Lack of fiscal discipline has plagued Lankan governments over the years: economist
2016-04-11
Mirror Business conducted an email interview with Dr. Arusha Cooray, the Lankan born Professor of Economics at the Nottingham University Business School (Malaysia), over the current economic situation of Sri Lanka. Dr. Cooray’s work is widely published and she is one of the leading academics in the field
of economics Sri Lanka has produced. Sri Lanka’s economy is currently undergoing extremely testing times amid depleting foreign reserves, an unsustainable debt pile and a looming balance of payment (BoP) crunch. The bad economic policies of successive governments are at fault for the current predicament the country is in, but the present global economic developments also haven’t been in favour of the US $ 82 billion economy. Following are the excerpts of the interview.
What is your opinion of the current status of the Sri Lankan economy?
Sri Lanka has recorded an impressive growth rate averaging 7 percent over the 2010-2014 period. This has been accompanied by a stable unemployment rate of 4.2 percent. Inflation has in general been trending down. If Sri Lanka maintains the current growth rate of 7 percent, at current prices, it can attain the minimum gross national income
(GNI) threshold (as defined by the World Bank) required for high-middle-income status by 2019.
However, a number of challenges remain. In order to maintain the current growth rate, investment would have to increase from the existing rate of 29.7 percent (CBSL 2014). Strong aggregate growth has not contributed to greater equality in income distribution.
The richest 20 percent of households receive 52.9 percent of the total household income of Sri Lanka, while the poorest 20 percent receive only 4.5 percent (Department of Census and Statistics 2012/13).
Sri Lanka’s public debt currently stands at 75.5 percent of gross development product (GDP) (CBSL 2014), which has given rise to increasing concerns about fiscal sustainability. The commitment of successive governments to social welfare spending has led to a gross primary enrolment rate of 98 percent (World Bank 2016), which is commendable. Now however, it is necessary to take measures to increase the tertiary enrolment rate, which currently stands at 19 percent (World Bank 2016), to add value to economic activity.
The remarkable growth rate exhibited at the aggregate level further masks a number of provincial and regional level disparities. To mention a few, the mean monthly household income in the Western Province as of 2012/13 was Rs.64,152, while in the Eastern Province it was Rs.30,676. Poverty measures indicate further imbalances.The number of poor households in the Mullaitivu District stood at 24.7 percent compared to 1.1 percent for the Colombo District (Department of Census and Statistics 2012/13).
Although growth at the aggregate level is driven by the service sector, agriculture accounts for as much as 29.2 percent of average monthly income in the Uva Province, signifying the importance of the agricultural sector for some provinces.
This regional heterogeneity highlights the need for provincial and district level policy initiatives to create greater equity in income, employment and productivity.Greater cohesion across districts and provinces will ensure that growth is sustainable. Success in achieving high-middle-income status will further depend on the government’s ability to attain and sustain macroeconomic stability. Specifically, curtail large and persistent budget deficits, strengthen and restructure the higher education
system and maintain its commitment to increasing investment.
See more>>>
2016-04-11Mirror Business conducted an email interview with Dr. Arusha Cooray, the Lankan born Professor of Economics at the Nottingham University Business School (Malaysia), over the current economic situation of Sri Lanka. Dr. Cooray’s work is widely published and she is one of the leading academics in the field
of economics Sri Lanka has produced. Sri Lanka’s economy is currently undergoing extremely testing times amid depleting foreign reserves, an unsustainable debt pile and a looming balance of payment (BoP) crunch. The bad economic policies of successive governments are at fault for the current predicament the country is in, but the present global economic developments also haven’t been in favour of the US $ 82 billion economy. Following are the excerpts of the interview.
What is your opinion of the current status of the Sri Lankan economy?
Sri Lanka has recorded an impressive growth rate averaging 7 percent over the 2010-2014 period. This has been accompanied by a stable unemployment rate of 4.2 percent. Inflation has in general been trending down. If Sri Lanka maintains the current growth rate of 7 percent, at current prices, it can attain the minimum gross national income
(GNI) threshold (as defined by the World Bank) required for high-middle-income status by 2019.
However, a number of challenges remain. In order to maintain the current growth rate, investment would have to increase from the existing rate of 29.7 percent (CBSL 2014). Strong aggregate growth has not contributed to greater equality in income distribution.
The richest 20 percent of households receive 52.9 percent of the total household income of Sri Lanka, while the poorest 20 percent receive only 4.5 percent (Department of Census and Statistics 2012/13).
Sri Lanka’s public debt currently stands at 75.5 percent of gross development product (GDP) (CBSL 2014), which has given rise to increasing concerns about fiscal sustainability. The commitment of successive governments to social welfare spending has led to a gross primary enrolment rate of 98 percent (World Bank 2016), which is commendable. Now however, it is necessary to take measures to increase the tertiary enrolment rate, which currently stands at 19 percent (World Bank 2016), to add value to economic activity.
The remarkable growth rate exhibited at the aggregate level further masks a number of provincial and regional level disparities. To mention a few, the mean monthly household income in the Western Province as of 2012/13 was Rs.64,152, while in the Eastern Province it was Rs.30,676. Poverty measures indicate further imbalances.The number of poor households in the Mullaitivu District stood at 24.7 percent compared to 1.1 percent for the Colombo District (Department of Census and Statistics 2012/13).
Although growth at the aggregate level is driven by the service sector, agriculture accounts for as much as 29.2 percent of average monthly income in the Uva Province, signifying the importance of the agricultural sector for some provinces.
This regional heterogeneity highlights the need for provincial and district level policy initiatives to create greater equity in income, employment and productivity.Greater cohesion across districts and provinces will ensure that growth is sustainable. Success in achieving high-middle-income status will further depend on the government’s ability to attain and sustain macroeconomic stability. Specifically, curtail large and persistent budget deficits, strengthen and restructure the higher education
system and maintain its commitment to increasing investment.
See more>>>
