00:14 welcome to the deep dive series by 00:16 00:16 advocate institute 00:18 00:18 this is a forum in which we take an 00:20 00:20 in-depth look at the biggest policy 00:21 00:21 issues facing the country 00:23 00:23 in preparation of the upcoming panel 00:25 00:25 discussion title how can we improve debt 00:27 00:27 sustainability in sri lanka 00:29 00:29 this is the third and final of our three 00:32 00:32 primers 00:34 00:34 so lets start with some definitions 00:37 00:37 what is gross domestic product it is the 00:40 00:40 monetary value of all finnish goods and 00:42 00:42 services 00:43 00:43 may within a country during a specific 00:46 00:46 period 00:47 00:47 there are three ways that it is measured 00:50 00:50 the first is 00:51 00:51 the production method which is a measure 00:54 00:54 of value added 00:56 00:56 then there is the expenditure method 00:58 00:58 which calculates spending by different 00:60 00:60 groups that participate in the economy 01:03 01:03 and the third is the income method which 01:05 01:05 tries to measure 01:07 01:07 the returns to the various factors of 01:11 01:11 production 01:13 01:13 some further definitions nominal gdp 01:17 01:17 it is a total value of goods and 01:19 01:19 services produced in an economy measured 01:21 01:21 at current prices 01:23 01:23 real gdp is adjusted for inflation 01:27 01:27 and this adjustment is done through what 01:29 01:29 is called the deflator 01:35 01:35 so the concept of structural 01:36 01:36 transformation 01:38 01:38 it is defined as the reallocation of 01:40 01:40 economic activity 01:42 01:42 across three broad sectors mainly 01:44 01:44 agriculture manufacturing and services 01:49 01:49 so who measures gdp 01:53 01:53 in sri lanka it is the responsibility of 01:56 01:56 department of census and statistics 01:59 01:59 and the methodology that they follow 02:02 02:02 is a system of national accounts 2008 02:06 02:06 put together by the united nations so 02:09 02:09 that it is comparable across 02:10 02:10 countries and we currently use 02:14 02:14 a series that has a base starting in two 02:17 02:17 thousand 02:21 02:21 ten so this shows you 02:24 02:24 the three different types of 02:26 02:26 measurements of 02:27 02:27 gdp the first is the income method 02:32 02:32 and the share of income 02:36 02:36 to employees is a smaller share than 02:39 02:39 the share to income then you have the 02:42 02:42 output 02:42 02:42 method and the largest component goes to 02:46 02:46 services followed by industry and 02:49 02:49 agriculture is a small amount 02:52 02:52 and then when you look at the production 02:54 02:54 method 02:56 02:56 it is the private sector followed by 02:59 02:59 government followed by exports 03:07 03:07 this is the world bank classification on 03:11 03:11 whether a country is a low income 03:12 03:12 country middle income country of a 03:14 03:14 middle 03:15 03:15 income country and as per their current 03:17 03:17 definition you are a low income country 03:19 03:19 when you are below 03:20 03:20 a thousand dollars you are a low middle 03:23 03:23 income country between a thousand 03:24 03:24 dollars and four thousand dollars 03:26 03:26 and your upper middle income country if 03:29 03:29 you are 03:30 03:30 in excess of four thousand forty six 03:31 03:31 dollars for a very brief period 03:34 03:34 last year we exceeded this amount 03:40 03:40 so let us look at value chains and how 03:43 03:43 they are reflected in the economy the 03:46 03:46 growing of tea the agricultural part up 03:50 03:50 to the green leaf 03:52 03:52 is recorded in agriculture the 03:54 03:54 conversion of green leaf into 03:57 03:57 black tea is captured in manufacturing 04:01 04:01 and subsequently down the value chain 04:03 04:03 when it is packaged into t 04:05 04:05 for example manufactured into tea bags 04:08 04:08 again it will be recorded under 04:09 04:09 manufacturing in gdp 04:12 04:12 and all the intermediate services that 04:14 04:14 flow from the plantation 04:15 04:15 to the final point of export are covered 04:19 04:19 in services such as 04:21 04:21 the financing of the supply chain the 04:24 04:24 insurance 04:25 04:25 the marketing the trading activity the 04:28 04:28 auctioning 04:32 04:32 so there are some concerns that have 04:34 04:34 been raised that 04:35 04:35 whether the current gdp methodology 04:37 04:37 measures all economic activity 04:40 04:40 and until very recently all the activity 04:43 04:43 that was taking place 04:45 04:45 in creating the port city was not being 04:48 04:48 measured 04:52 04:52 so under the expenditure method 04:55 04:55 there is this equation that says 04:57 04:57 consumption plus 04:58 04:58 investment plus government spending plus 05:01 05:01 exports minus imports 05:03 05:03 will give you economic output and this 05:06 05:06 is an 05:07 05:07 interesting relationship and can be used 05:09 05:09 to 05:10 05:10 break down what the various components 05:13 05:13 that are contributing to economic growth 05:17 05:17 so lets look a little bit deeper into 05:20 05:20 economic growth 05:23 05:23 so how does economic growth happen 05:27 05:27 well the first thing is that 05:31 05:31 the number of people in employment grows 05:34 05:34 and that happens when your labor force 05:37 05:37 grows 05:38 05:38 and then the output per person employed 05:41 05:41 percent can increase 05:42 05:42 and that is the productivity growth 05:46 05:46 and it comes from two channels 05:49 05:49 one is the amount of capital that you 05:53 05:53 invest 05:54 05:54 increases and that is reflected in 05:57 05:57 capital intensity 05:60 05:60 and it also comes from capital 06:02 06:02 productivity 06:05 06:05 and thirdly the concept of total factor 06:08 06:08 productivity 06:10 06:10 which basically looks at which is a 06:13 06:13 residual method 06:15 06:15 so you look at the growth in inputs 06:19 06:19 mainly lay band capital and if the 06:22 06:22 increased 06:22 06:22 output exceeds the growth in inputs 06:26 06:26 there is something else happening in the 06:28 06:28 transformation of inputs into outputs 06:31 06:31 and most economies classified this 06:34 06:34 as total factor productivity which is a 06:37 06:37 very important 06:39 06:39 concept and driver so there are three 06:42 06:42 drivers of total 06:44 06:44 factor productivity the first is 06:47 06:47 investment in human resources which 06:50 06:50 means 06:50 06:50 better skill better trained workforce 06:54 06:54 there is also economic restructuring 06:59 06:59 which means that inefficient firms 07:03 07:03 are replaced with more efficient firms 07:07 07:07 then there is technical progress 07:10 07:10 which means that there is an improvement 07:12 07:12 in technology 07:14 07:14 that improves upon the transformation of 07:17 07:17 inputs to output 07:18 07:18 so a better tractor a better machine 07:26 07:26 so this is the performance of the sri 07:28 07:28 lankan economy 07:29 07:29 over a period of two decades 07:33 07:33 and we we were lucky that we experienced 07:36 07:36 the post 07:38 07:38 conflict economic growth that was 07:40 07:40 extremely high 07:43 07:43 and subsequently we have seen a slow 07:46 07:46 down 07:47 07:47 ever since two thousand twelve 07:51 07:51 the larger columns 07:54 07:54 is showing you nominal growth and these 07:57 07:57 large values that 07:58 07:58 you see which are including the deflate 08:01 08:01 are because there was a rebasing of the 08:03 08:03 series in 2000 08:05 08:05 going back to 2010. 