Let’s unite, let’s boost growth in a stable environment: Eran

• UNP MP says present economic regime lacks trust, stability and sustainability

UNP MP Eran Wickramaratne (right) addresses the forum with business community yesterday. Others from left are Opposition’s common presidential candidate Maithripala Sirisena, forum moderator Ranjith Fernando and UNP Leader Ranil Wickramasinghe  - Pic by Daminda Harsha Perera

At the forum involving Opposition Common Presidential Candidate Maithripala Sirisena, UNP Leader Ranil Wickremasinghe and the business community, UNP MP and Treasurer Eran Wickramaratne was asked to recap some of the salient points of the discussion as well as make concluding remarks. Here are excerpts of Wickramaratne’s summary: Contrary to what some believe, the present economic regime lacks trust, stability and sustainability. Businesses suffered through 30 years of war, losing competitiveness and markets. It was only right for business to have growth. You have done well, but you could have done better. Mr. Wickremesinghe gave you the global competitiveness indexes. Let’s look at the immediate aftermath of the war. The three largest divisions of growth were imports, transport in passengers and goods and construction. Post-war GDP was higher by 2%. Of that 2%, more than 1% came from import, trade, transport and construction. Not much from the rest of the economy. The industrial sector did not grow fast, with the exception of construction. After the end of the war to keep growth moving, the Government encouraged imports. Vehicle taxes were reduced and the exchange rate was kept strong. The trade deficit ballooned to over 16% of GDP. The exchange rate was under pressure, the Government, recognising this, went for a policy reversal. Then the shock depreciation of the currency by 3% announced in the Budget of 2012. By March 2013 there was another 10% + depreciation – again a shock adjustment. Economic growth fell to 6.4% of GDP in 2012 and rose to 7% in 2013. The import policy was reversed, now it was construction that was important. Construction contributed more than 1% to GDP when compared with 1/3 of it immediately after the war. There was a steep rise in construction costs from buildings to roads. The case for road construction is well documented by academics and professionals in the field – where we are paying two to three times more than previous costs. To give you an example, contracts for the construction of roads in 2014 amounted to Rs. 333 billion. Experts tell us that the same roads at the same quality could01 have been constructed for Rs.200 billion less. The Budget of 2015 (presented in October 2014) is expected to lead to an import boom which will put the exchange rate under pressure in 2015 and beyond. We are helped by the drop in global oil prices. But the outflow of dollars invested in rupee bonds is going to put pressure on the exchange rate. This is not painting a picture of gloom and doom. I do not believe in the criticism you hear that the Sri Lanka economy will crash. The story is clear – growth is driven by short-term fixes and it’s not sustainable. In addition to the worsening trade deficit, the country continues to experience a fiscal deficit. An import-led strategy increases revenue as it provides about 50% of tax revenue. Otherwise revenue in 2013 was at its lowest of about 11% of GDP. Expenditures are bloated with wastage and the cost of corruption. It is the post-war remittances, now about 10% of GDP, that have kept the economy afloat. As an Economist recently said: “Jobs created abroad, incomes earned abroad and goods manufactured abroad, we contributed by hugely consuming” – not far from the truth.     Proposed action Here is what our administration will do in summary. It was heartening to see you agree with Mr. Wickremesinghe’s proposal that second generation reforms will have to be made to improve productivity. To maintain 8% GDP growth, investment has to be over 30–35% of GDP. We need production-led growth, not consumption-led growth. Much liquidity in the system but no credit expansion. You know the NPL story, the pawning sector. The private sector has had little confidence to invest. Consolidation of banks does not solve the confidence problem. We are for consolidation of the financial sector but not for Government coerced consolidation. Exports – apparel and tea accounts for 58% of exports. Our export markets are 24% in USA and 32% in the EU. Our foreign policy will be aligned to protect our markets. GSP+ and fisheries markets in Europe will be pursued with vigour. The future lies in the efficiency and productivity of the economy. Agriculture contributes 10% to GDP and employs 30% of the labour force. We must invest in skills, technology and the logistics of agriculture. The low production of the cows in Sri Lanka with seven litres per day and 25 litres per day in New Zealand has more to do with nutrition better farming practices, skills and knowledge than the DNA of the cow!     Our workers get inadequate income therefore it is more lucrative to work abroad. Our mothers and daughters are working in unsafe environments overseas. The cost to family and the social cost are high. We need to retain those workers at home. We need to give them better pay. We understand your difficulty. The cost to company is high. You have ancillary costs for meals, transport and accommodation. We will invest in ancillary services to make labour more productive. As was said, we believe that our children, our youth are the greatest assets. We will invest heavily in education. Competitiveness index shows our present standing; we are not a factor driven economy but a low efficiency economy. We want to be an innovation driven economy. We will invest heavily in research and development. Finally, it’s about leading and managing the political economy. We have presented a 100-day program to ease the burdens of the people. We have a long-term vision which we will implement. A new culture is needed, where you do not have to go behind people you know to get things done. Business will have the freedom to make your decisions within the legal framework. You will generate a million productive jobs over time. We will implement the principle that the most suitable persons are appointed to government positions. This is a new day, a new path and a new team is needed. Let’s unite, let’s boost growth in a stable environment.