SL seen as having made ‘commendable strides towards fiscal discipline’

By Ifham Nizam

Sri Lanka has made commendable strides towards fiscal discipline, particularly in the area of controlling government spending and managing inflation, Rockefeller International chairman and founder and CIO, Breakout Capital Ruchir Sharma said.

Sharma was speaking at a special public lecture in Colombo recently, organized by the Central Bank of Sri Lanka. At the outset he said that Sri Lanka is a country to which he could connect emotionally. `I love coming here whenever I can. If I have to come for a vacation it has to be Sri Lanka, he said.

Sharma added: ‘Sri Lanka’s mounting government debt and its low Tax-to-Gross Domestic Product (GDP) ratio is causing concern. These are significant fiscal challenges that the country must address.

‘Sri Lanka’s effective monetary policy has helped tame inflation. However, there should be sustained vigilance to prevent inflationary pressures from resurfacing.

‘In my book, “The 10 Rules of Successful Nations”, I have defined 10 rules and areas of growth. They are; Population, Politics, State, Debt, Currency, Investment, Inflation, Geography, Inequality and Sentiment.

‘There are some 200 countries and of these countries only 40 countries or so are classified as developed countries. All the other countries are classified as emerging markets and most of them have been emerging forever.

‘The only country to move up from developing to developed country status was South Korea in the 1980s and since then no other country has followed suit.

‘Sri Lanka too has been ranked as a developing country for many years but has not moved up. This is despite Sri Lanka having notched many a positive landmark, such as in education and health.

‘Sri Lanka has to do much to improve overall development and accelerate the engine of growth.

‘Sri Lanka’s working age population growth, for example, remains 0.1%, which is an obstacle to economic growth.

‘Furthermore, Sri Lanka scores low in the area of State because the tax contribution to the state remains minimal. Due to the current politically volatile state of the country, Sri Lanka also ranks low in terms of Politics, where results of an election would determine its development.

‘Currency being cheap is good if it is stable, but the key is avoiding unreliable measures. Sri Lanka ranks well in the area of Currency because it is cheap.

‘In terms of Geography, despite the many opportunities and potential, Sri Lanka has not been able to fully exploit and capitalize on its geography. Intraregional trade is vital for the development of countries, yet South Asia has low intraregional trade and therefore misses many opportunities for growth.

‘The problem of internal geography is of such proportions that much of the wealth is concentrated in the Colombo area and there is not enough in the other areas.

“Generally, I would say, Sri Lanka ranks relatively well at this point from an investment perspective and issues of liquidity, among other things. But this is a big improvement over the last couple of years. Once the political situation becomes stable, the key for Sri Lanka is, what is going to be your growth engine?

‘The classic growth engine is manufacturing exports. For countries with Sri Lanka’s per capita income, the latter is necessary to grow rapidly. But with that growth engine looking difficult to bring about, what could be the growth engine for Sri Lanka to grow even at 5%, because 6-7% seems very difficult given the demographics of the country.

‘The country should determine a suitable growth engine for it as even raising the economic growth rate by 5% is crucial. Sri Lanka should catch up considering the time lost during its economic crisis.’

Meanwhile, on the question of introducing a wealth tax, Sharma said, among other things, that it is very difficult to correct inequalities by initiating such a tax.