It’s time for urgent economic reforms

Originally appeared on Daily FT, The Morning, Ada derana Biz , Lanka News Web

It’s time for urgent economic reforms

• Sri Lanka faces one of the worst economic crises in its history.

• COVID-19 pandemic only exacerbated the existing weaknesses in the economy, the roots lie in unsustainable debt, fiscal indiscipline and low rates of growth.

• To get out of the crisis comprehensive and deep economics reforms that are structured to a clear timeline is needed, says top Economists.

Sri Lanka should carry out urgent and credible economic reforms to create a stable environment to emerge from one of the worst economic crises in its history triggered by unsustainable spending, debt and stifling controls, a panel of economists said.

“There is no doubt that Sri Lanka is facing a severe economic crisis. Macroeconomic stabilization is the need of the hour ” said Dr. Roshan Perera, Senior Research Fellow at Advocata Institute, Colombo-based think tank . She made these comments at an online event to launch Advocate’s latest publication, ‘A Framework for Economic Recovery’. She provided a breakdown of the economic challenges before the economy. In her presentation, Dr. Perera stressed the need for immediate reforms to tackle unsustainable public debt.

The report identifies that the macro-economic instability lies in the failure of the state to implement deep structural reforms to the economy for nearly twenty years. The COVID-19 pandemic has exposed Sri Lanka’s fundamental weaknesses that have plagued the economy for a long period of time. The event included comments from experts on Advocata Institute’s board of advisors.

“None of these policy prescriptions are new. We have talked about them for years. But it’s a matter of political will to do them. We have hit a brick wall and we need to come together as a whole and take responsibility,” Advocata’s Academic Chair Dr. Sarath Rajapatirana said.

“We need to think of the external balance not only for today but for tomorrow. We have to grow our way out of debt as opposed to starving ourselves out of debt” said Dr. Nishan de Mel, Executive Director of Verite Research and an advisor to Advocata. Highlighting the importance of getting the balance right on growth and austerity in dealing with the crisis.

Prof. Rohan Samarajiva, Chairperson, LIRNEASIA and an advisor of the Advocata, explained the urgency of deep structural reforms by describing the present economic challenge. “We are in a war-like situation”. He said, stressing that what we need is a common minimum program of reform agreed by many. “Identify the key sectors – utilities and trade which would play a huge role in the economy to build confidence. We would have to bring back parts of the 19th amendment”. He said, highlighting the importance of political reform facilitating better economic outcomes.

Research shows that Sri Lanka needs structural readjustment. “ Sri Lanka needs some bitter policy doses at this level to get the economy back on track. We haven’t touched policy reforms for over 20 years, for which we are paying now. And we are looking for short term solutions for a long term problem”, said Professor Sirimal Abeyrathne, Senior Professor of Economics, University of Colombo.

Advocata’s report, A Framework for Economic Recovery, consists of a series of urgent macroeconomic reforms to address the present crisis. This includes the implementation of a macroeconomic stabilization program, prioritising fiscal consolidation and debt restructuring, public finance management and public sector reforms. Other reforms include state-owned enterprise reform, enhancing monetary policy effectiveness and maintaining a flexible exchange rate.

Trade reform to strengthen exchange rate sustainability. Other structural reforms such as land reform, improving ease of doing business and bridging infrastructure gaps to boost productivity and achieve growth. Advocata Chairs, Mr. Murtaza Jafferjee, Dr Sarath Rajapatirana, Mr. Dhananath Fernando, COO Advocata Institute and key advisors, Prof. Suri Ratnapala, Professor of Law, University of Queensland, Anarkali Moonesinghe, Board Member Lankan Angel Network, Dr. Sujata Gamage, Senior Research Fellow, LIRNEASIA, Dr. Nishan De Mel, Executive Director at Verité Research, Prof.Prema-Chandra Athokorala, Emeritus Professor of Economics, ANU, spoke extensively on each of these areas of reform, while expressing concern over the present economic crisis.