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Economic Reforms Sri Lanka needs now

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A view from independent economic development consultant

By Asita De Silva

The task ahead for Sri Lanka is to transform its economy from an inward-looking, public sector driven, debt dependent one into an export-driven, private sector-led economy that a broad share of the population can participate in and benefit from. A set of “structural” reforms based on global best practice can be undertaken unilaterally by Sri Lanka to begin to set its economy on this path without waiting for externally imposed “conditions”. Proactive steps in this direction can send strong positive signals to international creditors and development partners that Sri Lanka has a path to recovery, hasten the debt restructuring process, and unleash the potential of Sri Lanka’s economy to achieve rapid and sustainable economic growth that can improve the lives of all Sri Lankans.

At present, Sri Lanka’s economy is undermined and vulnerable to shocks from a range of underlying weaknesses, including limited growth potential due to its inward orientation; dependence on rolling over unsustainable levels of external debt; public expenditure dominated by debt service and maintenance of a unnecessarily large public sector that leaves inadequate room for investment in productive infrastructure and human capital; and suppressed potential of the private sector to create jobs and income-earning opportunities by unwarranted regulatory restrictions. As a result, Sri Lanka has seen continuous challenges in maintaining macroeconomic stability; is uncompetitive in the global economy; and has been unable to generate sufficient broad-based income-earning opportunities to substantially raise the living standards of all Sri Lankans. In the last few years, these weaknesses were aggravated by imprudent revenue and monetary policies that led to the current extreme crisis and hardships among the people. A basic reform agenda to address these underlying weaknesses and shift Sri Lanka to a sustainable economic growth path would comprise the following steps:Restore macroeconomic stability. Key measures would include (a) maintaining prudent monetary policies to contain inflation and ensure a stable, market-determined exchange rate; and (b) reducing the fiscal deficit and thereby the need for government borrowing by increasing government revenues through tax reform and reducing unnecessary government expenditures. Tax reform can involve broadening and simplifying the tax system rather than just increasing tax rates on a narrow tax base. Expenditures can be contained by reducing unnecessary or wasteful spending, such as on maintaining a large public sector or supporting loss-making state corporations, rather than by reducing essential expenditure on public infrastructure, health and education services, or the social safety net.

Remove unnecessary obstacles to private investment and business activity. A range of unnecessary rules, laws, licenses, permits, fees, documentation and other obstacles exist that inhibit private sector economic activity that can create employment and income earning opportunities. Steps are warranted to rationalize the regulatory environment so that it enables and encourages private sector investment and business activity while protecting core public interests. Increased private sector activity during the current crisis can help deliver basic goods and services; generate export earnings; maintain and increase employment; and expand income earning opportunities.

Enable market signals. A wide range of state directives distort market signals and mis-direct investment, including price controls, tariffs, subsidies, interest rate controls, and other state directions. Steps to remove these barriers to market signals are warranted in order to channel economic activity into the most efficient and competitive areas and thereby enhance the prospects of rapid, sustainable economic growth.Ensure a competitive environment. A range of sectors are dominated a single or a few public or private sector firms that undermine the benefits of a market-driven economy, such as lower prices, higher quality products, customer-orientation, and innovation. Efforts are warranted to ensure a competitive environment, dismantle monopolies, and identify and break up any cartel-like behavior.
Maintain and improve essential infrastructure to the extent possible. Within the constrained fiscal environment, priority may need to be placed on ensuring adequate basic infrastructure services that support increased economic activity, including reliable electricity, water, transport, and communication services. Some public infrastructure development can also serve as a safety net transfer measure through temporary employment generation.Ensure financial sector stability. Although the financial sector has been relatively well-performing to date, is likely to be under increasing stress in the current environment. Close monitoring and timely intervention may be warranted to avert major instability in the financial sector that can severe adverse implications for recovery of the economy.

