Sunday Nov 24, 2024
Sunday Nov 24, 2024
Tuesday, 19 August 2014 02:05 - - {{hitsCtrl.values.hits}}
‘Sri Lanka: Challenges to a Rising Nation’ – the subject assigned to me to speak at this prestigious event, compelled me to spend some time to research on our country’s post independent journey towards what it is today, and in this process several milestones we as a nation have passed are in fact eye openers to be able to understand challenges from a historical perspective, since history has a tendency to repeat itself in the future.
It is equally important to review the present phase of development and how it has been managed while passing many barricades along the journey to be able to understand the challenges of the present, since the present will invariably be the history of the future. I also thought that it is important to view challenges from a past and present perspective, to be able to visualise future perspectives and equip ourselves to facilitate the management of contemporary challenges in our transition from a middle income economy.
The transition from a middle income economy involve targeting to achieve $ 7,500 per capita by 2020, like we have already raised our per capita from $ 1,200 in 2005 to $ 2,400 in 2009, and from there towards $ 4,000 in 2015 – in an extremely challenging environment. I will also touch upon the visionary comments expressed by none other than Takehiko Nakao, President of the Asian Development Bank when he visited Sri Lanka in June 2014, on the likely journey of Sri Lanka towards an advance economy by 2035. My overall aim is to register the point that history is in fact an analysis of how the past has been managed that provides lessons learnt, facilitating us to manage the present with proper checks and balances and thereby prevent the repetition of bad experiences of the past to gain high altitude in future.
My speech is structured with five parts. Part I explains how the post independent events pushed this nation towards becoming a marginalised nation by 2004, followed by the underlying strategic shift in 2005 through the adoption of Mahinda Chinthana: The National Vision of Sri Lanka. Part II gives an overview of the current phase of development in a globally challenging environment. Part III outlines how the challenges in the transition were managed from confrontation to consensus building and how graduation from a low income to middle income economy, were managed. The likely developments the country would face as an emerging economy towards reaching $ 7,500 per capita by 2020 and the challenges ahead of us will be covered in Part IV. The last section presents some concluding reflections. The speech will be approximately one hour.
Distinguished delegates, ladies and gentlemen, at the outset let me say that the conduct of a seminar of this nature, being held in this peaceful surrounding, at this venue which is in the heart of the Colombo city, attended by this rich audience representing about 40 countries and specifically on the topic assigned to me, could have been an event far from reality or and on top of it, the very subject itself could not be of relevance to us prior to 18 May 2009 – being the day on which the 30-year terrorist conflict came to an end – a historic moment to our nation, probably as important as gaining independence in 1948 considering the long struggle we had against terrorism to secure democracy, peace and development.
Therefore, we should at the outset express our gratitude and place on record our appreciation for the invaluable sacrifices and contributions made by Sri Lankan tri-services and their families. It is to them that President Mahinda Rajapaksa entrusted the task of carrying out a humanitarian operation to liberate us from terrorism a few months after he assumed leadership of this nation. It is they who made enormous sacrifices to complete this task during 2006-2009 while supporting a ‘zero causality theme’.
We all know that this bold decision was taken after having exhausted all options available at local level, while experiencing continuous drawbacks from an international standpoint, and in the backdrop of escalating mass scale terrorist attacks. Two major events influenced this move. They reflect true humanitarian considerations behind this move. One was the Kebithigollewa bomb attack on a packed bus carrying innocent villagers to the nearby town – on Thursday morning of 15 June 2006. It killed over 64 innocent people including 12 children and leaving 75 others injured.
The other compelling reason was the capture of the Mavil Aru irrigation and water supply scheme by LTTE terrorists, and closure of sluice gates, denying access to water to the innocent villagers and people in that area – on 26 July 2006. This is how so called internationally monitored peace accord was respected by the LTTE – a gross abuse and violation of human rights. I still remember the absolute frustration we went through having to live and work in such surrounding and how all of us as a nation felt that ‘enough is enough’, expecting the Government to liberate the nation from brutal terrorism which caused us enormous sufferings for nearly three decades, the best part of lives of my generation.
The astute and visionary leadership of the President of Sri Lanka for spearheading this once considered impossible task, the amazingly talented and committed Defence Secretary Gotabaya Rajapaksa for managing this high risk task as the Chief Accounting Officer of the Ministry of Defence, deserve special recognition with a round of applause from all of us. I am sure that the global community who truly stand against terrorism and are committed to eradicate terrorism in the interest of humanity, peace and development, feel the same.
