Sri Lankan President Mahinda Rajapaksa's election manifesto, the Mahinda Chintana, indicates that the country's exports in 2020 would reach US$ 20 billion, with specific targets for 2016 already having been stated as US$ 5 billion for readymade garments (RMG), US$ 2.5 billion for tea and US$ 1 billion for IT; according to Dr. Saman Kelegama, the Executive Director of local nongovernmental economic think tank, the Institute of Policy Studies. He also stated that 2016's targets for Foreign Direct Investment (FDI) were US$ 2 billion.
Dr. Kelegama, speaking at a public forum on the government’s development thrust on Wednesday, also noted that US$ 6 billion of infrastructure projects was currently moving forward, with the country on track to meet its Millennium Development Goals. He also revealed that 2010 budgetary targets were 6.7% of GDP to go towards capital expenditures and the budget deficit to be cut to 8% of GDP.
Additionally, indicating that the Mahinda Chintana advocated a mixed economy model with both private and public sector contributing; Dr. Kelegama further suggested that, while this policy proposed a production base of both export promotion and import substitution, the government had showed that they would instead focus on consumption led growth, if exports proved slow; as witnessed by the recent import duty cuts. He also stated that, while the country was targetting 40% of GDP spent on investment, it only currently invested 25%.
Meanwhile, he also revealed that, in 2009, Sri Lanka's deficit was 9.8% of GDP. At the same time, the nation spent 5.6% on wages, 6.4% on interest payments, 3.9% on subsidies, etc., with close to 1% of GDP also being expended on losses of state owned enterprises such as Ceylon Petroleum Corporation, Sri Lanka Transport Board, Ceylon Electricity Board, Sri Lanka Postal Service, Srilankan and Mihinair.
Dr. Kelegama also indicated that public debt as a percentage of GDP was currently 87%; a number which policy makers indicated would drop to 80% by this year and below 70% by 2012. Meanwhile, while existing government revenue was 14.6%, the potential reveue was actually 20%, while a country like Malaysia earns as much as 21%. He also added that tax revenues were dominated by indirect taxes, at 80%, while only 8% of the workforce paid taxes. A situation further complicated because of 25 taxes currently in operation. Concluding, he suggested reforms for state owned enterprises, the re-opening of capital markets, inviting in foreign universities, and ensuring low, one digit inflation.
A part of a panel of top opinion leaders, including economists and other business leaders, at the public lecture entitled "Achieving 8% Growth Rate of Mahinda Chintana: Constraints & Challenges", organised by the Pathfinder Foundation, Dr. Kelegama was joined by Prof. Sirimal Abeyratne, Senior Lecturer of the Department of Economics of the University of Colombo, and Suresh Shah, the Chief Executive of Lion Breweries and a Deputy Vice Chairmen of the Ceylon Chamber of Commerce. This session was chaired by former telecommunications regulator Dr. Rohan Samarajiva, now Executive Director of regional telecommunications think tank LIRNEasia.
According to Prof. Abeyratne, after the war against terrorism, Sri Lanka was now waging an economic war buoyed by a natural growth spurt post 2009. He further indicated that the Mahinda Chintana targetted doubling the Gross Domestic Product (GDP) to US$ 4,000 by 2015, which depended on an 8% growth rate per annum. However, he suggested that this undertaking would more likely require at least 10% growth, a number no country except China has ever achieved.
He also revealed that, while the Mahinda Chintana outlined the use of a five hub strategy - ports, aviation, knowledge, commerce and energy - to enable a "massive leap forward", Sri Lanka has historically had a record of increasing isolation from other countries and, in addition, Bangladesh, Nepal and India had all overtaken Sri Lanka in terms of education with this country having closed its doors to foreign students and no longer having the capacity to export knowledge.
Prof. Abeyratne also noted that the current economic policy had many issues such as with 6% of investment going towards agriculture, and this not even going towards facilitating agriculture exports. Wasteful since agriculture would never grow GDP. It would be required that, if the goals of the Mahinda Chintana were to be met, greater opening up of the country as well as a long term, for at least 10 years, and cohesive programme of economic investment occur.
Meanwhile, Mr. Shah, representing private sector opinion of what was needed for strong future growth, indicated that labour regulations prevented investment into this country, suggesting politicians were afraid to take on labour reforms necessary for growth because these reforms would prove unpopular amongst their constituencies. He also noted that Sri Lanka had to be investor friendly, not just in terms of Foreign Direct Investment but also for domestic investors.
He also suggested that the private sector had to be open to foreign competition because Sri Lanka was just the beginning for local companies, saying that to be really big they have to go abroad and compete in larger markets. As such, the Comprehensive Economic Partnership Agreement (CEPA) between India and Sri Lanka was important. For Indian companies, it meant nothing to add the 19 million customers available in Sri Lanka. But for local companies, greater access to India's 1.1 billion customers made this agreement fundamentally important. However, he did note that it had to be carefully negotiated.
Mr. Shah also suggested that the private sector must lobby politicians for reforms not for favours, the latter being usually the case today. He also, recommended that the private sector lobby as one and focus on the big picture issues, enabling a win-win for everyone.
Mr Shah added that, as long as taxes are reasonable, the private sector should not complain since the collected amounts would necessarily go towards infrastructure, etc. Instead, he said companies should lobby for taxes to be used more wisely. He also advocated the establishment of a more constructive dialogue between private sector and bureaucracy and government.
In terms of what can be done by the government, he suggested it left economic activities to the private sector since no government controlled company had ever made a profit. Instead, government should facilitate private sector's wealth creation efforts. He also asked that bureaucracy be more empowered to facilitate faster decision making, which should be fair, because they and not politicians should be helping businesses grow the economy. He also added that governments should most importantly invest in education and healthcare, because these areas proved most vital to the workforce.