By 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.