I wish to quote the words of Dr. Subramanian Swamy – the renowned former Minister of India, Economist and the present Chairman of BJP Committee on Strategic Action, during his recent visit to Sri Lanka: ‘I have known no other country which has so decisively finished terrorism of this kind and this is no ordinary terrorism… If you look around the world people have had no country which had a kind of clear success in eliminating terrorism as you have.’ He went on to say, ‘Today even Tamils up in the North admit that at least they know that when their children go to school they would return back in the night. When their husbands go to work they would return back in the night.’ That is the stability and certainty the end of war has brought about to our country, for which the credit should no doubt go primarily to the bold leadership of the President, the committed Defence Secretary and the tri-services.
I must also mention that the role of post conflict tri services is equally humanitarian and development oriented as they shared their professional skills in de mining activities and resettlement of displaced people, looking after their own colleagues and families who became victims in this conflict, an architectural and engineering skills in restoring historical buildings and flood protection and urban sanitation besides entering into performing arts and sports as well.
It was sheer determination and not heavy military, human or financial resources that made it possible. As Finance Secretary, I know that they fully appreciated the financial difficulties that we had confronted. I like therefore to begin my speech by quoting former South African President late Nelson Mandela who once said ‘The greatest glory in living lies in never falling, but in rising every time we fall’.
Part I – A marginalised nation
Sri Lanka gained independence in 1948 from the British, who ruled the country in the process of a colonial rule that commenced in 1505 with Portuguese taking over the country, then by a Dutch rule in 1658 followed by the British in 1815. The economy in early 1950s enjoyed external assets equivalent to 12 months of country’s import requirement. The country was economically second only to Japan in the entire Asia. Nevertheless the post-independent developments in Sri Lanka were grim.
Political instability, short-term populist policies, experimenting extreme development models by different political parties that formed Governments, lack of a long term national vision for the country and inability to position the country in the proper global perspectives made Sri Lanka a lagging nation with a ‘dismal-rate’ of growth of 3% by mid 1970s with an unemployment as high as 25% of the labour force and a youth insurrection in 1971. The absence of a policy strategy to ensure food security, the lack of adjustments to the global oil price hike witnessed from early 1970s to build an energy efficient economy and continued expansion of the regulatory regime that weekend private sector initiatives, made economic management essentially inefficient.
Although the economy was reopened in 1977 with liberalisation and deregulation, creating high expectations to recapture what the nation lost for 30 years since independence, by 1980 the economy lost macroeconomic stability with a high fiscal deficit, monetary expansion, loss of international reserves, high depreciation in exchange rates and inflation. The general strike in 1980, civil riots in 1983 saw the beginning of the nearly 30 year LTTE terrorism.
Then the southern insurgency in 1987/88, the change of Governments in 1988, 1994, 2001 while being engaged in managing a conflict trapped economy which badly demanded a development agenda that would facilitate its people to move away from poverty and the low income trap, were critical milestones that led the country to be further marginalised in the world economy which was truly growing.
The key lesson from this long period since 1977is that compromising national security and macroeconomic security were prime factors that prevented the economy from emerging on its own comparative advantage and strengths. The Asian Tsunami struck Sri Lanka in December 2004 taking nearly 40,000 lives, wiping out around 100,000 houses displacing many and destroying schools, hospitals, infrastructure and private property. This incident alerted the country on the adverse impact of climate change and that environment security cannot be overlooked in the process of development.
Although the country has witnessed certain improvements in human resource development and in selected private sector activities, while recording around 4.5% average growth in GDP, the overall outlook was so grim with poverty and unemployment remaining high, external reserves falling substantially to a level not sufficient to import even three months of country requirements of imports and the Budget running a high deficit of around 10% of GDP for decades, on top of an accumulated debt exceeding GDP. These factors provide us a picture of the Balance Sheet that the country was managing when the President was elected as the leader of this nation in 2005.
Ladies and gentlemen, if Sri Lanka is to emerge on its own comparative advantage and strengths with an integrated global economy framework, the challenge is to restore security of the five pillars which I referred to earlier namely, food security, national security, macroeconomic security, environment security and human resource security. Managing this task is the underlying success story of development since 2005.
As Albert Einstein said, ‘Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity’. This supports the underlying philosophy of ‘Mahinda Chinthana: The Vision for a New Sri Lanka’.
