Economic growth decelerating - Ex CB Deputy Governor
Sri Lanka is heading towards a foreign debt crisis and economic
growth is decelerating, former Central Bank Deputy Governor, W. A.
Wijewardene told the economic forum in Colombo on Thursday.
Wijewardene said external payments for the next 12 months will be US
dollars 4.5 billion and the import bill will also rise.
Economic growth will also slow down. Sri Lanka’s economic statistics
are also disputed, Wijewardene said. He said analysts have warned the
Central Bank that domestic credit and imports are being driven to
unsustainable levels by printing money to maintain low interest rates
amid a rising Budget deficit. Government revenue has been declining as a
percentage of the GDP over the past decade while exports have been
reducing as a percentage of the GDP.
These are not healthy economic indicators for a developing country
such as Sri Lanka. Sri Lanka is also heading towards a Balance of
Payment (BoP) crisis as a result of the drop in exports and the large
cash outflows due to rapidly increasing foreign commercial borrowings.
On the other side of the equation, the country’s external sector has
been in a very precarious situation from early 2012. Exports which fell
significantly in that year have not yet recovered sufficiently and in
2015, it declined by about 2% compared to the previous year.
Christopher Woodruff, Professor of Economics at the University of
Warwick, said the regulations shouldn’t baulk the growth of the economy,
as the country is successful in tourism, while having large scale
development projects. It also fosters the growth of small-scale
The government should not over-regulate the informal hospitality
sector due to pressure from large hoteliers, he said.“Due to the
internet, there are opportunities for small-scale businesses which
should be encouraged,” he said.
Woodruff said the new-age tourist having no brand loyalty, or little
desire to indulge in brands, prefers to engage in authentic experiences
with the locals.
An ongoing debate is that smaller businesses are more innovative in
providing services and management practices compared to larger companies
that aren’t willing to take risks and only copy ideas. But Corporates
argue that having a more qualified workforce fosters innovation.
Director, Graduate School for Development Policy and Practice,
University of Cape Town, Alan Hirsch said Sri Lanka should focus on
economic competitiveness to achieve sustainable and inclusive
The government has to find the ways to get employers to pay their
workers more while encouraging business as a means to distribute wealth
evenly across the population.
In a country such as Sri Lanka, however, which is very dependent on
imports, where half the productive resources are devoted to export, and
chronically short of capital equipment, such policies tend to raise
domestic prices without producing an adequate return in domestic output.
Instead, higher domestic income stimulates the consumption of imported
goods and precipitates a serious balance of payments issue.
The government should look for new avenues to strengthen the external
sector by increasing exports.
Economic competitiveness captures the extent to which economies
possess the essential factors to enhance productivity and the well-being
of the people.
It is defined as the set of institutions, policies, and factors that
determine the level of productivity of the country. The level of
productivity, in turn, sets the level of prosperity that can be reached
by an economy.
The productivity level also determines the rates of return on
investments in an economy, which in turn are the fundamental drivers of
In other words, a more competitive economy is one that is likely to
grow faster over time and produce a higher level of income in the medium
to long term.
The agricultural sector is a promising area for Sri Lanka for
specialization and competitiveness, if suitably developed.
However, agriculture in Sri Lanka is largely dominated by subsistence
farming despite its huge youth population with low skills and limited
The efficiency and flexibility of the labour market is critical for
Workers should be allocated to jobs in a very effective manner and
they should be provided with attractive incentives so that the labour
force can contribute positively to the growth of the economy. Gender
equity in the business environment and flexible regulations will attract
skilled workers with talent.
According to available data, the Sri Lankan labour market is largely
populated with unskilled labour with limited technical know-how to
promote efficient production and competitiveness.
Production in Sri Lanka is factor-driven and depends mostly on
natural endowments. The industries are mostly at the extractive stage
and employ a high proportion of unskilled workers with low productivity
and low wages.
Ensuring efficiency in the market through human capital development
will unlock large untapped potential. This involves skill acquisition
and training which governments must invest in to make the sector virile