Construction, reason behind false growth figures: Prof . Sally

22 May 2015 03:58 am

By Chandeepa Wettasinghe Renowned Sri Lankan-born economist Professor Razeen Sally says Sri Lanka’s real growth would be much lower than 7 percent which has been forecasted by the Central Bank and other multilateral agencies.
“We are told that Chinese growth is 7-7.5 percent this year. Don’t believe it, just as you shouldn’t believe what we are told about the Sri Lankan growth numbers,” Prof. Sally told a recent forum in Colombo. 
He noted that the Chinese and Sri Lankan situations bear a striking resemblance and that the real growth is around 4-5.5 percent; a view which had been held by some other economists in the country as well.
Some say the previous regime mesmerized the citizens and the business community of the country using these 7-8 percent growth statistics.
According to Prof. Sally, the reason behind the false numbers is construction. He added that the growth numbers of India too are 1-2 percent lower than estimated.
“That’s what people see with impressionistic eyes when they travel around the country. Particularly when they look at the constructions that are done,” he added.
Such false numbers was the reason for the fall of the previous regime, he opined. 
“Authoritarian governments are good at pushing through infrastructure. They will always run out of steam because the political system can’t give a better quality of growth. There needs to be individual rights entrenched in the checks and balances,” he said.
Meanwhile, Prof. Sally said that Brazil has now gone into a recession because of typical wrong-headed intervention tactics into the economy, as well as downward spiraling commodity prices, which too is relevant to Sri Lanka, since the interim budget contained both these in abundance.
While he said though BRIC (Brazil, Russia, India and China) will lead the global economy in the coming decades, all these countries may yet fall into the middle income trap, to which Sri Lanka may also fall victim to when entering the upper-middle income bracket in the future.
“The middle income trap is not an illusion. The countries which have graduated from middle income to high income are very few and far between. I think the number is about 5-7. Most don’t. They get stuck for all sorts of structural reasons, due to demographics and obstacles to growth,” Prof. Sally said. He said that Sri Lankan services could exploit opportunities presented by South India as it attempts to gain the lower end processes of the value chain dominated by China—which was moving up the value chain in the past. Meanwhile, Prof. Sally suggested that the Sri Lankan government capitalize on smaller wins to manage expectations.
“If the government is looking for quicker wins, there’s a lot to learn from Modi. Give bureaucrats and politicians less room to be corrupt, and decide which investors are domestic and foreign,” he said. Prof. Sally is a leading global economist based at the Lee Kuan Yew School of Public Policy of the National University of Singapore. He is the Chairman of Sri Lanka’s Institute of Policy Studies.