08:11 08:11 so what are the sectors that created 08:14 08:14 this growth 08:16 08:16 and this is over the last decade 08:20 08:20 and the average growth including the 08:23 08:23 post 08:23 08:23 conflict growth is a close to five 08:26 08:26 percent 08:28 08:28 and on the left what you see is the 08:30 08:30 sectors 08:31 08:31 that grew above this average 08:35 08:35 in the middle east what grew around the 08:37 08:37 average 08:38 08:38 and what are the sectors that were 08:41 08:41 laggards 08:44 08:44 so the highest growth rates came from a 08:47 08:47 very 08:48 08:48 small sector which is i t 08:52 08:52 it is a new new age sector but there is 08:54 08:54 a very low base 08:57 08:57 then you had significant growth from 08:59 08:59 financial services 09:00 09:00 because we have had a boom in credit and 09:03 09:03 the growth of money supply 09:06 09:06 we also had growth in telecommunication 09:09 09:09 and substantive growth in construction 09:12 09:12 real estate activity mining and coring 09:15 09:15 and the sectors that grew around the 09:19 09:19 average 09:19 09:19 growth rate have been in retailing 09:22 09:22 wholesaling 09:23 09:23 transportation and the sectors that 09:26 09:26 were laggards were like in healthcare in 09:29 09:29 education 09:33 09:33 so the high growth sectors are generally 09:37 09:37 not tradable sectors 09:39 09:39 and the sectors that are laggards are 09:42 09:42 growing 09:43 09:43 around gdp are the tradable sectors 09:46 09:46 so this is an important point because 09:50 09:50 tradable sectors if exposed to trade 09:54 09:54 international trade would generally be 09:56 09:56 subject to competition 09:58 09:58 and if they are growing 10:01 10:01 there is productivity improvements 10:03 10:03 happening and those sectors are 10:05 10:05 competitive 10:06 10:06 but nontradable sectors are not exposed 10:09 10:09 to 10:10 10:10 competition and if you are having a lot 10:13 10:13 of growth 10:14 10:14 coming from nontradable sectors 10:18 10:18 its a little bit disconcerting because 10:21 10:21 if you throw a lot of capital 10:23 10:23 behind nontradable sectors you can 10:25 10:25 expand that 10:26 10:26 but the subsequent return may not come 10:32 10:32 so how did our labor force 10:34 10:34 do over these years 10:38 10:38 first of all we were virtuous 10:42 10:42 that over the last ever since 10:45 10:45 independent 10:47 10:47 we had a growth in the population and 10:50 10:50 for the right socio economic 10:52 10:52 improvements that we did in the 1960s 10:55 10:55 and the 1950s a population 10:59 10:59 growth rate came down because the 11:02 11:02 fertility rate declined 11:06 11:06 so the rate of expansion of the 11:08 11:08 population came down 11:10 11:10 but there was a demographic transition 11:13 11:13 starting 11:14 11:14 in the 1970s and the average 11:18 11:18 median age of the population started 11:20 11:20 increasing from the lower 11:22 11:22 20s to currently around 34 years 11:26 11:26 so there was an increase in the economic 11:29 11:29 active population that phi exceeded 11:32 11:32 the growth in the population so this 11:36 11:36 created a huge supply of labor relative 11:40 11:40 to the total population 11:42 11:42 and we peaked in a demographic dividend 11:46 11:46 from the period from 2000 to 2020. 11:52 11:52 most countries when this economic 11:57 11:57 when this demographic dividend was 11:60 11:60 taking place 12:01 12:01 have experienced exceptionally high 12:04 12:04 growth 12:05 12:05 this is a one-off effect 12:11 12:11 so significant part of our labor force 12:14 12:14 is skewed towards males so its about 12:16 12:16 two-thirds that are male 12:18 12:18 and one-third that is female so the 12:21 12:21 average labor participation rate is 12:24 12:24 around 12:24 12:24 50 percent for males it's around 30 12:27 12:27 percent 12:28 12:28 but for females it's a very low 35 12:31 12:31 percent 12:32 12:32 and future growth will require us 12:35 12:35 to get more females into the labor force 12:41 12:41 so as this chart shows that with the 12:44 12:44 demographic transition 12:46 12:46 the labor force also grew 12:51 12:51 and the productivity 12:54 12:54 in agriculture did not necessarily 12:58 12:58 increase 12:60 12:60 but the productivity in industry because 13:02 13:02 there was an expansion 13:04 13:04 and more capital intensity grew and the 13:06 13:06 highest productivity gain was 13:08 13:08 in the service sector especially in the 13:10 13:10 high growth service 13:12 13:12 sectors 13:16 13:16 so where did we add the jobs this shows 13:19 13:19 you an index 13:21 13:21 that in agriculture it has been 13:24 13:24 relatively flat 13:26 13:26 because more people have moved out of 13:28 13:28 agriculture 13:30 13:30 and we have had more automation 13:33 13:33 happening 13:34 13:34 we have had growth in services 13:38 13:38 and because industries was a low base 13:41 13:41 we have had the highest growth in 13:44 13:44 industries 13:46 13:46 so currently in terms of 13:49 13:49 share of employment the largest share of 13:52 13:52 employment is in the services at forty 13:54 13:54 seven percent 13:56 13:56 followed by industry at twenty eight 13:59 13:59 percent 14:02 14:02 and the residual in agriculture 14:06 14:06 but interestingly services 14:10 14:10 occupy 47 percent of 14:13 14:13 employment but account for 57 percent of 14:17 14:17 gdp 14:18 14:18 in industry the share is 14:22 14:22 pretty equal that it employs 28 percent 14:25 14:25 of the 14:25 14:25 total labor force and it produces about 14:28 14:28 27 percent of gdp but agriculture 14:32 14:32 the output from agriculture is only 14:35 14:35 eight percent 14:37 14:37 although there are around twenty five 14:39 14:39 percent of the labor force 14:40 14:40 employed in agriculture 14:47 14:47 the formal sector also grew 14:51 14:51 and one indicator to show this growth in 14:55 14:55 the formal sector 14:58 14:58 is the epf 15:02 15:02 so firms above a minimum threshold size 15:05 15:05 which is very small 15:07 15:07 have to by law register for epf 15:11 15:11 so this is a good proxy that 20 years 15:14 15:14 ago 15:15 15:15 there was about 1.9 people who were 15:18 15:18 members 15:18 15:18 unique members of the epf that has grown 15:21 15:21 to about 2.5 million 15:23 15:23 and the number of firms