Fast-tracking the economy
by Minister Mahinda SAMARASINGHE MP
I wish to share with you some perspectives on the subject of "Fast
Tracking the Economy" within the overall scope of theme "Facing global
and local challenges: the new Dynamics for Economic Development", which
is of particular significance to us in present-day Sri Lanka.
It is heartening to note that the Ceylon Chamber is facilitating this
discourse with a view to fine-tuning the private sector's strategic
response to face the challenges of the current economic environment.
Nationally we are poised upon the brink of a potential economic
take-off which has been made possible by the end of the armed conflict.
The economic indicators are largely positive. As was pointed out in the
budget speech, due to the resilience of our entrepreneurs, the steadfast
determination of our workforce and the policy environment that our
government created, Sri Lanka has attained middle income economy status
with per capita income rising from USD 1,062 in 2004 to USD 2,053 in
2009.
The rate of inflation at 4.6 per cent in June 2010 recorded a
downward trend for consecutive four months - a salutary macroeconomic
indicator. The Sri Lankan economy has registered a strong rebound with
first quarter registering a 7.1 percent growth in GDP. The projection
for the year indicates that Sri Lanka's economy may record a growth rate
in the range of 6.5 - 7 percent in 2010. With this renewed confidence,
it is likely that Sri Lanka will re-emerge as a country with accelerated
economic growth. The early signs are promising. Foreign investors are
investing reasonably aggressively in Sri Lankan Rupee and Dollar
denominated debt. As a consequence, our reserve position has crossed the
USD 5.5 billion threshold.
Contrast this with the situation in the first two quarters of last
year. As the war drew to a close Sri Lanka, was in a relatively
precarious position with foreign reserves at almost USD 1.2 billion,
donor nations holding back aid flows and the general conditions for
exports also looking weak due to the global economic crisis. On the
domestic front, domestic consumption and internal trade was also seeing
steep declines, as the population was unsure of what the future held. As
economic activity slowed during 2008 and 2009, so did Government
revenues from tax collection. The consequent increase in the Budget
deficit was unnerving. Today, a little over a year later, we are in the
happy position of being able to look back and view the economic outlook
in May 2009 as if it were no more than a distant memory.
Stability
Reflecting this upturn in our fortunes, President Mahinda Rajapaksa
told the Sri Lanka-Ukraine Business Forum on June 30:
"I am pleased to inform you that we have succeeded in establishing
stability in the country and ensuring investment protection. The
Economist magazine stated a year ago that Sri Lanka is among the few
countries with the speediest economic growth. Furthermore, with the
elimination of terrorism there is security and stability in every part
of the country. Sri Lanka has today reached the status of a
middle-income developing country with free market liberalized economic
policies. Today, Sri Lanka is ranked as the most liberalized economy in
South Asia. With the post-conflict stimulus, our economy is expected to
grow at a rate of 7% this year, and Sri Lanka was rated one of the
world's best performing financial markets in 2009 as investor confidence
grew."
Globally, the pace of economic recovery gives us, especially those in
developing countries, reason for cautious optimism. The World Bank's
'Prospects for the Global Economy' for Summer 2010 report supports our
ambitious growth targets. It emphasizes that the risk posed by the
European sovereign debt continues to be a concern. According to the
Bank, in order to ensure longer-term sustainability, fiscal policy in
many high-income countries needs to be tightened sharply over the next
several years. Policy that favours a more aggressive reining-in of
deficits will, by reducing high-income country borrowing costs, favour
medium-term growth in both developing and high-income countries. It says
that global GDP is projected to increase by 3.3 percent in the next 18
months, and by 3.5 percent in 2012. Private capital flows to developing
countries are projected to increase from 2.7 percent of their GDP in
2009 to 3.2 percent in 2012. Reflecting stronger productivity growth,
GDP in developing countries is expected to grow by 6.2, 6.0, and 6.0
percent in 2010, 2011 and 2012. This is more than twice as quickly as in
high-income countries. It goes on to add that limited fiscal space in
low-income countries means that if official development assistance were
to decline, policymakers in low-income countries could be forced to cut
growth enhancing infrastructure and human capital investments. This
poses the real risk of number of people living on USD 2 or less per day
in 2020 rising to as much as 79 million.
