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A critical appraisal of Sri Lanka's Vision 2025
Published Date: 12/09/2017 (Tuesday)

"Our vision is to make Sri Lanka a rich country by 2025. We will do so by transforming Sri Lanka into the hub of the Indian Ocean, with a knowledge-based, highly competitive, social-market economy."

This is the vision set out in the most coherent economic policy document put out by the coalition government. Compared to the two prior attempts, this is the best thought out. The budget speeches that followed the prior policy statements appeared disconnected at best, and designed to sabotage the stated policy at worst. Thus the test of the seriousness of this document is the budget speech that is to be read by the new Minister of Finance in a few weeks.

Is there consensus?

The success of an economic vision lies in its acceptance by most, if not all, of the key players. The Jayewardene-de Mel-Athulathmudali vision of a modern, commercial state is an example of a successful vision. No one has tried to take us back to the hal-polu-miris-polu economy that preceded it. The hub is a central metaphor of the 2025 Vision. It was also central the economic statements of the Rajapaksa administration in its second term. So it is tempting to assume that both major parties share the vision of the island serving as a hub for the region.

The problem is that many politicians and their attendant intellectuals fail to understand what a hub actually means. Here is what I wrote in an assessment of the Rajapaksa five-hub strategy published before the Presidential Election.

“A hub is the central part of a wheel, rotating on or with the axle, and from which the spokes radiate. The hub is not the unit of analysis. Its significance lies in its relationship to the rest of the wheel. The wheel is the unit of analysis.

In the same way, the metaphorical hubs of the government’s economic strategy cannot be implemented without taking the ‘rest of the wheel’ into account. The biggest barrier is the insular mindset that keeps slipping back to thinking that this island by itself is the unit of analysis.

As long as our thinking does not transcend this little island of 20 million people, we have limited chance of success. As long as we do not understand that hubs necessarily involve two-way flows that benefit all parts of the system, the strategies can only succeed partially and by happenstance.”

I have presented the actual meaning of a hub to erstwhile advisors to the SLFP and assorted opponents of trade liberalization. It has been adamantly rejected. So I would conclude that the consensus, if any, is superficial. Much work will have to be done to change insular mindsets.

Is it implementable?

Section 13 of the document states “We recognise that policies and projects will not come to fruition without effective implementation, which requires strengthened monitoring and coordination.”

Lal Jayawardana, Secretary of Treasury at the inception of the economic liberalization of 1977 with experience in how things work in Sri Lanka, said that any reform must be undertaken in the first year of a new government.

Nothing much happened in the first or second years of this government on the economic front. The Prime Minister who was in charge of economics failed to put in place the right team to implement his good ideas. Not one trade agreement has been signed. One can only point to the GSP Plus and the Inland Revenue Act as significant successes.

Some recent changes suggest the criticism has been heard. But is it too late? The document contains within it the excuse: “As in all democracies, progress is often not made in straight lines.”

Is it coherent?

In the middle of an otherwise reasonable argument on the need to reduce undue reliance on indirect taxes is this sentence: “We will generate more non-tax revenue as a necessary condition for revenue enhancement.”

Non-tax revenues are profits made from government supply of goods and services. An example is the dividend income realized by the government as a shareholder when Emirates managed Srilankan Airlines. That means that State Owned Enterprises (SOEs) must actually make money for more non-tax revenues to be generated. For non-tax revenues to be significant one has to stanch the losses such as those made by Srilankan since its renationalization.

Most SOEs lose money. Those that do not are monopolies serving the local market or in PPPs. They are run by director boards full of incompetent political cronies, exemplified by the former President’s brother in law who ran Srilankan into the ground. The managers, even if competent, have little incentive to make the SOEs efficient. Protection from market forces and absence of hard budget constraints keep the SOEs functioning while imposing costs on the rest of the economy. And the Vision document says they will actually generate more revenue?

How is this wondrous outcome to be achieved?

“We will restructure SOEs to enable them to operate as commercially viable enterprises with accountability. Pricing of goods and services provided by SOEs will be at market clearing rates, and any form of subsidisation will be provided directly to the targeted population in a transparent manner. The Statements of Corporate Intent of the selected major SOEs provide a framework to pursue these objectives.”

What is the difference between the above statement and the myriad empty promises made since the country went on a nationalization binge starting in the 1960s? How credible are these claims by a government that has yet to implement the promise contained in the manifesto of the common candidate that there will be a price formula for fuel and electricity charges?

“Statements of Corporate Intent” appears a vapid solution to the lack of accountability of SOEs. Couldn’t they even propose floating some shares in the stock market? Or performance contracts for Board Directors? This appears to be a compromise made to accommodate opposition to privatization within the coalition.

In conclusion

I have picked on some critical, weak points, but Vision 2025 is a good document as these things go. Nice infographics and sensible thinking for the most part. I particularly like some promises such as those about a contributory pension scheme for the rest of us and transferable land titles. The proof of the pudding is in the eating, starting with the 2018 Budget. If 50 percent of this document can be implemented by 2020, we would be well on the way to becoming a rich country by 2025.

Rohan Samarajiva, heads LirneAsia, a regional think tank. He has been a former utilities regulator and involved in liberalizing telecoms and aviation sectors in the region.

 Source: EconomyNext

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