Economic Transformation Act and sea change in NPP’s stance

Ever since the NPP’s ascension to power, a number of their policy decisions reflect a diametric departure from the views they expressed while they were in the Opposition. The striking changeover has resulted in the ruling outfit being accused of opportunism and hypocrisy. A governing party advocating a policy which was abhorred when they were in the other side of the aisle is nothing new in politics, but the voters perhaps would have expected a change from the past as the NPP convinced the masses they were different from the rest.

Similar to the U-turns on developing the Trincomalee Oil Tank Farm in partnership with India as well as China Sinopec’s investment to setup a petroleum refinery in Hambantota, President Anura Kumara Dissanayake’s declaration that his administration intends to implement the Economic Transformation Act (ETA) with amendments at the recently conducted Sri Lanka Economic Summit is also a marked transformation from the highly antagonistic position in pre-election times. 

When the Wickremesinghe-led Government tabled the controversial piece of legislation, the NPP challenged it in the Supreme Court by filing a petition. The current Minister of Industries Sunil Handunneththi at the time remarked that the legislation was going to completely amend and transform the country’s economy according to the requirements of the IMF apart from pushing local entrepreneurs and industrialists into serious crisis.

The ETA was introduced last year as an initiative towards ensuring economic stability by establishing a national policy on economic transformation. It also attempted to address the circumstances that precipitated the 2022 economic crisis. Contrary to Handunneththi’s assertion a year ago, the contentious legislative action was not undertaken as part of the conditions imposed by the IMF, rather it was the brainchild of former President Wickremesinghe and his advisors related to economic policy matters.

Many pundits claimed the ETA was a game changer which could set the foundation for rapid economic progress. The Act identified several targets: an economic growth rate of 5% until 2027, and a growth rate of 8% for at least 15 years from there onwards; unemployment being reduced to 5% by 2025; establishing a highly competitive, export-driven economy by 2040 among others. Some of the targets like a growth rate of 8% for 15 years were quite impractical due to poor work ethics of employees, the ageing population, and vagaries of the global economy. 

Another salient feature of the Bill was the provision to split the BOI into three discrete institutions— the Economic Commission, Invest Sri Lanka, and Zones SL. There is no doubt that the BOI needs to go through a structural overhaul, however the overall investment climate and legislative framework need to become more favourable in order to significantly increase the inflow of FDIs.

Perhaps the most questionable aspect of the ETA is the objective to give birth to the Office of International Trade (OIT), which would usurp the powers and tasks vested with the Department of Commerce (DOC), an A-grade State department manned by highly qualified public officials. In the event of incorporating the OIT, the obligation of negotiating trade agreements with foreign countries would be entrusted with the new entity that is going to be led by a politically appointed board. In such a context, the significance of the DOC would become highly diluted, and some might even question its very existence.

It was well known that few retired Government officials who worked under the Wickremesinghe administration were keen on sidelining the DOC, and they were at the forefront of the move to setup the OIT to drive their personal agendas.

President Dissanayake would be well advised to repeal the provisions related to the OIT and instead strengthen the DOC that has been given a cold shoulder over the last few years apart from revisiting other sections of the ETA as the previous Government was criticised for passing the legislative enactment without a proper public consultation.