving a higher growth rate incorporated into the final Strategy document. It should be emphasised that the development and implementation of the PRS is an ongoing process, building upon extensive consultation with stakeholders and interested groups, including multilateral and bilateral donors. At this time, it reflects the integration of two closely related activities - the Government's development of its economic reform program during its first six months in office, and the PRS that has been developed during the last four years and which incorporates many of the elements of the reform program. The central focus of this program is to encourage and facilitate the more productive use of all resources, necessary in an internationally competitive economy. Six major pillars constitute the strategic foundation for future poverty reduction efforts: Building a supportive macroeconomic environment A set of stable, consistent and predictable macro-economic policies underpin private sector led growth and development. If the private sector has full confidence in the nation's macro-economic management and if the high costs of doing business can be reduced, they will make the investments necessary to boost productivity and expand output. The 2002 Budget places considerable emphasis on fiscal consolidation, as a prerequisite for rapid and sustainable growth. On the revenue side, a broad-based VAT has been introduced to replace and consolidate GST, NSL and other turnover taxes. The temporary Custom's surcharge is to be phased-out, uniform import duties will be applied to the majority of agricultural commodities, and the stamp duty will be eliminated. Top marginal rates of household and business income will be reduced and the direct tax system simplified. The Budget signals the Government's intention to rationalise the existing tax incentive system and reduce its scope. All tax incentives, including those now presently granted by the Board of Investment (BOI) will be included under the revised Inland Revenue Act. With the aim of reducing avoidance and improving collections, the 2002 Budget signals the restructuring and amalgamation of three Departments: Inland Revenue, Excise and Customs. These three agencies will be transformed into a modern, efficient Revenue Authority. On the expenditure side, priorities have been sharpened and steps taken to reduce public enterprise losses. The Budget also contains a multi-year plan to trim the public service. Every Government agency will be required to rationalise its cadre over the next three years. Departments and agencies will also be required to submit proposals for consolidation of functions within and between relevant agencies. More effective financial management and better public procurement practices and procedures can help ensure that existing resources are used effectively. In addition to accelerating foreign aid disbursement, Government will undertake institutional reforms aimed at introducing program budgeting, developing a medium-term budget framework, automating public accounts and audit practices, and introducing a public expenditure management system to track implementation and cadre. The Government is fully committed to a set of market-oriented trade, sectoral and structural policies to support private-sector led economic growth and poverty reduction. Structural policy reforms have been designed in full consultation with stakeholders to promote ownership and social cohesion. Trade and Investment Policy Reform The Government is committed to reducing trade protection and establishing a two-band tariff system. Tariff surcharges, established in response to the 2001 petroleum shock, will be phased-out. Import monopolies on petroleum products will be eliminated and greater stability and predictability restored to the trade regime for foodstuffs. A bilateral Free Trade Agreement (FTA) has been reached with India. At the same time, Sri Lanka will continue to pursue free trade accords with other countries, especially South Asian nations, and to honour its commitments to free and fair trade under the WTO. Commercial Legal Reform Government will modernise the regulatory environment to facilitate both the entry and exit of business. Towards this end, Government will introduce appropriate bankruptcy legislation that will protect creditor interests and facilitate and orderly exit of failed firms. It will also amend the Companies Act to facilitate the creation and registration of new businesses. Labour Market Reform One of the main challenges in the process of labour market reform is to balance the urgent need for increased flexibility with the need for protection of the workforce. Government will pass an Employment and Industrial Relations Act with a view to enhancing the flexibility of the labour market, promoting the upward mobility of labour, and increasing labour productivity. The Termination of Employment of Workman's Act (TEWA) will be revised, particularly with respect to the compensation formula for involuntary termination of labour. Social dialogue between government, workers and employers organisations will continue to ensure harmonious implementation of labour market reforms and to seek further improvements in labour relations, laws and regulations. Financial Sector Reform In spite of some improvement, the soundness of the banking system remains a cause for concern because of the weakness of the two state commercial banks. To establish a sound and efficient private banking system, the state banks will be restructured. To foster competitive financial sector development, opportunities for foreign investment and ownership in the insurance and brokerage sectors will be enhanced. A pension reform program will be mounted, which liberalise investments that can be held by private pensions and the provident funds. Improved management of the state-operated pension schemes (EPF & ETF) will be encouraged through mergers, private fund management, some foreign portfolio investment, improved collection and management reforms to reduce evasion. Power Sector Reform The main objective of the Government's energy sector reforms is to restructure the industry into a number of commercially managed entities that are well governed and managed and mandated to focus on the delivery of higher standards of service to customers at least cost. A new Electricity Act is to be promulgated in 2002, which will unbundled the power sector in the areas of generation, transmission and distribution, allow for the creation of an independent regulator, and provide a transparent solution to power purchasing and selling problems. The Regulatory Commission is to be operational by 2003. That