The Bank's report on the region also makes interesting reading. On a
regional basis, South Asia remains strong in terms of growth, being only
second to East-Asia and the Pacific. Although the global financial
crisis has had important consequences for economic activity in South
Asia, that impact was much less pronounced than in all other developing
regions. Regional economic activity benefited from limited exposures to
the sub-prime markets and global banking systems and relatively
resilient capital inflows, which increased as a share of GDP. Fiscal and
monetary stimulus in some countries including Sri Lanka, supported
activity as well in trade in services, and in agricultural products
which were less impacted by the crisis than at the global level.
Remittances also proved to be a key source of strength for the region
during the global downturn. Reflecting the diversity of its migrant
destinations and a rapid and large build-up in the stock of its migrants
abroad in recent years, remittances inflows to the region expanded 4.9
percent in 2009-even as they declined by an estimated 9 percent in the
rest of the developing world. And, while they are growing less quickly,
remittances to the region have remained positive over the first four
months of this year.
The Bank also points to relatively high budget deficits in our region
as an area of concern. We are addressing this issue. In the budget
speech, our Government's stated position was that we consider that the
historically high Budget deficit in this country must be phased out in
order to reduce the debt burden and strengthen the financial situation
so that our people will have better access to finance from our financial
institutions. However, we do not believe that such a deficit reduction
should be done at the cost of economic growth. We also do not recognize
privatization of state enterprises, selling state assets and cutting
down public investments for fiscal adjustment. We believe such
adjustment should be done through improvement in the quality of
government spending, by putting state assets into productive use and
collecting revenue through a broad based and low tax regime.
Implementation of such policies will certainly be conducive for business
development by the private sector and also be conducive to generate a
high growth rate.
I have sought to paint, in broad brush-strokes, the factors that
impinge upon Sri Lanka's economic prospects and the environment in which
we find ourselves.
Life-preserver
Next let me turn to the role of a government in a modern day
nation-state. The centrally planned economy with government being
actively engaged in the production of goods and services has given way
to new paradigm of governance. Modern public governance, as vividly
explained in Osborne and Gaebler's oft-quoted analogy, is more about
steering than rowing. Government now gives direction to the ship of
state and builds stronger relationships that help in better and more
efficient generation of propulsive force, i.e. the "rowing". Goods and
services are primarily produced by the private sector with appropriate
partnerships between public, private and voluntary sectors being built
to provide more efficient and targeted outcomes. Governance was broken
down into three elements - the form of political regime, how authority
is exercised in the management of social and economic resources and
lastly policy formulation and implementation. This new direction was
allied with concepts such as limited government or state withdrawal and
"reinventing government". This orthodoxy has been challenged by the
recent events on the global stage. To take the maritime metaphor a step
further, government now has not only to steer but to row as well in
certain circumstances and also to standby with a life-preserver when
players in the market go "overboard" putting the entire voyage at risk.
The need for active intervention to preserve economic equilibrium and
stabilize markets is now recognized and practiced by the very countries
that urged us to abandon state intervention and participation in
markets.
This does not mean a return to the days of launching public
enterprises - unwieldy white elephants that were badly managed and a
drain on the public purse. We recognize that the requisite skills to
manage, innovate and develop business and wealth creation reside with
the private sector.
However, our role is not confined to that of a mere policy maker and
regulator. The Budget currently being debated in Parliament emphasizes
the need for public investment in infrastructure and social expenditure
in areas such as health, education, transport and clean drinking water.
In appropriate areas, direct intervention such as in reconstruction and
rebuilding of the north and east, special programmes on a regional basis
to ensure balanced development and active intervention in agri-business
to promote food-security and improve our foreign exchange position, are
examples of initiatives that the Government of President Rajapaksa is
undertaking.