registered for 15:25 15:25 epf have grown from about forty six 15:27 15:27 thousand to about seventy five thousand 15:31 15:31 but interestingly there has been 15:34 15:34 a much higher growth relatively in the 15:37 15:37 public sector 15:40 15:40 that in 2003 there was about 800 000 15:44 15:44 people employed in the public sector 15:48 15:48 this is now close to 1.4 million 15:52 15:52 and over a decade ago you can see very 15:56 15:56 clearly that there was a precipitous 15:58 15:58 growth in the public sector 16:00 16:00 and the largest growth in terms of 16:04 16:04 sector within the public sector was in 16:07 16:07 the military 16:12 16:12 so this shows you the types of 16:16 16:16 sectors in which employment has 16:21 16:21 increased 16:22 16:22 and most categories have remained 16:26 16:26 dormant but certain 16:29 16:29 categories the share of employment has 16:31 16:31 come down 16:38 16:38 besides the labor force which represents 16:42 16:42 people who are resident in sri lanka 16:45 16:45 we also sent out a lot of 16:48 16:48 temporary migrants for employment 16:51 16:51 overseas 16:53 16:53 and this series shows you the 16:56 16:56 number of sri lankan nationals active in 17:03 17:03 employment 17:05 17:05 so over the years the number of people 17:08 17:08 seeking employment overseas increased 17:12 17:12 and what is interesting is that in the 17:14 17:14 last few years 17:15 17:15 the number of people leaving for 17:18 17:18 employment has reduced 17:21 17:21 because perhaps there are more 17:22 17:22 opportunities in sri lanka 17:26 17:26 or maybe the amount of opportunities 17:28 17:28 available overseas has also declined so 17:32 17:32 the 17:34 17:34 departures for employment have been 17:36 17:36 declining 17:38 17:38 but there has been a shift in the 17:40 17:40 composition of people leaving 17:43 17:43 that the housemaids and unskilled share 17:46 17:46 has come down 17:47 17:47 but the skill share has gone up 17:54 17:54 so this estimate of how many people are 17:57 17:57 out there 17:58 17:58 which we estimate to between one point 18:02 18:02 six to one point 18:03 18:03 eight million people at its peak five 18:05 18:05 years ago 18:06 18:06 has declined because the number of 18:09 18:09 people departing for 18:11 18:11 employment has come down and we also had 18:15 18:15 a massive 18:15 18:15 increase in remittances 20 years we 18:18 18:18 earned a billion dollars 18:20 18:20 and we peaked at about 7 billion dollars 18:22 18:22 and it has been flat over the last few 18:24 18:24 years 18:26 18:26 historically most remittances came from 18:28 18:28 the middle east 18:30 18:30 but with immigrants now going to 18:33 18:33 different parts of the world 18:35 18:35 the source of remittances has also 18:41 18:41 diversified 18:43 18:43 now gdp is the production 18:47 18:47 in the country but gndi 18:50 18:50 that gross national disposable income 18:55 18:55 includes net remittances 18:59 18:59 so the amount of spending in the economy 19:03 19:03 is not restricted to the economic output 19:07 19:07 alone 19:08 19:08 but there is a component that is coming 19:11 19:11 from overseas in the form of remittances 19:13 19:13 it is estimated 19:14 19:14 that 10 percent of households in sri 19:17 19:17 lanka receive remittances 19:19 19:19 and a remittance household has about 20 19:22 19:22 percent 19:23 19:23 more spending power than the average 19:25 19:25 household 19:27 19:27 so the gndi when remittances were 19:30 19:30 peaking 19:31 19:31 was at 108 percent 19:34 19:34 to 107 percent of gdp 19:38 19:38 and since the economy has been growing 19:41 19:41 but remittances have not been growing at 19:43 19:43 the same 19:44 19:44 rate the g end gndi has come down to 104 19:48 19:48 percent 19:51 19:51 so let us look at what happened in 19:53 19:53 capital investment 19:56 19:56 domestic capital formation significantly 19:59 19:59 grew 20:01 20:01 because we have been making there is a 20:04 20:04 lot of construction activity going on in 20:05 20:05 the country 20:07 20:07 and there is a lot of public 20:08 20:08 infrastructure also that got built 20:11 20:11 so the amount of cross capital formation 20:14 20:14 has increased 20:15 20:15 although it has declined lately 20:19 20:19 the capital stock has also significantly 20:22 20:22 increased 20:27 20:27 and the capital intensity per worker has 20:30 20:30 also increased 20:31 20:31 but the problem is that the capital 20:35 20:35 productivity has come 20:36 20:36 come down what could be some of the 20:40 20:40 reasons 20:41 20:41 for capital productivity to come down 20:44 20:44 one is that the share of 20:48 20:48 long dated assets in capital investments 20:52 20:52 has increased 20:54 20:54 so to give you an example 20:57 20:57 we built highways 21:00 21:00 but the returns on these will probably 21:03 21:03 take 21:04 21:04 twenty thirty years similarly we have 21:08 21:08 built ports the economic life of a port 21:12 21:12 probably is as long as hundred years 21:15 21:15 and therefore the returns will take a 21:17 21:17 long period of time 21:19 21:19 which may partly explain why the capital 21:22 21:22 productivity has been coming down 21:25 21:25 second is that this made a lot of 21:27 21:27 investment 21:28 21:28 in also non tradable sectors that are 21:31 21:31 not subject to 21:32 21:32 competition and therefore for example 21:36 21:36 construction typically is a non tradable 21:39 21:39 sector 21:39 21:39 because you cannot import buildings and 21:42 21:42 therefore 21:43 21:43 the efficiency level may not be subject 21:46 21:46 to 21:47 21:47 global best practices so there could be 21:50 21:50 a myriad of 21:52 21:52 factors that have in influence the 21:55 21:55 reduction in capital productivity 21:60 21:60 so let us look at a period a little bit 22:02 22:02 near term 22:06 22:06 first is we had 22:10 22:10 an increase in agricultural prices 22:15 22:15 since late there has been a slight 22:16 22:16 decline but over a period 22:19 22:19 in real terms there was a significant 22:22 22:22 increase in commodity prices 22:25 22:25 which followed the global commodity 22:27 22:27 super cycle 22:29 22:29 and therefore some of the people in the 22:32 22:32 rural economy 22:34 22:34 did gain higher prices and therefore 22:37 22:37 their real incomes increased 22:42 22:42 urbanization grew this shows you night 22:45 22:45 lights 22:46 22:46 between 2012 and 2016 and if you look 22:50 22:50 very closely you can see that along the 22:53 22:53 western coast 22:55 22:55 there has been a significant expansion 22:57 22:57 in urbanization 22:58 22:58 and then there are lots of other pockets 23:02 23:02 around the country that have expanded 23:09 23:09 this is an analysis of urbanization 23:13 23:13 over 25 years 23:16 23:16 and you can see in 1995 on the extreme 23:19 23:19 left 23:20 23:20 that urbanization again this is in 23:22 23:22 western province 