Wednesday Dec 25, 2024
Wednesday Dec 25, 2024
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People will be continuously engaged in the implementation of the national transformation plan as announced by the President
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Economic transformation bill
The Government has gazetted an economic transformation bill (available at: http://www.documents.gov.lk/files/bill/2024/5/487-2024_E.pdf) to be taken up in Parliament soon. According to State Minister of Finance Shehan Semasinghe, the objective of the bill is to prevent future economic collapses, an ambitious target by any standard (available at: https://www.news.lk/news/political-current-affairs/item/36414-economic-transformation-bill-and-public-financial-management-bill-to-parliament-on-may-22).
Promised lab approach
This economic transformation plan has a history in terms of various pronouncements made by President Ranil Wickremesinghe from time to time to the nation as well as to the Parliament. Addressing the nation on 1 June 2023, President Wickremesinghe announced that his Government will follow a lab methodology to rescue the country’s economy from its deep recession and make it a developed country by 2048 when the country will celebrate the centenary of independence from Britain. This lab methodology, or formally known as Growth Lab Approach, is a system developed by the Centre for International Development or CID of Harvard University’s Kennedy School of Government of which Wickremesinghe has been an alumnus.
Clarifying the lab methodology, he told the nation: “To ensure the effective implementation of these business proposals, we will introduce a new system called the Lab methodology. Under the Lab approach, we will bring together Government Ministers, Government officials, subject matter experts, and key representatives from the private sector to collaboratively engage in detailed discussions over a period of six weeks. The aim is to collaboratively resolve any roadblocks hindering the roll-out of investments and projects by listening carefully to the private sector. During these discussions, comprehensive implementation plans will be developed, and the necessary facilities to support the implementation of these projects will be organised. Government stakeholders involved in the Labs will dedicate their full-time efforts to ensure the successful execution of these projects. As President, I, along with the Cabinet Ministers, will actively participate in this event to demonstrate the government’s commitment to ensuring success of the Lab process” (available at: https://www.colombotelegraph.com/index.php/special-statement-delivered-by-president-ranil-wickremesinghe-full-text/).
Public consultation
Adhering to democratic economic policy governance, he said that “Public participation is crucial to our Labs. All outcomes from the lab discussion, including plans, analyses, and conclusions during the six weeks will be shared with the public in a physical forum called the “Open Day”. This platform will allow the public to express their feedback to the lab outcomes and the nation’s reform efforts, of which their contributions will serve to further refine the implementation process”.
Accordingly, the emphasis was made: “Public participation is crucial to our Labs. All outcomes from the lab discussion, including plans, analyses, and conclusions during the six weeks will be shared with the public in a physical forum called the “Open Day”. This platform will allow the public to express their feedback to the lab outcomes and the nation’s reform efforts, of which their contributions will serve to further refine the implementation process”. Democatic policy governance also requires the authorities to keep the public informed of the developments regularly. Emphasising this fact, he promised: “I am actively taking steps to regularly present information about our reform and reorganisation programs to the public. I believe that the President should make it an annual ritual to engage with the people and provide updates on our nation’s progress”.
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Private sector participation
This is indeed much cherished two-way communication. The President extended it to the private sector proper as follows: “Over the next few months, we will make a special invitation to the private sector to submit their own business proposals that align with our vision of modernisation and sustainability. We will ensure transparency and openness by publicising this call for proposals through mass media in a formal manner. We believe that a collaborative partnership between the public and private sectors will drive the engine to accelerate Sri Lanka’s economic growth and revival”. The timeline fixed by the President is that the lab will be assembled in the third quarter of 2023, the report of the lab will be presented to the people for their review in the fourth quarter, and by the end of the year, a ‘national transformation plan’ will be unveiled after incorporating the views of the people into the plan.
Engagement of people
People will be continuously engaged in the implementation of the national transformation plan as announced by the President: “Following extensive efforts, we anticipate revealing the National Reorganisation Plan during the final quarter of this year. This plan aims to offer the public the chance to witness the advancement of plan implementation and practices via digital media. Furthermore, it encompasses a systematic approach to shed light on challenges and barriers encountered during implementation. Consequently, it becomes feasible to swiftly identify and resolve obstacles and issues”.
To facilitate this, a Presidential Delivery Bureau comprising of the high officials of both the public and private sectors will be established. Their job is to coordinate with the line ministries for the effective implementation of the plan.
Democratic economic policy governance
These are all principles of democratic policy governance. However, none of the above milestones was met and as a result the unveiling of an agreed economic transformation plan was a non-event. There was no lab analysis or public consultation for the four development pillars that were to be erected, namely, fiscal and financial reforms, investment drive, social protection and governance, and finally, transforming state-owned enterprises. However, the President addressing the Parliament in opening the new session in February 2024 announced that an economic transformation act will be presented to Parliament for its approval (available at: https://www.parliament.lk/en/news-en/view/3884?category=6). This economic transformation which has a narrower focus than the national transformation envisaged through the lab methodology has been thrown on people from the top and lacks the adherence to the democratic policy governance principles.
Guidance to the lab
In a previous article in this series, I have pointed to the Government that it could benefit immensely if the growth lab to be set up will take some valuable points from the State of the Economy Report published by the Institute of Policy Studies for 2023, known as SOE 2023 (available at: https://www.ft.lk/columns/SOE-2023-IPS-offers-some-inputs-to-proposed-growth-lab/4-754866).
