16 June 2022 09:02 am Views - 982
Sri Lanka is currently undergoing an unprecedented economic crisis caused by the depletion of foreign exchange reserves and government revenue, as well as by a sovereign debt crisis.
This has inflicted a devastating impact on people’s lives and the economy’s smooth operation. The magnitude and impact of the crisis insist on immediate remedial action to alleviate the burden placed on the general public and to lay the foundation for short, medium, and long-term actions to boost economic development. The proposals have considered the current state of the economy and the global context, as well as the feasibility of each action.
Given the importance of implementing a comprehensive set of effective measures to stimulate economic recovery and redress the Sri Lanka Economic Association (SLEA) hereby proposes the following, while recognizing policy measures already implemented by the Central Bank and the Treasury.
SLEA highlights viable short-term strategic actions to stimulate recovery from the country’s ongoing economic crisis in this set of proposals. The SLEA will develop medium- and long-term strategic actions to stimulate the economy in due course.
1. External sector of the economy
Measures needed to be taken to raise foreign exchange reserves and stabilize the balance of payments and exchange rates are essential, though time-consuming. However, the following urgent measures are proposed to contain the external sector instability, minimize public unrest, and stabilize the normal life patterns:
■Promote import-competing industries, services, and agriculture (food production and food security) with private sector involvement/participation by providing the right incentive system,
■Provide incentives for Sri Lankans working/living abroad to remit funds through official sources such as premium interest rates for remitted funds as foreign currency bank deposits, a pension scheme for foreign employees, a special housing loan facility at concessionary interest rates, annual national awards system to recognize people who bring foreign exchange,
■Insist the Sri Lankan missions abroad to engage in promotional campaigns, negotiate/explore and create foreign employment opportunities for skilled and semi-skilled workers, and promote FDI opportunities in Sri Lanka,
■Take appropriate measures and organize events to ensure a sizable amount of foreign exchange is spent by tourists by launching a promotional campaign by foreign missions to target tourists from high spending countries (see tourism sector for more details),
■Monitor and ensure IT and tourism-related service providers bring their earnings to the country,
■Suspend all foreign promotional campaigns by special local public sector delegations and purchasing of equipment using foreign exchange,
■Take measures to create foreign exchange reserves that are sufficient to finance three months of imports at least,
■Curtail overseas travel by politicians and public officials,
■Suspend allowances given for overseas tours sponsored by foreign parties. Use virtual platforms such as for foreign training, seminars, and other meetings if the entire cost is not borne by external agencies,
■Encourage public universities to offer blended mode degree programmes to foreign students at competitive rates and use the earnings for the development of the respective universities,
■Promote international defense training programmes including pilot training programmes.
2. Fiscal and Monetary policies
The Central Bank and the Treasury need to take immediate measures in coordination to contain inflation and exchange rate fluctuations and stimulate economic growth through continued vigilance, monitoring, and follow-up. The following immediate actions are proposed to implement to create price and exchange rate stability:
■In addition to ex officio members, appoint economists with relevant specializations as members who can take empirical evidence-based sound policy decisions to the Monetary Board and all monetary policy advisory committees of the Central Bank. Improve parliamentary oversight and independent decision-making power by amending the Monetary Law Act,
■Practice a Crawling Peg Exchange Rate Regime, or a managed floating system, for maintaining exchange rate stability by creating a minimum required amount of foreign exchange reserves,
■Adopt the Inflation Targeting Approach for maintaining price stability without hampering growth potentials,
■Maintain a fiscal discipline for aggregate demand management,
■Introduce a long term no pay leave option for public sector employees to engage in either self-employment or paid employment within or outside the country to reduce fiscal burden,
■Introduce an unemployment benefits scheme to unemployed graduates rather than recruiting them outside cadre provisions to the public sector, provided that the beneficiaries undergo training in mandatory employability skills programmes, technical skills programmes, and professional development programmes,
■Prune down all non-essential expenditure; suspend new recruitments to the public sector; suspend large infrastructure projects; and compel government institutes to only engage in regular work programmes,
■Introduce project/programme/activity-based budgeting in a prioritized manner,Rationalize expenditure on education, health, and social welfare programmes,
■Increase tax revenue up to a reasonable level to reduce the budget deficit by widening the tax base and tax coverage, and introducing wealth taxes and other direct taxes. Also, improve the mechanism of tax administration and enforcement as well as leakages,
■Reduce military expenditure to an appropriate level,
■Use military forces for public works programmes that are currently contracted out to the private sector until the economic crisis is over,
■Promote private-sector and small farmer/producer partnership through outgrowing farming and buyback system,
■Temporarily suspend the fund allocated to people’s representatives for local level development activities,
■Halt all public-funded ceremonies, erecting of monuments, and donations at the national, provincial, local, or institutional level,
■Remove perks given to politicians, public officials, and semi-government sector officials, including any additional payments made over and above the salary until the economic crisis is over,
■Pool official transport, avoid using several vehicles for the same meeting, and conduct most meetings online only in all government institutes,
■Improve the efficiency of revenue collection in the Sri Lanka Customs, Inland Revenue, Exercise Department, and RMV through a coordinated digital system connected to the Treasury,
■Grant 90-year tax-free lease of Colombo Port-city for a competent and credible investor for investment promotion on a model similar to the lease of Hong Kong by China to Britain in 1898,
■Introduce public-private partnership in managing idling/under-utilized public facilities such as Nelum Kuluna, Nelum Pokuna, Mattala Airport, etc., in a transparent manner.
