The fastest possible revival of the temporarily ailing economic situation is a foremost national issue that should be addressed by the entire citizenry. It is common knowledge that two recent factors hastened the downward trend of the economy, firstly, the sharp decline due to the mismanagement of finances by the previous government where the growth has come to a near standstill and subsequently the global recession created by the Covid-19 pandemic.
Ironically, the World Bank has downgraded Sri Lanka from the upper-middle-income classification that prevailed in 2019 to a lower-middle-income country in 2020/2021. The distressing situation is that the World Bank has downgraded only three countries in the world. The other two are Algeria and Sudan. This drop can be harmful in many ways including attracting investors for development projects.
Economic challenges
The revival of the economy primarily will depend on the response of the private sector to the changing economic challenges, locally and internationally. The authorities will have to step up reforms to boost overall productivity to restore the current situation.
President Gotabaya Rajapaksa’s pledge to upgrade Sri Lanka to a high-income country was somewhat shattered by Covid-19 which compelled to slow down his original plans, although he continued to be alert and responsive to economic affairs even during the lockdown period. It was during the height of curfew that he formed the presidential task force for economic revival.
The global uncertainties are still looming even after many months from the first outbreak, causing dire consequences to all three main foreign exchange-earners, namely, foreign employment, apparel and tourism. The Managing Director, International Monetary Fund (IMF), Kristalina Georgieva told a recent interview that the recovery of the global economy is uneven and a full recovery is unlikely until a vaccine is discovered. Hence, among other things, the Government must continue to stand by the stringent measures taken to restrict imports of many non-essential goods to control foreign exchange outflow.
The high-powered presidential task force headed by the versatile taskmaster Basil Rajapaksa is at present the most important key group in re-establishing the troubled situation.
Though inconspicuous to a certain extent, the PTF seems to be working round the clock on this essential issue. In support of the task assigned, Citra Lab, the first social innovation lab established as a joint initiative between the State Ministry of Skills Development and the UNDP, facilitated the PTF and its principal teams to introduce avenues of engagement and building strategies, at a recent workshop. The PTF on economic revival is said to be working on many development projects behind the scenes.
Five-year plan
Addressing a meeting with the State Ministers recently, President Rajapaksa not only emphasised the importance of planning but also instructed them in no uncertain terms to come up with a five-year plan in their subject areas.
The scope of most of the State Ministers is directly related to economic development aligned with a ‘people-centric economy’ pledged through the ‘Vistas of Prosperity’.
If the State Ministers, most of them relatively young, individually accept the challenge posed to them, Sri Lanka will have a lucrative national economy, independent of foreign resources. It is encouraging to observe that some of the State Ministers promptly took on the task optimistically and initiated action. The irony, however, is that some of the more senior and seasoned Ministers are already displaying signs that they are more interested in petty politics and preferential votes in their districts.
An area the Government is heavily concentrating on at present is export-oriented industrialisation. Private sector stalwarts and specialists keep emphasising that Sri Lanka has a tremendous amount of potential in entering overseas markets with numerous original products.
Pursuing economic realism by promoting export-oriented industries is a key requirement at this crucial juncture. Apart from the apparel that is the dominant product, and the cash-crop exports, many other new indigenous export-potential products were identified by the Government. A huge motivational effort for these products is being carried out by the Government at the grassroots level to encourage more people to get into export-related self-employment.
Having realised the impact of Covid-19 on the economy and to build a sustainable indigenous economy, President Rajapaksa has appointed several young State Ministers to manage these newly recognised export-oriented domestic industries such as handlooms and batiks, red-clay products, cane, brass, and several others. An export market for all these products is possible with an effective and efficient integrated marketing campaign targeting overseas markets.
The Government has already imposed many restrictions on imports to protect local industrialists. This can be the biggest incentive for industrial growth in Sri Lanka.
However, these restrictions are imposed temporarily and a firm decision on this is not yet announced by the Government.
In this writer’s opinion, the absence of a solid policy can discourage new entrants to these industries. If the restrictions are lifted, they fear that arbitrary imports can hamper their industries and lead to financial losses. The Government should pay attention to this salient fact.
Agriculture sector
The Government is also concentrating on developing the agriculture sector that makes a relatively low contribution of approximately seven per cent to the national GDP. The State is taking various steps to increase agricultural productivity. The major drawback, the lack of mechanisation and technology should be addressed promptly.
By strengthening this sector, the country can reduce the import of food and related products to save valuable foreign exchange. In a praiseworthy move, the World Bank has reallocated US$ 56 million to protect the agriculture sector and a few other areas.
However, Sri Lanka still imports a large variety of agricultural and food products including wheat, lentils, sugar, fruits, milk, and milk products, and many others. Most of these items can be fully or partly produced in the country. According to available figures, the importation of food and beverages accounts for over seven per cent of the total imports. The goal must be to reduce this figure as much as possible by encouraging farmers to grow these items and impose strict regulations to protect them. Even though public life is fast returning to normalcy, the more pressing economic shrink will take time to recover.
The Government has offered various stimulus packages to assist the commercial sector to get to its best possible capacity. However, the fact remains that the general economic situation is hanging in the balance and requires rigorous and swift action.Apart from the efforts taken by the Government to encourage local agriculture and industry, concentrating on the benefits that can be derived from the strategic investments also must be on the cards.
With the strict approach of President Rajapaksa, state-owned enterprises with billions of assets must be made to perform better to help the challenge of economic revival. Despite the President’s instructions to these SOEs to prove their performance within a specified time, the public at large is yet to witness a good performance, except a few.
Strengthening the MSME sector which contributes a substantial slice to the GDP is being done to some extent by the Government. However, the question is whether the assistance to this sector is adequately looked into by the authorities. Many of them complain that the financial assistance provided by most Banks and financial institutions is not up to the expected level.
Despite the Government’s instructions these financial institutions still apply stringent procedures. More involvement of the Government in this sector can produce a speedy result at this critical time.The unpredictable recovery of the global economy and the uncertain situation of the complete eradication of Covid-19 can prolong the economic revival of many countries including Sri Lanka. Therefore, collective focus of the Government, the presidential task force, the private and public sectors as well as the public is important to overcome the prevailing challenges.