“In an increasingly volatile world, flexibility in government policy is essential” argued Dr. Montek Singh Ahluwalia, the respected Indian economist and former World Banker, at an event in Colombo yesterday. That was my main takeaway from his one-hour long tour de force on undertaking economic policy reforms in a country. He argued that flexibility in policymaking can ensure that countries don’t get stuck in a rigid model and are able to be more nimble and quickly respond and adapt to global and local economic changes.
Dr. Ahluwalia was a key player in India’s market-oriented reforms during the 1990s, and Chaired the country’s key economic policymaking body – The Planning Commission.
Ahluwalia remarked that when he often gets asked what should the most important policy reform priorities be he prefers to stay away from naming a list – “I don’t believe in policy check lists”. But he argued that there are a couple of fundamental areas that a country needs to get right and at the top on the agenda should be fighting macroeconomic imbalances. He said macro imbalances are the most damaging to developing economies in particular. He called for keeping a close watch on budget deficits, and not to assume that any particular “level of debt” is a sustainable one especially as reliance on foreign debt grows. He remarked that countries like Sri Lanka should try as much as possible to get loans from multilateral lenders, rather than go for commercial borrowing. However, he didn’t explore in detail how this would work for a country like Sri Lanka that is no longer eligible for ultra-concessional loans. He probably meant that we should go for at least the semi-concessional, long-tenor loans from lenders like the World Bank and ADB, which have long repayment and grace period, rather than relying on commercial borrowing through sovereign bonds.
He went on to highlight a few key areas that countries like Sri Lanka should focus on, in placing the country on a sustained growth path
- Creating more jobs and not relying on public sector to pick up the employment creation slack.
- Encourage public private partnerships to meet infrastructure needs, as debt-fuelled infrastructure spending is now sustainable
- The importance of creating well-functioning and dynamic financial markets, which can finance firms of all sizes
- Bring dynamism in labour markets through reforms for labour market flexibility
Dr. Ahluwalia was speaking at the MILODA Academy of Financial Studies, of the Ministry of Finance, as part of the ‘Eminent Speaker Series’ supported by ADB. This evening he is scheduled to speak on ‘Managing Economic Reform’ at the Bandaranaike Centre for International Studies, where I teach some courses on international financial institutions. I just might go and listen to him there too….
President Maithripala Sirisena delivered a keynote address at the closing session of the Ceylon Chamber of Commerce ‘Sri Lanka Economic Summit 2015’ today, addressing over 500 of the country’s leading private sector representatives. Here are my 9 highlights from his remarks.
- The government must be transparent, accountable, clean, and fair in its dealings with the private sector.
- The private sector must have the freedom to thrive and the government should not unduly interfere or intrude on private enterprise.
- Although there are many of them, state institutions need to better focus and align themselves to private sector needs, especially in promoting exports.
- Economic growth in Sri Lanka should be inclusive across regions, should be sustainable, and should be solely aimed at improving living standards and increasing prosperity.
- In prioritizing and planning investments, political compulsions should not get in the way and only good economic sense should prevail. For instance, building of a new road or locating a new factory should not be based on political compulsions but based on whether that investment is the right one in the right place
- It is essential to align foreign policy with economic policy, and these two are intrinsically linked. A balanced and mid-ground foreign policy can help Sri Lankan businesses. He is keen to pursue good relations with all multilateral and regional institutions like World Bank, ADB, UN, SAARC, etc.
- Sri Lanka needs to make better use of its vast ocean resources – an area hitherto neglected. He envisages a 100% growth in incomes from the fisheries industry
- Sri Lanka needs to move away from traditional production and focus on innovation, as well as the human resources needed to support it.
- There needs to be a much closer working relationship between the private and public sectors, a better understanding based on trust and transparency.
I’ve uploaded the full audio of his speech to Soundcloud. You can listen to it via the embedded clip below, or visit it on Soundcloud here.
It’s been a while since my last podcast, over 2 months ago. In this 2nd podcast, I share some reflections from recent visits to Jaffna, Vavuniya and other parts of the Northern Province.
More needs to be done to support entrepreneurship in the North. I feel that years of donor interventions may have hurt entrepreneurship here. Successive rounds of donor projects have “gifted” assets to people, but paid little attention to help them make productive use of these assets. For instance, some projects have given machinery and training, but not thought about helping with access to markets to sell what they make. Diary projects have similar problems. A colleague I was travelling with jokingly called this the “cow dropping syndrome”. So many donors have given free cows to families and hoped that this would improve livelihoods and incomes. Little attention had been paid to help them become ‘dairy entrepreneurs’ instead.