23:24 23:24 was pretty much restricted to the coast 23:28 23:28 but by 2001 it had moved a little bit 23:32 23:32 to the interior and this trend continued 23:34 23:34 in 2012 and by 2017 23:38 23:38 we have seen a significant expansion 23:41 23:41 and this partly explains 23:45 23:45 the traffic jams that we face in the 23:48 23:48 western province 23:52 23:52 so urbanization the benefits of 23:56 23:56 urbanization 23:57 23:57 is that it creates more economic 24:00 24:00 intensity 24:02 24:02 because it benefits from what is called 24:05 24:05 agglomeration 24:07 24:07 so agglomeration means that when various 24:10 24:10 economic 24:11 24:11 entities are close by they can interact 24:15 24:15 and that is why cities have much higher 24:18 24:18 productivity 24:19 24:19 than rural areas 24:24 24:24 we also had a dramatic increase 24:28 24:28 in the ability to communicate sri lanka 24:32 24:32 like many other countries 24:33 24:33 experienced a massive expansion 24:36 24:36 in telephone connectivity due to 24:39 24:39 reductions in mobile phone costs and 24:41 24:41 technology advancements 24:44 24:44 which created a huge productivity 24:46 24:46 benefit in the economy 24:48 24:48 people could better coordinate activity 24:51 24:51 there was better price discovery farmers 24:53 24:53 could 24:53 24:53 fall around and try to find out the best 24:55 24:55 price fishermen could 24:57 24:57 phone around various coastal harbours 24:60 24:60 and 25:00 25:00 see who will offer them the best price 25:04 25:04 sri lanka which is characterized by a 25:06 25:06 large informal sector 25:08 25:08 production can be better coordinated 25:10 25:10 because they had access to 25:12 25:12 a communication device and in the last 25:15 25:15 decade we also see this trend in 25:18 25:18 internet penetration the 25:21 25:21 the digital transformation is yet to 25:27 25:27 play its full benefit in sri lanka but 25:29 25:29 the early signs are 25:30 25:30 that it is already working 25:35 25:35 mobility also significantly increased 25:38 25:38 so there was an explosion in the vehicle 25:41 25:41 population 25:42 25:42 mainly 2 wheelers and 3 wheelers 25:45 25:45 and the government kept on improving the 25:48 25:48 road network 25:49 25:49 mainly surfacing untied roads 25:53 25:53 so mobility gives a greater radius 25:57 25:57 for employment so person who 26:01 26:01 only had a bicycle who now has a 26:03 26:03 motorcycle 26:05 26:05 the radius that they can travel is 26:08 26:08 probably ten folds 26:09 26:09 greater and the middle income people 26:13 26:13 who could afford a car also had more 26:16 26:16 flexibility 26:17 26:17 and there was a lot of increase in 26:19 26:19 production vehicles 26:21 26:21 for example the one million trishaws 26:23 26:23 that are registered on the road 26:26 26:26 many of them are full time taxis but 26:29 26:29 quite a lot of them are part time taxis 26:31 26:31 so they are consumption vehicles as well 26:34 26:34 as production vehicles 26:37 26:37 then you have the demo butter or the 26:40 26:40 tata ace 26:40 26:40 which is a small mobility device where 26:43 26:43 traders 26:44 26:44 who historically had to go by cart or 26:46 26:46 maybe on a bicycle now have a small 26:48 26:48 truck 26:49 26:49 and you see that when you go on the 26:51 26:51 major highways in sri lanka 26:54 26:54 that you have traders and vendors who 26:56 26:56 have 26:57 26:57 stopped by the side of the road and 26:59 26:59 selling fruits 27:01 27:01 and other fancy items 27:06 27:06 but this chart which requires a closer 27:09 27:09 study 27:10 27:10 shows you that what was working for us 27:15 27:15 in the early part of the decade is not 27:18 27:18 working for us 27:18 27:18 now and those sectors that grew at very 27:22 27:22 high 27:22 27:22 rates because they were coming from low 27:24 27:24 bases or there was a lot of 27:26 27:26 money flowing into them has slowed 27:33 27:33 considerably 27:34 27:34 so during this period what happened to 27:38 27:38 credit 27:39 27:39 because credit drives the economy credit 27:43 27:43 funds investment credit funds 27:47 27:47 consumption 27:49 27:49 so over the decade we have had periods 27:52 27:52 of 27:54 27:54 lose a monetary policy which led to 27:56 27:56 periods of tighter monetary policy 27:59 27:59 and recently monetary policy has been 28:02 28:02 significantly relaxed and the second 28:05 28:05 graph shows you 28:07 28:07 a relationship between credit growth 28:11 28:11 nominal gdp and money supply 28:15 28:15 and what is evident is that credit 28:18 28:18 growth 28:18 28:18 has significantly outpaced 28:22 28:22 nominal gdp growth irrespective of 28:26 28:26 whether 28:27 28:27 we had tight monetary policy or lose 28:30 28:30 monetary policy 28:33 28:33 so the question is that where did all 28:36 28:36 this credit go 28:37 28:37 that if this credit was not driving 28:40 28:40 economic growth 28:42 28:42 who used it one possibility 28:47 28:47 is that it went into 28:51 28:51 asset markets so this is 28:54 28:54 a graph that shows you the growth in 28:58 28:58 land prices in colombo district 29:04 29:04 and it shows you that over the last 29:07 29:07 decade 29:09 29:09 the land prices went up by 193 percent 29:14 29:14 and over the last five years 29:17 29:17 land prices were almost doubled 29:24 29:24 and this chart shows you 29:29 29:29 what are the different sectors that 29:31 29:31 absorb credit 29:34 29:34 and the expansion of credit was across 29:37 29:37 the board 29:38 29:38 but categories like leasing 29:41 29:41 and personal loans have shown 29:43 29:43 significant advan 29:45 29:45 increases and i would dare say 29:49 29:49 that some of these sectors some of the 29:51 29:51 loans that were categorized 29:54 29:54 in some of these business sectors 29:56 29:56 perhaps 29:57 29:57 at the margin some of that credit 29:60 29:60 also crept into the land market 30:06 30:06 so lets look at what has happened in the 30:09 30:09 last 30:10 30:10 five years what has led to this dramatic 30:14 30:14 slowdown in growth 30:18 30:18 so there were four shocks the economy 30:21 30:21 was buffered by four shocks 30:24 30:24 and this chart illustrates the different 30:27 30:27 shocks 30:28 30:28 so lets look at a little bit more in 30:30 30:30 detail 30:33 30:33 the first was a drought shock from the 30:35 30:35 period 2016 and 2017. 