Envisioning a robust post-war economy

By Dr. Muttukrishna Sarvananthan

(February 03, Colombo, Sri Lanka Guardian) On the morning after the election result was announced I woke up to a stale old day. The winning margin of the election was too big to believe. The hope for believable change has turned into an unbelievable status quo. If it is the destiny of Sri Lanka, I humbly accept that. Now that the Sri Lankan people have chosen the President of the country for the next six years or eight years (depending on the interpretation of the Constitution by the Supreme Court), it is time to strategise a robust post-war economy.

The election manifestoes of the two main contenders were grounded on the future of the economy of Sri Lanka, in the aftermath of the end of the civil war in May 2009. Thus, "Brighter Future" and "Believable Change" became the main campaign slogans of the incumbent and the common opposition candidate respectively. The people of Sri Lanka have placed their trust on Brighter Future. The incumbent and re-elected President promised to make Sri Lanka the economic hub of Asia and take the country from Third World to First World status, though he did not give any specific time frame to achieve the same.

Although there may be different definitions of "Third World" and "First World", one of the widely accepted benchmarks is the classification of economies in the World Development Indicators (WDI) of the World Bank as follows (latest data available pertains to the calendar year 2007):

Hence, while low-income economies could be classified as Third World economies, high-income economies could be classified as First World economies. Lower and upper middle-income economies would fall in-between the First and Third World. The foregoing figures are upwardly revised annually and therefore flow variables.

Sri Lanka was already a lower middle-income economy when the incumbent President was first elected to office in late-2005, i.e. per capita income of little over $1,000 in 2005. According to WDI, in 2006 Sri Lanka’s per capita income was $1,310 and ranked 144 out of 207 countries. In 2008, the latest year for which data is available, Sri Lanka’s per capita income was $2,014 according to the national estimation. The per capita income is likely to have risen to nearly $2,200 in 2009 though the official data are yet to be released. Therefore, aiming to become a First World country during his second and last term of office is a mirage.

Nevertheless, the President could and should enable the Sri Lankan economy to graduate to an upper middle-income economy at the end of his second term of office. Remember that, by the time of the end of his second term the threshold for upper middle-income economy would have risen to at least $4,000 per capita GNI. In order to realise this feat, the Sri Lankan economy should grow at double-digit rates uninterruptedly during this second decade of the century or beyond.

Sri Lankan economy was stuck in low-level equilibrium growth rate (i.e. less than 5% annual average growth) between 1951 and 1977. After 1977, the Sri Lankan economy has graduated into medium-level equilibrium growth rate (i.e. more than 5% but less than 10%), in spite of the high-intensity armed conflicts both in the North & East and the South. Unfortunately, in the past three decades, the economy was stuck in medium-level equilibrium growth rate. Although the medium-level equilibrium growth rate was quite remarkable and resilient amidst the high-intensity armed conflicts, it was not sufficient to diffuse economic growth to the periphery and make substantial and sustainable reduction in poverty.

With the conclusion of the protracted civil war in May 2009, it is high time we took into a high-level equilibrium growth trajectory (i.e. sustained double-digit growth rate) in the next decade or longer in order to graduate into upper middle-income economy and reduce the share of the poor in the population to single-digit level. Thus, sustained double-digit economic growth rate and sustainable single-digit poverty rate should become the twin objective of the economic strategy for the second decade of this century and second-term of office of the incumbent President. There are at least five prerequisites for achieving the foregoing twin goal.

* Induction of competent economic advisers
* Restoring good governance
* Right-sizing the public sector
* Inculcating Meritocracy
* Enterprising the education sector

First of all, the President should induct a group of young, open-minded, innovative and modernist advisers who could provide sound policy options to lift the Sri Lankan economy from medium-level equilibrium to high-level equilibrium (sustained double-digit growth rate) economy.

Secondly, restoring good governance is sine qua non to achieve sustained double-digit economic growth and sustainable single-digit poverty. Some of the urgent measures to be taken to restore good governance are clamping down on corruption, ensuring freedom of information (particularly on financial and economic information) and media freedom, installing transparency and accountability in economic management and policy-making, and improvement in protection of human rights and enhancing human security.

Thirdly, the President should take concrete actions to wind-down the bloated bureaucracy that has become a huge burden on about 80% of the population that is not part of the public sector employees (roughly 1 million) and their immediate families (roughly 4 million). Right-sizing the bureaucracy is indispensable for providing cost-effective and efficient public goods and services to the citizens.
Fourthly, inculcation of meritocracy in public service is sine qua non for restoring the confidence of the citizens on the public sector. That is, appointments to the public sector (government and semi-government institutions) should be made on the basis of merit, competence, and performance. No public servant (including in the universities, judiciary, and the Central Bank) should be made a permanent employee at least until ten-years of service coupled with measurable track record of effective delivery and performance.

Fifthly, enterprising and modernising the education sector is long overdue. This needs to be done in the primary, secondary and tertiary levels of education. The education sector needs to be made competitive and up-to-date by way of promoting and nurturing private sector participation, both local and international, in the primary, secondary, and tertiary levels. Opening up the health sector for private sector participation has not undermined the universal free public health service. Instead, opening-up health services for private sector participation has improved the public health services by reducing the number of people dependent on public health services and improving the quality of public health services. Therefore, there is no rationale for postponing the opening-up of the education sector for private investment, both local and foreign.
The oft repeated mantra of the President and the government, viz. "peace through development", has been resoundingly rejected by all ethnic minority communities, namely Muslims, Tamils of North & East, and hill-country Tamils, in the just concluded Presidential election. It is a terse reminder that bridges, highways, roads, schools, and hospitals alone cannot reconcile the ethnically polarised Sri Lankan society and establish durable peace.

I am informed that the Puttalam-Mannar road, which was temporarily opened just two days before the election-day, for public use to transport internally displaced people in Puttalam to cast their votes in Mannar has been closed since the day after the election. This is just one example of the short-lived reintegration and reconciliation through connectivity. Deep divisions in the hearts and minds of the diverse population cannot be patched-up by restoration of physical, economic, and social infrastructure alone. Reconstructing highways, roads, and bridges are necessary, but insufficient to reconcile the diverse people of the country and establish durable peace, which is sine qua non for building a robust post-war economy.

* Low-income economy - $935 or less GNI (gross national income) per capita in 2007
* Lower middle-income economy - $936 - $3,704 GNI per capita in 2007
* Upper middle-income economy - $3,705 - $11,455 GNI per capita in 2007
* High-income economy - $11,456 or more GNI per capita income in 2007

Muttukrishna Sarvananthan is the Principal Researcher of the Point Pedro Institute of Development, Point Pedro, Northern Sri Lanka http://pointpedro.org and the editor & author of Economic Reforms in Sri Lanka (2005, ICES Colombo) and The Economy of the Conflict Region in Sri Lanka (2008, EWC Washington DC & PPID Sri Lanka) respectively.