20 October, 2017

Economics Of Northern Province And The Way Forward

By Hema Senanayake –

Hema Senanayake

For the Northern Province (NP) we have a provincial council now. In 2012, the GDP share of NP is 4% but has the highest provincial GDP growth. In the year 2012 NP’s nominal GDP grew by 25.9%. The nominal GDP means the GDP at current prices and in 2012 the country’s nominal GDP grew by 15.9% whereas the real term GDP adjusted for inflation grew by 6.4%. This GDP growth was before the election of NPC. Therefore, these basic statistics set the annual overall statistical targets that NPC has to achieve with the support of the Central Government. In other words NPC has to ensure higher GDP growth rate than the national average at least for another few years until the province is rebounded economically. People’s expectations are huge and NPC must not make excuses saying that its powers are limited.

Sooner, the Northern Provincial Council (NPC) will swear in the most accomplished Chief Minister in the whole provincial council system. Of course there is a political battle that has to be fought with the Central Government in regard to the powers of NPC. But my view is that the most immediate necessity is to meet the expectations of the people in terms of development in all spears of economic activity.

True, that powers of provincial councils are limited and the Center has to provide the most of funds for provincial councils and now NPC is one of them. If the center does not like the NPC then funds will be limited and funds will come later than needed. This conflict of political interest will possibly have bad economic impact which has already been noticed by the designate Chief Minister C.V. Wigneswaran. But, Wigneswaran clearly said his council would have dialogues with the Centre to get the benefits for the council. In view of the high expectations of the people, I would suggest Wigneswarant o have a dialogue with the Center in order to make a policy shift, which I describe below in this article, in handling the matters of economics.

NPC is not simply another provincial council. Due its geographic location and the ethnicity of the communities, it is the most important provincial council in the country that will prove that reconciliation is possible while serving the people of the province as was expected by the proponents of the provincial council system.

“Proponents of the system justified it on the basis that devolution of power would make governance efficient as people would be able to find solutions to their problems within the province and they would not have to look to Colombo for everything.” (The Sunday Times) Therefore, it is prudent on the part of the central government to support NPC.

NPC will have a budget. And there will be a list of programs and projects that have to be funded through the budget. Most of the funds usually come from the Ministries of the Central Government and state institutions. For example the Ministry of Health will allocate certain amount of money to develop hospitals. So, NPC has to decide how that amount is expended. If the amount or part of it is not spent then the unspent amount will go back to the Treasury of the Central Government. This is how all the provincial councils performed so far and the performances were a dismal failure. NPC has to deviate from this mentality, because the challenge before the NPC is enormous and the region was a war torn area with many people affected badly during the war. How the NPC can deviate from the said traditional development approach mentioned above?

First, NPC should not think that it as a provider for people but instead should think it as a facilitator. The difference between the “provider” and the “facilitator” is that “provider” will depend on the budget while the facilitator will use the budget to facilitate other stakeholders to bring in new capital multiple times than the budget to support the real economic growth of the province. Therefore, I would suggest that NPC should move on with the “facilitator” approach. But under this approach most of the projects will have to be put into “enterprising mode” rather than the “consumption mode” that is used by the “provider” concept. Even though these terminologies are complicated including for some economists, perhaps now you may understand that NPC should be an “economic facilitator.” However, I will give a hypothetical example in order to show the benefits of being a facilitator.

Let us assume that NPC has a project for Rs.1 billion. So, it needs Rs.1 billion in the current year to complete it. If NPC did not receive Rs.1 billion the project cannot be undertaken. That is what happened under the “provider” concept; or under “consumption mode” which term you may ignore as at now. Under the “enterprise mode” NPC facilitates an entrepreneur to do the project. The project cost could be amortized in 20 years. The NPC with the consent of the central government agrees to pay annual fee (or rental with or without the option to transfer the ownership) for the enterprise who did the project. So, for the first year the NPC’s expenditure perhaps will be Rs.100 million even if we assume the annual fee will be twice the annual installment of capital. (1 billion divided by 20 and multiply by 2 = 100 million).

Instead of Rs.1 billion the NPC now needs only Rs.100 million in the first year. Some may argue annual payment is disadvantageous in the long run. It is nonsense due to two reasons. One, the economy is growing over 20 years. Secondly, due to other reasons we might cancel part of debt through a process of wage increase bound moderate inflation; this means even though we numerically pay the annual fee the value of debt is reduced. So, with this approach NPC can do a lot of work in short term, than the funds they really have.

