Sri Lanka must shift its growth model

In June 2017, the World Bank launched the most recent edition of the Sri Lanka Development Update (SLDU). Produced every six months, the report provides a more in-depth examination of selected economic and policy issues, and analysis of medium-term development challenges. This edition’s special focus has pages dedicated to policy discussions on promoting trade and investment.

Ralph van Doorn, the Senior Country Economist for Sri Lanka and the Maldives, sat down for an interview on the Sri Lankan television show Biz 1st review 360, to talk about the SLDU, a report which he said, sought to track Sri Lanka’s performance in the recent past, assess its present context, and look to future opportunities. Below are some highlights from the interview.

Looking back on 2016

Sri Lanka’s economy in 2016, and the first half of 2017 has been broadly satisfactory, Van Doorn explained. “Some of the highlights were the passing of a Right to Information Act which will improve transparency and accountability,” he said, adding that other highlights included the restoration of the Generalised Scheme of Preferences (GSP+), a preferential trade arrangement which will improve exports to the European Union, and VAT reforms which will help strengthen the tax base.

Noting that Sri Lanka’s outlook had improved thanks to a strengthening global economy, Van Doorn was careful to clarify that this was subject to the continuation of fiscal consolidation. It was essential that the government take proactive policy measures and remain committed to the reform agenda to protect the economy. While World Bank economists projected a 4.7 growth rate in 2017, that figure did not take into account the impact of the recent floods.

How can Sri Lanka sustain its growth in the medium term?

“We believe that for Sri Lanka to sustain growth and create jobs in the medium term it will need to shift its growth model towards one more focused on private investment and tradable sectors,” said Van Doorn.

Reforms would be critical Van Doorn emphasised, adding that the time to undertake these was now. With a strengthening global outlook, the restoration of GSP+ and the improvement in public finance among other factors, Sri Lanka had been given a clear window of opportunity.

“In the report we point out four policy recommendations,” Van Doorn told the reporter. “The first one is continue on the fiscal consolidation path which means strengthening the revenue base and making the tax system fairer, simpler and more efficient.” Other recommendations included that the government align fiscal spending with revenue policies and improve the country’s fiscal competitiveness.

SLDU makes clear recommendations

The report suggested that way forward for Sri Lanka would be to adopt trade policy with a gradual but firm liberalization schedule and make progress on bilateral trade agreements, while carefully evaluating the costs and benefits to the country. Other focus areas could include trade facilitation and attracting foreign direct investments.

“Improving the business and innovation environment will ensure that firms and non-traditional export sectors can also benefit by the opportunities that are presenting themselves,” said Van Doorn, adding that attracting more foreign direct investment could help create jobs, especially for women in a country that could see growth on the back of increased female labour force participation.

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