■Reduce the dependency level of local governments and provincial councils on the central government budget, and reduce the size of the government by cutting down the number of representatives in local councils, provincial councils, and parliament.
3. Resolving supply related issues
The current crisis has resulted in a significant shortage of imported consumption as well as intermediate goods such as petroleum, LP gas, electricity, food, medicine, and other necessities. As a result, immediate action is required to resolve the shortage by improving management, coordination, and prioritization. Measures must be implemented to minimize the usage of petroleum and electricity.
3.1 Electricity, Fuel and LP Gas scarcity
■Explore alternate oil and gas import sources, such as Russia, with cheaper pricing than the global market, and establish at least a one-year credit line.
■Enhance rail usage for transporting petroleum, LP gas, goods, sand, and animals.
■Take immediate action to produce electricity through renewable energy sources such as wind and solar by creating public-private partnerships, especially for mega projects.
■Promote biogas usage in viable locations using low-cost technology.
■Open the market for international players if they do not remit foreign exchange until the crisis period is over.
■Promote push-bikes among school children and employees through suitable strategies.
■Introduce high revenue license fees for semi-luxury and luxury vehicles at least for fifteen years.
■Introduce work from home, longer working hours, and alternative work schedules, as well as a reduction in the number of working days to save on fuel, energy, and other utilities.
■Encourage the use of public transportation, particularly trains to discourage the use of private automobiles.
■Implement a reasonable threshold level and discount package for households and institutions to reduce their use of electricity and other utilities.
■Implement all renewable energy generating project proposals immediately in or minimize dependency on diesel and coal to generate power.
■Promote electric vehicles by creating solar and wind power charging facilities around the country.
3.2. Food scarcity
■Launch accelerated cultivation programs with private sector participation, utilizing the state mechanism.
■Promote domestic food product consumption through promotional campaigns.
■Temporarily restrict imports of non-essential food items while import-competing products are expanded.
■Make full use of government-owned farms with private sector participation, primarily to produce seeds and other farm inputs.
■Increase local cattle stock and make plans to collect and distribute fresh milk and other local dairy products to households.
■Improve animal feed manufacturing facilities using local raw materials.
■Encourage inland fishing pools and small-scale poultry farming.
■Reduce food waste through proper packing, handling, cold storage, and storage facilities, and reduce damage caused by wild animals and natural disasters through the participation of the wildlife department, private sector, NGOs, civil society, and idle field officers.
■Re-locate monkeys, porcupines, wild boars, etc. from populated areas as such animals destroy most of the home-garden vegetables and fruits.
■Free-lease agreement with the private sector to cultivate underutilized/ unutilized crown lands.
■Promoting meadows and livestock farming in fallow paddy fields, especially in the western province.
3.3 Response to medicine shortages
■Continue to seek bilateral and multilateral assistance to address the medical shortage.
■Seek credit and alternative payment options from reputable pharmaceutical product suppliers and their local agents.
■Help chronic patients in obtaining their prescribed medication from relatives, friends, and donors living in other countries.
■Request that doctors only prescribe generic medications rather than branded, high-priced medications.
■Encourage non-governmental organizations (NGOs) to donate medicines and medical equipment to hospitals.
■Provide facilities to INGOs/NGOs to maintain health facilities including hospitals.
3.4 Shortage of agricultural and industrial inputs
■Prioritize the allocation of forex reserves for the importation of essential inputs for production.
■Train Krupanisa and other field officers on the use of low-cost inputs.
■Prevent farmers from overusing inputs by choice and compulsion.
■Assign all agriculture specialized graduates already in service to a crash program to use already available State and non-State sector skilled development facilities and local craftsmen to produce agriculture and industrial tools and equipment locally.
■Promoting natural manure production in garbage dumping sites with the participation of the private sector.
4. Promoting alternative methods of development financing
Given the enormous stock of accumulated foreign debt, and the fact that further borrowing has become exhausted and highly unsustainable, there is a need to investigate and implement alternative development financing methods to facilitate economic development.
■Raise business/investor confidence in order to attract investment by implementing a comprehensive coordinated awareness programme, greater transparency, de-regulation, and simplifying procedures and documentation.
■Form a foreign aid consortium with friendly countries to raise emergency funds for the import of essential goods.
■Enter into debt-equity swap arrangements in both the public and private sectors that are beneficial to the country in the process of debt restructuring.
■Encourage international capital infusion into private sector listed firms to engage in joint ventures with foreign companies.