This approach is possible only if NPC meets two conditions. Firstly, the commercial banking system in the province has to be expanded reasonably because it is the banking institutions that provide capital for entrepreneurs. Colombo banks may help initially but the savings made by the people in the province might be able to use to grant loans. In this regard NPC must promote the establishment of “designated commercial banks.” These banks have a unique advantage over saving banks, development banks and the Licensed Finance Companies. That advantage is that they can grant loans multiple times than the incoming deposits. I remember that CEO of Hattan National Bank Mr. Rajendra Theagarajah once commented that they can make loans up to Rs.10 out of each rupee they have in deposits. National Savings Bank can’t do it. I think there is no restriction for NPC to work in establishing good monetary infrastructure for the province with a vision.

Secondly, the approach of “enterprising mode” is possible with the consent of the central government and its treasury. The enterprising-mode approach will put certain financial obligations annually on the central government but at the same time the central government is not overburden with the demand of staggering amounts in near terms. This is a win-win situation for both NPC and the central government.

Perhaps, one might think as to why the central government itself is not following this approach. In fact some politicians enjoy being “providers” than “facilitators.” In many developed countries the government is an economic facilitator not a provider. “Provider” diminishes the economic activity while “facilitator” increases the revenue generating sustainable economic activity. Venezuela is an example for a “provider” government; it has the fifth largest oil reserves in the world but the country is economically devastated with over 40% inflation and a lot of scarcities of day to day necessities.

Therefore, what the NPC should do first is to negotiate with the central government in order to make this policy shift.

If this policy shift takes place I assure you that we already have good talents (economists, bankers, project analysts etc.) in Sri Lanka who can really undertake this job of transforming projects into “enterprising mode.” This is the way forward for NPC. Put the economic vision and policy right. Then, any successful negotiation for foreign funded projects should be treated as bonuses.

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Latest comments

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    Lies,Damn Lies and Statistics!!!!!!!!!!!!!!
    Gross Domestic Product grew by 25.9% !!!!!!
    The nothern province is the most impoverished in the country,due to the war.
    This 25.9% was invented to show the world that the tamil dominated province was prospering by leaps and bounds after the war.

    Poverty is rampant and unemployment is most,among all provinces.

    Hema Senanayake knows this.
    He is a ‘hurrah boy’ for the government.

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      The author of this article has some good ideas but should also look at what is going on in Hambantota and learn some lessons from that so-called development of white elephants – and then extrapolate to Jaffna before preaching!
      The big development challenges for the NPC are:
      1. Identifying and DESIGN of development projects that benefit the local people after a proper needs assessment, and social and environmental assessment and AID CO-ORDINATION, monitoring and evaluation, will be the real development challenge for the new Northern Province Governor.
      2.Designing a proper poverty alleviation program for the North since the DIvineguama is a farce for Rajapassa patronage politics. For this as good DATABASE will be needed to identify needy families and a system of CASH TRANSFERS to poor and women headed households which can be tracked and monitored should be set up for TRANSPARENT POVERTY REDUCTION – as in other parts of the world with the help of Asian Development Bank.
      3. China should be invited to invest big money in the north’s infrastructure needs after proper needs assessments. China should be encouraged to quit throwing good money after bad – on the maintenance and expansion of the Rajapakse WHITE ELEPHANT INFRASTRUCTURE in HAMBANTOTa – port, airport, etc. Right now India thinks it owns the north of Lankaand this mentality should stop, because China can offer much more development assistance to the north.

    • 0
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      justice,
      If this writer is wrong and statistics are wrong as you say, now its the chance for Wiggi to show his colors without a wig.

      • 0
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        A good one!

      • 0
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        Yaman Bando Uthura Balanda.
        Ganing Bara Bagey wigahata
        Gona nathath umbawa hondai
        Ganing Bara Bagey wigahata.

      • 0
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        Banda,
        Wiggi has nothing to do with what exists now.
        If the NPC is allowed to collect revenue and decide expenditure priorities,the army sent to barracks and the police allowed to ensure law and order,the province will progress.

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          The Supreme Court has declared today that ‘land’ is not a subject devolved under 13A. Earlier SC ruled majority PCs can give parliament the authority to pass laws into the domain of PC. So, what the President MR said; police and Land powers will not be given to PCs is now a reality. Surely, CM doesn’t need police powers to develop his province and uplift the living standard of his voters. We await to see how the educated CM and his team do their job.