Commission will develop procedures for independent tariff setting and licensing rules for generating companies, transmission companies, power purchase and sales functions and distribution companies. A co-ordinated effort will be launched to overcome the power crisis. This will include the establishment of an Energy Supply Committee as well as a legal framework for overriding the Electricity Act, the CPC Act and other acts which concern power, with a view to ensuring a stable and reliable power supply in the future. More private sector participation in the power sector, a rational tariff structure and greater competition are needed to put an end to power crises once and for all. Reducing conflict-related Poverty Sri Lanka's protracted conflict has caused a humanitarian problem of significant proportions. Since the inception of the conflict at least 60,000 people have lost their lives, around 600,000 have been internally displaced, and an estimated 172,000 persons are living in welfare centres with minimum access to basic services. Among the more severely affected groups are the displaced, who have lost productive assets and land, as well as social capital. The impact of the war goes beyond the war-torn areas to affect the rural poor in particular. Poor rural youth on both sides of the conflict are faced with fewer opportunities to better their lives, they make up a substantial share of the soldiers fighting the war. Peace is the key to reducing conflict related poverty. A three pronged strategy is being followed to solve the conflict. This includes negotiation of a political settlement, advancement of a political and constitutional framework that fulfils the aspirations of all, and expediting development in war-torn areas. Government initiated a wide-ranging process of stakeholder and community consultation to identify strategies for improving the effectiveness of relief, rehabilitation and reconciliation efforts, in 1999. Government has maintained and will continue to maintain the RRR dialogue process in the search for more effective partnerships for peace. The recommendations generated by this process will be implemented with the support of the donor community and civil society. Creating Opportunities for Pro-poor Growth International experience suggests that economic growth can be a powerful engine for poverty reduction if the poor are provided opportunities to participate in the growth process. One of the Government's main challenges is to effectively connect poor regions to rapidly growing domestic and international markets. This will be accomplished by a spatial and information integration strategy that focuses on seven main pro-poor transport and communication initiatives. Upgrading the Port Network Building a Modern Road Network Policies that integrate the nation in a transport and information sense will be complemented by measures that actively foster inter-regional competition. Business promotion measures will be designed and funded locally in partnership with business associations, universities, financial institutions and government officials. The private sector will be encouraged to invest, not only in the Western Province, but also throughout the nation. Government plans to create five Economic Zones out of 22 Districts and to set up five Economic Commissions for each to attract local and foreign investment. A new BOI law will be passed which will include the establishment of BOI investment promotion offices in these five regions of the nation. New Tourism Development Zones will also be established in selected tourist areas, where currency and other restrictions will not operate in respect of companies registered with the Tourist Board. Future public investments will be aimed at a selection of strategic infrastructure initiatives coupled with, wherever possible, private sector participation. In the past, infrastructure development has been financed primarily by public investment. By introducing public private partnerships, the scope for investment can be expanded and a wider range of services provided to the public, in such areas as energy, ports, water supply, and transportation. Competitiveness will also be improved as private sector management experience is brought into the public domain. Structural change, or the gradual shift from an economy based on low-productivity subsistence orientated agriculture to higher productivity services and industrialisation, is the primary means by which economic development contributes to poverty reduction. To revitalize rural development, Government will encourage rural to urban migration in areas of low agricultural potential. To raise investment and returns in agriculture, Government will establish a more stable and market-based trade and price policy, focus research and extension on competitiveness and productivity improvement, introduce more private land ownership through divestiture of surplus state-owned lands and acceleration of free-hold titling procedures, provide support to industry groups for improved plantation operations, and foster off-farm employment and rural electrification. New wholesale agricultural markets, will be developed through private-public partnerships. In the five economic zones, the BOI will attach a high priority to fostering commercial agribusiness investment. Small and medium-scale enterprises (SMEs) are an important source of employment for low-income rural and urban households. Government is supporting the development of a vibrant market for SME business services. It will augment financing available for SME investment and undertake an ambitious deregulation and tax reform program aimed at widening investment space for the SMEs. With structural change will come increased migration to existing and new urban settlements. Urbanization can be a powerful engine for poverty reduction if it is based on thriving industrial and service sector activity. The PRS defines strategies for pro-poor urbanization based on: Promoting industrialisation in areas of clear competitive advantage Fostering new inroads in service sector industries, coupled with tourism Improving urban amenities, strengthening property rights, and providing more land for low-income urban housing development Promoting greater private participation in water supply to broaden access Fostering community-based development in water supply to broaden access Fostering community-based development of water distribution and sanitation services in poor neighbourhoods, and Expanding local government capacity and finance to manage urban infrastructure and service delivery. |
|
News | Business | Features
| Editorial | Security Produced by Lake House |
