Economy records 7percent
growth in the first quarter
By Sunil Karunanayake
According to the latest Monetary Policy review
of the Central Bank the economy has grown by 7% during the first
quarter of 2006 and the striking factor is that all key sectors
of the economy have expanded. On the negative side the trade balance
has widened but the balance of payments have recorded surplus with
financing from increasing official capital inflows and private remittances
that have shown a steady increase. In short foreign reserves are
steady, exchange rates are stable but inflation is rising.
According to a recent IMF survey the nineties
saw countries around the world implementing sensible reformist policies
in lower import tariffs, fewer restrictions, trade facilitation,
governments’ exiting from commercial activities, financial
sector reforms and encouragement for private enterprise. It is said
that the 90’s reforms were unprecedented with many developing
countries reaping benefits by way of high per capita incomes, etc.
The nineties also marked the fall of the communism reflecting a
new resurgence in Eastern Europe that has now become major players
in the global trade. India a highly controlled economy went through
a series of reforms and provided market access to the world. China
has earned the title of “Worlds factory” and is aggressively
pursuing reformist policies.
Sri Lanka an early entrant to liberalized economy
has been aggressively following a policy of export led growth since
1977 with emphasis in manufacturing. These policies have resulted
in building up a strong apparel manufacturing sector that has successfully
weathered the post MFA shocks. Liberalization of the services sector
has resulted in huge expansion of the telecommunication sector and
also port activities now contributing to economic growth. However
Sri Lanka’s reforms and the resultants growth prospects have
yet failed to utilize its potential due to a number of reasons.
The government has gradually increased the private
sector’s role in the economy motivating them to invest in
agriculture, exports and manufacturing in contrast to trade. In
this scenario some of the recent company reports provide interesting
reading. The Chairman of Hayleys group a indigenous business group
now having established many overseas subsidiaries has emphasized
the need of right policies and institutions now accepted as catalysts
of good governance. Recent World Bank research on the nineties success
has further affirmed this belief. According to Hayleys inconsistent
government policies have compelled them to scale down export of
their major purification product activated carbon due to inability
to source adequate raw materials. They claim that despite raw material
capacity being just sufficient for the existing manufacturers government
policies have resulted in an entry of foreign player with full BOI
incentives. They charge this will affect loss of jobs in well-paid
categories paving the way for low waged new jobs and low export
prices.On the other hand persistent delays in VAT refunds have made
serious inroads to their working capital blocking nearly approximately
Rs 500 million causing a severe blow to stake holder returns, irrational
VAT exemption granted to tea sector has increased the input costs
of the plantation companies.
John Keells which improved their net earnings
despite heavy losses incurred during the tsunami disaster speaks
of the “positivism” amidst numerous challenges and surrounding
uncertainties that helped them to stage a grand recovery. During
this period Keells made a bold strategic move to exit from plantations
that has been very close to their core and struggled against the
adverse effects of avian flu in their food segment.
Both these companies have taken bold steps to
invest abroad and fuel growth through acquisitions. Hayleys and
Keells together have generated a profit of Rs 5 billion according
to their latest results and the contribution they make to the national
economy by way of taxation, employment foreign exchange earnings
etc is significant.
Maintaining the growth momentum in an economy
from year to year is a gigantic task and right government policies
and strong institutions should encourage economic activity.
Reforms
Amidst many a crisis and setbacks we Sri Lankans have to live with,
knocking at our door is the “Major energy crisis”. Obviously
no immediate solutions exist to meet the increasing petroleum prices
nor can the subsidies be continued leading to financial crisis.
The high cost of energy will impact on poor adversely. However it
is disturbing to note that whatever efforts taken by present and
past governments to reform the ailing electricity giant CEB has
met with failures. The CEB is the successor to the Department of
Government Electrical Undertakings (DGEU) that was set up many years
ago to cater to conditions at that time. Reforms have to be effected
from time to time to meet changing conditions the mechanics of which
are debatable. However trade union agitation or simply pleasing
few politicians is not a solution. Governance is not pleasing a
few at the expense of a majority.
Industries have already invested a disproportionate
share of their resources on generators thus restricting their productive
investment. The nineties theory backed by research confirm that
reforms of this period enabled better capacity utilization, strengthen
competition and improve efficiency contributing to economic well
being.
Thought for the week
The Sri Lanka cricket team in the UK scored a hat-trick of victories
ie: Test, 20-20 and ODI over England in the midst of Tourist Board
promotion held in UK. Amidst the dark clouds of war these pleasant
events should boost the country’s image but unfortunately
the present atmosphere prevents us from reaping its full benefits. |