30:39 30:39 so it mainly came in the fourth quarter 30:42 30:42 of 2016 30:44 30:44 and three quarters in 2017 there were 30:46 30:46 two failed 30:47 30:47 monsoons and as you can see that 30:51 30:51 the red fault pattern significantly came 30:53 30:53 down 30:56 30:56 and even things like hydropower 30:58 30:58 generation where we 30:59 30:59 are highly reliant on rainfall came down 31:05 31:05 similarly the rice output in the country 31:10 31:10 due to the drought came down and in that 31:13 31:13 particular year in 2017 we had to make 31:16 31:16 large imports of rice 31:19 31:19 and therefore agriculture also 31:21 31:21 contracted 31:23 31:23 now although agriculture currently is 31:24 31:24 only eight percent of gdp 31:26 31:26 it has a large value chain like i showed 31:30 31:30 for t so if a primary commodity 31:34 31:34 contracts the secondary and tertiary 31:37 31:37 activity related to that commodity 31:39 31:39 also contracts 31:42 31:42 and therefore this contraction in 31:45 31:45 agriculture had ripple effects 31:47 31:47 across the value chain 31:52 31:52 then the second shock was a shorter 31:56 31:56 period which was the constitutional 31:59 31:59 crisis 32:00 32:00 so at one moment in sri lanka there were 32:03 32:03 two groups of people claiming to be the 32:06 32:06 right government 32:10 32:10 and this chart shows you 32:13 32:13 what happened to a country rating 32:16 32:16 and the political coup period is 32:18 32:18 highlighted in pink 32:20 32:20 and during this period all three rating 32:22 32:22 com companies 32:24 32:24 qatar rating 32:30 32:30 so most of the foreign investors who 32:31 32:31 have invested in our government 32:33 32:33 securities 32:34 32:34 preceding this period were anyway 32:36 32:36 exiting the market 32:39 32:39 but the constitutional coup which led to 32:41 32:41 a rating downgrade 32:42 32:42 accelerated the exit and the chart on 32:45 32:45 the right 32:47 32:47 shows you what happened to a currency 32:49 32:49 that there was a precipitous 32:51 32:51 depreciation in a currency during that 32:55 32:55 period 32:57 32:57 next came the tragic easter bombing in 32:60 32:60 april 2019 33:04 33:04 and the biggest casualty from the easter 33:07 33:07 bombing 33:08 33:08 was tourism because 33:12 33:12 these bombs were exploded in five star 33:14 33:14 hotels and many foreigners 33:16 33:16 succumbed so we had a huge contraction 33:20 33:20 which is shown in maroon in two thousand 33:23 33:23 nineteen 33:25 33:25 and therefore the receipts from tourism 33:27 33:27 also declined 33:30 33:30 there was also disturbance 33:34 33:34 in society that we had civil unrest 33:38 33:38 we had riots parents were refusing to 33:42 33:42 send their children to school 33:44 33:44 so that disturbance went on for about 33:48 33:48 four months 33:52 33:52 then the last shock which we are still 33:55 33:55 experiencing which was due to the covid 33:58 33:58 19 pandemic 34:02 34:02 and this shows you some data from google 34:05 34:05 mobility that across the board because 34:09 34:09 of 34:09 34:09 curve use mainly in the populated 34:13 34:13 western province which went under curfew 34:16 34:16 for 34:17 34:17 a period close to six to seven weeks 34:20 34:20 there was a significant decline in 34:23 34:23 activity 34:25 34:25 but as you can see that there has been a 34:27 34:27 healthy recovery 34:29 34:29 but it is not a full recovery 34:35 34:35 and this shows you the npl situation in 34:39 34:39 the banking sector 34:40 34:40 that preceding the conflict at the peak 34:43 34:43 of the conflict we had very high npr's 34:45 34:45 which came down 34:47 34:47 and then about six years ago there was 34:50 34:50 again 34:51 34:51 an increase in npls which declined 34:54 34:54 but the trend has been increasing 34:57 34:57 and the actual figure after the 35:01 35:01 moratoriums stop 35:03 35:03 at the end of september you will see 35:06 35:06 a more precipitous increase probably by 35:10 35:10 the end of the year 35:15 35:15 so few comments on tourism because this 35:18 35:18 is 35:18 35:18 a sector of the economy that has been 35:20 35:20 most affected by covid nineteen 35:23 35:23 lets have a look at how we measure how 35:26 35:26 much we receive from tourism 35:28 35:28 so we we have very good statistics of 35:30 35:30 how many people 35:32 35:32 visit us every year that is picked up on 35:34 35:34 the 35:35 35:35 immigration computer and we also know 35:38 35:38 with a high degree of reliability the 35:41 35:41 average day that they stay in the 35:43 35:43 country because you know when they came 35:45 35:45 and you know when they go 35:47 35:47 so at our peak we had about 2.3 million 35:50 35:50 tourists in 2018 which declined to 1.9 35:53 35:53 last year and ever since the lockdown 35:56 35:56 started in 35:57 35:57 march we virtually closed the airport 36:00 36:00 the average duration has been fairly 36:02 36:02 constant at around 10 days 36:05 36:05 and the spend per tourist which is 36:09 36:09 a figure that the tourist development 36:11 36:11 authority computes 36:12 36:12 is estimated at about 181 dollars 36:16 36:16 and that is how we calculate the gross 36:19 36:19 receipts from tourism which 36:22 36:22 at its peak in 2018 was about 4.3 36:26 36:26 billion which came down to 3.6 billion 36:28 36:28 dollars 36:28 36:28 last year interestingly 36:31 36:31 the chart at the bottom shows you how 36:34 36:34 much of tourism outflows that happen 36:37 36:37 which is indication of how much of money 36:40 36:40 is being spent by sri lankans going 36:42 36:42 overseas 36:43 36:43 all that spend is not necessarily 36:46 36:46 purely tourism it could be education and 36:51 36:51 health related travel as well 36:58 36:58 so what is the real contribution of 37:01 37:01 tourism to the economy 37:03 37:03 well one quick and dirty method that we 37:06 37:06 used 37:08 37:08 is that the department of censorship 37:11 37:11 statistics 37:12 37:12 measure the contribution from 37:16 37:16 the hotels and restaurant sector which 37:18 37:18 is about one percent 37:20 37:20 but what we did is that we took the 37:22 37:22 gross tourist receipts 37:24 37:24 and assumed that there would be about 35 37:27 37:27 percent 37:28 37:28 import content in the tourism spend 37:32 37:32 fuel is imported electricity significant 37:35 37:35 amount of the base 37:36 37:36 fuel in electricity is imported 37:39 37:39 the food part of the alcohol is a 37:42 37:42 significant amount of 37:43 37:43 import content also so if you if you 37:46 37:46 make an assumption of the import content 37:49 37:49 and 37:49 37:49 we took a very low level of 35 percent 37:52 37:52 the rest is 37:53 37:53 spent in domestic sectors 37:57 37:57 based on that a computation 38:01 38:01 is that the tourism's contribution to 38:03 38:03 the economy 38:04 38:04 is around three percent 38:07 38:07 and that gets captured through the 38:09 38:09 tourism multiplier 38:11 38:11 and we have illustrated it on the left 38:16 38:16 now tourism is 38:19 38:19 is concentrated in a few geographies 38:23 38:23 so it does not necessarily cut across 38:26 38:26 the country 38:28 38:28 the intensity because we are still a 38:31 38:31 beach and 38:32 38:32 sea location 38:36 38:36 most of the tourism inventory is 38:38 38:38 concentrated in the coastal regions 38:41 38:41 we have pockets in the center of the 38:42 38:42 country 38:45 38:45 and its not necessarily considerated 38:48 38:48 amongst 38:49 