Sri Lanka central bank chief warns against political expedience in policy making
ECONOMYNEXT – Sri Lanka’s Central Bank Governor Indrajit Coomaraswamy has called for government policy making to be free of short-term political expedience and for consensus on critical reforms for the island to break out of stop-go economic cycles.
And the private sector needs to take more risks and make investments to take advantage of emerging opportunities, he said in a speech on the Central Bank’s monetary and financial sector policies for 2017.
“Government policy making needs to be proactive,” Coomaraswamy said. “It has to be more data driven and less influenced by short-term political expedience.”
Sustained growth requires strengthening macroeconomic fundamentals, implementing structural reforms that increase the competitiveness of the economy, and improving the business environment, he said.
“The challenge that we are having right now is to put in place policies that give us sustained stabilisation of macroeconomic fundamentals in the country, amidst uncertain global conditions,” Coomaraswamy said.
“This journey ahead also requires a rebalancing of economics and politics in economic decision-making, if we are to stay on course.”
Coomaraswamy said that stabilising the economy after decades of fundamentally unstable macroeconomic policies cannot be achieved without discipline and “inevitably result in some pain in the short term.”
“For this to happen, consensus must be built among politicians, policy makers and the general public on the need for cohesive reforms around the three pillars of robust macroeconomic fundamentals, improving productivity/competitiveness and the improved business environment.”
Coomaraswamy acknowledged that it is “naïve to believe that economics can be separated from politics” but noted: “We need to ask why Sri Lanka, which was second to Japan in Asia on most socio-economic indicators has slipped so far behind today.”
Sri Lanka needs a new economic growth model, built on the core tenets of high value-added entrepreneurship, creativity and innovation to generate benefits for all Sri Lankans, Coomaraswamy said.
The country has a number of structural problems that have been amplified over the years by the large fiscal and trade deficits.
“Being a twin deficit country increases vulnerability in an uncertain and volatile global economic environment,” Coomaraswamy said.
“We cannot continue with repeating stop-go cycles, with each successive trough becoming more dangerous. We need decisive policy initiatives implemented with commitment. More importantly, we need to take a longer term view and act accordingly.”
Coomaraswamy also said the private sector “needs to recalibrate its risk appetite” and take advantage of opportunities generated by improving macroeconomic policies and a more conducive, enabling environment for business.
“We would all like progress to be faster but the direction of travel is clearly positive. There is also the likelihood that, as the reforms gain momentum, the pace of change will accelerate, provided there is the commitment to persist with the measures that are necessary to place the economy on a higher trajectory of growth, employment generation and incomes.”
(COLOMBO, Jan 05, 2016)