Sri Lanka should make urgent structural reforms: Central Bank

ECONOMYNEXT – Sri Lanka has to make urgent structural reforms by gaining broad public consensus to boost growth and link with global production networks, the Central Bank has said.

In 2016, budgets have improved with the help of an International Monetary Fund programme, although foreign reserves fell and there was a balance of payments deficit, amid continued weakening of the currency.

However, the country has to make structural reforms, the Central Bank said in a statement.

"[I]t is essential that these structural issues are addressed decisively without delay, with broad public consensus, as the postponement of these essential reforms is no longer feasible if the country is to progress along a sustainable and equitable growth trajectory" the statement said.

"..[T]he postponement of these essential reforms is no longer feasible if the country is to progress along a sustainable and equitable growth trajectory."

While monetary policy (printing money)-accommodated deficit spending can give a short-term boost to economic activity at the expense of higher inflation and balance of payment troubles, long-term economic growth comes from investment and skills, for which greater economic freedom is required, analysts say.

Sri Lanka’s economy grew 4.4 percent in 2016, slowing from 4.8 percent a year earlier, with a drought is also weighing in. Exports markets were also weak.

Budget deficits, which are accommodated with Central Bank money printing and generates balance of payments crisis and currency depreciation, destroying lifetime savings and real wages, have been the key generator of economic instability in the island since independence.

In 2016, budgets improved, with dis-savings measured by the current account of the budget falling from 2.3 percent of gross domestic product to 0.6 percent, boosting domestic and national savings, while total spending also fell to 19.7 percent from 20.9 percent.

Sri Lanka still has to make reforms in tax administration and tax laws.





A programme with the International Monetary Fund has identified the bare minimum areas for reform. A safe environment to invest where tax rates are stable and do not change with every budget, and the state that does not expropriate assets of private parties will also draw foreign capital.

Economists have called for Sri Lanka to reduce trade barriers and restrictions in service areas such as education and logistics.

Others have also called for Central Bank reforms to reduce its discretionary powers to print money, generate balance of payments troubles and high inflation, and generally de-stabilize the economy and currency, which it began soon after independence by accommodating deficits.

There have also been calls for better management of privatization of state enterprises, which are eating up taxpayer funds and generating corruption.  (Colombo/Apr27/2017)

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