The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Economic growth with or without peace and political stability
The nation awaits the resolution of the constitutional and political problem in a manner that would allow the furtherance of the peace process and that would ensure political stability for the next few years.

No doubt there are strenuous efforts being made to enable just such a development. Yet there is considerable scepticism as to whether pragmatism would rule over political and personal prejudices and a solution that places the future of the nation, as its priority would emerge over considerations of party politics.

In as far as the economy is concerned, the vital need for peace and political stability is widely recognised and only those who wish to see the economy befuddled would want the political uncertainties to continue.

However, the reality is such that too much of expectation of a satisfactory settlement of the political problem is unrealistic, when one looks at the past experience of the country. Whatever the outcome of the current talks it is imperative that the economy performs at its best given the political framework and outcome.

Investment has to reach a substantially higher level to reach the growth rate of 6.5 per cent in the medium-term and an 8-10 per cent in the long-term, as expected in "Regaining Sri Lanka: Vision and Strategy for Accelerated Development". This is a much hoped for and much needed economic growth scenario for the resolution of the country's persistent problems of poverty, unemployment and low incomes.

The reactivation of economic growth in the next few years would indeed require political stability, security and a continuation of the peace process. A much higher and broad-based growth has to be achieved in 2004 to compensate for the losses during 2001 and 2002.

This high growth expectation needs political stability, a more durable peace and international assistance. If the current crisis is not resolved these cannot be expected. Growth would no doubt suffer.

If the political problems were unsolved then the expectation of a high growth path that Regaining Sri Lanka had projected would be unrealisable. Yet it is important to recognise that without these optimum outcomes there are possibilities of achieving a reasonable rate of growth.

Although the economy may not be firing on all cylinders, there are possibilities of ensuring a reasonable rate of growth of around the historical rate of 5 per cent with good economic management. Much as political stability and peace are needed for much higher rates of growth, there are possibilities of achieving a 5 per cent growth if the production sectors could ensure higher productivity. The current higher rate of growth has been achieved mainly due to growth of the services sector and the favourable external factors.

The economy must now brace itself to expect a somewhat pessimistic scenario and yet prosper. Growth in the main sub-sectors of agriculture, paddy tea, rubber and coconut could be somewhat independent of the political developments, though some parts of the paddy growing areas may face adverse effects. Similarly, the main export sectors of the economy are more dependent on the health of the global economy than the political uncertainties in Sri Lanka. If the global economy still striving to recover were to improve its growth, then industrial exports could grow.

Yet in all these sectors there is a need for improved productivity. The attainment of such improvements in productivity are not dependent on the political uncertainties facing us today, but the improvement on management capacities, an improved work ethic and enhanced skills.

Therefore it is vital that while we hope for a settlement of the constitutional and political problems and the recommencement of the peace process, we must not be of the view that unless these are achieved, we are unable to ensure a growth momentum that is at least adequate to cope with the economic problems of the country. Political stability and peace are prerequisites to higher growth, but we cannot resign ourselves to economic stagnation if they are not forthcoming.

Back to Columns