State Minister of Finance Eran Wickramaratne, in an interview with Daily Mirror, speaks about the future economic plan of the government and the current status of the country’s economy. Excerpts of the interview:
Recently you said the government would unveil an economic programme. What is the line of economic thinking of the government for the remaining period?
I am not going to talk about the economic programme. The President and the Prime Minister are actually going to unveil it on September 4. That is the day on which the Cabinet was formed. They are still fine-tuning it. It will be a vision for 2025.
When you say 2025, it exceeds the term of the present government. It also means the need for a fresh mandate. You sound confident about winning next time?
We will always seek a fresh mandate. The government is based on democracy, reconciliation, and development as its pillars. It is absolutely essential that people approve of what we do by exercising their franchise. Certainly, our plans are beyond this term of office which we see as an interim phase. The country is coming out of a conflict. It is in a period of immediate post conflict stage. If you talk about democracy, it is freedom and people are adjusting to it. Freedom must always go with responsibility. And that takes time.
On two occasions during the last couple of years, neither the government nor the Prime Minister for that matter outlined the [country’s] economic policy. Will it be different this time?
No. It will be built on basic lines. I am not going to say there will be sharp divergency. There will be a more elaborate statement in ‘Vision 2025’. The Prime Minister has largely dealt with the economic future; but there will be more comprehensive covering of all aspects of national life.
How do you define ‘Govt economic policy’ for this year?
The principles won’t be different. We will go into the details of the vision on September 4. When we came to power in 2015, we promised to build a social market economy. It is a divergence from the open market economy of the past. In a social market economy market forces are necessary to determine efficiency and the allocation of resources is needed to determine price. Then, some people can get left out of the market because they do not have adequate economic power. Our government is very sensitive to that reality. The weaker segments of society will be taken care of in a social market economy. However, they can be at a disadvantage on a gender basis, or on an age basis. The government will pursue the economic philosophy it introduced in 2015.
What is the role you earmark for the state sector?
The state has to provide a safe environment by basically safeguarding Sri Lanka’s territorial integrity and creating law and order. Defence will be a very important responsibility of the state. We will continue to strengthen these mechanisms. The role of the state is also to regulate. Here, I am drawing a distinction between the state and the government. The state needs to regulate the government of the day, the non-governmental sector and also the private sector.
There are missing markets and markets do not provide solutions to everything. When there are imperfections, the state will continue to provide.
The state has an important role to play in education. We misleadingly call it free education. Everybody needs to have education and the state is expected to provide it. As we know, universally aspirations of parents and youth in a rapidly changing world are rising quickly. No government anywhere in the world is able to meet all those aspirations. While we have an obligation as a state, we have a discussion going on in the new constitutional making process on socioeconomic rights that should be incorporated in the constitution. It is not presently in the constitution and there is a debate on it. We believe this basic right to education should be provided in the constitution. We will never block the private sector or the non-governmental sector stepping into it [education]. It is similar to the health sector. The government is under obligation to provide free basic health nationally. At the same time, the government will not block anybody receiving private healthcare. The third role of the state is the social net. We will continue to provide it. We will provide social safeguards through direct cash transfers.
What will be the role of government in the provision of utilities such as electricity, water etc?
I like your question but I would reverse it. I will ask; ‘ What are the views of the consumer, not that of the government?’ Past discussions have been on ideological paths. The answers given by people have ideological paradigms. We need to change the whole paradigm. What does a consumer want?
Sri Lanka provides the most expensive energy in the region. The cost of energy is inhibiting the growth of industries and the economy. We need to bring the cost of energy down. Are industrialists or anyone else concerned about who provides energy or the cost of energy? The role of the government is to provide energy security and food security. The government is not always the supplier of services. When it comes to food security, it does not mean the government has to grow food.
Actually, the government, at the beginning, talked about the creation of industrial parks to provide one million employment opportunities. That is by attracting Foreign Direct Investments (FDI). But, there is no progress in that direction. How do you look at it?
When we talk about investment, it is not only the FDI. Local investment is also important. If you look at history, you see that FDI follows local investment. When a foreigner looks at it, he looks at the country’s [potential] risks. Sri Lanka’s level of sovereign risk has deflated. It was very high during the years of the conflict. We lost our GSP and the fish market. We had a lot of post-conflict issues; we were cornered by the international community and Sri Lanka was brought right to the centre in the international stage. Nevertheless we were able to get the fishing ban lifted, secure GSP plus and international acceptance.
Yet, the business risk component has not gone down sufficiently. There are still obstacles in terms of us competing to get FDI. There are two broad areas. One is tax incentives and the other is ease of doing business. The latest study shows that tax incentives are less important and that the ease of doing business is more important. We still have some major obstacles to break through. For any venture to set up a business or a part of a supply chain for value addition, land is an important issue. The time taken to get land is extremely long when compared with any other country. That is something we will be tackling in the future. For large businesses to get in, one needs a large extent of land. One inhibition we have is the ‘Land Limitation Act’. It was introduced in the 1970s. In terms of economic progress today, it is an inhibition. It was called ‘Land Reforms’ at that time. I call it the Land Rights Obstruction Act from an economic point of view. But, I am not stuck in dogma. On the other hand, we have the Paddy Lands Act . We have promulgated Acts suitable for the country at that time. Things change over time.
Present term of office is an interim period
There will not be any sharp divergence from what PM outlined during the last two years in economic policy
State is under obligation to ensure right to education Private sector will not be blocked from stepping into education
Land reforms in 1970, Paddy Lands Act are inhibitors for economic progress today
Hambantota Project is a closed deal Govt will go ahead with it
Cabinet Ministers must abide by the theme of collective responsibility Otherwise, they must quit
Is this your personal view or that of the government?
