Ad hoc policies deter FDI growth

by Lalin Fernandopulle

With the burgeoning budget deficit running into several billions and the stalemate in the business environment exacerbated by the dwindling export income and the sluggish flow in Foreign Direct Investments, the business community has voiced concern about the urgent need to reverse the trend and put the country on a solid growth trajectory if it is to reach the next phase of growth.

Hot on the heels of the down rating by Fitch Ratings, a fortnight ago, is the revision of the country’s outlook on its B+ long-term sovereign credit ratings to negative from stable, on rising fiscal and external imbalances by Standard & Poor’s Ratings Services last week.

Professor of Economics of the University of Colombo Sirimal Abeyratne said this was only the beginning and if serious note is not taken of the current situation and rectified, we will be unable to attract Foreign Direct Investments and as a result economic growth will be hampered.

“What investors are looking for is stability, consistency and predictability in the business environment. After 1989 there were no reforms by subsequent governments other than ad hoc policy measures which damaged the business environment.

We need a bold and comprehensive reform process that encompasses improving the business environment, government finance, external finance and public sector reforms,” Prof. Abeyratne said.

He said almost one and half years have been wasted.

Policy makers should get down to work and bring in reforms to key sectors of the economy to accelerate growth.

Prime Minister Ranil Wickremesinghe told parliament in December last year that a ‘contingency liability bill’ or mini budget will be presented in Parliament this month with new taxes to meet State finances.

Past president, Federation of Chambers of Commerce and Industry of Sri Lanka, Nawaz Rajabdeen said the government must promote export-oriented Foreign Direct Investments by providing assistance to increase productivity and compete with other countries.

He said all exporters should be given special tax concessions as in India to promote exports that will bring in foreign exchange.

There should be concrete and sustainable policies to attract investments. Consistency in policies is vital to attract FDIs. Change of policies by successive governments hinder FDIs.

Retired Banker Rienzie Wijetilleke said the fashion pages in newspapers showing smart and not so smart personalities will not help attract foreign direct investors. Investors are not interested in seeing beautiful pictures in newspapers but would rather like to know the plans of the policy makers for the country and how conducive the environment is for investments.

There should be a sound strategy with projects identified and drawn up to market them to the proper circles through the embassies abroad to attract investors.

The absence of an effective plan is an obstacle to create investor interest on the country.

There was enormous waste and misuse of public funds during the former dispensation leading to a colossal Budget deficit to the tune of around US$ 8.4 billion which was not properly exposed by the current government which was in the Opposition at the time.

He said there should be plans to instill a higher level of confidence among investors by doing away with administrative impediments and reducing lethargy and inefficiency among public servants, reducing the Budget deficit by ensuring State-owned enterprises being more productive and less dependent on the Treasury, a system to identify and penalise those responsible for mismanagement of SOEs, penalties for cases for those nabbed for bribery and corruption, introduce corporate style management with review reports to be presented by various ministries.

Firstly, ministries to present a broad plan for implementation during the next quarter of the government, within three months, and then continue to review performance as done in the corporate sector.

He also said improving the living standard and livelihood of people, solutions to students who miss university education despite being qualified, with training in technical and soft skills, building schools with high standards outside Colombo to ease the pressure of parents seeking political patronage to admit children to Colombo schools, increase agricultural production and farmer incomes, reasonable pricing for drugs and ease admissions to government hospitals by setting up specialised hospitals in urban towns are vital measures to develop the country.

“Discipline should be instilled from the top first and targets should be set and reviewed by independent personnel,” Wijetilleke said.