Listen to the full podcast below, or go to Soundcloud
The Sunday Leader of 18th January 2015 has published a startling revelation on the extent to which Air Force flights paid for by public money has been abused by the first family and associates, during the height of the Presidential Elections season. According to the news report, these flights have cost a staggering Rs 30.485 million. The cost of these flights undertaken by the Air Force for a handful of ruling party politicians and associates – particularly the first family – must be placed in context of the country’s costs on social welfare for its people. Let me quickly bring some context (taking the figure reported by the newspaper as a given).
- The cost of these Air Force flights is equivalent to 70% of the amount spent on vocational/technical training (stipends, bursaries & season tickets) for Sri Lankan students.
- The cost of these Air Force flights is 600 times the amount spent on providing a pair of shoes for school children in remote areas in Sri Lanka.
- The cost of the Air Force flights is 1/4th the total spent on funding special education of handicapped students.
- The cost of the Air Force flights is equivalent to 13% of the funds spent on providing fresh milk for pre-school children.
- The cost of the Air Force flights is equivalent to 10% of the amount spent on education scholarships for underprivileged students.
- The cost of the Air Force flights is equivalent 1:1 to the amount spent on financial assistance to Internally Displaced Persons (in 2013).
You don’t need to be a ‘socialist’ to care about social welfare spending (and paying for it through taxes). As citizens we need to care about where our tax money goes. Already our tax base is narrow, and much of it is raised from indirect taxes (VAT, etc.) that are inherently regressive (i.e., have a higher proportionate burden on the poor more than the rich). So even our limited tax collection must be spent judiciously on national requirements, and to make social welfare payments to groups in society that need it most.
As I argued in an earlier podcast, our tax money has been silently apportioned to subsidise the election campaign of one Presidential candidate over another. We had no say in it. It just happened. The PAYE tax your employer remitted to Inland Revenue last month? The VAT you paid on that last restaurant bill? Yes, through it you paid for Mahinda Rajapaksa’s posters, cut-outs, rallies, bath packets, freebies, and of course helicopter rides. Of course, this abuse of state resources and tax payer money during election time is not new. But clearly, it was taken to new heights in the 2015 Presidential Elections.
All figures are for 2013, from Ministry of Finance and Planning Annual Reports.
UPDATE | FEBRUARY 2016: As this post is one of the highest read on this blog, I felt it was important to provide a brief update upfront in order to set this original note (from October 2014) in current context. In the Budget 2016 speech (announced in November 2015), the Finance Minister (Ravi Karunanayake) stated that the policies adopted by the previous regime regarding foreign ownership of land will be reversed. Specifically, the restrictions on land ownership by foreign nationals will be lifted, including the complete removal of the 15% tax on land leases and associated stipulations. The FM also announced that on a case-by-case basis, the government will be willing to sell land to foreign nationals (based on some criteria of FDI inflow, purpose, etc.) Subsequently, the FM somewhat backtracked on this and stated that outright sale will continue to be prohibited and only long leases (up to 99 years) will be granted. The removal of the lease tax would still hold, and foreigners would have overall easier access to land. Yet, although announced in November last year, as of the 23rd of February 2016 these changes to the law have not been made. (Many tax proposals contained in Budget 2016 have not been given effect yet either.) The lifting of the legal bar on sale of land, or the changing of the lease tax regulation requires legislative changes and/or passing of new gazettes.
“Whereas in furtherance of the development policies being promoted by the Government in the backdrop of a globally integrated environment, it is deemed expedient and necessary to ensure the prudent use of land which is a limited resource, in a manner that preserves the national interest”
This is the opening section of the new Land (Restrictions on Alienation) Bill that the government presented to Parliament this month. There has been a lot of debate on this piece of legislation for some months now. It was first mentioned as far back as November 2012, in the Budget 2013 speech. I, too, did some work on it a few months ago together with the private sector to look at what kind of a fallout it would have on Foreign Direct Investment (FDI) and what revisions ought to be considered to avoid such a fallout. Most did not dispute that land is a matter of strategic national interest and that having stronger controls can be justified. But not seeing beyond this, to the implications for business and investment, is what was troubling. Yet, despite best efforts by many, it was passed early this week (subject to some minor Amendments).
Let me recap here some of the key features of the forthcoming Act.
It’s extremely encouraging and exciting that thanks to technology, viral videos, and social media ‘clicktivism’, the American ALS Association has been able to collect US$ 13.3 million in donations since July 29, from 260,000 new donors. This will surely help the 30,000+ Americans who have ALS, and boost the chances of a long-term cure. The ‘ALS Ice Bucket Challenge’ has been a revolution in charitable giving. But I couldn’t help but wonder how many of the ice-bucketeers around the world (outside America) stopped for a minute to think, “isn’t there an issue closer to home that needs awareness and fundraising more than ALS in America?”.
