Gotanomics: Can It Turn Around The Ailing Sri Lanka’s Economy?
Dr. W.A Wijewardena
Gotanomics from the new President
I have argued in this column repeatedly that Sri Lanka’s economy was in a dire state, moving from bad to worse on each passing day. It was a warning to economic policy managers that they should take effective measures quickly to arrest the declining trend, turn it around and push it back to the long term potential growth path.
Except the Central Bank which was successful in taming inflation at around 5%, the real sector economic policy makers appeared to be reluctant to hear the bad news. Now, President Gotabaya Rajapaksa, elected to presidency recently, has to do the nasty job by implementing the economic policy package announced in his election manifesto. This package comprising his economic wisdom can be called ‘Gotanomics’.
But, time is running out for President Gotabaya Rajapaksa. If early action is not taken, the economy would descend to a further depth. It will certainly deny Sri Lanka the opportunity of attaining the economic glory which is the expectation of all Sri Lankans today.
A pitfall to avoid
In the Manifesto, Gotabaya has just devoted only two pages to bring out the nature of economic ailment from which the country is suffering today. The balance 80 pages have been spent for presenting his policy package which includes Gotanomics too.
This is a good sign because he has not wasted his time for blaming the previous administration. It is in stark contrast with what the leaders of the previous administration did continuously. I can recall one hilarious incident about which I wrote earlier.
A fine lesson from a Malaysian advisor
At the Sri Lanka Economic Summit hosted by Ceylon Chamber of Commerce in August 2016, the then Minister of Finance Ravi Karunanayake castigated the previous regime for all the economic ills which the country had been facing at that time. This he did two years after taking over the administration. Immediately after his speech, it was the special guest at the Summit, Dato Sri Idris Jala, CEO of Permandu Malaysia and Economic Advisor to the Prime Minister who took the podium.
He said amidst loud laughter in the audience: “You guys are extremely lucky because you have a previous regime to blame. We are not lucky because it is the same political party under a different leadership which is in power. Hence, we cannot blame ourselves. Instead, we did a soul-searching exercise to find where we had gone wrong.”
The soul-searching exercise which he recommended to Sri Lanka was taking top bureaucrats and private sector leaders to an economic capsule, diagnose the ailment and prescribe the necessary medication. Once the job was done, both the bureaucracy and the private sector had signed it off taking ownership of the policy. That was how Malaysia had prepared itself for the emerging Fourth Industrial Revolution, code-named Industry 4.0.
Viyathmaga, the think-tank behind Gotanomics
Gotanomics comes from a series of such open consultations done by a think-tank which branded itself ‘Viyathmaga’ or the Path of the Erudite for about two years. Hence, the exercise involving the policy capsule which Malaysia had done has already been completed, saving much time for the President at a time when urgency and swift action have been the critical buzzwords.
However, it is now necessary to reassess the main components of Gotanomics in the light of emerging global as well as local developments. Further, a Manifesto is just a blueprint outlining only the major policies being pursued. Each such policy has to be developed into a detailed work programme eliminating inconsistencies, shedding which are irrelevant today and focusing on the future rather than the present.
In developing these work programmes, it is essential to get the inputs of the Central Bank to prevent Gotanomics from running into conflict with bank’s policies. Once finalised, it is necessary to have it signed off by the bureaucracy, private sector and policy leaders. It is only in that way that Gotanomics can become the policy philosophy of the country.
Modest economic goals in Gotanomics
Gotanomics has some modest economic goals to be achieved during 2020-5, compared to over ambitious goals set by previous governments. Economic growth is to be lifted from the current below 3% to 6.5%. Per capita income which stands at present at $ 4,000 is to be increased to $ 6,500, a midpoint in Sri Lanka’s journey toward a high income country.
Three key macro variables are to be kept below some benchmarks which are not very far from such numbers at present. Unemployment is to be kept below 4% which is the current rate in that number. Inflation will be below 5%, one percentage point above the maximum of this number at present. Budget deficit is targeted to be below 5% of GDP, a drastic reduction from the current 6% plus.
Two difficult if not impossible goals have also been targeted. One relates to lending rates of commercial banks where Gotanomics is planning to bring them below 10%, compared to the current levels between 11% and 20%. The other one relates to the exchange rate. Gotanomics plans to stabilise the exchange rates meaning that it will not fall below the current level of Rs. 182 per US dollar. Both are market determined and therefore are beyond the edicts of a President.
Any attempt at subverting the market would have disastrous consequences for the other goals immediately and the long-term economic growth later. That is why it is necessary to work closely with the Central Bank which is the authority on both policies.
The return of the big government
The main feature of Gotanomics is the central role which the government is going to assume in directing the economy. A National Policy and Planning Commission or NPPC is to be established under the President. Most probably, it will be headed by the veteran economist Dr. P.B. Jayasundera or simply PB, Secretary to the President. As Finance Secretary earlier, he has proved himself to be an able policy manager and an on-time deliveryman.
There were two similar bodies under the previous administration too: A Cabinet Committee on Economic Management or CCEM under the Prime Minister in the first three years and a National Economic Council or NEC under the President in the balance two years.
Both these bodies concentrated on fire-fighting and micro issues relating to the economy and failed to come up with a comprehensive national plan. The proposed NPPC should avoid this pitfall. It already has a fairly comprehensive economic plan covering all the sectors as designed by the think-tank Viyathmaga to begin with. It is a matter for NPPC to reassess it, as I have pointed out above, in consultation with the Central Bank and convert the final product to detailed work programmes to be implemented by different Government agencies.