Part II – Strategic shift in 2005
The post 2005 National Development Strategy – ‘Mahinda Chinthana: Vision for the Future’ prioritised post-tsunami rehabilitation and reconstruction, implementation of several national infrastructure projects that remained stalled for years, revitalisation of agriculture and adopting bold policy decisions connected with the National Budget and macroeconomic management. The post-tsunami reconstruction and post conflict rehabilitation, resettlement and reconstruction have provided a unique transformation to those in affected areas while transforming mined lands into green fields.
The Government also recognised that along with restoring national security and peace, infrastructure development should also be put in place through public investment as a critical component, such as a well connected road and expressway network, a globally competitive port and airport network, an irrigation and water distribution network and a strong telecommunication network together with well distributed urban and township development. This would in turn create opportunities while enabling the produce of rural farmers to have access to local and global markets places and for investment in the real economy to go beyond Colombo and a few other cities.
The progress made in infrastructure creation, which the nation was desperately demanding for decades since independence is strong. The country has a new expressway connecting the two international airports in the Western Province and Southern Province. Steps are under way to build a Northern Expressway and Ruwanpura Expressway to connect Colombo and network with national highways to North and East. Railway connectivity is to be established between major townships across the country.
These expressways and the railway network are to be connected through national highways and provincial and rural roads, through Government’s Inclusive Road Development Strategy to be promoted several themes, such as tourism, exports, logistics, IT/BPO services, high learning educational establishments and townships, for rapid development.
Progress in power generation and distribution is another success story. As of now the country is benefiting from a power generating capacity of 4,100 MW consisting of diversified power sources as against 2,014MW of power largely dependent on oil in 2005. Renewable energy including hydro and solar are being added to an improved transmission and distribution system. Almost 100% of households in the country will enjoy access to electricity by the end of this year. Investments have been lined up to double the refinery, aviation and bunkering storage capacity as well as to modernise the pipeline distribution system over 2015-17 to further improve an energy based economy and energy security. Public investment in irrigation and water supply remains a priority to enable several areas of non-irrigated land to be cultivated, improve water treatment facilities and provide pipe borne access to drinking water to all households by 2017. Investments have been also directed to contain non-revenue water in Colombo to below 18 percent, by 2017. Urban infrastructure development include the construction of 50,000 urban housing units to house shanty dwellers in a well developed township environment in the city of Colombo and to relocate Defence Headquarters to release prime urban land for alternate commercial and property development, greater Colombo flood protection scheme to convert suburban townships as environment friendly living areas and transform historical buildings as up-end shopping complexes capable of attracting tourists and move on to an integrated urban development strategy to make growth oriented cities in provinces. Parallel with these public investment initiatives, private investments including FDIs are encouraged for urban property development, construction of tourist hotels with international network arrangements and reclaim 450 acres of land to build a new port city and attract foreign direct investments from global investors looking for competitive locations.
Part III – Managing Challenges
This transformation was not without challenges. Ending the costly war against terrorism itself was a major challenge. Dr. Subramanian Swamy, a well-respected personality in India in his recent speech in Colombo said, I quote, “…as an Indian I can say that most Indian share this view we are proud of your President for decisively finishing a sinister terrorist organisation which was a threat to our country too and therefore let no activity in the international arena subtract from that. Sometimes I wonder whether these whole human right issues have been contrived to bottled down or to be little or reduce this massive achievement.”
Respecting human rights and welfare, several thousands displaced consequent to the 2004 tsunami and those who felt hostage in the 2009 LTTE final phase were provided food, shelter and sanitation adhering to best global standards. Amazingly no epidemic was recorded and maternal and child mortality even in such circumstances was maintained at zero level reflecting how well the humanitarian side of development was managed with determination. Ex-combatants were put on rehabilitation programs and social integration initiatives. Some have recruited to Sri Lanka police and government services.
The de-mining of almost entire mined land, rebuilding conflict-torn areas with livelihood development, restoration of provincial councils and local authorities in such areas through democratic elections, removal of emergency laws that prevailed for years as though they are normal laws, removal of road barriers and security checkpoints, handling war risk insurance payments, restoration of housing and sanitation, public service delivery mechanism, schools, hospitals, police stations, court houses, market places, etc. were features managed in a salutary manner in the process of taking the country forward using domestic resources, borrowed funds and mobilisation of foreign aid by the Government. Trilingual policy has been promoted. A task force headed by Secretary to the President fully funded by the national Budget has been engaged to ensure that the recommendations of the Lessons Learnt and Reconciliation Commission are implemented by relevant agencies in a timely manner.
