Daily News Editorial

An impetus for the economy

01 April 2017

Managing the economy is a challenging task especially in a volatile global environment. When the Yahapalana Government came to power in January 2015, the local economy was in dire straits with a huge foreign debt component. Debt servicing has become a huge burden, with some economists predicting that we would be paying off the debt for hundreds more years.

But that is just one of the challenges facing the economy. A coherent and swift response is needed to counter the threats that affect the economy. The Government has realised the need for such a mechanism and proposed to establish a Central Programme Management Unit (CPMU) to deliver ‘big, fast economic results for the country’ in the next three years. This was approved by Cabinet this week as concerns over the economy not growing ‘fast enough’ looms over the government. Given the current trend in economic growth however, the Central Bank is hopeful of a 5-5.5 percent GDP growth by the end of 2017.

The Cabinet had earlier approved the proposal to launch a programme to enable “Accelerated Economic Transformation in Sri Lanka and the setting up of a Central Programme Management Unit”. Thereafter, the Minister of National Policies and Economic Management and Prime Minister Ranil Wickremesinghe engaged the services of the US Consultancy group McKinsey and Company to prepare a plan for the implementation of such a programme.

McKinsey consultants have met with government agencies and private sector stakeholders to review government and sector plans and conducted analyses to help define a three year Economic Delivery Programme (EDP) for Sri Lanka. The EDP will only focus on delivering economic outcomes.

The EDP will mainly focus on increasing median income, private sector jobs, investment (both foreign and domestic) exports and government revenue. These are all vital to rejuvenate the economy. The latter three are especially significant – Sri Lanka cannot become a key Asian player without enough investments and a rise in exports and Government revenue. The Prime Minister will be closely involved in the implementation of the economic revitalization programme.

The McKinsey consultants, who have experience in over 20 countries, have identified the three main areas - tourism, agriculture and manufacturing to be accelerated. Their assessment tallies broadly with the sentiments of most local economists and development planners. The Tourism plan calls for marketing and international connectivity efforts on Tier 1 countries like India, China, UK, Germany Russia and France and capturing the luxury segment in Tier 2 markets and hubs such as Middle East- Dubai, USA-New York, Singapore, Australia and Japan. This ties in with the proposed new marketing campaign of Sri Lanka Tourism and plans to increase aircraft movements at the Bandaranaike International Airport after April 6 following the successful completion of the runway overlay. SriLankan will fly to three more Indian cities this year and new airlines such as Silk Air will come in.

Manufacturing is another very important sector that must be given more attention. Plans for this sector will focus on textiles and apparel, electronics and food and beverage. Agriculture, on which much of the local population depends, will see improvements in end to end tea processing, coconut processing and rice cultivation. Both sectors are intimately linked to the export sector. The consultants have also identified the “digital economy” as a key driver of growth.

The consultants have proposed that the programmes be led by relevant ministers closely supported by an identified private sector ‘Czar’. This idea has been around for some time. Now that it has gained traction, the Government should explore the possibility of making an appointment.

The consultants have touched on several other aspects of the economy. One problem that both local and foreign investors face is the incessant red tape. Many have been driven to the point of abandoning their planned investments due to this factor. ‘De-bureaucratising’ the economy is therefore essential. Fast tracking investments should be a priority for the government as there has been a drop of foreign and domestic investments in recent times. However, local politics has come into play in certain projects, threatening their early implementation. One such project is the Hambantota Port project, where certain opposition politicians tried to sabotage the agreement to be signed with China. That sent a negative signal to investors worldwide who were planning to come to Sri Lanka. Investors look for national policies on investment that will not change when a new Government comes to power, but such protests can make investors jittery. In fact, we need national policies on the economy, education, agriculture and health to move forward.

It is also vital to address the notion of inequality in development. The Western Province is growing at a pace similar to that of China while other provinces are lagging behind. This is not a good omen and the authorities should encourage new investors to move inland. The concerns of all stakeholders must be taken into account in going forward with development plans so that future generations will inherit a more prosperous country.