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Wednesday, 26 July 2017 00:15 - - {{hitsCtrl.values.hits}}
Driving home the point that foreigners are more upbeat, Central Bank Governor Dr. Indrajit Coomaraswamy yesterday urged the private sector to have a stake in the country’s future by taking advantage of the current most favourable set of circumstances ever in Sri Lanka’s history.
Noting that lots of Government plans will take 12 to 18 months or more, the Governor told the opening of the Ceylon Chamber Economic Summit yesterday that in the next 12 months it is the domestic private that has to carry the battle.
He requested the private sector not to look at all the negatives as there were plenty but to ask themselves some rational questions. “Ask yourself: Are the macroeconomic fundamentals improving? Is macroeconomic policymaking being made in a more sensible and stable way? Is the investment climate improving and going in the right direction? Are the transactions cost coming down?” Dr. Coomaraswamy asserted at the tail-end of his keynote speech.
“Are we going in the right direction? If we are, I would urge you to put your money here rather than Bangladesh, Fuji or Ethiopia. I must say it sometimes upsets me a little bit I see foreigners investing in our stock market and Government securities. We floated an international sovereign bond and it was oversubscribed by seven times. Yet the domestic private sector still has its wallets tightly buttoned up. This is something I don’t understand very much,” the Governor said.
“We have a political system that is noisy and untidy. VAT gets introduced and then withdrawn after a Court case, there is squabbling within the Government but finally VAT gets passed not once but twice. The same thing will happen to the Hambantota agreement. Before it was signed people were on the streets and there was squabbling but it finally got signed. That is our way of doing things,” said the CB Chief, evoking laughter from the audience.
He noted that this very untidy, and in many ways dysfunctional, political system had given the people freedom for 70 years and good social development. “We need to see through this and see where the country is heading and whether you feel you want to have a stake. I would urge you, the time to invest is now,” the Governor told participants of the Economic Summit.
Earlier on in his presentation, Dr. Coomaraswamy made a compelling case to stress that sans the war, currently Sri Lanka enjoys the most favourable set of circumstances in over five decades whilst being part of Asia which is the world’s most dynamic region today. He said that the Government is making positive changes in its approach to policymaking including macroeconomic management, monetary, trade and investments.
On the macroeconomic side, the country is moving firmly towards lower fiscal deficit, improvement in public finance, prioritisation of public expenditure and investments, reforms in State-Owned Enterprises, enhancing tax revenue, and achieving surplus in current and primary accounts.
With regard to monetary issues, the CB Chief said the focus is towards flexible inflation targeting and a forward-looking and proactive monetary policy. In terms of the exchange rate, the Governor said there is no Central Bank interference or effort to have an overvalued exchange rate that cannot be sustained and will have serious consequences. The Government is approaching trade policy and investment promotion aspect with a series of task forces focusing on the country’s ranking within the eight pillars of the World Bank/IFC Ease of Doing Business Index in addition to a more targeted effort to boost FDI. Automation of Customs is another initiative.
Dr. Coomaraswamy also spoke on the expansion of the country’s economic cooperation with India, China, Japan, Korea and Singapore among others. This strategy he said is the “jewel in the crown” as Sri Lanka will be the only country to enjoy preferential access to India, China and the EU via the GSP+ scheme.
Incorporating FTAs with Pakistan and those proposed with Bangladesh and Singapore, the potential market size will be three billion. “We need to leverage this preferential access to attract greater degree of FDIs. This will be Sri Lanka’s differentiator and unique selling proposition,” the Governor emphasised.
He said that there was a misconception that Sri Lanka could not succeed in manufacturing and such thinking could lock out lots of opportunities. On the contrary the Governor said Sri Lanka can focus on value-added manufacturing with skilled labour.
“We need to maximise the excellent relations with capital-surplus Asian countries to attract FDIs into manufacturing in Sri Lanka. Given our strategic location and preferential access, such manufacturing ventures can serve regional and other Asian markets,” he added.
To safeguard domestic sector interests, the Anti-Dumping Bill will be presented in Parliament whilst in partnership with the World Bank, ITC and European Union, a trade adjustment package to help the vulnerable domestic sector be competitive as well as re-train workers is underway.
A scheme to develop SMEs with training, inputs and access to finance and marketing as well as modernisation of agriculture are some of the other initiatives. The importance of the country improving innovation, productivity and competitiveness was also stressed by the Governor, who said there must be laser-like focus and perhaps be in the DNA of the people at all levels.
“We need to respond to some of the paradigm changes happening in the country such as an aging population, when there are aspirations for higher growth, wealth and growth creation and the shift from a low income to lower middle income country status,” the CB Chief emphasised, adding: “Government plans are good and execution is key.”
Business leader Ranel T. Wijesinha, who attended the opening day of the Ceylon Chamber Economic Summit, said Central Bank Governor Dr. Indrajit Coomaraswamy spoke very well.
“His positive statement, delivered with clarity and characteristic humility and simplicity backed by learned economic thinking rather than political hot air, will boost even further the stock market which as of Friday, 21 July 2017 just recorded a cumulative net foreign investor inflow of Rs. 24 billion. Let the domestic investor now put its money where its mouth is. When a Governor who is respected, who is also an economist, feels secure about the economy then the nation must get moving. When opportunity knocks on the front door, domestic investors must not go to the backdoor looking for further handouts and opportunities unless they are sectoral or national needs rather than individual corporate or personal needs,” said Wijesinha, who is also a Commissioner of the Securities and Exchange Commission and the Director of Bank of Ceylon.
Principal Economic Adviser to the Indian Government Sanjeev Sanyal yesterday told Sri Lankan business leaders that continuous modification of policy in tandem with external and internal challenges was key to policy and economic success.
Speaking at the Ceylon Chamber Economic Summit, he stressed on the need for changing the conceptual framework with which our economies need to be managed and reformed. There is also need to think very seriously about policy making based on real time feedback and data.
Using the analogy of a person with a dog and Frisbee, he said economies need to be flexible and adjust according to the prevalent situation and make the best decision. “For such a strategy you need continuous feedback, tinkering based on quick time response,” said Sanyal drawing lessons from India’s mammoth reform of introducing GST earlier this month.
“When India introduced GST it was done with admission that nothing is perfect and have in place a quick response team to fix issues. One needs to keep adjusting till it works,” he added. He added that policy makers need to be prepared for creative destruction and real time feedback. “Continuous adoption is key, especially when introducing something new and radical,” he added.
He also shared India’s experience in dealing with bankruptcy. He said that in the past a business failure was perceived as a moral failure whereas as a progressive country one needs to be for creative destruction. “Every economy based on entrepreneurial system must be prepared for exits,” Sanyal stressed.
He also said that an economy is an evolving eco system that needs to weather shocks and challenges and not as an engine as some used to deal with it. He also shared some key insights to how Singapore evolved to be a successful nation and what lessons developing countries such as India and Sri Lanka can learn.