On the economic front, the US and UK financial fallout in 2008/09, the sharp rise in oil prices, the US fiscal crisis and the Euro zone economic crisis in 2011/12, and the global economic slowdown placed the already weaned Sri Lanka on another wave of economic challenges. While many countries differed responses, Sri Lanka was able to take bold corrective economic measures such as allowing greater flexibility in exchange rate regime, adjustments to fuel, electricity and water tariff, monetary policy tightening to manage excessive credit expansion and several reform initiatives such as reorienting taxation strategy towards broadening its base, improved debt management strategies.
The Government secured $ 2.5 billion a three year Stand-By Credit Arrangement from the IMF to place the country on emerging global order and this was the only successful IMF program carried out uninterruptedly in this country as all previous programs carried out by past regimes suspended half way through due to unsuccessful implementation. We are humbly proud today as we have already paid back half of IMF borrowings reflecting country’s economic strength.
This success was because of the fact that the Government adopted a “peace in workplace” approach instead of “blood on the street” approach, in carrying out these challenging reforms. On top of all these, getting the much needed infrastructure facilities in place, addressing macro economic outlook and many structural challenges through pragmatic reform initiatives were not easy by any yardstick.
The Sri Lankan economy grew at an average growth rate of 7% since 2005 to date, a break from the past pattern of unstable growth that averaged around 4.5%. Over the same period, trade grew by almost fourfold in US$ terms. The economy has brought about a globally integrated manufacturing sector that has a lead in up-end apparels and breaking grounds into newer areas such as IT- enabling services, diversified tourism, high valued tea, medium and high technology industrial activities such as shipbuilding, electrical transformer manufacturing etc. and a buoyant service sector that now account for around 60% of GDP.
This year, the projected growth is 7.8% and the performance of manufacture of exports, tourism led services, construction industry and domestic consumer demand during the first six months of the year is conducive for such growth. The Service Sector is moving beyond 60 percent of GDP, reflecting a value chain growth in primary, secondary and services activities and the structural shift in the economy. Inflation is mid single digit and nominal growth is now driven by a high real growth – a sharp departure from the past when high nominal growth was nothing but attributable to inflation.
Year-on-year inflation averaged at 4.9% in the first half of this year. There is a steady build-up of reserves – now at $ 9 billion and the volatility of the Rupee is contained. The buoyant growth of export earnings from goods and services, inflows from tourism and overseas remittances keep the current account deficit well financed. There is stability in the balance of payments transactions due to buoyant inflows against moderate outflows, providing an environment conducive for exchange rate management. The fiscal deficit of around 3.7% of GDP in the first half of the year is in line with the annual target of 5.2%.
Reduced rates of interest, stable movements of the exchange rates, a lower fiscal deficit complemented by better performance of large State Owned Business Enterprises parallel with high growth are supportive to further reduce Public Debt to GDP closer to 70% in 2015.
Underpinning the notable progress made through several bold policy and development initiatives, Sri Lanka has performed well in the region in terms of many global indices. The country is well placed in the World Rule of Law Index and the Global Peace Index, being on top in South Asia. It is also placed high in the region as per the Global Infrastructure Index, Economic Freedom Index, Ease of Doing Business Index and Global Competitiveness Index. The Human Development Index ranks Sri Lanka among the top 10 in the Asian region, while presently commanding the second highest number of Chartered Accountant students in the world only next to UK. With the high rate of enrollment for medicine, engineering, commerce, law, nursing, teaching and technical fields, the country is well positioned to attract professional services and related industries – and move from unskilled labour intensive industries to skilled and technology based industries.
Sri Lanka is among the top 50 leading service locations in the world in the delivery of IT/BPO and other knowledge services, having advanced to the 21st place. The evolving regulatory arrangements are conducive to promote clinical trials and research, which is primary to develop health care services to an advanced stage having mobilised the country’s medical specialists, scientists and technicians, while also developing several facets of the pharmaceutical industry. In terms of per capita income too Sri Lanka is on the top of South Asia. Securing a position among the top 10 position in Asia of all these indicators remains our ambition.
As once said by Donald Trump the American business magnate, investor and author, we need to “get going. Move forward. Aim high. Plan a takeoff. Don’t just sit on the runway and hope someone will come along and push the airplane. It simply won’t happen. Change your attitude and gain some altitude…”
– Pix by Pradeep Dilrukshana
Good Morning to all. Professor G.L. Peiris, Minister of External Affairs, Lalith Weeratunga, Secretary to the President, Gotabaya Rajapaksa, Secretary to the Ministry of Defence and Urban Development, the Commanders and the officers of Sri Lanka tri-services, distinguished delegates, ladies and gentlemen, I am indeed honoured and privileged to be the Keynote Speaker of this 2014 Defence Seminar organised by the Sri Lanka Army, being attended by a rich audience and will be addressed by renowned resource persons from around the world.
