The Sunday TimesBusiness

13th April 1997




Old age presents new problems

By Asantha Sirimanne

Sri Lanka's population is aging at a rate not experienced anywhere else in the world posing unprecedented new challenges to the economic planners of the country, a top economist has said.

"Sri Lanka is growing old faster than any other country in the world," Economic Advisor to The President and National Development Council Chief Dr. Lal Jayawardena said.

Preliminary results from a team of researchers at the Institute of Policy Studies had revealed that within the next 20 years the proportion of the population over 65 years of age was going to double from the present 7 per cent.

"In USA the process took 70 years, in France 130 years and in Japan 25 years," Dr. Jayewardene said. He was speaking at the annual sessions of the Sri Lanka Association of Economists.

Sri Lanka's high spending in welfare had increased life expectancy boosting the rate of growth of the aged population.

But this has been achieved at the cost of too little capital investment, and decades of so-called anti capitalist policy measures had also stunted the country's growth leaving the economy with less strength to deal with the the problems brought on by old age.

Other countries which had lower rates of aging population growth had had much higher per capital income when the problem had emerged.

"We are faced with old age dependancy growing at an alarmingly fast rate without actually being prepared to handle it," says IPS Researcher Nishan de Mel.

"The first issue is health care."

Sri Lanka would have to make increasingly higher outlays on health care overburdening the budget. In 1995 the government spent Rs 11 bn on health care up 19 per cent from 1994.

The other main issue is government pensions. With the aging population rising the number of retired government servants would also increase.

"That means the pension bill is going to increase phenomenally," says Mr. de Mel.

Last year the government spent Rs 15 bn on pensions up 13 per cent from 1994. The number of pesnioners had also risen from 330,000 to 342,000.

The present pensions are simply paid out of government revenue without any specific funding. There are several options.

"We can move into a fully funded system, a partially funded system or a pay as you go system, says Mr. de Mel.

The current system is also a pay as you go system of a sort where yearly revenues are paid as pensions.

"But there is no earmarked tax on current public servants to support future public servants," he said.

A problem with this type of system is that when the proportion of aged population rises there could be a mismatch between collections and pension liabilities.

To match them either the pensions have to reduced or the tax has to be raised placing an increasingly higher burden on employed government servants.

A fully funded system involves the setting up of a separate fund using collections from the employed and government, much like the present Employees Provident Fund, which can in turn be invested to give returns. There will be no guaranteed pensions but the payments will depend on the performance of the fund and collections.

"Under a fully funded system there are defined contributions but no defined benefits," explains Mr. de Mel

"A partially funded system would also have defined benefits where the government would undertake to make any deficits to pay the guaranteed pension."

The researchers are looking at the fiscal sustainability the current pension system and existing pensions systems in the country including the EPF and ETF.

With the government giving increasing attention to cutting the budget deficit and reduce inflation the need to find new ways to fund the pensions is assuming greater importance.

If the government continues to rely on deficit borrowing driving up inflation it would further reduce the purchasing power of pensions payments.

Lending agencies have been pressuring the government in recent years to EPF to invest in equity which can result in higher returns than fixed income investment, though the risks are also higher.

"For high rates of return it is important to have an equity component," Mr. de Mel said.

"But you need fairly large funds and good fund managers."

Potential pensioner could also be given the choice of a purely fixed income based pension or one with an equity component.

"We need to give people a choice depending on their risk averseness," he says.

Tidy profits and clean steps

By Mel Gunasekera

Contrary to popular belief, adopting pollution control methods can actually increase profits of industries, a UN Agency working in Sri Lanka has said.

"Much of the industrial pollution that destroys the environment is the results of wasteful methods of production," the United Nations Development Programme (UNDP - Sri Lanka) has said in its 1996 Annual Report.

"If this waste can be reduced, it can save companies money".

The UNDP has funded the training of groups of professionals to carry out an environmental audit on several companies in Sri Lanka. The team worked alongside the workers to identify methods of eliminating waste emissions.

A paint company had reduced its dust and fume emissions by 70%, increasing annual profits by Rs. 1 million. A leather manufacturer reduced its solid waste by 75%, by developing an efficient cutting pattern, leading to estimated annual savings of Rs. 5 million.

The UNDP has contributed US$ 399,000 (Rs. 22 mn) towards reducing industrial pollution in Sri Lanka, last year.

The UNDP has provided US$ 810,000 (Rs. 45 million) to eliminate CFC's in the refrigeration industry.

