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Facing the Development Challenge

26 October 2015 08:26 pm - 0     - {{hitsCtrl.values.hits}}

There cannot be any doubt about the fact that the  development challenge facing Sri Lanka  today is enormous. Any serious economist knows that the macro-economic fundamentals of the country have not been good for quite some time now. And these fundamentals cannot be changed overnight, just because there is a change of regime. One can identify many aspects of the economy that are not very encouraging, i.e. the sectoral composition of the economy, composition of the labour force, tax base, indebtedness, growing budget deficit, composition of exports and imports, the widening trade gap, etc. A serious and rigorous analysis of these and other aspects is a prerequisite for figuring out how the country can move out of the present economic crisis.  The country’s prospects for ensuring social and political stability, improving the quality of life of the people and addressing a whole range of other social issues such as social and regional disparities, poverty, crime, environmental health and the lack of social protection for the vast majority of people depend to a great extent on sustainable economic development. Yet, the policy makers do not seem to be eager to work towards a national plan to help achieve a set of  clearly articulated development goals. On the other hand, if we fail to overcome the development challenge, political instability is more than likely to follow, leading to disastrous results.

As is well known, pressing economic and social issues encouraged many people to look for opportunities outside the country for employment and permanent migration. This exodus has provided unsustainable, short-term solutions to such problems as unemployment, poverty and the widening trade gap. Yet, such solutions have undermined the long- term development prospects of the country due to brain drain, rising labour costs and labour shortages in critical sectors of the economy, besides creating many other problems. The flooding of the local market with all sorts of consumer goods such as motor cars and agricultural and industrial products perhaps has made the affluent  consumers happy but a majority of people face serious difficulties due to indebtedness and increasing cost of living.
It was recently reported that Sri Lanka was the only country in the region that did not reap significant benefits from the falling price of petroleum due to increasing imports coupled with stagnant exports. It was amusing that some of our so-called law makers wanted the government to pass on to the consumers the benefit of falling oil prices. And the government responded by reducing the price with disastrous results which we observe in Colombo on a day-to-day basis. Increased importation of oil and cars no doubt reduced the revenue that the government would have collected from higher fuel taxes.
As is well known, there is a serious structural imbalance in the economy which is increasingly dominated by a consumption-driven service sector. So, it is not surprising that the import bill cannot be contained within reasonable limits.

There is only one way to contain the import bill in line with export earnings. It is by strengthening the productive sectors of the economy, both industrial and agricultural. But this is easier said than done. There is a need for a serious economic analysis of the present structure of the economy which our economists are fully capable of. There are several sectors that need equally rigorous analysis: they are education, research and development, human resource planning, etc., in other words, what is urgent is inter-sectoral planning. This could be done through a high level national planning body.
The Draft 19th Amendment to the Constitution had a National Planning Commission in the list of Independent Commissions to be appointed but this had been dropped in the amendment finally passed by the Parliament. But this can still be done, initially by appointing an Interim Council under the Ministry of Planning. Given the highly significant nature of national planning, this cannot be postponed any further. It is true that such a measure is not going to bring quick results due to the long-term nature of national planning but we cannot ignore long-term policy development. As is well known, successful East Asian countries took two to three decades to steer their economies on a path of sustained development to achieve their national goals. This has not been possible in Sri Lanka partly due to the populist nature of our democracy as against the technocratic nature of many East Asian states and partly due to the mismanagement of our national question resulting in political conflict. As is well known, the latter led to sky-rocketing of defence expenditure at the expense of vital social sectors such as education, public transport and R and D.

When a country is confronted by  an economic crisis, it is natural for those who are responsible for economic management to concentrate more and more on short-term or day-to-day management issues. But this does not eliminate the need for articulating a long-term vision and formulate strategies to realize that vision. In fact, both should happen simultaneously. The economic crisis that the United States faced in 2008-2009 no doubt consumed a major part of the time, money and energy of the US Government but the leaders there were equally keen to find out what went wrong. While de-industrialization, among other things  was identified as a major issue and many initiatives were launched to deal with it, an article in the Time magazine in 2013 reported that the outcome of such initiatives was quite significant.


"So, facing the development challenge a multi-pronged approach, a well-constituted, multi-disciplinary forum at the highest level of Government is critically important to plan the way forward."

As is well known, capital investment, both public and private is critical for economic development. While the country has no capacity to make many large-scale public investments due to already- accumulated public debts and serious budgetary constraints, it is private investment, in particular foreign investment, that can be the main catalyst in the process of much needed economic diversification. Even if you create an optimal investment climate, this is not going to happen overnight. It is also necessary to create a conducive environment to attract and retain foreign investment and human resources. While brain drain has to be stemmed, an effort should also be made to attract skilled Sri Lankans based in other countries through a proactive incentive scheme. We need urgent education reforms to make education holistic with an emphasis on scientific literacy, computer literacy, critical thinking, logical reasoning, comprehension, language skills, communication skills, problem- solving skills, etc. We need to strengthen scientific institutions and research centres that can facilitate innovation and product development in diverse fields. So, facing the development challenge a multi-pronged approach, a well-constituted, multi-disciplinary forum at the highest level of Government is critically important to plan the way forward. If we take this step today, we may see some results in a few years. If we fail to do this today, we may have nothing much to look forward to even after another decade.

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