I am talking about the inhibitors to economic growth. As we move forward, we need to look at ways and means of liberalizing these things to see the country taking off. While we are doing that on the economic side, we also want to create a land-owning democracy. Most of the lands in this country are owned by the state, but not by citizens of this country. It is only a privileged few like ourselves who own a house. So it is not land reforms but the ownership of land by the citizens of the country that is more important. We want to create a generation of people who actually own assets.
Another problem we have is that we do not have enough workers. Recently, I was in Jaffna along with my Minister Mangala Samaraweera. According to businessmen there, one of the biggest problem in Jaffna and the Northern Province is the dearth of labour. I thought it was a problem in the Western Province. Unemployment is not an issue today. It is an issue for a particular age group. That is the school-leaver age group. It is an issue sometimes for graduates. It is not due to lack of jobs but due to mismatch between skills produced and the nature of work or jobs available. We have a lot of workers going for work in the Middle East. If we can get them to contribute to the local economy, it will be to our benefit. The other thing is to get women contribute to the economy. Women are leading today in university education with the exception of a few faculties. It is not translating into the workforce and the economic benefit of the country. Women account for 52 per cent of the population. It should be like that in the workforce.
"One inhibition we have is the ‘Land Limitation Act’. It was introduced in the 1970s. In terms of economic progress today, it is an inhibition. It was called ‘’Land Reforms’ at that time"
When a country reaches the middle income category, it runs short of workers for labour intensive industries. Sri Lanka has reached that position. How are you hoping to address it because you cannot find workers within the country?
You raised an important point. Ultimately, we will have to turn to capital intensive industries. We are in an interim phase. We have a large pool of labour serving overseas and a huge population of women who can join the labour force.
In the current global climate, what is more advantageous to Sri Lanka as you see- to put up industrial parks or to develop ports and airports?
We will need both. It is clear that every government has recognized Sri Lanka’s geographical advantage. From the time of our kings to date, this locational advantage is clear. We have our seaports, airports,and the idea of logistical hubs or hubs for supply chains. To do that, you need more investment. For Hambantota Port, you need a lot more investment. The port itself will not work unless the system is built around the port. We have done reasonably well in the Colombo Port. We have a government-owned container terminal. Then, the former government went for a private sector container terminal. A few years later, there was a Chinese-led investment.
In Hambantota, we have buried investment with no returns.
"The government is based on democracy, reconciliation, and development as its pillars. It is absolutely essential that people approve of what we do by exercising their franchise"
Now the Hambantota Port has been leased out for 99 years, some view this as selling off the family silver. How do you respond?
I think these kinds of allegations are brought by people who have not really read the document closely. There is a difference between a sale and a lease. The government’s policy is not to sell but to lease. The former government built the Colombo Port City. They have actually signed an agreement to give 20 hectares on a freehold basis to the Chinese side. We renegotiated it and converted it to a lease agreement. We have no issue in leasing assets which are there to use to get returns. If you look at the document carefully, ten years from today, we can take over the port 100 per cent because we can buy back the port in ten years at market value.
By that time, the value would have appreciated. Practically speaking, will it be affordable for us to buy back the port at that time?
If we could have afforded it, we could have owned it now. As for the divestiture of the port, they can sell it within 20 years to the Sri Lanka Ports Authority at a determined value - that is on an independent valuation. In 70 years, we can purchase all the shares at our government’s valuation. I want to ask those critics, ‘Why didn’t they proceed with commercializing the port?’
The government says that you inherited a huge debt burden from the previous regime. What is your plan for debt management in future? Will you limit borrowings?
What is the proportion of debt to equity? That is what we are looking at. Ideally, we would like to increase our equity. The trick is to have these at manageable levels. We have made large borrowings, so large debt payments are coming up now.
Over the last couple of years under the new government, growth rate has slowed. What is the reason for that apart from the impact of adverse weather conditions?
First of all, the global economy over the last decade grew rapidly. Globally, it was around four per cent. In Sri Lanka, it was 6-7 per cent. China and India were growing at 8-9 per cent. All the economies have slowed down. Sri Lankas’ has slowed down to 4-5 per cent. The rates are relative to what’s happening elsewhere. As for exchange rates, we bravely went for floating rate from fixed rate. The rate has become stable after an adjustment period.
To achieve all what you said, the country needs political stability. With ministers taking on each other and others threatening to leave the government, do you have that stability?
I do not agree with what you said. We are in a coalition government. In such a situation, it is natural to expect differences. When you say ministers are at each other, it is interesting. The UNPers are questioning UNP Ministers. It is not the other way round. It is across the party line. SLFPers are questioning SLFP Ministers. Today, Minister Arjuna Ranatunga questioned Deputy Speaker Tilanga Sumathipala.
"Women are leading today in university education with the exception of a few faculties. It is not translating into the workforce and the economic benefit of the country"
This has hampered the decision making process of the government. Minister Ranatunga again questioned the Hambantota Port deal. What is your view?
In a coalition government the decision making process is slower. I agree with it. There is a long consultation process involved. Everybody will not agree with everything fully. That does not matter. It is like running a company. Once the board has taken a decision, that is it. It is not some individual’s fancy. On the Hambantota Project, there have been differences of opinion. We also need to remember people who are in the government come from different backgrounds, ideologically and professionally. The Cabinet has approved the Hambantota Port. Those who have reservations have aired their personal views.
Does it mean it will not be subjected to further changes?
The deal is done. We will go ahead with the project. There is no going back on it. It has been passed in the Cabinet. You cannot expect the same level of understanding by Cabinet Ministers who have collective responsibility. They are free to air their own opinions in the Cabinet. But, once a decision is taken, the ministers must abide by it. If not they must resign.