Sri Lanka needs deregulation, say economists

COLOMBO: | Updated: Jan 24 2002, 05:30am hrs
Sri Lanka urgently needs to push deregulation and promote industry to help revive what Prime Minister Ranil Wickremesinghe calls a near-bankrupt economy, economists said on Wednesday. The economy shrank an estimated 0.5 per cent last year — the first contraction in 50 years — which led to comments by the Prime Minister on Tuesday that the economy was “near bankruptcy”. “They must do secondary reforms and deregulate the economy to the maximum. We are too late on this,” said Chandra Jayaratne of the Ceylon Chamber of Commerce, outlining proposals the leading business body wants to see in a delayed budget due in March.

Economists are hoping for reform in diverse state departments such as the Registrar of Companies, the Exchange Control Department, Inland Revenue and the Customs department and reform at the state-run Ceylon Petroleum Corporation and the Ceylon Electricity Board.

Sri Lanka’s economy, with gross domestic product of $16 billion, is among the most open in South Asia to foreign investment and trade, but has lagged behind other high-growth Asian economies, weighed down by an ethnic war and a bloated government. Labour, public sector and education reforms have been highlighted as crucial by the International Monetary Fund, which lent $131 million to Sri Lanka last year under a standby credit arrangement before a political crisis put the programme on hold.

Key March budget
A global economic slump, a devastating Tamil rebel attack on Sri Lanka’s only international airport and the political crisis that ended in a snap election pushed economic growth into the negative, far short of the projected increase of 4.5 per cent. The budget deficit jumped to 10.5 per cent from an estimated 8.5 in 2001, and Wickremesinghe’s government, which won the December election on a pro-peace mandate, has said it sees that figure snowballing to 12 per cent to 14 per cent this year unless strong policy measures are taken.

The policies are expected to be revealed in a March budget, and economists said they would have to do the almost impossible task of cutting the deficit while providing enough investment to promote growth. The cost of servicing domestic loans is one of the heaviest burdens on the budget. The country does not have a high level of foreign commercial loans. “The sale of a second tranche of Sri Lanka Telecom will be the key for revenues,” said Dhushyanth Wijesinghe, the head of research at Asia Securities. The sale could yield about $250 million to the government, but it has already been delayed for more than two years because of investor concerns about Sri Lanka in general and international telecoms in particular.

Economists were divided on Mr Wickremesinghe’s comments. Some said he may have been overly negative on the state of the economy to place more blame on the previous government, adding fairly stable interest rates and inflation rates showed things were not as bad as he said.

Interest rates on government securities have eased to around 14 per cent from a high of 20 per cent last year, and annual inflation was 14.2 per cent last year. Others said the economy had bottomed out. “An increasing number of company bankruptcies and industry closures indicate the economy hit rock bottom last year,” said Saman Kelegama, a senior economist at the Institute of Policy Studies, a local think tank.

— Reuters