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Tuesday, 28 October 2014 21:08

Lanka recognized as one of the brightest emerging economies Featured

Published in Budget - 2015

Senior Minister of Scientific Affairs Prof Tissa Vitharana said that Sri Lanka had been recognized as one of the brightest emerging economies by international community.

 

Quoting from a report by the Institute of Policy Studies while participating in the Second Reading Stage Debate on Budget 2015 in Parliament, the Minister said: “We can be proud that Sri Lanka is recognized by Coface of France as one of the brightest emerging economies alongside Peru, Philippines, Indonesia and Cambodia.”


He said: “This budget is of special importance not because it is being present before a presidential election but because the country is at a critical phase of development when it has to rise from the level of a low-middle income to an upper-middle income country, without falling into the middle income trap. We must achieve sustainable development without being caught up in the debt trap. We must also become part of the ‘Rising Asia.’


“Using the globally accepted GDP growth criteria (although it does not properly reflect truce socio-economic development), ‘growth in the 2010-13 period had averaged an impressive 7.0% per annum’ as stated in the respected Institute of Policy Studies (IPS) 2014 State of the Economy Report. The report also adds that Sri Lanka has seen a sharp improvement in addressing poverty and inequality over the last eight years. In the context of global economic downturn, mainly affecting Europe and the USA, economists are applauding the important emerging role of the BRICS (Brazil, Russia, India, China and South Africa) countries in reviving the global economy. But we can be proud that Sri Lanka is recognized by Coface of France as one of the brightest emerging economies alongside Peru, Philippines, Indonesia and Cambodia.


“To sustain our growth trajectory the government has correctly set an annual growth target of 8.0 percent. An important first step is to increase productivity, that is to maximize the output from investment, so that the capital/output ratio is reduced. Efficiency must be maximized and waste must be minimized not only in the public sector but also in the private sector. Even if this is done our present Gross Domestic Investment of 30 percent (public 7% and Private 23%) may not be adequate, it may need to be raised to 35 percent. In 2013 total savings amounted to 20 percent (the 20.8 percent by the private sector, being reduced by the 0.8 percent government recurrent account deficit.

 

The gap has had to be bridged by loans, not only local but also foreign, with the attendant risks, which is becoming a cause for concern. There is no harm in resorting to loans provided there is a good return on investment within a reasonable time span. Unfortunately, there is a fairly long delay in getting an economic return from much of the state investment on infrastructure, like roads and ports, though water and electricity yield quicker socio-economic benefits.


“But state investment in areas like ICT have led to quicker returns mainly to the benefit of the private sector, e.g. the BPO industry, tourism etc,. Bur as the IPS report points out private investment had been a persistent problem. The ratio of private investment to GDP has declined from 23.9 percent in 2006 to 22.7 percent in 2013, even as government investment rose from 4.1 percent to 6.9 percent of GDP over the same period. The IPS report blames greater private sector participation in Sri Lanka’s growth success story. But in my view the failure of private sector to use the credit that is being made available largely through state intervention, is not due to the government but due to the failure of the private sector to invest in potential profit making activities.


“Basically the incentive structure in the system has not been attractive for the private sector to go for a more diversified investment package, which includes industry and manufacture that would lead to meaningful and sustained development of the economy. The private sector tends instead to look for higher profits in areas like finance, banking, trade and real estate. The onus is on the government to make the industrial sector more attractive to private investment.” (Special Reporter/HC)