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      Gov’s 25+% growth rate could be correct, because that happens in any post war situation. After an end of war money pumped in as way of investment both in infra and others. So growth rate going as far as 25% is probable.
      There is nothing difficult to understand for anyone with an understanding of basic economics. :D

      Also Gov doesnt need to keep north lagging because North has been a burden for the country for like 30%. So turning it into another growth area is beneficial to us as a country.

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      Justice, the GDP growth should be understood in the context of the condition existing and the improvement in relation to that. It is not a comparison with the rest of the country and also is not an indicator in absolute terms. Hema Senanayake is right and it would be unfair to call him a ‘hurrah boy’ of the government.The growth of 25.9 % is not an invention, but is also not indicative of true development.

  • 0
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    Why is the writer advising the TNA/CJ Wigneswaran about making policy shift and advise about banking % interest etc for development etc.

    TNA and CJ Wigneswaran will not be interested in all these advises because your advise to the GOVERNMENT OF SRI LANKA has miserably FAILED.
    Really failed in all aspects.

    Take a hike and don’t waste your time advising TNA or CJ Wigneswaran.They didn’t have your advise for this great victory.
    Give your advise to Mahinda.

    • 0
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      Victory?

      What stupid victory?

      89,000 Tamil war widows? Surely a victory for grease devils wearing only undies. :)

      • 0
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        so you agree that atleast 89,000 Tamil men were killed by the Sinhala army during the last few days of the war.
        Add to that unmarried men, women, girls, boys, children, old men, old women, you are talking of 200,000 Tamils killed?

        UN Please take note

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          RajasH,
          Only 200,000 Tamils killed? I thought the figure has already passed 400,000 by now.

          • 0
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            agree multiples of 100,000s of thousands

      • 0
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        March 2014 the day of reckoning:

        India’s Narendra Modi vows to eradicate corruptionA supporter of the Bharatiya Janata Party holds an image of Narendra Modi. Thousands of supporters attended the rally for Narendra Modi in Delhi.
        Continue reading the main story
        Related Stories
        BJP’s Modi named Indian PM candidate
        India’s corruption scandals
        Profile: Narendra Modi

        The opposition candidate hoping to become India’s next prime minister has said the government is too “addicted” to corruption to tackle the issue.

        Narendra Modi vowed to eradicate the problem if he is elected to replace incumbent Manmohan Singh in 2014.

        The right-wing Bharatiya Janata party candidate addressed thousands at a campaign launch rally in Delhi.

        He blamed Mr Singh’s Congress party-led coalition for making India a laughing stock through lack of development.

        “The coalition is now addicted to corruption and instead of finding solutions to end the culture of graft, it stops functioning,” Mr Modi said, according Agence France-Presse.

        “India needs a dream team and not a dirty team in 2014 and people must decide that during the elections,” he added.

        Critics have called Mr Singh’s government one of the most corrupt in India’s history following incidents of bribery and other scandals that have prompted the resignation of several cabinet ministers.

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        Victory March 2014

        India’s Narendra Modi vows to eradicate corruptionA supporter of the Bharatiya Janata Party holds an image of Narendra Modi. Thousands of supporters attended the rally for Narendra Modi in Delhi.
        Continue reading the main story
        Related Stories
        BJP’s Modi named Indian PM candidate
        India’s corruption scandals
        Profile: Narendra Modi

        The opposition candidate hoping to become India’s next prime minister has said the government is too “addicted” to corruption to tackle the issue.

        Narendra Modi vowed to eradicate the problem if he is elected to replace incumbent Manmohan Singh in 2014.

        The right-wing Bharatiya Janata party candidate addressed thousands at a campaign launch rally in Delhi.

        He blamed Mr Singh’s Congress party-led coalition for making India a laughing stock through lack of development.

        “The coalition is now addicted to corruption and instead of finding solutions to end the culture of graft, it stops functioning,” Mr Modi said, according Agence France-Presse.

        “India needs a dream team and not a dirty team in 2014 and people must decide that during the elections,” he added.

        Critics have called Mr Singh’s government one of the most corrupt in India’s history following incidents of bribery and other scandals that have prompted the resignation of several cabinet ministers.

    • 0
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      winning an election is not the same as turning around a war ravaged area into a prosperous area.

      Gov has already done massive infra development that will benefit the ppl to do businesses and other industries. So this man is just giving his ideas on how it can be done.

