Lanka has achieved much in a short time - George Soros
The Sri Lanka Economic Forum which concluded on Friday has identified
five key challenges in the economic development of the country.
World famous philanthropist and investor George Soros
(centre) speaks at Sri Lanka Economic Forum as Prime
Minister Ranil Wickremesinghe and Professor of Practice of
Economic Development, Harvard’s Centre for International
Development, Ricardo Hausman look on.
Director, Centre for International Development, Harvard University,
Prof. Richard Hausman said that limitation in export growth, very low
tax revenue, structural transformation of the economy, urbanization and
inclusion of economic growth across all sectors and regions are the five
major challenges Sri Lanka faces in economic development.
He said that economic growth is limited as a result of limitations in
export growth. The data and composition of the goods and services
exported by the country (export basket) shows its limitation over
decades and has been stagnant since 1995. A large share of exports
continues to be agricultural products such as tea and rubber. As a
result there is a large external deficit and mounting external debt.
The outstanding external debt is high, over 220% of export revenue.
He said that to achieve sustainable growth, export growth should be high
and, therefore, increasing the export of goods and service is a
Very low tax revenue is another issue. Sri Lanka’s tax revenue is 12%
of GDP and around 5% of the Budget deficit. Since the fiscal account is
always negative there is no public savings and it hinders public sector
investments especially in infrastructure and human resource development.
This is not so in countries such as Singapore and China.
In this situation, the agricultural sector cannot create job
opportunities and it should be from elsewhere, industry or service
sectors. This transformation has not taken place and is the main reason
that Sri Lanka’s export basket has remained stagnant over decades, he
The present structure of the Sri Lankan economy is similar to that of
several economies that have now transformed to a better position. The
situation in Thailand in 1991 from the point of view of its export
basket composition was similar to that of Sri Lanka today.
In Thailand, after 1991, there was rapid development in the
industrial and service sector and transformation of the structure of the
economy with the industrial and service sector growth. New products such
as electronics, cars, machinery and chemicals were added to the basket.
Agricultural products such as rubber hold a large share of Thailand’s
exports and these items were not removed but new items added.
The situation in Turkey in 1994 is another example. After 1994 the
same thing happened and the structure of the economy was transformed by
adding more industrial products to the basket.
Costa Rica is another country and its position in 1996 was also
similar to that of Sri Lanka. The main export was coffee and the
situation began to change after 1996 and the structure of the economy
Prof. Hausman said that even today Sri Lanka is competing with poorer
countries where the main exports are concerned. In tea, and in garments,
the competitor countries are poorer than Sri Lanka.
In the panel discussion that followed, George Soros said that he was
impressed by what the government has achieved in a very short period.
The country is moving towards a more open society. I am pleased to
assist Sri Lanka and my people here are looking for investment
opportunities, he said.
However, Soros warned of another global crisis and said that the
global situation is hostile and Sri Lanka will face many challenges.
Soros said that China has a lot of problems and it can transfer the
problems to other countries. “The devaluation of the Yuan will affect
the rest of the world. China is in a serious transitional problem and it
is the beginning of a crisis and this environment reminds me of the 2008
crisis. There are serious challenges in the financial markets and I
remind my investor people to be very cautious.
“Banks that lend much money to developing countries are now pulling
back their money. Financing will be difficult in the coming years. In an
inflationary situation households get many benefits such as lower oil
price, increase in disposable income. However, today the world is in a
deflationary situation and developing countries that benefited from the
commodity boom will not be able to do so any longer. Avoiding this
situation and confronting this hard reality is a challenge for Sri
“To be exceptional, Sri Lanka can use opportunities for investment in
the tourism sector, exploit the opportunities in India which has higher
economic growth and leap forward in agriculture by improving
productivity and leap forward to the knowledge economy,” Soros said.
Prime Minister Ranil Wickremesinghe said that the Sri Lankan diaspora
in North America, Europe and Australia is expected to bring investments
to Sri Lanka. “Since most of them are professionals we expect them to
bring investments for sectors such as education, especially higher
education projects,” he said.