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Reforms Sri Lanka needs to boost its economy

Idah Z. Pswarayi-Riddihough's picture
 Joe Qian/World Bank
The Colombo Stock Exchange. Credit: Joe Qian/World Bank

Many Sri Lankans understand the potential benefits of lowering trade costs and making their country more competitive in the global economy. The majority, however, fear increased competition, the unfair advantage of the private sector from abroad and limited skills and innovation to compete.

Yet, Sri Lanka’s aspirations cannot be realized in the current status quo.  

While changes in trade policies and regulations will undeniably improve the lives of most citizens, I’m mindful that some are likely to lose. However, many potential gainers of the reforms who are currently opposed to them are unaware of their benefits.

Implementing smart reforms means that government funds will be used more effectively for the people, improve access to better healthcare, education, basic infrastructure and provide Sri Lankans with opportunities to get more and better jobs. Let me focus on a few reforms that I believe are critical for the country.  First, Sri Lanka needs to seek growth opportunities and foreign investment beyond its borders.    

First, Sri Lanka needs to seek growth opportunities and foreign investment beyond its borders.

Experience shows that no country in the world today has been able to create opportunities for its population entirely within its own geographic boundaries. To succeed in this open environment, Sri Lanka will need to improve its skills base, better understand supply and demand chains as well as produce higher quality goods and services

Experience shows that no country in the world today has been able to create opportunities for its population entirely within its own geographic boundaries. To succeed in this open environment, Sri Lanka will need to improve its skills base, better understand supply and demand chains as well as produce higher quality goods and services.

How does Bhutan’s Economy Look?

Tenzin Lhaden's picture
Bhutan Economic Update
Bhutan has maintained solid economic performance to date in 2017 but delays in hydropower construction may affect its economic outlook with growth expected to slow to just under 7 percent in 2018. 

Bhutan is one of the smallest, but fastest-growing economies in the world. Its annual economic growth of 7.5 percent on average between 2006 and 2015, placed the country 13th of 118 countries, compared to the average global growth rate of 4.4 percent.

This growth has been shared by a majority of Bhutanese, with extreme poverty dropping from 25 percent in 2003 to 2 percent in 2012, based on the international poverty line of $1.90 a day (at purchasing power parity). This is among the rate in South Asia and compares favourably to the regional poverty rate of 19 percent. Equally impressive improvements were made in access to basic services such as health, education and asset ownership.

The recent developments on strong lending growth, inflation, exchange rates and international reserves show that Bhutan maintains a solid and stable growth in the first half of 2017. Gross international reserves have been increasing since 2012, when the country experienced an Indian rupee shortage. Reserves exceed $1 billion, equivalent to 10 months of imports of goods and services in mid-2017 which makes the country more resilient to potential shocks. This is also very much in line with the requirement spelled in the 2008 Constitution which outlines minimum reserve requirements. The Bhutanese ngultrum, pegged to the Indian rupee, have been stable or slightly appreciating against the U.S. dollar.

Despite recent solid growth and macroeconomic stability, we need to carefully monitor its Development. According to the latest Bhutan Economic Update, the hydropower construction and the implementation of the 2016 Economic Development Policy are expected to support this solid growth during the next few years. However, with confirmed delays in the completion of two hydropower projects, the contribution of the hydropower sector to growth will be lower than the originally projected. Therefore, the World Bank revised down its growth forecasts in 2019/20 by a few percentage points to 7.6 percent, still among the fastest in the world.

How can digital technology transform lives and improve opportunities in Bhutan?

Yoichiro Ishihara's picture
Tech Park
The recently opened Thimphu tech park – Bhutan’s first IT park -

The Kingdom of Bhutan is a landlocked country located high in the eastern Himalayan mountain range with its population 760,000. Up until about 20 years ago, the country was isolated from the world; Bhutan’s first ever television broadcast occurred in 1999. Since then, information communications technology (ICT) has made rapid advancement. Mobile subscriptions increased from 0.4 per 100 people in 2003 to 87 in 2015. The proportion of people using the internet have increased from 0.1% in 1999 to 40% in 2015. Today, all 20 districts and 201 (out of 205) sub-districts are connected through fiber optic cables.