      • 0
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        Which people? Military people???

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    In the case the center does not fulfill its obligations no doubt there will be many international donors and govts willing to do the needfull. The Govt needs to provide the funds and support the NPC, otherwise its credibility will be at stake which will lead to an unhealthy situation.

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      I bet, the government would support all PCs equitably. But it will be strictly on population pro rate basis. Nothing more nothing less.

      Today, WPC collect most money, But even WPC spend 80% of its collection on recurrent expenses. No doubt, tax payers of NP will have to provide for the comfort of one CM, 4 ministers and 33 MPs and their families before any development work. Those who demanded PCs as panache for their ills are in for a rude shock.

      To say the least about one dept of WPC, a small bridge along Homagama-Kiriwathtuduwa main road had become un-passable. They have installed a temporary metal bridge ten years back. When the metal floor of that temporary bridge has become slippery, work on a new bridge started but going-on in snail phase for the last two years. A similar bridge in Padukka took ten years to finish. It’s the same story everywhere.

      What is on fast track are all managed by the central government. But I don’t think wigge and co can work with the center like the UNP Mayor Muzammil of the Colombo municipality. Let’s see how Wigge expedite thing at NPC without his wig. I hope Wigge will not say he cannot dance because the floor is not level. Best of luck for the ‘educated’ man.

  • 0
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    Do any of you think the MR and his siblings are worried about the statistics and the economics? They are dead worried that the model of governance in the North, both in terms of governance and economically, will almost certainly trigger demands of similar nature, to a higher degree of governance, by people of other provinces.

    The fact that R Sampanthan and the TNA decided on a person of the stature of CW to be CM clearly indicates the seriousness attached to the proper governance of the province. This standard has bothered the Rajapaksas.

    As for the economic resurgence, I am very positive that the Northern Province would stand out in the coming years, as a model of a vibrant and balanced economic growth.

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    Nobody denies that importance of economic growth but for an economic economic growth, political stability is much important. Therefore the first task of the TNA should identify those barriers to the political stability. Political instability of NPC is still a volatile subject and the Central Government do not consider NP as a part of Sri Lanka. It always look for ways to create instability in the province. We have to break this barrier first and make sure that it is a permanent structure and it cannot be manipulated by Central government.

    * This is a war affected area and continued presence of a military and occupying economic potential areas is a barrier for political and economic stability.

    * The law and order is very important in order to run an efficient and to to minimise the corruption. In the North almost 100% of police are Sinhalese and it is believed by public that their motive is not about maintaining law and order. Instead they are the conducive for corruption. For example, people say that the police is very active on Friday’s before they go home for weekends.
    * All these days appointments (employments) are based on political influence. It is a barrier to employ suitable candidates based on merit.

  • 0
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    Stop giving any money to the NP. Let them dig it up!

    Vigneswaran will have to worship Basil (economic affairs minister) to get money now. :)

    Basil can get him to dance, etc. to his tune like Thaliavar did to the tune of the army.

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      I believe it would be the other way round. Basil was purportedly sent to negotiate with the LTTE to refrain from voting to enable his brother, MR to win with the Sinhala votes.

      So, sleep well, the NP will be able to handle its economic needs well, and won’t have the necessity to dance to the tune of the Centre.

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        jansee,
        Quite right.A massive bribe was given to LTTE by MR through his cronies to prevent tamils voting for UNP.

  • 0
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    Supreme Court has decided provincial councils have NO land powers! :)

    Yahoo! Fantastic!

    Now Tamils can get back to weeping and howling. Howl!

    • 0
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      and you can get back to lankaweb under your name lorenso and jack off eachtime you see ma wadduges picture!

      • 0
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        Isaipiriya actually! :)

        • 0
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          that shows ur necrophilic tendancies,if you dont understand the term refer the dictionary

          proves beyond all doubt that you need a good vetenary sugeon to treat you!

          btw is shenali not good enough for you

  • 0
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    The northern PC has the potential to show all other PCs how it can be done and be an example. They need to guard against the corrupting influences of politicians and their hangers-on, contractors and commission agents. They will also need to to have a sound strategy to deal with the Centre since Mahinda Rajapaksa is an unreliable and self centred leader who will think it is in his interest to sabotage the PC.

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    Hema,

    You have hit the nail on the head and I agree with you wholeheartedly on the following and add some spice to what you have written to make it palatable.