38:49 big firms and what this chart is showing 38:52 38:52 you 38:54 38:54 is the available inventory 38:58 38:58 across the country and 55 percent 39:02 39:02 of inventory in a country is 39:05 39:05 coming from establishments that have 39:07 39:07 less than 20 rooms 39:10 39:10 so there is a lot of small enterprise 39:12 39:12 that is involved in tourism 39:18 39:18 this shows you a survey that was 39:21 39:21 conducted 39:22 39:22 by the department of census and 39:24 39:24 statistics back in 2013 39:26 39:26 and 14. and it is a survey of 39:30 39:30 businesses and what is showing you 39:34 39:34 is that they surveyed they estimated 39:36 39:36 about a million enterprises 39:39 39:39 91 percent of these enterprises 39:42 39:42 are micro enterprises which have 39:45 39:45 less than five people 39:49 39:49 which employ something like 44 percent 39:53 39:53 of what they estimated to be employed 39:56 39:56 in those 1 million establishments 40:01 40:01 and the stack column show you what they 40:09 40:09 do so how do we grow 40:14 40:14 well one way of growing is through 40:17 40:17 exports 40:18 40:18 and this chart shows you 40:23 40:23 export growth in thailand 40:26 40:26 the left hand chart shows you an area 40:29 40:29 chart 40:29 40:29 showing the growth of exports the middle 40:33 40:33 chart shows you 40:34 40:34 exports as well as imports 40:39 40:39 and the right hand chart shows you the 40:41 40:41 composition of imports 40:44 40:44 so thailand has had a phenomenal growth 40:48 40:48 in exports 40:49 40:49 in 1998 just after the 40:52 40:52 asian financial crisis where thailand 40:55 40:55 was one of the first countries to be 40:56 40:56 affected they had exports of about 40 40:59 40:59 billion 40:60 40:60 and today the exports are in excess of 41:02 41:02 200 billion 41:04 41:04 but they also import about 200 billion 41:13 41:13 this chart shows you the export 41:15 41:15 performance of vietnam 41:19 41:19 in 1998 41:23 41:23 the exports was less than 20 billion 41:25 41:25 dollars 41:28 41:28 that has increased to 260 billion 41:33 41:33 dollars 41:35 41:35 and the right hand chart shows you 41:39 41:39 what they imported 41:43 41:43 and as you can see that the exports 41:47 41:47 have also resulted in a lot of imports 41:55 41:55 now this shows you the direction of 41:58 41:58 trade of vietnam 42:01 42:01 and what it is showing you is that 42:05 42:05 a lot of the imports are coming from 42:08 42:08 east asia 42:09 42:09 and a lot of the exports are also going 42:12 42:12 to east asia 42:15 42:15 but a lot less imports from north 42:18 42:18 america 42:20 42:20 but a lot more exposed to north america 42:28 42:28 this chart shows you the direction of 42:32 42:32 trade of 42:32 42:32 thailand 42:36 42:36 and again their trade with east asia 42:39 42:39 is the bulk of their trade 42:48 42:48 now lets take a look at sri lanka 42:51 42:51 its a very different story 42:55 42:55 that i export performance 42:59 42:59 over the last 20 years again we started 43:02 43:02 at about 4 billion dollars 43:04 43:04 we have plateaued at about 10 billion 43:06 43:06 dollars 43:08 43:08 but our imports have grown from five 43:11 43:11 billion dollars to twenty billion 43:13 43:13 dollars 43:15 43:15 so our exports in this period have gone 43:18 43:18 up 43:20 43:20 by maybe hundred twenty percent 43:23 43:23 but uh imports have gone up by 400 43:26 43:26 percent 43:29 43:29 and the countries to which we export 43:32 43:32 have remained 43:33 43:33 pretty similar but the countries 43:37 43:37 from which we import have significantly 43:40 43:40 shifted 43:41 43:41 where import size heavily skewed now 43:45 43:45 towards india 43:46 43:46 and china 43:51 43:51 and this chart shows you the 43:55 43:55 export contribution to economic growth 44:00 44:00 so this stellar performer is vietnam 44:04 44:04 where between 10 to 15 percent of total 44:08 44:08 economic growth 44:10 44:10 contribution has come from exports 44:14 44:14 the story is not so spectacular in 44:17 44:17 thailand 44:18 44:18 although exports for the simple reason 44:21 44:21 that they came from a higher base 44:24 44:24 but sri lanka we are hardly above the 44:27 44:27 line 44:29 44:29 so economic growth that we have 44:31 44:31 experienced over the last 20 years 44:33 44:33 very little of that is attributable to 44:36 44:36 exports 44:41 44:41 now this chart shows you 44:45 44:45 the trade agreements that 44:49 44:49 different countries had as you can see 44:52 44:52 thailand and vietnam 44:55 44:55 had large number of trade agreements and 44:57 44:57 they seem to be still signing up trade 44:60 44:60 agreements 45:01 45:01 but sri lanka have very few 45:06 45:06 now the question arises that 45:10 45:10 how do you export and how do you compete 45:13 45:13 with peer countries 45:15 45:15 if they have an advantage over you 45:18 45:18 because they through trade agreements 45:20 45:20 they do not face tariffs 45:23 45:23 and we do not have trade agreements 45:26 45:26 and we starting off are disadvantaged 45:37 45:37 so the harvard center for international 45:39 45:39 development 45:41 45:41 develop 45:44 45:44 the growth diagnostic framework 45:48 45:48 which is instead of trying to improve 45:51 45:51 everything in an economy try to find out 45:55 45:55 what the binding constraints are what is 45:58 45:58 holding back growth 46:00 46:00 so there are two drivers for investment 46:05 46:05 one is whether the cost of finance is 46:09 46:09 very high 46:13 46:13 the second is to see whether the returns 46:15 46:15 on investment are low 46:18 46:18 and there could be large number of 46:20 46:20 causal factors 46:24 46:24 and they did this analysis a few years 46:27 46:27 ago 46:28 46:28 and it was a very intense analysis where 46:32 46:32 they spoke to 46:32 46:32 large number of actors and they 46:35 46:35 identified the binding constraints of 46:37 46:37 sri lanka 46:40 46:40 so some of the factors that they 46:44 46:44 identified was bad infrastructure mainly 46:47 46:47 in 46:47 46:47 mobility and road network 46:50 46:50 that there was an issue with property 46:53 46:53 rights 46:54 46:54 especially due to land 46:58 46:58 there was macro risk because 47:02 47:02 we have instability in monetary and 47:04 47:04 fiscal policy 47:08 47:08 and we had uncertainty in some policy 47:11 47:11 environment 47:15 47:15 but they did not identify education 47:21 47:21 or they did not identify high 47:24 47:24 real interest rates nor did they 47:27 47:27 identify 47:28 47:28 taxation as binding constraints 47:35 47:35 and after doing this analysis 47:38 47:38 they identified the following 47:41 47:41 constraints 47:43 47:43 access to land policy uncertainty 47:47 47:47 water especially for industries 47:50 47:50 and transportation 47:54 47:54 but the non-binding constraints were 47:57 47:57 identified as access to finance 47:59 47:59 education health we do not have 