The World Bank’s 2016 World Development Report on “
Digital Dividends” argues that digital technologies have boosted growth, expanded opportunities, and improved service delivery. Use of ICT for development is especially applicable to small states with populations of less than 1.5 million. Another report, “World Bank Group Engagement with Small States” finds that ICT investments can help reduce economic isolation, lessen barriers to trade, promote tourism, and improve mobility. These messages are highly relevant to Bhutan today.

The Government has enthusiastically adopted the use ICT to improve its services to its citizens as described in Bhutan ICT Roadmap and Bhutan E-Government Masterplan. The Government to Citizen (G2C) program, launched in 2005, provides a one-stop-shop for more than 100 services such as procuring a passport. The national ePayment Gateway Infrastructure, established by the Royal Monetary Authority (RMA), the central bank, has enabled citizens to pay for some public services online. Recently, the National Land Commission (NLC) launched eCitizen Portal - an online one-stop shop for transferring property titles online. This has reduced the number of days to transfer ownership of a property from 90 days to 62 days in the capital, Thimphu. More importantly, the NLC is reaching out to the private sector to seek feedback on how to improve its usability by piloting a feedback survey using an Interactive Voice Response (IVR) tool for the first time in Bhutan. The government has also introduced an electronic government procurement system (e-GP) to make optimal use of resources. Given the size of the budget (exceeding 30 percent of GDP), the adoption of e-GP will contribute to effective use of public resources. The World Bank Group has been supporting these efforts through various instruments such as the second Development Policy Credit: Fiscal Sustainability and Investment Climate, which helped get the eCitizen Portal off the ground.

How much should Bhutan worry about debt?

Yoichiro Ishihara's picture
Bhutan hydropower
Construction of the Dagachhu Hydropower Plant in Bhutan. Photo Credit: Asian Development Bank

In many respects, Bhutan has been a development success story. Its people have benefitted from decades of sharp reductions in poverty combined with impressive improvements in health and education. The country is a global model in environmental conservation. It is the first carbon negative country; Bhutan’s forests, which cover over 70% of the country, absorb more carbon dioxide than is produced by its emissions.

The Kingdom of Happiness also must grapple with the reality of managing budgets, creating infrastructure, and preparing its citizens to be able to create and take advantage of jobs of the future. To do that, we are working with closely with Bhutan to build the foundations for a more prosperous future through the cultivation of a vibrant private sector economy and supporting green development.

At the same time, Bhutan has invested generously in hydropower energy production to create a reliable and lasting source of green energy for its people. It also benefits from exporting excess electricity to neighboring India, whose energy needs continue to increase at a rapid pace with their growing economy.

In large part due to the hydropower investments, Bhutan’s public debt was 107 percent of the Gross Domestic Product (GDP) as of March 2017. Hydropower external debt was at 77 percent of GDP with non-hydropower external debt accounting for 22 percent of GDP. Questions have arisen on whether this level of debt is sustainable and what should be done to address it.

World Bank guarantees help Pakistan get cheaper, longer term loans from international market

Enrique Blanco Armas's picture
Photo Credit: Pakistan's Water and Power Development Authority (WAPDA)

Compared to their investment needs, developing countries have very limited concessional financing available to them. International commercial banks are constrained in terms of the size and tenors of credits to Emerging Markets and Developing Economies. A key challenge therefore, is to channel large savings and capital into productive investments in developing countries, partly by ‘de-risking’ investments and borrowings.  Pakistan is at the forefront of these efforts, recently making use of two World Bank guarantees to access over 1 billion US dollars in two international commercial loan financings.

A $420 million IBRD Policy Based Guarantee (PBG) was approved by the World Bank Board alongside a $500 million IDA credit in June 2016. The PBG guarantee partially takes over the risk of a commercial bank’s loan to a government. The PBG and the IDA credit supported a program of reforms including the adoption of a new and more inclusive poverty line, efforts to broaden the tax base, enhanced transparency of State Owned Enterprises, improved debt management and a significant overhaul of the regulatory framework of the financial sector.  Improved access to international financing through the PBG will reduce the government’s dependence on domestic financing and free up resources for private sector investment. The guarantee also signals the World Bank’s confidence in Pakistan’s economic reforms program – a signal that is particularly important after the successful completion of the IMF program. The government used the US$420 million PBG to partly guarantee a 10-year US$700 million loan, extending tenor significantly and achieving cost savings.  