Yes, we are all global citizens and we should care about our fellow humans in another part of the world – that’s inherently a good thing. But I couldn’t help but think about it slightly closer to home, because it is really quite alarming how quickly we jump on the bandwagon for a foreign cause (#SaveGaza or #ALSIceBucketChallenge), forgetting some critical causes that need the same level, if not more, awareness and fundraising here at home. So what is most ironic is that while Sri Lankans, including high-profile folks like rapper Iraj , dunk buckets of clean fresh water on their heads to raise money for a foreign charity, 1.2 million Sri Lankans (and as high as 1.8 million according to some reports) in six provinces across the country are suffering from a crippling drought that has lasted nearly half a year, threatening people’s health, crops, and agricultural livelihoods.
I was invited to write an English review of the Sinhala edition of Minister Patali Champika Ranawaka’s new book බලය හා බලය (‘Balaya Saha Balaya’). The review, which I reproduce here, originally appeared in the Daily Mirror of Monday 4th August 2014. In it, I argue that Minister Ranawaka’s book is a formidable look at the nexus between energy, economics and politics and makes a useful knowledge contribution.
Amidst the aggressive and polarizing late-night political shows on television, the mediocre debates in poorly attended parliamentary sittings, and lofty pronouncements in public rallies, Minister Patali Champika Ranawaka’s new book ‘Power and Power’ (‘Balaya saha Balaya’) comes as a refreshing change. In the current context, it is rather unusual to see well-researched publications coming from politicians. The entire book appears to be characteristic of him – an engineering graduate who became an expert in the energy sector, an independent thinker willing to critique the policy status-quo, and an experienced policymaker with a track record of ideas and action.
A Snapshot of the Book
As he mentions in the foreword, the idea for the book came to him when he was writing a book on energy for school children back in March 2011. He wanted to write a book on energy issues that was deep in its content but simple in its explanation. Nearly three and half years later, he can surely be satisfied with the outcome. Because what ‘Power and Power’ is, is a tour de force of the energy sector in Sri Lanka and beyond, and its intriguing interactions with politics and the state writ large. The energy sector in Sri Lanka is pretty complicated, and often controversial. During his time directly involved in the sector, he gained a lot of understanding and insight into the power and politics at play, the undercurrents that shaped decisions, the institutions that operate in the energy arena, the special interests, lobbies, trade unions, etc. Those first hand experiences have enriched every chapter, and taken the book beyond explanation, to insight.
‘Power and Power’ tackles the nexus between the power that comes from energy and the power that comes from economics and politics – what the linkages between those are and how they are panning out globally as well as here in Sri Lanka. The book is in two parts. The first part tackles the trends and developments in the global power and energy sector and the second part is the politics of power and energy both in Sri Lanka as well as the rest of the world.
Recent weeks have seen much controversy over the performance of the Mattala Airport, stemming from an interaction in Parliament between opposition MP Dr Harsha De Silva and Minister for Civil Aviation MP Priyankara Jayarathna. Linked to this, the BBC’s Sinhala service ‘Sandeshaya’ wanted to explore the success or failure of mega infrastructure projects like Mattala (and others coming up in Hambantota), and I was asked to provide some insights. Here is the link to the Sandeshaya interview in Sinhala, conducted with BBC’s Sri Lanka correspondent Azzam Ameen – http://www.bbc.co.uk/sinhala/sri_lanka/2014/07/140726_airport_srilanka.shtml
In the interview, I argued that mega projects like this have not been undertaken by Sri Lanka for a long time now, and such projects are important – especially connective infrastructure – if the country is to make a steady progress through the middle-income transition. I added that the success or failure of such projects cannot be measures in a short time span, and so the accusations that Mattala is a failure may be slightly premature. However, I also point out in the interview that these were expensive projects, and now that they have been built we need strategies to maximise utilisation and this is where things seem to be coming unstuck. I noted that it may not be appropriate to have the Sri Lanka Ports Authority be the main investment driving force, and that we need a high powered agency that has the best of all agencies. I remarked that we can learn from examples like the Penang Export Hub in Malaysia in making this happen.
Meanwhile in the closing part of the interview (which hasn’t been included in the voice clip but is paraphrased by Ameen), I recommended that instead of chasing passenger airlines to stop at Mattala, we should attract global air cargo players like FedEx, DHL, UPS, etc., to set up there taking advantage of the huge land availability, and make Mattala a cargo hub, linking the sea port and industrial zone nearby. My overall message was that we need to think through the Hambantota hub much more strategically and fine-tune the policies of investment attraction, if these projects are to be a true success. Do listen to the interview and let me know what you think.