48:02 48:02 difficult geography 48:04 48:04 lack of electricity labor regulations 48:07 48:07 although the 48:08 48:08 these are pain points they were not the 48:11 48:11 binding constraints 48:16 48:16 so another theory developed 48:20 48:20 at the kennedy school primarily by 48:23 48:23 professor ricardo houseman 48:25 48:25 is the scrabble theory of economic 48:27 48:27 development 48:30 48:30 and what he said was that like scrabble 48:34 48:34 you will have your ability to make 48:37 48:37 complex words depend on the number of 48:41 48:41 letters that you have if you have 48:45 48:45 a simple single letter you can probably 48:48 48:48 make only one word if you have a couple 48:51 48:51 more you can probably 48:53 48:53 have more permutations and make more 48:55 48:55 letters more words 48:57 48:57 and if you have the more com 49:00 49:00 difficult letters the rarer letters you 49:04 49:04 can make 49:06 49:06 more words and the analogy 49:10 49:10 is that the competencies the know how in 49:14 49:14 an economy 49:15 49:15 depend on the number of letters that you 49:18 49:18 have 49:19 49:19 so if you have more letters you can make 49:22 49:22 more words which are more complex 49:26 49:26 that others cannot make and therefore 49:29 49:29 you can trade in more complex products 49:32 49:32 that get you higher prices 49:34 49:34 therefore higher value addition and 49:36 49:36 therefore higher 49:39 49:39 level of income and quality of life 49:46 49:46 and this shows you the performance of 49:49 49:49 countries 49:50 49:50 that have more diversified products 49:54 49:54 so if you take the more advanced 49:57 49:57 economies 49:59 49:59 they have a large diversification of 50:01 50:01 products 50:02 50:02 that they can make and the ubiquity 50:06 50:06 is also very high that the products they 50:09 50:09 can make 50:10 50:10 many other countries cannot make 50:14 50:14 so this shows you the complexity ranking 50:16 50:16 of 50:17 50:17 sri lanka and as the 50:20 50:20 chart on the right hand shows you 50:24 50:24 that ah economic complexity or ability 50:28 50:28 to make 50:30 50:30 different products over the last 25 50:33 50:33 years 50:34 50:34 has hardly grown while 50:37 50:37 if you look at a country like vietnam 50:39 50:39 which in 1995 was way behind us 50:43 50:43 has significantly exceeded us 50:47 50:47 and the stellar industry of vietnam has 50:49 50:49 been mobile phones 50:51 50:51 and i read recently that they are now 50:54 50:54 trying to make their own indigenous 50:56 50:56 brands 50:57 50:57 that is the knowledge below by effect 50:59 50:59 the tacit knowledge that professor 51:01 51:01 houseman talked about 51:05 51:05 now how do you get these letters 51:10 51:10 one channel that you get those letters 51:12 51:12 is through fdi 51:14 51:14 because as he said that this knowledge 51:19 51:19 that is embedded in these letters is 51:22 51:22 tacit 51:23 51:23 it is not something that you can get 51:24 51:24 from books or you cannot google and get 51:26 51:26 it from the internet 51:28 51:28 it is unwritten know how that is in your 51:31 51:31 head 51:32 51:32 in your brain and one channel to get 51:36 51:36 that know how is through fdi 51:39 51:39 and therefore foreign companies 51:43 51:43 who come into your com country can 51:46 51:46 significantly expand 51:49 51:49 that tacit knowledge and management know 51:51 51:51 how 51:52 51:52 so let me give you an example that if 51:54 51:54 you look at the banking sector in sri 51:56 51:56 lanka 51:58 51:58 the foreign banks have been the training 52:00 52:00 centers of 52:01 52:01 most of the senior management that you 52:03 52:03 find in the local 52:06 52:06 banks primarily the hsbc standard 52:09 52:09 chartered city bank 52:12 52:12 so fdi brings that tacit knowledge 52:16 52:16 and if you look at the fdi that sri 52:18 52:18 lanka has got 52:21 52:21 it is mainly in infrastructure 52:25 52:25 we have got very little fdi that has 52:28 52:28 come for efficient seeking 52:30 52:30 where it has created export led 52:32 52:32 industries 52:34 52:34 a little bit higher in services but the 52:36 52:36 bulk of it in 52:38 52:38 infrastructure and the big peaks that 52:41 52:41 you see in 2017 and 18 52:43 52:43 are mainly coming from the port city 52:47 52:47 another measure of fdi 52:50 52:50 is how much of the fdi is coming from 52:53 52:53 foreign firms who are already in your 52:55 52:55 country 52:56 52:56 who are reinvesting their retained 52:59 52:59 earnings 53:00 53:00 and that's just the methodology of how 53:03 53:03 fdi is calculated internationally 53:07 53:07 for quite some time a majority of fdi in 53:10 53:10 sri lanka covers retained earnings being 53:13 53:13 reinvested but since late 53:15 53:15 you once again due to the port city you 53:18 53:18 can see that there is a bigger component 53:20 53:20 that is coming from 53:21 53:21 new investment and when you compare sri 53:25 53:25 lanka relative to our peers 53:28 53:28 our fdi to gdp has been very low 53:32 53:32 although it is higher than what it was 53:34 53:34 previously 53:35 53:35 and vietnam is a stellar example where 53:38 53:38 fdi 53:39 53:39 is close to say over six percent 53:42 53:42 the other channel that you can get tacit 53:46 53:46 knowledge 53:46 53:46 is through your diaspora and due to the 53:49 53:49 various 53:51 53:51 civil disturbances that this country has 53:54 53:54 been experienced 53:56 53:56 plus due to economic opportunity 53:59 53:59 we have a fairly large diaspora out 54:02 54:02 there in the oecd countries estimated to 54:05 54:05 be over six hundred thousand people 54:09 54:09 and many of these people have perhaps 54:12 54:12 left the country two decades ago and 54:14 54:14 there will be a lot of tacit knowledge 54:16 54:16 especially if they are working in 54:18 54:18 certain industries 54:20 54:20 and it is a lot easier to get those 54:23 54:23 people to come back to sri lanka then 54:25 54:25 to bring foreigners 54:30 54:30 the next is the ability to make complex 54:34 54:34 products 54:37 54:37 so if you take the average firm 54:40 54:40 in india they have 54:44 54:44 four people the average firm in the 54:48 54:48 united states 54:49 54:49 has 100 people 54:52 54:52 so the amount of know how that is in 54:56 54:56 each person's 54:57 54:57 brain is limited but its the combination 55:02 55:02 of these people that allow you to make 55:04 55:04 more sophisticated products 55:08 55:08 and sri lanka is also characterized as i 55:11 55:11 have shown before 55:12 55:12 by a large number of small firms 55:15 55:15 and therefore they can only produce less 55:18 55:18 complicated products 55:24 55:24 so this is the landscape of sri lankan 55:26 55:26 business 55:28 55:28 the left side shows you the major firms 55:32 55:32 but the reality is that the right side 55:36 55:36 is a reflection of a majority of the 55:40 55:40 enterprises 55:41 55:41 that