    1) Sooner, the Northern Provincial Council (NPC) will swear in the most accomplished Chief Minister in the whole provincial council system.
    *** The above is a Brilliant assessment and a true reflection of reality.

    2) Of course there is a political battle that has to be fought with the Central Government in regard to the powers of NPC.
    The political battle is for more rights to decide our destiny both in terms of how we govern ourselves and manage our economy.

    ***I agree with your assessment of what the Tamils of the North Need but not in the order that you see but in the following order.

    a) Economic freedom is meaningless without Political Freedom so the immediate necessity is devolution of Power ( not development of Economic Activity) to run our affairs and that is to take charge of our security and that can only happen when the army is ordered off the street. You can see the reason why as Sadly even after the stunning victory by TNA supporters of TNA are being attacked and this cannot be allowed to happen.
    b) I disagree with you on the following ” But my view is that the most immediate necessity is to meet the expectations of the people in terms of development in all spears of economic activity”.
    This will follow at a pace as I am sure you know that once we have political Freedom Just like in Tamil Nadu inward investment will flow.

    2) True, that powers of provincial councils are limited and the Center has to provide the most of funds for provincial councils and now NPC is one of them. If the center does not like the NPC then funds will be limited and funds will come later than needed. This conflict of political interest will possibly have bad economic impact which has already been noticed by the designate Chief Minister C.V. Wigneswaran. But, Wigneswaran clearly said his council would have dialogues with the Centre to get the benefits for the council. In view of the high expectations of the people, I would suggest Wigneswarant o have a dialogue with the Center in order to make a policy shift, which I describe below in this article, in handling the matters of economics.

    *** NPC is not simply another provincial council. Due its geographic location and the ethnicity of the communities, it is the most important provincial council in the country that will prove that reconciliation is possible while serving the people of the province as was expected by the proponents of the provincial council system.

    The above point is another Brilliant Assessment and I have already commented on this many times. You cannot compare the devolution of power to the 9 provinces in the same manner for the Simple Reason that what the North Needs is not just powers to run the Economy but most importantly Political Devolution to take charge of Security of our people which has not been eroded in the South as in the North where it is non existent. In the North we have the Army involved in Ethnic Cleansing which is not an issue in the South.

    3) “Proponents of the system justified it on the basis that devolution of power would make governance efficient as people would be able to find solutions to their problems within the province and they would not have to look to Colombo for everything.” (The Sunday Times) Therefore, it is prudent on the part of the central government to support NPC.
    Yes but MR had other ides and Dr. Shirani fell foul of MRs wrath when she challenged him on this issue spotting the danger.

    4) NPC will have a budget. And there will be a list of programs and projects that have to be funded through the budget. Most of the funds usually come from the Ministries of the Central Government and state institutions. For example the Ministry of Health will allocate certain amount of money to develop hospitals. So, NPC has to decide how that amount is expended. If the amount or part of it is not spent then the unspent amount will go back to the Treasury of the Central Government. This is how all the provincial councils performed so far and the performances were a dismal failure. NPC has to deviate from this mentality, because the challenge before the NPC is enormous and the region was a war torn area with many people affected badly during the war. How the NPC can deviate from the said traditional development approach mentioned above?

    I agree with you on the above and the piece of cake to be cut with the centre is not enough to meet the needs of the North not only because of the devastation caused by the last 30 years of War but also by the malicious intent of the Centre to deprive the North of any major investment the previous 34 years.

    ***This confirms my point that the NPC more than the other provinces need the Political Power to attract foreign Investment which the Centre cannot and will not do.

    4) First, NPC should not think that it as a provider for people but instead should think it as a facilitator. The difference between the “provider” and the “facilitator” is that “provider” will depend on the budget while the facilitator will use the budget to facilitate other stakeholders to bring in new capital multiple times than the budget to support the real economic growth of the province.

    I totally disagree with your definition and analysis of the two terms you have used and I would summarise as follow.

    The NPC can be both the “Provider ” and Facilitator as we must be the masters of our own destiny with a State within a State.

    If this policy shift takes place I assure you that we already have good talents (economists, bankers, project analysts etc.) in Sri Lanka who can really undertake this job of transforming projects into “enterprising mode.” This is the way forward for NPC. Put the economic vision and policy right. Then, any successful negotiation for foreign funded projects should be treated as bonuses.

    As for the above I would sound a word of Caution and listen to what CKB said about the country living on borrowed money and the bubble is about to burst. It is no point having talent if you live on borrowed money which has to be earned.

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