I wish to thank the Commander of Sri Lanka Army Lieutenant General Daya Rathnayake and his able Director Training Brigadier Ralfs Nugera for inviting me to speak to this high profile gathering.
‘Sri Lanka: Challenges to a Rising Nation’ – the subject assigned to me to speak at this prestigious event, compelled me to spend some time to research on our country’s post independent journey towards what it is today, and in this process several milestones we as a nation have passed are in fact eye openers to be able to understand challenges from a historical perspective, since history has a tendency to repeat itself in the future.
It is equally important to review the present phase of development and how it has been managed while passing many barricades along the journey to be able to understand the challenges of the present, since the present will invariably be the history of the future. I also thought that it is important to view challenges from a past and present perspective, to be able to visualise future perspectives and equip ourselves to facilitate the management of contemporary challenges in our transition from a middle income economy.
The transition from a middle income economy involve targeting to achieve $ 7,500 per capita by 2020, like we have already raised our per capita from $ 1,200 in 2005 to $ 2,400 in 2009, and from there towards $ 4,000 in 2015 – in an extremely challenging environment. I will also touch upon the visionary comments expressed by none other than Takehiko Nakao, President of the Asian Development Bank when he visited Sri Lanka in June 2014, on the likely journey of Sri Lanka towards an advance economy by 2035. My overall aim is to register the point that history is in fact an analysis of how the past has been managed that provides lessons learnt, facilitating us to manage the present with proper checks and balances and thereby prevent the repetition of bad experiences of the past to gain high altitude in future.
My speech is structured with five parts. Part I explains how the post independent events pushed this nation towards becoming a marginalised nation by 2004, followed by the underlying strategic shift in 2005 through the adoption of Mahinda Chinthana: The National Vision of Sri Lanka. Part II gives an overview of the current phase of development in a globally challenging environment. Part III outlines how the challenges in the transition were managed from confrontation to consensus building and how graduation from a low income to middle income economy, were managed. The likely developments the country would face as an emerging economy towards reaching $ 7,500 per capita by 2020 and the challenges ahead of us will be covered in Part IV. The last section presents some concluding reflections. The speech will be approximately one hour.
Distinguished delegates, ladies and gentlemen, at the outset let me say that the conduct of a seminar of this nature, being held in this peaceful surrounding, at this venue which is in the heart of the Colombo city, attended by this rich audience representing about 40 countries and specifically on the topic assigned to me, could have been an event far from reality or and on top of it, the very subject itself could not be of relevance to us prior to 18 May 2009 – being the day on which the 30-year terrorist conflict came to an end – a historic moment to our nation, probably as important as gaining independence in 1948 considering the long struggle we had against terrorism to secure democracy, peace and development.
Therefore, we should at the outset express our gratitude and place on record our appreciation for the invaluable sacrifices and contributions made by Sri Lankan tri-services and their families. It is to them that President Mahinda Rajapaksa entrusted the task of carrying out a humanitarian operation to liberate us from terrorism a few months after he assumed leadership of this nation. It is they who made enormous sacrifices to complete this task during 2006-2009 while supporting a ‘zero causality theme’.
We all know that this bold decision was taken after having exhausted all options available at local level, while experiencing continuous drawbacks from an international standpoint, and in the backdrop of escalating mass scale terrorist attacks. Two major events influenced this move. They reflect true humanitarian considerations behind this move. One was the Kebithigollewa bomb attack on a packed bus carrying innocent villagers to the nearby town – on Thursday morning of 15 June 2006. It killed over 64 innocent people including 12 children and leaving 75 others injured.
The other compelling reason was the capture of the Mavil Aru irrigation and water supply scheme by LTTE terrorists, and closure of sluice gates, denying access to water to the innocent villagers and people in that area – on 26 July 2006. This is how so called internationally monitored peace accord was respected by the LTTE – a gross abuse and violation of human rights. I still remember the absolute frustration we went through having to live and work in such surrounding and how all of us as a nation felt that ‘enough is enough’, expecting the Government to liberate the nation from brutal terrorism which caused us enormous sufferings for nearly three decades, the best part of lives of my generation.