The use of 10 metric tonnes of ozone depleting products a year will also be eliminated as Sri Lanka's only remaining CFC aerosol maker switches to hydrocarbons under another UNDP project.

Under the Montreal Protocol, countries are required to phase out the use of Chlorofluorocarbons (CFC's) such as aerosol propellants, coolants and certain foam products. The UNDP is assisting Sri Lanka by supplying recovery equipment to the refrigeration, industry at point of service and disposal and training maintenance personal to use environmentally friendly methods, thus expecting to reduce CFC consumption by an estimated 30 tonnes.

Due to excesses depending on hydro power Sri Lanka now face energy shortage. In 1996, Sri Lanka faced an actue power shortage due to the failure of the monsoon rains. The country needs to diversify its power sources and cease relying on hydropower. The UNDP through its Global Environment Facility (GEF), has funded a US$ 2.1 million (Rs. 117 mn), project to develop renewable energy resources and improve energy efficiencies.

A part of the project has been used to set up a windmill at the Hambantota saltern to pump sea water.

"A number of companies have followed the lead and expressed interest in wind turbines" UNDP said.

New Year sell-out

Market focus by Analyst

With renewed buying interest evident at the Colombo Stock Market, the ASPI is edging towards the 650 mark.

foreign investors were mainly interested in the buying but foreign outflows were also evident.

For March 9 net foreign inflow of Rs.26m. was recorded, while the foreign participation amounted to 40% of the total turnover.

Retail investors were mainly seen in the selling side due to the forthcoming Sinhala and Hindu New Year, which seems to be slowing down the accelerating trend. HNI were mainly buying into the plantation sector companies with main focus being on Kotagala.

The agreement between the two major political parties, the UNP and the PA, last week, is a positive signal of political stability. This could bring more investments to the country as a small percentage of country risk could be reduced.

The reduction of the statutory reserve ratio by the Central Bank will increase the availability of funds, therefore lending rates could come down further.

The outlook in the market seems to be of a degree of optimism due to the involvement of foreign investors. Thus the market is expected to record ASPI 750 by end of 1997. Recommended issues: COMB, Grain elevator, Kotagala, Tokyo and MBSL!

New Vision for utilities

Satellite-based hi-tech methods will be used to monitor underground supply lines of utility services, a senior official of Integrate Comunications System (ICS) said.

"The new system will pin point tunnel cables and water supply lines, so that excavators know beforehand where such supply lines are," ICS Executive Director Jeremy Fernando said.

The ICS are the agents for Geographical Information System which uses the international navigation satellite system, GPS, to locate tunnel supply networks.

Before digging up the roadside, the workers could use a handheld computerised unit called GPS pathfinder to locate the supply lines.

For example to locate pipelines, data regarding the entire water supply network has to be first entered into the GIS computer system.

In addition, to the Water Board, the CEB and Telecom could also use the new technology.

The UDA is planning to start a pilot project to gain experience on the system before commissioning an islandwide proejct.

Karu seeks private sector help to keep city clean

By Shamindra Kulamannage

The poster menace which is costing the Colombo Municipal Council thousands of rupees every year for clean-up and which has turned a good part of Colombo into an eyesore might soon be banned, said Colombo's Mayor-elect Karu Jayasuriya. He was speaking at a facilitation dinner hosted in his honour by the Federation of Chambers of Commerce and Industry of Sri Lanka last week.

Mr. Jayasuriya said he was considering putting up 500 billboards around the city so that posters would be pasted on them instead of on walls.

Mr. Jayasuriya also disclosed that he intended to get the private sector involved more actively in the council's efforts to keep Colombo clean and attractive. In addition to getting the private sector to sponsor the maintenance of roundabouts in the city, he also hoped to get the private sector to sponsor road maintenance by them voluntarily taking over the maintenance of road stretches of around 1 km each, he said.

Mr. Jayasuriya also appealed to the business community to help the CMC towards this objective as funds and resources available to the CMC were very limited.

As part of his bid to rid the CMC of unproductive employees a 100 day assessment program is to be launched he added. At the end of the program all those unable to secure adequate marks awarded during the program would be asked to leave.

Mr. Jayasuriya also added that time had come to look beyond petty party politics and that he had sought the co-operation of the President and the Cabinet of Ministers.

A businessman himself, Mr. Jayasuriya said he understood better the woes of the business community and assured them that he would do his best for the betterment of the business community in Colombo.

Mr. Jayasuriya said he would concentrate on the present and the future and not on the past and would be dedicating himself to the task to which the people have appointed him.

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