By Chandeepa Wettasinghe
The United Nations Economic and Social Survey of Asia and the Pacific (UN-ESCAP) 2015 predicts that the Sri Lankan economy would grow at 7.5 percent, a figure much higher than forecasted by other multilateral agencies.
“We predict that Sri Lanka is going to have a good year, with 7.5 percent growth from 7.4 percent in 2014, and 6.8 percent in 2012-13. Inflation is set to fall to 3 percent from 3.3 percent in 2014,” ESCAP Bangkok Economic Affairs Officer Dr. Shuvojit Banerjee said.
He said this at the launch of ‘Economic and Social Survey of Asia and the Pacific 2015’ report in Colombo, yesterday.
Dr.Banerjee said consumption driven by increased remittances and tourism receipts, a strong investment drive from the government into infrastructure and exports growth to the US will be the main catalysts of growth.
However, the new regime, during the interim budget in January not only stopped increases in infrastructure spending, but marginally reduced it, citing massive corruption in the projects.
While tourism and remittances could have helped increase consumption, local experts say that it is mainly due to the increased salaries and reduction in essential goods during the interim budget as well, that has driven the economy to a near deflationary stance in the recent months.
Dr. Banerjee added that macroeconomic fundamentals could be improved if the country was able to reduce its current account and fiscal deficits, as they are covered by foreign funds, exposing Sri Lanka to interest rate volatilities.
“This will make the country more vulnerable to rising global interest rates,” he said.
However, judging by the explanations, it would appear that ESCAP has based its projections on outdated information prior to January elections.
The International Monetary Fund last month gave a growth outlook of 6-7 percent, The World Bank 6.9 percent and the Asian Development Bank a growth of 7 percent. Finance Minister Ravi Karunanayake this month also said that the growth would be at 7 percent.
ESCAP assesses the domestic challenges and global economic uncertainties, providing policy options and strategies to sustain inclusive growth. It has recommended that Asia Pacific countries spend more on infrastructure and diversifying their production.
The new regime is attempting to pursue a foreign direct investment-led strategy to uplift exports and government revenue.
Meanwhile Dr. Banerjee welcomed China’s economy slowing down to sustainable numbers, saying that while it would pull down the overall numbers in Asia Pacific, it would benefit many countries in the region.
He added that the region has not contributed as much to the global economy since recovering from the2008 financial crisis, and called for greater economic reforms in the Asia Pacific countries.
“Unless domestic economic reforms are vigorously pursued, downside risks to growth could increase,” he noted.
Finance State Minister Mahinda Samarasinghe said that the new regime is mulling the adaptation of the Swiss local government model for Sri Lankan local bodies.
“If you take the Canton of Zurich, it is the highest income generating Canton in Switzerland, but they don’t use all the income that they generate for themselves. There is a mechanism there, where some of the income that is generated is distributed to other less developed Cantons,” he said.
He noted that this has led to all Swiss citizens regardless of their Canton receiving equal quality products and services.
Samarasinghe said that the Cabinet has spoken to the President about implementing such a system in Sri Lanka, since the Western Province Provincial Council has a significantly high income over other Provincial Councils.
He further added that Members of Parliament are motivated to deal with the micro issues which ideally should be handled by the local governments, which are strapped for cash.
“MPs are more interested in serving their constituents than doing their legislative duties, because they want to get the preference,” he said.
According to him, the electoral reforms in the 20th Amendment which will be brought in the future would go some distance towards changing the mentality.
This, coupled with the possible reforms in local governments could lead to further social and economic equality in the country.