By Rajan Philips –

Rajan Philips

Addressing the Sri Lanka Economic Summit 2022, an annual event organized by the Ceylon Chamber of Commerce, President Wickremesinghe reportedly shocked the business audience, questioning, “What reforms, when we don’t have an economy!” To an audience that was apparently waiting to hear serious stuff about an economic reform plan, the President said, “What is the plan for reform? Frankly, I have no plan for it.” But he had a programme to announce and called it, ‘The Next 25 Years.’

Mr. Wickremesinghe has been harping on 25 years for some time now. That is the President’s expectation for Sri Lanka to reach economic growth and prosperity by 2048, a hundred years after becoming independent from colonial rule in 1948. The 2023 budget that passed its Third Reading on Thursday is supposed to be the launching pad for the anticipated economic recovery over the next 25 years. Hence, the President’s programme: The Next 25 Years. And hence, too, questions about the economy’s takeoff and its landing. 

“Takeoffs, Landing and Economic Growth” is the subject of an Asian Development Bank Institute (ADBI) Working Paper (#641, January 2017), authored by Debayan Pakrashi and Paul Frijters. The Paper lists the takeoff and landing status of twenty two South Asian and Southeast Asian economies. It provides a brief discussion on the experiences of  Japan, the East Asian Tigers, the tiger cub economies, the People’s Republic of China, and India. Sri Lanka is included in the list, but not in the discussion.

18 countries are identified as having had an economic takeoff including the year of takeoff. Only four countries are noted as having landed. The four countries with the takeoff and landing years are: Hong Kong (1960-1995), Japan (1946-1974), Malaysia (1968-1998), and Singapore (1966-1998). Sri Lanka’s year of takeoff is noted as 1990, the same year Vietnam is considered to have taken off. Neither country is registered to have landed yet. But we know that while the Vietnamese economy is in full flight, the Sri Lankan economy crash-landed in 2021. What will be its takeoff mechanism for the President’s Next 25 Year flight from its crash-landing state now. And how will it land again? 

I believe, the concept of economic takeoff was first introduced by Professor W.W. Rostow in his celebrated 1960 monograph entitled, The Stages of Economic Growth: A Non-Communist Manifesto. The ADBI Paper, citing Rostow, says that “a country is said to have taken off in terms of economic growth if it has effectively applied radical changes to its available resources and has set forth on a path of sustained economic growth extending for decades.”

I came to know about Rostow in 1972 from then Peradeniya Lecturer (later Professor) in Economics, N. Balakrishnan, in the course of his lectures on Economics to Engineering students. Years later I read a Marxist critique of Rostow that Hector Abhayavardhana wrote when he was living in New Delhi before his return to Sri Lanka in 1964. Re-reading Rostow, I find several resonances in Sri Lanka’s modern economic history as well as its current takeoff challenges. More on that, later. 

Three Interventions

For now, I would like to focus on three post-2023 Budget interventions in the public domain, one by a political leader and two by noted Economists. The interventions are significant for not only what they say, but also for what they do not say. The political leader is JVP’s Anura Kumara Dissanayake (AKD), who, as I wrote last week made a substantial speech on the economy and the political situation in the country in a public meeting in Badulla. 

On a side note, the mainstream media has by and large ignored AKD’s Badulla speech, which the Colombo Telegraph published at some length. According to JVPers, mainstream media always ignores them except to dig up 1971 and 1988 whenever there is something positive to report on the JVP. Nonetheless, the JVP leader deserves more media coverage than a nondescript like Channa Jayasumana who seems to have wormed his way to get media coverage in spite of his abominable record in maliciously attacking Dr. Shihabdeen Shafi, the Kurunegala Gynecologist, to get on the SLPP candidate list. 

That aside, AKD’s Badulla speech is a graphic exposition of how terrible things are – from unaffordable prices to collapsing industries to rampant corruption. But there is nothing in the speech by way of specific remedies, except for the general assertion that elections must be held soon and the people must elect a new leadership, i.e., the JVP, to take over. He wants the country to take a leap of faith and endorse the JVP, not quite unlike President Wickremesinghe’s message to the country to take a leap of faith with him for the Next 25 Years.

The two economic intervenors I am referring to are Prof. Sirimal Abeyratne and Dr. Nimal Sanderatne, both of whom are weekly Sunday Times columnists. Abeyratne’s November 27^th column is appropriately entitled, “Road to a ‘developed country’ in 2048,” and describes the budgetary vision as an “export-oriented, competitive economy led by the private sector.” The scale of the desired export expansion is ambitious – a continuous $3 billion increase in exports year over year for 25 years. Or an annual increase of 25% from the 2021 export total of $12.5 billion. 