SOE 2023 had given the following advice to the Government; “The solution and best hopes are to build cross-party consensus on areas that do need fixing. Sri Lanka’s disproportionate attention to investing in infrastructure with borrowed funds now has to shift to making exports more competitive globally. Externally, building partnerships to achieve these ends is fast becoming a diplomatic and geopolitical game. The global economic order is being reshaped as the US-China tensions mount – trade and investments have become battlegrounds as countries opt for ‘near-shoring’ or ‘friend-shoring’ with factories and critical supplies relocated closer to home or in trusted friendly countries. Large subsidies and tax incentives to build up domestic production capabilities in strategic industries like semiconductors and clean energy are being rolled out, while export (import?) bans are imposed on crucial raw materials and other products.”
Since there was no Growth Lab convened, it was expected that the top policymakers in the Government who had been responsible for designing the current economic transformation plan would heed to this advice. When one examines the current bill, the conclusion to be made is that it had not received the due attention from the policymakers of the Government.
System 1.0 instead of System 4.0
What was promised by President Wickremesinghe in his address to the nation referred to above was the adoption of the most advanced System 4.0 of policymaking available today and implementation which is fully compatible with democratic economic policy governance requirements. In System 4.0, the public is continuously consulted by the Government by offering them access to a policy platform announced through a website with multi-way communication facility on a real time basis. Anyone interested in the policy can visit the web, examine the material available there, make comments or suggestions which would be responded immediately by a generative AI Chat Bot. But what has now been in public domain is System 1.0 with no communication with the public at all. It is like the Government Gazette with one-way communication in which the Government announces something and people will have to just read it. If they want to make any comment or suggestion, they should do it outside the system like press conferences, protests in front of Government offices, public meetings or live TV debates. All these should be accommodated within the system so that everyone can see what is happening in real time. It ensures transparency and full disclosure which President Wickremesinghe promised in his address to the nation.
Binding future governments
In addition to the deficiency in public engagement, the economic transformation bill is far too short of the national transformation plan that would have come out of the growth lab which President Wickremesinghe promised to assemble in Q3 of 2023. The transformation would have taken place in the four basic pillars which he outlined in his address to the nation. Instead, the bill has brought to the law books the quantitative ceilings relating to the Budget and the balance of payments agreed with IMF when the country secured the ongoing extended fund facility.
It is an attempt at binding the future governments to these targets. In addition, the future governments have been pushed to ensure a minimum real growth rate of 5% till 2027 and above 5% thereafter. The bill also plans to set up four institutions, namely, an economic commission, economic zones, an international trade office and an institute of economics and international trade, to promote export oriented foreign investments. A fifth institution for promoting national productivity is also to be setup under the economic transformation. To pave way for the economic commission and economic zones, the existing Board of Investment is proposed to be scrapped.
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Previous frustrating experiences
Sri Lanka has frustrating experience with respect to its earlier attempt at binding the future governments to broad public debt reduction goals. This relates to the enactment of the Fiscal Management (Responsibility) Act in 2003 by the Ranil Wickremesinghe Government that functioned under the presidency of Chandrika Bandaranaike Kumaratunga. In this act, quantitative goals were set for public debt to GDP ratio as follows: keeping the ratio at 85% at end-2006 and reducing it to 60% at end-2013. None of the subsequent Governments could stick their fiscal operations to these limits. The failed Governments since then had amended the act on two occasions, first in 2013 by extending the target year from 2013 to 2020 and later in 2021 to 2030. Since the Governments can change these laws by using their majority power in Parliament, nothing prevents them from amending or repealing these laws to suit their requirements.
The present Government which has realised this truth has chosen to repeal the unfulfillable Act in a new legislation titled Public Finance Management Bill now before Parliament. Hence, there is no guarantee that the future Governments will faithfully adhere to the quantitative targets fixed in the economic transformation bill.
Need for a concrete development plan
Sri Lanka is planning to become a developed country by 2048 when it will celebrate the centenary of independence from Britain. A minimum of 8% real growth is needed for Sri Lanka to attain this goal. In 2023, the value of Sri Lanka’s real economy amounted to Rs. 12 trillion. Historically, the experience of the country is that it could secure an average growth rate of 4% even without doing anything.
On this count, the real size of the economy at Rs. 12 trillion in 2023 will rise to Rs. 32 trillion by 2048 through the country’s natural course of growth. What is planned is to increase this potential level through man-made policies to Rs. 73 trillion by 2048. It generates a sizable gap between the potential growth and the required growth.
To fill the gap, the Government should come up with a concrete development plan to be renewed every year after assessing the ground level achievements. The five institutions to be setup under the economic transformation bill will be of use for Sri Lanka to remove some obstacles for foreign direct investments. They alone cannot do the job and that is why it is suggested that a separate growth plan with appropriate growth strategies is needed for this purpose.
A bill forcefully thrown through throats of people
The way that the economic transformation bill has been formulated lacks adherence to democratic policy governance.
Though continuous public engagement was promised, there is no evidence that the public has been consulted when the bill was drafted. Without such engagement and consensus building, there is no guarantee that future Governments will choose to bind themselves to the quantitative goals included in the bill. It, therefore, seems that the present transformation bill is inadequate for Sri Lanka to attain its long-term growth goals.
(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected].)
The timeline fixed by the President is that the lab will be assembled in the third quarter of 2023, the report of the lab will be presented to the people for their review in the fourth quarter, and by the end of the year, a ‘national transformation plan’ will be unveiled after incorporating the views of the people into the plan