The astute and visionary leadership of the President of Sri Lanka for spearheading this once considered impossible task, the amazingly talented and committed Defence Secretary Gotabaya Rajapaksa for managing this high risk task as the Chief Accounting Officer of the Ministry of Defence, deserve special recognition with a round of applause from all of us. I am sure that the global community who truly stand against terrorism and are committed to eradicate terrorism in the interest of humanity, peace and development, feel the same.
I wish to quote the words of Dr. Subramanian Swamy – the renowned former Minister of India, Economist and the present Chairman of BJP Committee on Strategic Action, during his recent visit to Sri Lanka: ‘I have known no other country which has so decisively finished terrorism of this kind and this is no ordinary terrorism… If you look around the world people have had no country which had a kind of clear success in eliminating terrorism as you have.’ He went on to say, ‘Today even Tamils up in the North admit that at least they know that when their children go to school they would return back in the night. When their husbands go to work they would return back in the night.’ That is the stability and certainty the end of war has brought about to our country, for which the credit should no doubt go primarily to the bold leadership of the President, the committed Defence Secretary and the tri-services.
I must also mention that the role of post conflict tri services is equally humanitarian and development oriented as they shared their professional skills in de mining activities and resettlement of displaced people, looking after their own colleagues and families who became victims in this conflict, an architectural and engineering skills in restoring historical buildings and flood protection and urban sanitation besides entering into performing arts and sports as well.
It was sheer determination and not heavy military, human or financial resources that made it possible. As Finance Secretary, I know that they fully appreciated the financial difficulties that we had confronted. I like therefore to begin my speech by quoting former South African President late Nelson Mandela who once said ‘The greatest glory in living lies in never falling, but in rising every time we fall’.
Part I – A marginalised nation
Sri Lanka gained independence in 1948 from the British, who ruled the country in the process of a colonial rule that commenced in 1505 with Portuguese taking over the country, then by a Dutch rule in 1658 followed by the British in 1815. The economy in early 1950s enjoyed external assets equivalent to 12 months of country’s import requirement. The country was economically second only to Japan in the entire Asia. Nevertheless the post-independent developments in Sri Lanka were grim.
Political instability, short-term populist policies, experimenting extreme development models by different political parties that formed Governments, lack of a long term national vision for the country and inability to position the country in the proper global perspectives made Sri Lanka a lagging nation with a ‘dismal-rate’ of growth of 3% by mid 1970s with an unemployment as high as 25% of the labour force and a youth insurrection in 1971. The absence of a policy strategy to ensure food security, the lack of adjustments to the global oil price hike witnessed from early 1970s to build an energy efficient economy and continued expansion of the regulatory regime that weekend private sector initiatives, made economic management essentially inefficient.
Although the economy was reopened in 1977 with liberalisation and deregulation, creating high expectations to recapture what the nation lost for 30 years since independence, by 1980 the economy lost macroeconomic stability with a high fiscal deficit, monetary expansion, loss of international reserves, high depreciation in exchange rates and inflation. The general strike in 1980, civil riots in 1983 saw the beginning of the nearly 30 year LTTE terrorism.
Then the southern insurgency in 1987/88, the change of Governments in 1988, 1994, 2001 while being engaged in managing a conflict trapped economy which badly demanded a development agenda that would facilitate its people to move away from poverty and the low income trap, were critical milestones that led the country to be further marginalised in the world economy which was truly growing.
The key lesson from this long period since 1977is that compromising national security and macroeconomic security were prime factors that prevented the economy from emerging on its own comparative advantage and strengths. The Asian Tsunami struck Sri Lanka in December 2004 taking nearly 40,000 lives, wiping out around 100,000 houses displacing many and destroying schools, hospitals, infrastructure and private property. This incident alerted the country on the adverse impact of climate change and that environment security cannot be overlooked in the process of development.
Although the country has witnessed certain improvements in human resource development and in selected private sector activities, while recording around 4.5% average growth in GDP, the overall outlook was so grim with poverty and unemployment remaining high, external reserves falling substantially to a level not sufficient to import even three months of country requirements of imports and the Budget running a high deficit of around 10% of GDP for decades, on top of an accumulated debt exceeding GDP. These factors provide us a picture of the Balance Sheet that the country was managing when the President was elected as the leader of this nation in 2005.
Ladies and gentlemen, if Sri Lanka is to emerge on its own comparative advantage and strengths with an integrated global economy framework, the challenge is to restore security of the five pillars which I referred to earlier namely, food security, national security, macroeconomic security, environment security and human resource security. Managing this task is the underlying success story of development since 2005.
