* New entrants’ reluctance to exploit the opportunities in the market will be a problem in the future
* Income distribution statistics doubtful
Globalisation presents opportunities and challenges and there are winners and losers. Countries response to the challenges and make use of opportunities, Dr. Nimal Sandaratne told the annual sessions of the Sri Lanka Economic Association.
The sessions was held on the theme ‘Impact of globalisation on Sri Lankan Economy - Challenges and Opportunities’ in Colombo last week.
“Sri Lanka has fallen short of meeting those challenges. The growth momentum has shifted to South Asia which records seven percent growth. However, Sri Lanka’s growth is only less than half of that growth,” he said.
Sri Lanka should look at inclusive development with full employment. Poverty reduction, economic equality and fair distribution of per capita income are vital for socio-economic development. Realising high economic development will depend on policy, the country could use growth to facilitate development, Prof. W.D. Lakshman said.
The market orientation and liberalisation has abandoned the social democratic development structure. The market-oriented policies continued for four decades despite having free education and free health facilities. The policy impact during this period was to gain and maintain electoral support, he said.
“The income distribution statistics are doubtful, as clever manipulation and measurement methods used are not reliable. An unemployment rate of four percent does not show the correct picture.
“Human resources management is an issue, as young people are shying away from work. Youth prefer to wait until the right kind of employment opens. There are many unfilled vacancies. The youth are determined not to accept the market wage rate and reject these jobs,” he said.
From the 1950s to early 1970s consumer financial survey trends showed less inequality. There was a reversal of this trend where mild movement towards less inequality was visible. The relative distribution of income in post independent Sri Lanka was much stronger.
Expenditure patterns of the super rich motivated by their economic behaviour - predatory with neo-liberal policies, could be seen. Sri Lanka pioneered in introducing poverty alleviation in Janasaviya. The structural adjustment policy packages were aimed at poverty reduction. Poverty measures made inevitable development yard sticks. We are a country that has showed that there is a relationship between poverty and unemployment reduction.
“Problems and differentiations in the labour market which had not been addressed by policy makers still remain. The reluctance of new entrants to exploit the opportunities in the job market will be a problem in the future. We need to convert non-inclusive development into inclusive development. We need to address social upheaval and unrest, and re-think what major changes in policy reforms are needed, he said.
The export sector is dominated by garments, a US $ 8 billion industry and ICT $ 1 billion, and logistics and financial services playing a major role. There is a shift taking place in the development agenda and some issues have also arises. The Port City project is one of the game changers, Dr. Ganeshan Wignaraja said.
“We need to look at the changing dimension of human capital. We should not attempt to over-regulate. Emerging technology including artificial intelligence and robotics is fast becoming the thing of the future. It is interesting to see how Sri Lanka gets into these technologies. A shift towards Asian markets could be seen where high economic growth is recorded,” he said.
We should be cautious and follow a non-aligned approach balancing India and China. This needs home work and preparedness. There is a need for an analysis of social-cost benefit on major projects. If not, Sri Lanka will have complicated geo-political issues to face, he said.
Sri Lanka should avoid the Middle Income Trap. It is important to see whether we can move beyond that attitude and productivity in labour. More surveys are needed for re-basing the GDP. There aren’t sufficient proxies used in the surveys due to lack of resources. The country has done a pretty lousy job in managing Macro Economic fundamentals. The openness is at risk, he said.
New Free Trade Agreements (FTAs) are unlikely in the future. There is possible re-negotiation of the Sri Lanka-Singapore FTA. A strong export push through better and relevant government agencies is the need of the hour. FDI inflow is below potential as there is increased competition for FDIs among developing countries. A proper tax system is needed. There is also a need to reform our tariff systems to reduce protectionism.
‘Fire fighting’ is important to face external vulnerability. The meeting of our debt obligations with borrowings is not a suitable arrangement. We are also facing a demographic trap. Political policies are not conducive to pragmatic development, he said.
“There is a service sector expansion in Sri Lanka. It is a concern. The key input of production, distribution and consumption is the space and time as service sector output. Physical state and consumption should be taken together. A rising share of the Service Sector in the GDP is a post industrial stage of transformation, Prof. Sirimal Abeyratne said.
“The service sector including Real Estate, Telecommunication, Construction, Power and Trade, perform better than other sectors. They are the main drivers of growth. The government is an important institution supplying Services. Market constraints have been one of the biggest problems . However, the domestic market-oriented Service sector would not grow in the long run, he said.
“From 2006 to 2018 US $ 15.3 billion was raised from international Sovereign bonds (ISBs). Sri Lanka raised $ 9.2 billion by way of loans from China.
This accounts for 9 percent of the total foreign debt. Out of the total foreign debt accounted for nine percent of the borrowings where as ISB was 33 percent of the total. It was 14 percent in 2017 (same as India). Therefore, China is not holding an overwhelming share of foreign loans, Dr. Dushni Weerakoon said.
“The loans amounting to 61 percent are on concessionary rates. Out of the total, 21 percent is by China. There is 55 percent of non-concessionary debt. A share of 80 comes from ISBs. Syndicated loans have increased over the years and debt servicing is at satisfactory level. A trend of long term loans picking up, could be seen In 2017.
More international loans are coming up for settlement. The project selection and loan terms for Hambantota Port and Mattala International Airport seems to be the main issue,” she said.
Returns of ISB are likely to be considerably lower than borrowing for Sri Lanka. The country’s net foreign debt stock keeps growing. The Belt and Road Initiative (BRI) provides potential for many low and middle income countries to tap China for funding. We have to manage our risks better. Strong Risk management practices, to face the fast changing financial landscape is necessary. Gains from the BRI focussing on policy, connectivity, trade, finance and people to people bonds, should be tapped. We need to manage our relationship with China in a strategic and diplomatic manner, she said.