இலங்கையின் வளர்ச்சிப் பாதை எவ்வாறு அமைந்திருக்கின்றது?

Idah Z. Pswarayi-Riddihough's picture
Also available in: English | සිංහල

அண்மையில் இடம்பெற்ற சம்பியன்ஸ் கிண்ண கிரிக்கட் போட்டித் தொடரில் இலங்கை அணியினர் சிறப்பாகச் செயற்பட்டதாக சிலர் எண்ணம் கொண்டிருக்கலாம். அதில் நானும் அடங்குகின்றேன். ஆயினும் தொலைக்காட்சிகளிலும், சமூக வலைத்தளங்களிலும், ஏன் எமது அலுவலகத்தில் கூட காரசாரமான விவாதங்கள் முன்னெடுக்கப்பட்டு அவர்கள் அனைவருமே அணியினது பெறுபேறுகள் விடயத்தில் ஒருமித்த நிலைப்பாட்டைக் கொண்டிருக்கவில்லை என்பதை தெளிவாக்குகின்றது. 

தமது கருத்துக்களில் வேறுபாடுகளைக் கொண்டிருந்த போதிலும் உலகின் பல்வேறு பாகங்களில் இருக்கும் எனது பல சகபணியாளர்களும், நண்பர்களும் போட்டிகளில் உற்சாகத்தை வெளிப்படுத்தியும் எதிரணிகளை ஆதரித்தும் போட்டிகளை ஆய்வுக்குட்படுத்தியும், போட்டியைப் பாதிக்கும் களத்திற்கு வெளியிலான அரசியல் நிலைகுறித்து கருத்துக்களை வெளிப்படுத்தியும், வெற்றி ஈட்டியவர்கள் தோல்வியடைந்தவர்கள் குறித்து தீர்ப்பிடும் வகையிலான கருத்துக்களை வெளிப்படுத்தியும், தமது ஆர்வத்தைக் கண்ணுற்றிருந்தேன். ஏனைய அணிகளுடன் இந்தப் போட்டித் தொடரில் பங்கேற்பதற்கு இலங்கை அணியானது சர்வதேச ரீதியில் முதல் எட்டு  இடங்களுக்குள் இடம்பெறவேண்டியது அத்தியாவசியமானது என்பதே இங்கு முக்கியமான விடயமாகும். எவ்வாறு பொருளாதாரம் வளர்ச்சி காண்கின்றது மற்றும்  அங்கீரிக்கப்படுகின்றது என்பதற்கு இந்த ஒப்பீடானது பொருத்தமானதாக அமைந்துள்ளது. ஆகவே இந்த சிந்தனைகளை நினைவில் நிறுத்திவைத்துக்கொள்ளுங்கள்.

பத்திரிகைகள் இணையத்தளங்களில் பல கட்டுரைகளைப் படித்தபோது சமூக வலைத்தளங்களில் பல்வேறு கருத்துப் பகிர்வுகளை வாசித்தபோது ஒரு விடயம் தெளிவாக புலனாகியது. அது என்னவென்றால் இலங்கை எவ்வாறு வளர்ச்சி காண்கின்றது என்பது தொடர்பாக எந்தவகையிலான ஒருமித்த கருத்துக்களும் கிடையாது. இவற்றுடன் 4.4 சதவீத வளர்ச்சி வீதம் தொடர்பில் அபிவிருத்தியடைந்த நாடுகள் திருப்திப்பட்டுக்கொண்டாலும் இலங்கையில் அது ஏற்றுக்கொள்ளக்கூடியதற்கு மிகவும் குறைவானதாகவே நோக்கப்படும். இது வளர்ச்சி காண்கின்றதா என சிலர் கேள்வியெழுப்புகின்றனர். மாறாக அது தொடர்பில் பல்வேறு கருத்துநிலைப்பாடுகள் காணப்படுகின்றன. நம் ஒவ்வொருவரின் வாழ்விலும் ஏதோ ஒரு வகையில் தொடர்புபட்டுள்ள இந்த விடயம் தொடர்பில் குழப்பமான நிலைமைக்கு இது வழிகோலிநிற்கின்றது.

