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Sri Lanka economic freedom falls amid ‘debilitating’ corruption: Heritage Foundation

ECONOMYNEXT – Sri Lanka has dropped in a ranking of economic freedom compiled by US-based Heritage Foundation mostly due to corruption perceptions, although marginal gains were shown in trade and business freedoms. 

The report noted that Sri Lanka has made a ‘notable economic transition from fragility to relative stability,’ and ‘political reconciliation and economic transformation have been strengthened by measures that support long-term development and competitiveness’.

"Economic reforms undertaken to improve Sri Lanka’s macroeconomic stability and potential for growth include strengthening the management of public finance and structural reforms to foster a more dynamic private sector," the 2017 Index of Economic Freedom noted.

"However, a weak judiciary continues to undermine property rights, and the perceived level of corruption is debilitating."

Top scorers in economic freedom are Hong Kong, Singapore, New Zealand, Switzerland and Austria.

Sri Lanka’s economic freedom dropped sharply up to 2009, during the height of a 30-year war, and recovered till 2013, according to the Index.

However, it has remained below levels achieved in 2001, while many countries made significant gains and the overall level of economic freedom in the world improved.

Sri Lanka economic freedom score rose in 2016, but has dropped this year.

The report said the government directs credit and there are price controls, which it had been asked to remove.

Sri Lanka also lagged behind countries like the UAE, a financial centre that Sri Lanka wants to emulate. The UAE has no income tax, free trade, free capital movements backed by a credible peg, and labour mobility.





The US also saw a fall in economic freedom, which The Heritage Foundation attributed to new regulations brought in by President Barak Obama. These include the Dodd-Frank Act, which put restrictions on banks following a massive credit bubble fired by the Federal Reserve.

A massive ‘stimulus’ also allowed the rich to make excessive profits, the report said.

The report blamed state interventions for a slow recovery from the burst bubble. Similar ratcheting up of regulations were seen during the Great Depression, which delayed a recovery.

The Great Depression came after the so-called ‘Roaring 20s’ bubble fired by Fed loose policy – ostensibly to help the Bank of England avoid monetary tightening and stem outflows of gold – burst spectacularly.

Before the Fed was created in 1916, credit bubbles were smaller and recoveries faster.

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