Factor market reforms, key to fuel growth - CB Governor | Sunday Observer

Factor market reforms, key to fuel growth - CB Governor

Dr. Indrajit Coomaraswamy
Dr. Indrajit Coomaraswamy

Central Bank Governor, Dr. Indrajit Coomaraswamy says that Sri Lanka’s growth framework will be strengthened through reforms in the factor markets namely land, labour and capital to achieve the envisaged faster growth model driven by exports and Foreign Direct Investments.

According to the governor, as land reforms though vital, will be politically extremely difficult to implement, it is, however, important to execute them gradually as a long-term process.

“It will be difficult as there is no way you can remove these subsidies overnight. But, to have a vision of a faster growing economy, generating higher paying jobs, then gradually we need to change these incentives that are trapping people. It’s a long term process,” Dr. Coomaraswamy said addressing a lecture sponsored by the British Scholars’ Association of Sri Lanka.

Commenting on the land market and the issue of low productivity in agriculture, the Governor said that although it is possible to grow all the paddy Sri Lanka needs in the dry zone alone using high yielding varieties and good cultivation practices, the people have been trapped into paddy cultivation in the wet zone due to the subsidies offered.

“There has been a tremendous fragmentation of landholdings with unviable agriculture plots in the wet zone.

The reasons are two-fold. One is because of the law that says you cannot use the land other than for paddy and the other because we give free water, fertiliser subsidy and a guaranteed price,” Dr. Coomaraswamy emphasised. He said that as for the land markets, the government is looking into land titling and revamping some of the old land laws with a view to optimise land use and crop mix.

“Supporting agriculture is okay but what we are really doing is trapping farmers in low income, low productivity livelihoods,” the governor said speaking on the topic of ‘Advancing Vision 2025’.

Dr. Coomaraswamy pointed out that although Sri Lanka’s absolute headcount poverty level stands very low at 4.4% at US$ 1.90/day poverty line, the poverty level rises sharply to 30% of the population when the poverty line is increased to US$2.50/day.

“So what we are doing is although we are helping people to get their heads above the water, they are trapped as they do not have pathways to go further.

Clearly, what we need to do is to create higher productivity, higher income jobs and shift people gradually,” the Governor said adding that although agriculture accounts for 27% of the workforce it contributes a mere 7% to GDP.

The lecture was held at the OPA auditorium in Colombo recently.