■Grant honorary citizenship and long-term visas to retired suitable foreign individuals, investors, and other interested individuals from abroad for long-term stay in Sri Lanka.
■Identify assets/areas/entities, with a particular emphasis on SOEs that could be offered to foreign investors as part of public-private partnerships.
■Establish investment promotion programmes for diaspora and other expatriates to invest in Sri Lanka.
■Build a business-friendly climate to encourage FDI, portfolio investment, and swaps.
■Employ Sri Lanka’s overseas embassies to promote and attract international investment, trade, and tourism.
■Identify possible investment possibilities and make them aware to potential investors through foreign missions and digital promotion programmes.
5. Poverty alleviation and social safety nets
The pandemic of covid-19 and the economic crisis have had a significant negative impact on the poor and vulnerable people/communities. A well-designed social safety net and a poverty alleviation program by improving the Samurdhi Programme, which would incentivize and foster existing measures, must be implemented.
■Create a filtering mechanism to identify the needy and support them while improving their livelihoods.
■Take stringent actions to prevent corruption, wastage, and misuse of public funds allocated to these programs.
■Establish a consolidated open digital database on needy people/families at the DS divisional level, and connect it to a national database.
■Implement a financial assistance programme to help people who have been affected by the crisis.
■Encourage non-governmental organizations (NGOs) and international non-governmental organizations (INGOs) to assist the poor and vulnerable under state supervision.
■Arrange for private and overseas jobs for youth from low-income and disadvantaged households.
■Reform the Samurdhi programme to encourage private sector investment in new ventures, livelihood activities, and employment for the poor through public-private partnerships.
■Immediately halt the distribution of rations and money among unqualified people.
6. Revival of tourism sector
The tourism sector would be an optimal option for immediately resolving forex issues while resurrecting economic growth, creating jobs, and protecting livelihoods.
■Resolve immediately the shortages of fuel, gas, electricity, and essential commodities confronting the hospitality and travel businesses, and provide incentives to SME sector operators.
■Address any negative publicity or travel advisories, and ensure tourists’ safety and security while in the country.
■Implement a coordinated programme with state tourism bodies, airlines, missions, and the private sector to attract a target number of tourists through cost-effective promotional strategies.
■Incentivize and organize charter flights from major tourist-generating markets.
■In addition to mass tourism, promote niche tourism products such as mind and body wellness, adventure, and MICE.
■Fill any gaps in basic tourist facilities or services, such as sanitary, information, communication, food and beverage, and so on.
■Promote spiritual tourism with the collaboration of religious bodies.
7. Revitalization of State-Owned Enterprises
There is a pressing need to reform and restructure loss-making state-owned enterprises in order to improve efficiency, productivity, profitability, and public service.
■Improve management through a target-oriented mechanism by infusing competent managerial personnel with good track records.
■Establish a public-private partnership framework to minimize the burden of loss-making SOEs and terminate or merge any inefficient SOE businesses.
■Adopt merit-based and competitive selection through public advertisements and recruitment for essential management staff and employees.
■Assess the value of SOEs by considering both tangible and intangible (goodwill) assets and liabilities when developing PPPs.
■Establish an independent oversight committee for each SOE comprised of people with relevant academic, professional, and managerial expertise.
■Implement a cost recovery pricing model to eliminate waste and inefficiencies.
■Immediately halt overstaffing the SOEs for political gains.
8. Sealing seepages and leakages of public resources
Economic recovery will be difficult unless seepage and leakage of public resources are stopped through corruption, commission, embezzlement, bribery, kickbacks, and other rent-seeking activities by all segments of the state.
■Strictly enforce the Fiscal Responsibility Act to rein in leakages and seepages.
■Implement a mechanism to prevent seepages, leakages, and misappropriation of public resources.
■Rapidly resolve all bribery and corruption cases by strengthening and ensuring the independence of the relevant institutions.
■Audit all politicians and top officials on a regular basis, ensure transparency and public trust.
■Digitize all government functions to improve efficiency and productivity while lowering costs.
■Eliminate the existing unsolicited procurement method.
■Establish a mechanism to approve all publicly financed state, local, and semi-government projects (above US$10 million) through a governance and management model that addresses feasibility, transparency, and accountability.
9. Management of the economy
During the last few decades, economic management has been dismal, unprofessional, and unscientific. Immediate steps should be taken to improve economic governance’s accuracy, accountability, efficiency, and productivity.
■Through an Act of Parliament, establish independent Multidisciplinary Advisory Councils for the President, Prime Minister, and each Ministry, comprised of independent intellectuals, professionals, and managers to enable evidence-based decision making (For instance, an institution similar to NITI AAYOG in India). Economists should be given due consideration in economic policymaking and economic management.
■Launch initiatives to provide the general public with real-time information on economic performance.
■Appoint qualified and experienced individuals with proven track records as ministers, heads of institutions, and top officials.
■Promote the private sector as the engine of economic growth.
■Take initiatives to reduce the unnecessary public sector involvement in economic activities.
■Promote land, labour, and capital markets to meet the global competitive standards.