exist in the country 55:46 55:46 this shows you a survey that was 55:49 55:49 conducted 55:50 55:50 by the department of census and 55:52 55:52 statistics back in 2013 55:54 55:54 and 14 and it is a survey of 55:59 55:59 businesses and what is showing you 56:02 56:02 is that they surveyed they estimated 56:04 56:04 about a million enterprises 56:07 56:07 ninety one percent of these enterprises 56:10 56:10 are micro enterprises which have 56:14 56:14 less than five people 56:17 56:17 which employ something like forty four 56:19 56:19 percent 56:21 56:21 of what they estimated to be employed 56:24 56:24 in those one million establishments 56:29 56:29 and the stacked columns show you what 56:31 56:31 they do 56:33 56:33 how do we try to improve their 56:36 56:36 productivity 56:39 56:39 and we have identified nine 56:43 56:43 drivers which are mobility communication 56:46 56:46 management know how access to credit 56:49 56:49 technical expertise 56:50 56:50 market access electronic 56:54 56:54 payments regulation and property rights 56:58 56:58 so in terms of doing business 57:02 57:02 we have to significantly improve these 57:04 57:04 key drivers 57:06 57:06 and some kind of enterprise development 57:10 57:10 institute has to be created 57:12 57:12 to help these people improve their 57:15 57:15 business performance 57:17 57:17 because credit alone cheap credit alone 57:20 57:20 is just 57:20 57:20 one of nine drivers that 57:23 57:23 itself is not going to improve them that 57:26 57:26 there has to be mentoring 57:28 57:28 there has to be peer support and there 57:30 57:30 has to be a dedicated institute 57:33 57:33 that focuses on improving their 57:35 57:35 productivity and competitiveness 57:41 57:41 we could also bring in technology 57:43 57:43 because 57:44 57:44 small businesses find it difficult to 57:49 57:49 access markets and coordinate amongst 57:51 57:51 themselves so i have given you an 57:53 57:53 example 57:55 57:55 of what are called two sided markets 57:57 57:57 which have been 57:58 57:58 created through platform companies 58:02 58:02 so companies like pikmi and uber are 58:05 58:05 platform companies 58:07 58:07 for the taxi hailing industry similarly 58:11 58:11 alibaba or their local subsidiary now 58:14 58:14 duras 58:15 58:15 and a few other e-commerce platforms are 58:18 58:18 platform companies that allow 58:20 58:20 small companies to access larger number 58:23 58:23 of customers 58:27 58:27 and this has a virtual cycle because it 58:30 58:30 has 58:33 58:33 two sided networks on one side you have 58:36 58:36 producers 58:37 58:37 and on the side you have consumers but 58:39 58:39 they are not always producers and 58:41 58:41 consumers 58:42 58:42 producers sometimes become consumers and 58:44 58:44 consumers sometimes become producers 58:47 58:47 so typically if you take the taxi 58:49 58:49 hailing market 58:50 58:50 that the problem was that 58:53 58:53 you know typical taxi 58:57 58:57 pre technology platforms 59:01 59:01 their ability to earn income was highly 59:04 59:04 dependent on them seeing a customer 59:06 59:06 so they would traverse on the roads 59:08 59:08 basically 59:09 59:09 and you would hear them but what taxi 59:12 59:12 hailing apps have 59:13 59:13 enabled them to do is to use a search 59:15 59:15 feature 59:17 59:17 and it is matching demand and supply 59:21 59:21 and therefore the utilization rate of 59:24 59:24 those taxis have significantly increased 59:27 59:27 and the time that customers have to wait 59:29 59:29 to hail a taxi also has 59:31 59:31 reduced and the predictability has 59:33 59:33 improved metering has improved 59:36 59:36 payment has improved safety has improved 59:39 59:39 so it has created 59:41 59:41 large number of positive virtual cycles 59:46 59:46 and these similar platforms can be 59:48 59:48 applied to 59:49 59:49 many other sme activity 59:54 59:54 a word about productivity 59:58 59:58 now the focus of the current government 60:00 60:00 is to significantly improve 60:02 60:02 agricultural output coconut for example 60:05 60:05 coconut 60:06 60:06 occupies 20 percent of the arable land 60:10 60:10 area of the country 60:12 60:12 and that domestic production is between 60:14 60:14 2.5 to 3 billion nuts 60:16 60:16 out of which the domestic consumption is 60:18 60:18 1.8 to 1.9 billion 60:22 60:22 now the average tree produces 60:25 60:25 a mere 62 knots but the best practice 60:29 60:29 trees produce 60:32 60:32 100 and even in some cases as high as 60:35 60:35 150 knots per year 60:38 60:38 so the knowledge and the know how 60:41 60:41 is already in the country the problem is 60:45 60:45 that there is a huge variation 60:47 60:47 between best practice and the average 60:50 60:50 and it is about teaching the average 60:53 60:53 people 60:54 60:54 what the best practice people are doing 60:55 60:55 correct 60:57 60:57 similarly in paddy which occupies thirty 60:59 60:59 two percent of the arable land 61:01 61:01 that the average yield is per acre is 61:05 61:05 only four point four tons 61:06 61:06 but best practice is as high as six 61:08 61:08 thousand and sometimes even higher than 61:10 61:10 that 61:11 61:11 similarly for rubber where the average 61:14 61:14 yields are 800 61:16 61:16 and the best practices are over 2000 61:20 61:20 so take dairy industry where the 61:22 61:22 government is putting enormous amount of 61:23 61:23 effort 61:25 61:25 correctly to increase water production 61:27 61:27 the average cow 61:30 61:30 a milking cow only produces five liters 61:32 61:32 while best practice cows 61:35 61:35 are around 25 liters and some as high as 61:38 61:38 30 61:40 61:40 of course the reasons are more 61:42 61:42 complicated 61:43 61:43 it does require some element of 61:47 61:47 investment but the answers are already 61:50 61:50 in the country so 61:53 61:53 the way to improve agricultural output 61:57 61:57 is not through interventions excessive 62:00 62:00 interventions in the input markets or 62:03 62:03 the output markets by putting price 62:04 62:04 controls 62:06 62:06 and giving excessive amount of subsidies 62:08 62:08 in agricultural inputs 62:10 62:10 but to really focus on improving 62:14 62:14 productivity 62:15 62:15 and the know how that is already 62:18 62:18 existing within the country in the 62:20 62:20 better firms 62:21 62:21 or the better farmers or in the 62:24 62:24 agricultural extension services 62:27 62:27 it is about transmitting that know how 62:29 62:29 to the wider 62:31 62:31 community of farmers 62:36 62:36 so on that note we end 62:39 62:39 a final primer and we hope that 62:42 62:42 we have given you some insights 62:46 62:46 of these challenging issues that are 62:49 62:49 facing 62:50 62:50 a country at this moment and we hope 62:53 62:53 that the panel will be able to shed more 62:56 62:56 light 62:57 62:57 on how we can improve sri lanka's debt 63:00 63:00 sustainability going forward