As Albert Einstein said, ‘Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity’. This supports the underlying philosophy of ‘Mahinda Chinthana: The Vision for a New Sri Lanka’.
Part II – Strategic shift in 2005
The post 2005 National Development Strategy – ‘Mahinda Chinthana: Vision for the Future’ prioritised post-tsunami rehabilitation and reconstruction, implementation of several national infrastructure projects that remained stalled for years, revitalisation of agriculture and adopting bold policy decisions connected with the National Budget and macroeconomic management. The post-tsunami reconstruction and post conflict rehabilitation, resettlement and reconstruction have provided a unique transformation to those in affected areas while transforming mined lands into green fields.
The Government also recognised that along with restoring national security and peace, infrastructure development should also be put in place through public investment as a critical component, such as a well connected road and expressway network, a globally competitive port and airport network, an irrigation and water distribution network and a strong telecommunication network together with well distributed urban and township development. This would in turn create opportunities while enabling the produce of rural farmers to have access to local and global markets places and for investment in the real economy to go beyond Colombo and a few other cities.
The progress made in infrastructure creation, which the nation was desperately demanding for decades since independence is strong. The country has a new expressway connecting the two international airports in the Western Province and Southern Province. Steps are under way to build a Northern Expressway and Ruwanpura Expressway to connect Colombo and network with national highways to North and East. Railway connectivity is to be established between major townships across the country.
These expressways and the railway network are to be connected through national highways and provincial and rural roads, through Government’s Inclusive Road Development Strategy to be promoted several themes, such as tourism, exports, logistics, IT/BPO services, high learning educational establishments and townships, for rapid development.
Progress in power generation and distribution is another success story. As of now the country is benefiting from a power generating capacity of 4,100 MW consisting of diversified power sources as against 2,014MW of power largely dependent on oil in 2005. Renewable energy including hydro and solar are being added to an improved transmission and distribution system. Almost 100% of households in the country will enjoy access to electricity by the end of this year. Investments have been lined up to double the refinery, aviation and bunkering storage capacity as well as to modernise the pipeline distribution system over 2015-17 to further improve an energy based economy and energy security. Public investment in irrigation and water supply remains a priority to enable several areas of non-irrigated land to be cultivated, improve water treatment facilities and provide pipe borne access to drinking water to all households by 2017. Investments have been also directed to contain non-revenue water in Colombo to below 18 percent, by 2017. Urban infrastructure development include the construction of 50,000 urban housing units to house shanty dwellers in a well developed township environment in the city of Colombo and to relocate Defence Headquarters to release prime urban land for alternate commercial and property development, greater Colombo flood protection scheme to convert suburban townships as environment friendly living areas and transform historical buildings as up-end shopping complexes capable of attracting tourists and move on to an integrated urban development strategy to make growth oriented cities in provinces. Parallel with these public investment initiatives, private investments including FDIs are encouraged for urban property development, construction of tourist hotels with international network arrangements and reclaim 450 acres of land to build a new port city and attract foreign direct investments from global investors looking for competitive locations.
Part III – Managing Challenges
This transformation was not without challenges. Ending the costly war against terrorism itself was a major challenge. Dr. Subramanian Swamy, a well-respected personality in India in his recent speech in Colombo said, I quote, “…as an Indian I can say that most Indian share this view we are proud of your President for decisively finishing a sinister terrorist organisation which was a threat to our country too and therefore let no activity in the international arena subtract from that. Sometimes I wonder whether these whole human right issues have been contrived to bottled down or to be little or reduce this massive achievement.”
Respecting human rights and welfare, several thousands displaced consequent to the 2004 tsunami and those who felt hostage in the 2009 LTTE final phase were provided food, shelter and sanitation adhering to best global standards. Amazingly no epidemic was recorded and maternal and child mortality even in such circumstances was maintained at zero level reflecting how well the humanitarian side of development was managed with determination. Ex-combatants were put on rehabilitation programs and social integration initiatives. Some have recruited to Sri Lanka police and government services.
The de-mining of almost entire mined land, rebuilding conflict-torn areas with livelihood development, restoration of provincial councils and local authorities in such areas through democratic elections, removal of emergency laws that prevailed for years as though they are normal laws, removal of road barriers and security checkpoints, handling war risk insurance payments, restoration of housing and sanitation, public service delivery mechanism, schools, hospitals, police stations, court houses, market places, etc. were features managed in a salutary manner in the process of taking the country forward using domestic resources, borrowed funds and mobilisation of foreign aid by the Government. Trilingual policy has been promoted. A task force headed by Secretary to the President fully funded by the national Budget has been engaged to ensure that the recommendations of the Lessons Learnt and Reconciliation Commission are implemented by relevant agencies in a timely manner.