ශ්‍රී ලංකාවේ ආර්ථික වර්ධන ප්‍ර‍ගතිය පිළිබඳ හැරී බලමු

Idah Z. Pswarayi-Riddihough's picture
Also available in: English | தமிழ்

මෑතකදී  නිමාව දුටු ශූරයන්ගේ කුසලාන තරගාවලියේදී ශ්‍රී ලංකා ක්‍රිකට් කණ්ඩායම හොඳින් ක්‍රීඩා කළ බව ඇතැමෙක් සිතන්නට ඉඩ ඇත. රූපවාහිනිය හා සමාජ මාධ්‍ය තුළ ද, මා ද ඇතුළු අපගේ කාර්යල සගයන් අතර අපගේ කාර්යාලයේ දී ද මේ ගැන ඇති වූ දැඩි විවාද පැහැදිලිවම යෝජනා කළේ ඔවුන්ගේ තරගකාරී බව ගැන සැවොම සතුටු නොවන බවයි. මේ විවිධ වාද විවාද අතරතුර, ලෝකයේ විවිධ කලාපවලින් පැමිණි මාගේ වෘත්තීය සගයින් සහ මිතුරු මිතුරියන් උණුසුම් ලෙස ජයඝෝෂා නගන අයුරුත්, තරග සමාලෝචනය කරන අයුරුත්, එකිනෙකට ප්‍ර‍තිවිරුද්ධ කණ්ඩායම්වලට සහයෝගය දක්වන අයුරුත්, ක්‍රීඩාව කෙරෙහි බලපාන දේශපාලනය ගැන විමසා බලන අයුරුත් සමග ජයග්‍රාහකයින් හා පරාජිතයින් පිළිබඳ පූර්ව විනිශ්චයන් ලබා දෙන අයුරුත් මම දුටුවෙමි. මෙහි ප්‍ර‍ධානතම කරුණ නම් ශ්‍රී ලංකාවට ජාත්‍යන්තර ක්‍රිකට් වර්ගීකරණයේ අටවන ස්ථානයේ රැඳී සිටීමට සෙසු රටවල් සමග තරග වැදිය යුතුව තිබීමයි. ආර්ථික වර්ධනය සිදුවන ආකාරය ද විවිධ මතවාදවලට ලක් වෙමින් මෙම ක්‍රිකට් සම්බන්ධ උදාහරණය සමග හොඳින් ගැලපෙයි. අපි ඒ සිතුවිල්ල පිළිබඳ සාකච්ඡා කරමු.

පුවත්පත්වල නොඑසේනම් අන්තර්ජාලයේ සංසරණය වන බොහෝ ප්‍ර‍වෘත්තිමය ලිපි කියවීමෙන්, නොඑසේනම් සමාජ මාධ්‍ය හරහා හුවමාරු වන පුරවැසියන්ගේ අදහස් විමසා බැලීමෙන් එක් දෙයක් පැහැදිලි වේ. එනම් ශ්‍රී ලංකාවේ ආර්ථික සංවර්ධනය සිදුවන ආකාරය පිළිබඳ සියල්ලන්ම එකඟ වන අදහසක් දක්නට නොමැති බවයි. සංවර්ධිත රටවල් සළකා බලන විට ඉහළ වර්ධන වේගයක් වන 4.4%, සංවර්ධනය වෙමින් පවතින හා ශ්‍රී ලංකාවේ හැකියාවන් මට්ටමෙන් ගත් කළ පහළ අගයක් ලෙස ඇතැමුන් තර්ක කරයි. මේ අතර සමහරෙක් ‘ ඇත්තටම වර්ධනය වෙනවාම දැයි‘අසති! මෙහි ප්‍ර‍තිඵලය වී ඇත්තේ සෑමදෙනාටම කුමන හෝ ආකාරයකින් වැදගත් වන ගැටළුවක් ගැන අපැහැදිලි චිත්‍ර‍යක් නිර්මාණය වී තිබීමයි.

