Sri Lanka beats Burkina Faso in economic freedom, dropping 11 places
COLOMBO (EconomyNext) – Sri Lanka has beaten Burkina Faso, a low income African nation whose president travels in an executive jet, to emerge ranked 101 in economic freedom among 186 countries, dropping 11 places from last year.
The annual ranking measured by US-based Heritage Foundation said economic freedom had declined by 1.4 points over the last year but there was a gain over the past 5 years led by fiscal freedoms.
Over the past five years, economic freedom on the island has advanced by 1.5 points, with improvements in half of the 10 factors led by double-digit gains in fiscal freedom.
"Overall, however, the foundations of economic freedom remain weak," Heritage Foundation noted.
"Property rights are hard to enforce because of fraud, and a weak judiciary fails to mediate disputes effectively.
"Government industrial policies distort trade and shelter domestic industry from competition. The central bank is not fully independent, raising the fear of inflation and monetized government deficits."
Sri Lanka’s recently ousted Rajapaksa administration had reduced the top rate of income tax last year, leaving more money in the hands of the most entrepreneurial to invest, counteracting key negatives including weak rule of law and property rights to generate some jobs.
Revenue to Gross Domestic Product had fallen to about 13 percent of GDP leaving more money in the hands of citizens.
Sri Lanka’s weak growth in the 1960s was due to revenue to GDP of over 20 percent, which was spent on current expenditure, top Indian economist B R Shenoy noted in a report to the Sri Lanka’s leaders in 1966.
He advised the country to reduce it to levels seen in Germany and Japan at the time, which was below 14 percent, which had seen blistering post-war growth with expanding economic freedom.
There are also doubts about Sri Lanka’s GDP data, indicating that actual revenue to GDP may be higher than official statistics.
There had been increased calls from the International Monetary Fund and others to increase the revenue to GDP ratio and put more of the output produced by citizens in the hands of rulers and bureaucrats to spend as they wished instead of how citizens want to spend it.
The highest ranked countries with economic freedom were those that absolutely cannot monetize debt, or those that are prohibited by law to manipulate the money supply excessively.
The highest ranked country in economic freedom was Hong Kong, which does not have a central bank and cannot destroy the currency and impoverish the population, followed by Singapore which has a modified currency board and which also does not print money.
Third ranked was New Zealand which invented inflation targeting also reducing Central Bank discretion in manipulating interest rates and printing money, followed by Australia, which also has an inflation targeting regime and one of the strongest currencies.
The fifth was Switzerland which also has a strong currency, which stopped pegging to the Euro recently after the ECB decided to print large amounts of money.
Europe in general however is mired in regulation and high revenue to GDP ratios, and most state interventions that reduce economic freedoms and help keep people poor were invented in Europe.
In the rankings Sri Lanka was one place ahead of Burkina Faso, a low income country with a percapita gross domestic product of 790 dollars a year. Its president has a special Boeing 727 transport and an executive jet. Military coups are also frequent in the country.