Perhaps the projected export growth is not to be deemed daunting, because after 25 years Sri Lanka’s total export value would be still under $100 billion in comparison to other export-successful Asian countries whose totals are already in the $300-$400 billion range. China is in a league of its own with an export total of $3.3 trillion. But China has a different problem, as is currently being noted by demographers, and it is that the country is facing a population decline by 50% at the end of this century if not 30 years sooner. It will be quite a load off for the planet, but it is going to be an excruciating challenge for the Chinese society.

As for Sri Lanka, the annual export growth of $3 billion is to be matched by an equal yearly increase of $3 billion in Foreign Direct Investment (FDI). Sri Lanka’s FDI in 2021 dropped to a paltry $600 million, quite a way lower than Malaysia ($11.6 billion), Singapore ($99.1 billion), Thailand ($11.4 billion) and Vietnam ($15.2 billion). Curiously, the Next 25 Years are going to see exports and FDI increasing at the same rate and by the same amount to reach almost the same totals in 2048 – exports: $87 billion, and FDI: $76 billion. In contrast, the above mentioned Asian countries except Singapore have high export/FDI ratios – between 20 to 30. Is Sri Lanka going to miss out on productivity, or is productivity not meant to be a consideration for the Next 25 Years? 

The more important question is how are these export and FDI growth projections going to be achieved from year to year, if they are to be the roadway for Sri Lanka to become a developed country and join the high income club with a per capita membership fee of $12,695? Prof. Abeyratne lists four pre-requisites, three of which are included in the budget. They are the introduction of a “single agency,” consolidating the current BOI, EDB, SLECIC and NEDA pillars and posts into a single window, to facilitate trade and investment; New Economic Zones in different parts of the country; and bilateral and multilateral Free Trade Area (FTA) agreements. None of which are new and have been tried and talked before. The fourth requirement is what Prof. Abeyratne calls the “unilateral reform process,” which he considers to be “much more fundamental to export growth” than everything else. And this is what President Wickremesinghe cavalierly shot down at the Sri Lankan Economic Summit! 

There is something else missing here. To achieve an annual export growth target of $3 billion, is it possible and is it not necessary to identify where this growth is going to come from? What is the contribution to growth from the already established export industries? Which among them have potential for growth and how could they be encouraged to expand? What are the industries that have plateaued but still need to be supported to maintain their production levels? Should there be an effort to identify potential new industries which are grounded on evidence and market potential, and not on snake-oil-sales-pitch about automobile-assembly plants? Would it make sense to have an export-product-mix and use it as a basis for opening target-oriented single agency, economic zones, and free trade areas? 

Unique Karma

In his same day (November 27) Sunday Times column, Nimal Sanderatne hits the nail on the head by drawing attention to the enormity of the challenge of achieving the 2023 Budget objectives given “the political conditions in the country, production constraints in all sectors of the economy and the recessionary conditions abroad.” In his December 4 column, Dr. Sanderatne raises the possibility that the IMF’s $2.9 billion Extended Finance Facility may not be finalized even by March 2023. 

While it was overly optimistic on the part of everyone in Colombo to expect a smooth path to IMF’s support, Sanderatne is concerned about the geopolitical dynamic involving the restructuring of Sri Lanka’s debt to China and its political implications in Sri Lanka. He alludes to something that few would have thought could become a possibility. And that is the likelihood of, as Sanderatne suggests, China blocking the IMF facility and offering an alternative “bailout package with Chinese financial and commodity assistance.” Nimal Sanderatne further suggests that based on Mahinda Rajapaksa’s speech during the budget debate, “such a programme would have the support of a large and influential component of the Government” led by Mahinda Rajapaksa and the SLPP. This would place President Wickremesinghe in a quandary, and it would also explain his scurrying for alternative funding sources in the World Bank, the ADB and Japan.  

Geopolitical reality is what it is and it is Sri Lanka’s unique karma to have become indebted all at once to China, India, and the Paris Club lenders that includes Japan. It now has to find a way to restructure these debts without ruffling anyone’s feathers. Perhaps there is no denying that Ranil Wickremesinghe is the most suitable man for this unenviable task, but what is frustrating about him is that by his peculiar modes of operation he undermines his own suitability in the context of domestic politics. Put another way, there are serious hurdles to overcome before Sri Lanka can even get on the road to recovery, and the President has to engage the country far more substantively than by mere mantras such as The Next Twenty Five Years.