On the economic front, the US and UK financial fallout in 2008/09, the sharp rise in oil prices, the US fiscal crisis and the Euro zone economic crisis in 2011/12, and the global economic slowdown placed the already weaned Sri Lanka on another wave of economic challenges. While many countries differed responses, Sri Lanka was able to take bold corrective economic measures such as allowing greater flexibility in exchange rate regime, adjustments to fuel, electricity and water tariff, monetary policy tightening to manage excessive credit expansion and several reform initiatives such as reorienting taxation strategy towards broadening its base, improved debt management strategies.
The Government secured $ 2.5 billion a three year Stand-By Credit Arrangement from the IMF to place the country on emerging global order and this was the only successful IMF program carried out uninterruptedly in this country as all previous programs carried out by past regimes suspended half way through due to unsuccessful implementation. We are humbly proud today as we have already paid back half of IMF borrowings reflecting country’s economic strength.
This success was because of the fact that the Government adopted a “peace in workplace” approach instead of “blood on the street” approach, in carrying out these challenging reforms. On top of all these, getting the much needed infrastructure facilities in place, addressing macro economic outlook and many structural challenges through pragmatic reform initiatives were not easy by any yardstick.
The Sri Lankan economy grew at an average growth rate of 7% since 2005 to date, a break from the past pattern of unstable growth that averaged around 4.5%. Over the same period, trade grew by almost fourfold in US$ terms. The economy has brought about a globally integrated manufacturing sector that has a lead in up-end apparels and breaking grounds into newer areas such as IT- enabling services, diversified tourism, high valued tea, medium and high technology industrial activities such as shipbuilding, electrical transformer manufacturing etc. and a buoyant service sector that now account for around 60% of GDP.
This year, the projected growth is 7.8% and the performance of manufacture of exports, tourism led services, construction industry and domestic consumer demand during the first six months of the year is conducive for such growth. The Service Sector is moving beyond 60 percent of GDP, reflecting a value chain growth in primary, secondary and services activities and the structural shift in the economy. Inflation is mid single digit and nominal growth is now driven by a high real growth – a sharp departure from the past when high nominal growth was nothing but attributable to inflation.
Year-on-year inflation averaged at 4.9% in the first half of this year. There is a steady build-up of reserves – now at $ 9 billion and the volatility of the Rupee is contained. The buoyant growth of export earnings from goods and services, inflows from tourism and overseas remittances keep the current account deficit well financed. There is stability in the balance of payments transactions due to buoyant inflows against moderate outflows, providing an environment conducive for exchange rate management. The fiscal deficit of around 3.7% of GDP in the first half of the year is in line with the annual target of 5.2%.
Reduced rates of interest, stable movements of the exchange rates, a lower fiscal deficit complemented by better performance of large State Owned Business Enterprises parallel with high growth are supportive to further reduce Public Debt to GDP closer to 70% in 2015.
Underpinning the notable progress made through several bold policy and development initiatives, Sri Lanka has performed well in the region in terms of many global indices. The country is well placed in the World Rule of Law Index and the Global Peace Index, being on top in South Asia. It is also placed high in the region as per the Global Infrastructure Index, Economic Freedom Index, Ease of Doing Business Index and Global Competitiveness Index. The Human Development Index ranks Sri Lanka among the top 10 in the Asian region, while presently commanding the second highest number of Chartered Accountant students in the world only next to UK. With the high rate of enrollment for medicine, engineering, commerce, law, nursing, teaching and technical fields, the country is well positioned to attract professional services and related industries – and move from unskilled labour intensive industries to skilled and technology based industries.
Sri Lanka is among the top 50 leading service locations in the world in the delivery of IT/BPO and other knowledge services, having advanced to the 21st place. The evolving regulatory arrangements are conducive to promote clinical trials and research, which is primary to develop health care services to an advanced stage having mobilised the country’s medical specialists, scientists and technicians, while also developing several facets of the pharmaceutical industry. In terms of per capita income too Sri Lanka is on the top of South Asia. Securing a position among the top 10 position in Asia of all these indicators remains our ambition.
As once said by Donald Trump the American business magnate, investor and author, we need to “get going. Move forward. Aim high. Plan a takeoff. Don’t just sit on the runway and hope someone will come along and push the airplane. It simply won’t happen. Change your attitude and gain some altitude…”
– Pix by Pradeep Dilrukshana
