The election of a politically stable government is crucial for good governance, national solidarity and economic development. Only a stable government can ensure social harmony, law and order, the rule of law and good governance that are prerequisites to economic development. An unstable government would not be in a position to take bold and often [...]


Political stability vital for governance and development


The election of a politically stable government is crucial for good governance, national solidarity and economic development. Only a stable government can ensure social harmony, law and order, the rule of law and good governance that are prerequisites to economic development. An unstable government would not be in a position to take bold and often unpopular decisions for the country’s economic advancement.

Although peace was achieved six years ago the satisfactory settlement of minority grievances remains an important problem to resolve. The new government must find a permanent political solution to the grievances of the people in the North and East to ensure national solidarity and social harmony. It is only a stable strong government that could resolve this problem. National unity and social harmony in the country would remove a foremost distraction to economic development that has persisted for many decades and unleash the full potential of the economy. It would enhance agricultural and industrial production, attract tourists, and provide a more conducive environment for foreign investment. Social harmony is a fundamental prerequisite for sustained high economic growth.

Good governance
In as much as economic policies and reforms are essential for economic development, good governance is a vital prerequisite to economic development. Democratic freedom, law and order, the rule of law, an efficient police system, an independent judiciary among others, contribute towards political stability and economic development. The guarantee and protection of property rights are fundamental prerequisites that the government must ensure for economic development. Therefore, a government that ensures good governance is vital for economic development.

Political stability
Political stability is most important for economic policy making, especially for adoption of long-term policies that are vitally important for socio-economic development. The next government must have a long-term perspective on policies that would ensure sustained economic development. These policies include good fiscal, monetary and exchange-rate policies. And there must be consistency, certainty and predictability of economic policies. Bold and unpopular decision making is needed to restore economic stability and to put in place economic policies that are beneficial in the long run.

Public finances
The stringent situation in public finances requires strong action to replenish the government coffers. There should be taxation reforms and better tax administration. A country that obtains only 12 percent of GDP as revenue, when other countries of comparable per capita incomes generate 20 percent of GDP as revenue, implies the need for drastic reforms and strong administrative measure to enhance the efficacy of the tax collection systems. A strong stable government is essential to achieve this revamping and reforming of the taxation system to increase revenue to about 15 per cent of GDP.

As important as it is necessary to increase revenue, there is a need for the new government to ensure that extravagant and conspicuous spending by the state, corruption and wastage are curtailed so that public expenditure can be reduced significantly.
Economic and financial resources are limited. Their prudent allocation on the basis of economic and social priorities is crucial.

Foreign investment
There is a strong relationship between foreign investment and economic growth. Larger inflows of foreign investments are needed for the country to achieve a high trajectory of economic growth. For the economy to grow by over eight percent a year there is a need to invest around 40 percent of GDP. Since national savings fall far short of this, foreign borrowing and foreign investments have to meet this investment-savings gap.

Rapid economic growth cannot be achieved with domestic resources and private investment alone. It is critical to attract large foreign direct investments to establish export industries. FDI in such investments are risk free to the country and bring with it the advantages of advanced technology, management practices and assured markets. In due course there is a technology transfer as the local workforce gains knowledge of the manufacturing processes and management practices. The value added in these industries is a contribution to GDP and foreign exchange earnings and their employment increases incomes, especially of skilled and semi-skilled workers in these industries.

Although successive governments have attempted to provide various incentives to foreign investors, foreign investment has been far below expected levels and low in comparison with many other Asian countries. Several factors have militated against FDI in the past. Ethnic violence, political instability, inconsistent economic policies and inadequate skilled personnel for hi-tech industry have discouraged foreign investors in the past. Only a stable government can resolve these issues to make the country attractive for foreign investment.

The preconditions to attract FDI are an attractive investment climate, consistent macroeconomic policies, good governance, economic stability, guarantee of property rights, rule of law and absence of corruption are among the conditions required to attract FDI. Consistency and predictability in economic policies and political stability are preconditions to attract FDI.

Stable government
For the reasons adduced above, it is in the national interest if one of the contending parties would obtain a majority in parliament to form a government that would be stable for the next five years. The immediate economic challenges are formidable and stringent and bold measures are needed to regain macroeconomic stability. The longer-term economic development strategy requires a pragmatic vision, policies that would be conducive to domestic private investment and attract foreign investment into exportable industries for agricultural and fisheries and livestock development. A government that is unstable would not be able to undertake the reforms that would enhance productivity in the long run.

In the event that a government is formed by a coalition, it should be one where the conflicts among the coalition parties are minimal and the economic policy framework acceptable to all members of such a coalition. If a government is formed with diverse views on the economy, such a regime would be unstable and unable to pursue consistent economic policies to achieve economic development. But this is a poor second best.

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