වසරකට දෙවරක් ලෝක බැංකුව දිවයිනෙහි ආර්ථික පසුබිම පිළිබඳ දත්ත සහ විශ්ලේෂණ ඉදිරිපත් කරයි. ශ්‍රී ලංකාවේ ආර්ථික වර්ධනය කුමක් ද? ආර්ථික වර්ධනය වේගවත් කිරීමට සිදු කළ යුත්තේ මොනවා ද? ඒ සඳහා සහාය වීමට පුරවැසියන් සිදු කළ යුත්තේ කුමක් ද?  වැනි ගැටළුවලට පිළිතුරු දීමට එහිදී අපි උත්සාහ දරමු. ක්‍රිකට් ක්‍රීඩාව අනුව අතිදක්ෂ ක්‍රීඩකයකුට වුව කිසිවකුගේ දිරිගැන්වීමක් නොලැබේ නම්, ඔහුගේ උනන්දුව හීන වී ගොස් ඔහු අසාර්ථක වන බව අපි දනිමු. එවැනි තත්වයක් අවසානයේ ක්‍රීඩාව පිළිබඳ උද්යෝගයද වියැකී ගොස් කණ්ඩායමේ ශ්‍රේණිගත කිරීම්වලින් පහත වැටීමට ද හේතු විය හැක. දෙපාර්ශවයම කුමක්, කෙසේ, කා විසින් දිනාගත යුතු දැයි වටහාගත යුතු අතර තරගයකදී කණ්ඩායමක් සාර්ථක නොවූ විට තරගයේ කුමන අංශය වෙනස් කළ යුතු දැයි පැහැදිලි කරගත යුතු ය. ශ්‍රී ලංකාව ක්‍රිකට් ක්‍රිඩාවේ දැවැන්තයෙක් බවට පත්වූයේ එපරිද්දෙනි.  

How does Sri Lanka score in growth?

Idah Z. Pswarayi-Riddihough's picture
Also available in: සිංහල | தமிழ்

While some may think the Sri Lanka’s cricket team did well in the recent Champion's Trophy, myself included, vigorous debates have been going on, on TV and social media and even here in our office which clearly suggests that not everyone agrees on their performance. Despite these differences in perspective, I witnessed the excitement of many of my colleagues and friends from different parts of the world as they cheered, supported opposing teams, analyzed the games, and mulled the behind the scenes politics that affect the game, and also passed judgements on winners and losers.  The key point here is that for Sri Lanka to be in the top 8 internationally they had to play other countries. This analogy fits well with how economies grow and are recognized; so hold on to this thought. 

Reading through the many articles in the news, be they paper, internet or just exchanges between citizens on social media, one thing is clear, there is no one unified view on how Sri Lanka is growing. While developed countries would salivate at a growth rate of 4.4 percent, in Sri Lanka it is considered below potential. Some even question if it’s growing! The result is a confusing landscape on an important issue that touches everyone in some way.   

Twice a year the World Bank adds data and analyses to the many out there. We try to answer questions such as: what is Sri Lanka’s actual growth? Which parts of the economy have grown and which have not? If the country is to accelerate growth, what needs to be done? What can its people do to help? We know from cricket that the players can be excellent but if no-one cheers for them, they lose interest and cannot be successful. Eventually the game loses its luster and the competitive edge of the country’s ranking also slips. Both sides need to understand what needs to be achieved, how, by whom and when the team doesn’t quite deliver in a match, what part of the game should they change. This is what has made Sri Lanka a cricket powerhouse.

Good luck and good policies

Frederico Gil Sander's picture

In Brazil, where I come from, we are crazy about football, so I grew up listening to football matches. At the end of a match, the reporters would interview the main scorer of the day, who would often say that he was just lucky to receive the ball at the right place.
The commentator would then say that “good luck is a combination of ability and opportunity”. This story comes to mind when thinking of India’s economy over the past two years.
India has been lucky indeed. In the fiscal year ending March 2016 (FY16), the sharp decline in oil prices generated what economists call a positive “terms-of-trade” shock, which lifted growth.
A terms-of-trade shock means that the things you buy suddenly become cheaper relative to the things you sell, allowing you to buy more things.

In the fiscal year that just ended, CSO data that was released recently shows that the good monsoons helped agriculture propel growth. Notwithstanding disruption from demonetization, agricultural wages have continued to grow, along with their purchasing power as rural inflation declined.

But India has also implemented good policies, which allowed it to take advantage of the external shocks. The government took advantage of declining oil prices to eliminate fuel subsidies and hike taxes on carbon-emitting petroleum products, a win for the environment and a win for the exchequer.