AIA’s suggestions for SL to leapfrog from ambition to achievement

Thursday, 8 May 2014 00:00 - - {{hitsCtrl.values.hits}}

Says SL needs to break from its current Economic Freedom ranking if it is to avoid middle income trap
Confident SL will succeed as it has a clear ambition
Stresses the nation should intensify around the transition to be a fully free enterprise economy

By Shabiya Ali Ahlam Head of Asia’s largest life insurer AIA on Tuesday expressed Sri Lanka needs to break away from the middle income trap as it aspires to enjoy the benefits of a developed nation. AIA Executive Director, President and Group Chief Executive Mark Edward Tucker, who was in Sri Lanka this week, said that with the nation standing at the 90th position in the Economic Freedom Index, it should break from its current position if it is to avoid the middle income trap. “There are many countries in Asia that come lower than Sri Lanka in this index. The point is that those countries have yet to break out from the middle income trap. So if Sri Lanka aspires to enjoy the benefits of a developed nation, it has to break from this pack,” Tuckesar told a top profile audience gathered at the MILODA Academy of Financial Studies for the fourth Eminent Speaker series hosted by the Ministry of Finance. The Index measures 186 countries based on freedom on trade, business, investment, and property rights amongst others, the top highest ranking is occupied by Hong Kong, followed by Singapore. "What does it take to be a commercial hub like Singapore?

To develop a strong private sector banking system with sound principles that is free from political interference
New emphasis on privatisation and entrepreneurs should be free to build their businesses
Firm central bank control over inflation, interest rates and exchange rates to ensure long term stability
A “rock solid” current account financing and public expenditure, along with systematic reduction of public debt and dependence on foreign aid
A reputation for zero tolerance of

corruption at all levels" Sri Lanka, which is positioned between the Philippines and Uganda, is ranked 17th out of 42 countries in the Asia Pacific region, and scores just below the world average. In 2014 it scored 0.7 point lower than the previous year, reflecting modest declines in five of the 10 economic freedoms, including trade, business, labour, and monetary freedom.

Noting that Sri Lanka will succeed to the extent that the country positions itself to benefit from liberalised market forces, Tucker, who has substantial experience in the financial service industry, said Sri Lanka is a country with a clear ambition and has the potential to succeed as a private enterprise economy. “The first and most important point I can make is that this is a dynamically competitive game. To the extent that Sri Lanka has carved out success, it will be in the final analysis because it does things better than other countries. Especially better than countries that are comparable in size and status of development. “While in the recent years, as the IMF recognises, Sri Lanka has been making good progress with a compound annual growth of over 6%, the focus is that it needs to intensify around the transition to be a fully free enterprise economy,” said AIA Chief during his lecture which was titled ‘Key Economic Themes in Asia and their Implications for Sri Lanka’. As Sri Lanka’s aspiration to be a commercial hub, which is one of the elements of the five hub strategy, is based on the Singapore and Malaysian model, Edward presented his thoughts as to what competing with the best involves, since the success of this strategy depends on achieving step change and execution across a number of matrix. He said first the country needs to develop a strong private sector banking system with sound banking principles, free from political interference and decision taking and form the burden of nonperforming loans of state enterprises. Second, there needs to be new emphasis on privatisation and entrepreneurs should be free to build their businesses. Third, there should be firm central bank control over inflation, interest rates and foreign exchange rates to ensure long term stability. Fourth, there should be “rock solid” current account financing and public expenditure, along with systematic reduction of public debt and dependence on foreign aid. Fifth, a reputation for zero tolerance of corruption at all levels. Observing that many may find his five points as a formidable program, Edward asserted that countries do not become international financial hubs, such as Singapore, by any other means, and becoming an international financial centre is an ambition for the future. “My final message is a simple one. For Sri Lanka to succeed in Asia’s dynamic regional place and beyond, sensible level to economic freedom, and exposure to market forces, to identify what they are and how to put them into practice are the surest way forward,” stated Tucker.