A focus on improving productivity in the framework of liberalized economic policy will be crucial to Sri Lanka’s ability to compete on a global scale, according to former economic advisor to the World Bank, Sarath Rajapatirana.
“Increasing productivity is crucial and trade policy figures very prominent in this. We are at a crucial juncture to do this. At the moment, all the factors are moving our way but that will not go on forever. This kind of room to maneuver doesn’t come often. People get nervous near elections but this government won’t have to worry about that, so they should now be taking proper steps to facilitate trade.” Rajapatirana said.
He added that the rationalization of the country’s tariff system and the elimination of non-tariff barriers, corruption in particular, would be pivotal in this regard.
“At the moment, we have a highly protectionist trade regime in place and whilst some measures may be necessary, the question needs to be asked whether protecting the agri-business is a good thing. What is the cost of self-sufficiency in rice? This needs to at least be considered.”
“Currently there is a huge variance in tariffs. But low levels of variance between the highest and lowest tariffs mean the need for more transparency whilst also promoting greater competition since world prices will be more accurately reflected.”
“Interventions from the government need to be carefully done in defined circumstances, and they need to be aware of the cost of intervention. I’m not saying that agricultural subsidies should be excluded, but world prices should be allowed to determine the economic allocation of resources.”
Rajapatirana stated that Sri Lanka’s current unpredictable trade regime would only act as a hindrance to economic development.
“We have a very unpredictable trade regime at present and this is not good for a country that needs to increase productivity because people don’t know what to plan for. The recent increase in vehicle taxes is a good example of this.
He also called for the formation of a Presidential Tariff Commission, and subsequently a greater level of public dialogue in the formation of economic policy going forward.
“Who is making trade policy at the moment? Who is the IMF talking to? It appears that a lot of different policies and tariffs are implemented on an ad-hoc basis.
There needs to be a centralized place where trade policy is formed, and the public and media must be invited to discuss matters when they’re implementing tariffs. There is no such organization performing this function now.”
“People are now very suspicious of institutions which have a say in economic policy. Even when they make a correct policy choice, people still protest it now and that’s because they’ve lost a lot of credibility. So, these institutions need to now re-earn their credibility, and that will be a huge job for them.”
Rajapatirana further stated that eliminating non-tariff barriers too would play an important role in the country’s economic development.
Citing a 2010 ITC survey, Rajapatirana stated that 70% of people felt that barriers to exporting products were in Sri Lanka and not at their export destinations.
Rajapatirana called for stricter penalties for those found guilty of bribery and corruption as well as better incentives such as higher rewards for detection of such offenses in addition to new regulations for the Customs Department whereby items which aren’t cleared by a minimum time period would automatically be allowed to be exported, placing the onus on the Customs Department.
Responding to a question on the importance of import substitution as a panacea for the country’s economy, Rajapatirana said: “I am all for import substitution as long as it is done in an efficient manner. Import substitution will occur in a liberalized trade regime where the private sector decides what opportunities are available, not with the government making those decisions.”
Rajapatirana made theses observations at the second Gamani Corea Foundation Lecture on the theme: “Challenges to a liberal trade regime: Sri Lanka in an international perspective”.