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| Sunday, 25 July 2004 |
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| News Business Features Editorial
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Poverty alleviation a high priority By Lloyd F Yapa. The annunciation of the overall policy of the UPFA government by the President recently as well as the subsequent Finance Ministry release on the proposed Economic Policy Framework seek to address the questions, that arose in the minds of the people in general and the business community in particular, as to what is in store for them after the change of administration last April. The goal The goal These documents indicate, that the ultimate goal of the UPFA government is poverty alleviation. Poverty, especially in rural areas, where seventy percent of the people live, is in fact, the major problem confronted by the nation as well as countries in the South Asian region. Governments, which ignore their welfare, do so at their peril, though it did not seem to be so apparent to the UNF in Sri Lanka and the BJP in India. Poverty alleviation being the long term goal, the medium term objective of the government is a faster rate of GDP growth of 6-8 % with emphasis on "equal opportunities for every citizen", through "balanced regional development", and "contain(ing) the fiscal deficit below 8% of GDP", ultimately to 5% in the medium term, (by increasing revenue collection gradually to 20% in GDP terms in the medium term, mainly through efficient collection, from the abysmal level of 16% reached in 2003, compared to the expenditure level of about 26% and using suitable monetary remedies). In other words the objective is to increase incomes all round, while protecting the purchasing power of the consumer, in terms of goods and services. A rate of 6-8% GDP growth with an equitable distribution of income (plus the proposed well targeted 'samurdhi' payments to the poorest of the poor) will definitely help in reducing poverty rapidly, but will require a substantial investment rate well in excess of 30% per annum in terms of GDP, compared to the current capital formation rate of about 25% p.a., in GDP terms. Strategies The government has come up with some pragmatic strategies to achieve these objectives, abandoning ideological rhetoric. The government is aware, it would be impossible for the State to raise so much capital for development, burdened as it is with debt. Invariably much of it has to come from the private sector, mainly foreign investors. It therefore hopes to encourage investment by "providing 'market friendly' policy support to sectors (especially SMEs) which can create new capacity", by "modernizing the country's legal and regulatory framework" and giving "special focus to promote mutually beneficial foreign investment", besides stimulating domestic savings by "ensuring a real positive rate of return to savers". The government will in addition promote a dialogue between the trade unions and the private sector to improve labour relations " for the purpose. It has also decided to back investment by the private sector with infrastructure development , along with strong support for services such as health and education, especially in the regions. Towards this end, it hopes to gradually increase its capital expenditure to 7% in the medium term, from the prevailing rate of 5%, wisely ditching the short -sighted practice of "compressing capital expenditure to keep budget deficit targets". New procurement laws and regulations will also be introduced apparently to improve the rate of absorption of voted funds and to reduce transaction costs incurred by clients. Efficient public service The government in addition recognizes, that it requires an "efficient, transparent, accountable and people investor friendly" public service to implement its strategies. With this end in view, it has set up an Interim Commission to advise on wage policy, cadre requirements and the setting up of a Permanent Commission, apparently to free the service from political interference. A Strategic Enterprise Management Agency (SEMA) has been set up to stop the haemorrhage of public funds by the bloated and inefficient State Owned Enterprises by suitably restructuring them, while keeping meddlesome politicians at bay. The functions of policy formulation and co-ordination of implementation undertaken by the public service are to be upgraded by a new institution referred to as the National Council for Economic Development (NCED). Regional and Export development This summary of the policy statements issued by the new government will not be complete without mentioning its strategy of undertaking regionally balanced development and its strategy for export development. Apart from offering the normal run of the mill protection and assistance to SMEs producing and processing products using domestic resources especially in the agriculture, fisheries and livestock sectors to create employment opportunities, the government is planning to implement some new programs apparently to reduce their unit costs through economies of scale, while helping to add value, so that entrepreneurs could earn premium prices. The reference is to the setting up of Cultivation Zones affiliated to townships, (supported by infrastructure development eg a modern road network and rehabilitation of 10,000 small tanks). These are apparently geographical 'clusters' providing the necessary research, extension, processing, financial, marketing and other services such as health and education to farmers producing primary products. An emphasis on export development makes a welcome return in these policy statements, after the previous administration soft pedalled it, for reasons unknown. Such a strategy could help the country to achieve a higher than normal rate of economic growth, especially if value added manufactured products are exported, as demonstrated by the high performing South East Asian countries as well as China. The government has therefore presented a well thought out strategy for socio economic development in general and poverty alleviation in particular. It is nothing but right, that the opposition and other stakeholders co-operate with the government to implement these programs, for the sake of the poor masses, the ultimate king makers in this nation, by helping to bring peace to the country, (without which no development is possible) in addition to passing the necessary laws, including essential revisions to the constitution. |
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