I must also point out that our Government views economic growth as
related to but distinct from economic development. Our approach and
strategy in this regard is laid out for us in the road-map set out in
the Ten-Year Horizon Development Framework 2006 - 2016 developed in
keeping with the policy goals of the Mahinda Chinthana. The advantage of
this holistic approach to development planning encapsulated in the
Mahinda Chinthana: Vision for the Future", is that we do not focus
attention on economic development in isolation but on social, economic
and cultural revival and resurgence with equity and justice for all. His
Excellency the President, while addressing the Sri Lanka-Ukraine
Business Forum, said:
"Our vision for Sri Lanka's development is apparent. It integrates
the positive attributes of market economic policies and economic growth
with our own domestic aspirations for social justice and human
development."
This broad vision for development exceeds mere GDP growth - it
implies development that is fair and inclusive and leads to the
improvement of the real quality of life of our people. Our efforts in
promoting development to combat poverty must not be only targeted at
eradicating income poverty but to increase human capabilities and
choices - the pith and substance of people-centric human development.
In conclusion, let me advert to the thrust areas of the economy in
which we will welcome and provide facilitation for investment. Of course
global trends and demands and a host of exogenous factors can affect
these areas and compel us to refine, refocus and reorient our aims and
objectives. We must be sensitive to these and be flexible enough to
respond to new challenges. As the President identified, our cooperation
and collaboration with international business partners is key to our
success.
He said: "In today's globalized and integrated world, participation
in the global economy is necessary to generate national wealth and
create employment in domestic economies."
Gateway
For our part, we bring to the table a Government that is supportive
in creating an investment-friendly climate, a healthy and well-educated
workforce, a unique geographical location which is the gateway to South
Asia and straddles the key shipping routes between West and East Asia
and, above all, a country that is at peace and is rebuilding and
reconciling its differences in the aftermath of a long conflict. We have
worked out our priorities. President Rajapaksa in Kiev pointed out that:
"It is my intention to transform Sri Lanka into a major centre of naval,
trade, air, energy and knowledge." The road-map provided by the Mahinda
Chinthana: Vision for the Future' offers investment opportunities to the
private sector in a wide range of areas including resort hotels and
tourism related facilities, construction, IT and Business Process
Outsourcing, skills development, clinical trials and research,
plantations, urban development, industrial townships, international
shopping facilities, renewable energy , higher education , medical
facilities, agriculture, livestock, and a wide range of value added
manufacturing and services. Our Board of Investment under the astute
leadership of Minister of Economic Development, Basil Rajapaksa, has
worked out a extensive sector-based incentivization scheme to promote
and facilitate investment. Our plans are in place and we are ready and
willing to assist genuine, quality investment that will benefit Sri
Lanka and her people.
As the President told a jointly organized Business Forum arranged by
our host and the Indian Chamber of Commerce just over a month ago:
"[T]hose of you who are keen to explore, will find abundant
opportunities for investment in Sri Lanka. The scope is immense: from
infrastructure, to agri-business, to manufacturing and to a range of
services. You will also find that our country offers a rare package of
skills, capacity, and a willingness to learn and adapt. Our policy is
vibrant, our package is enticing and exciting, and you would do well to
join us in our forward march."
I hope you will join hands with us in this forward march in helping
Sri Lanka realize her potential as an 'emerging wonder of Asia'.
I look forward to hearing your views and trust that we can engage in
an open and candid dialogue, which will be of mutual benefit.
(The above are excerpts from the keynote address by Minister of
Plantation Industries Mahinda Samarasinghe at the seventh Plenary
Session of the 24th Conference of the Confederation of Asia-Pacific
Chambers of Commerce and Industries (CACCI) and the 11th Sri Lanka
Economic Summit organised by the Ceylon Chamber of Commerce in Colombo
on Wednesday). |