Enhance the efficiency of the justice system to support economic activity. Continuing deficiencies exist in the capacity of the legal system to support strong private sector-led growth, including inefficient enforcement of contracts and resolution of insolvency. Steps are warranted to address these weaknesses and ensure that the legal system fully supports rapid growth in economic activities.Develop “smart” industrial policy. When markets are enabled, restrictions on private sector activity removed, and a level playing field established, then selective interventions to enable or encourage the development of specific industries might be considered. Such interventions need to have a clear rationale, be transparent, time-bound, and firm-specific rather than sector wide.
Enhance and target social safety net transfers. The current crisis requires a substantially enhanced safety net system to avert extreme deprivation among population. Given the need for prudent fiscal management, these transfers would need to be managed carefully. At present weaknesses exist in the safety net system, with benefits leaking to those not in need; many of those in need being left out; and the prevalence of untargeted measures such as subsidies and price controls that are inefficient and distort market signals. Use of modern technologies can improve the accuracy of targeting, reduce leakage, and reduce fraud. Steps to enhance the quality and efficiency of the safety net are therefore warranted, including through removal of indirect transfers such as untargeted subsidies and price controls in favor of direct cash transfers; and use modern technologies to identify, target, and transfer resources to the vulnerable population.

Begin reform of the higher education system. The higher education system represents a bottleneck to progress toward rapid economic growth. Limited opportunities deprive many young people of the ability to fulfill their potential and the commercial sector has little use for skills imparted by the system. Steps are warranted to broaden and expand access to higher education; enable private tertiary education provision; and improve the quality and relevance of tertiary education.

Begin reform the civil service to create a lean and dynamic public sector. As the current crisis has revealed, Sri Lanka cannot afford to maintain such a large public sector as the large wage bill increases the need for unsustainable government borrowing. Extensive public sector involvement in commercial activities and in regulating private sector activity also inhibits growth in private sector economic activity that can create employment and income earning opportunities. Steps are warranted to reduce the size of public sector and contain the wage bill; reorient the public sector toward objective-based management; and encourage a behavioral change in the public sector on enabling rather than obstructing private sector development and a market economy as best means to improve the lives of the people.
Inform the public of the costs they are bearing under the current economic structure to build a consensus on the direction of reforms. Reforms to change the structure of Sri Lanka’s economy offer the potential to create broad-based income-earning opportunities and improved living standards and are thereby in the best long term-interests of the people. The public can be informed of the costs and lost opportunities they are bearing under the current economic structure, including the costs of unnecessary regulations that benefit the few over the many; state directives that distort markets and suppress investment, exports, and job creation; and public funding of loss-making state enterprises that serve no essential public interest. Narrow vested interests in resisting change would also need to be systematically identified and overcome. Strategies would also need to be developed to systematically identify and overcome narrow vested interests in both the public and private sectors that will seek to resist and obstruct change.

The agenda above reflects global best practice in enabling a market economy to work to generate income earning opportunities for the population and supplementing this with public sector interventions to support human development and a social safety net. Proactive implementation of these measures will greatly enhance the prospects of a faster recovery and alleviation of the extreme hardships being endured by the people; support timely debt restructuring and access to international sources of finance; and set the country on the path to rapid, sustainable economic growth and improvement in the living standards of all Sri Lankans.
For further discussion of these issues, see: http://ardesilva.com/2022/06/07/slstrategy/Asita De Silva is an international development consultant, former staff member of the World Bank Group, and former executive at Hayley’s Group. The views expressed in this article are the writer’s own and do not reflect the views of any institution or agency.

The writer can be reached on asitadesilva11@gmail.com



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Features

US’ drastic aid cut to UN poses moral challenge to world

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An UN humanitarian mission in the Gaza. [File: Ashraf Amra/Anadolu Agency]

‘Adapt, shrink or die’ – thus runs the warning issued by the Trump administration to UN humanitarian agencies with brute insensitivity in the wake of its recent decision to drastically reduce to $2bn its humanitarian aid to the UN system. This is a substantial climb down from the $17bn the US usually provided to the UN for its humanitarian operations.

Considering that the US has hitherto been the UN’s biggest aid provider, it need hardly be said that the US decision would pose a daunting challenge to the UN’s humanitarian operations around the world. This would indeed mean that, among other things, people living in poverty and stifling material hardships, in particularly the Southern hemisphere, could dramatically increase. Coming on top of the US decision to bring to an end USAID operations, the poor of the world could be said to have been left to their devices as a consequence of these morally insensitive policy rethinks of the Trump administration.

Earlier, the UN had warned that it would be compelled to reduce its aid programs in the face of ‘the deepest funding cuts ever.’ In fact the UN is on record as requesting the world for $23bn for its 2026 aid operations.

If this UN appeal happens to go unheeded, the possibilities are that the UN would not be in a position to uphold the status it has hitherto held as the world’s foremost humanitarian aid provider. It would not be incorrect to state that a substantial part of the rationale for the UN’s existence could come in for questioning if its humanitarian identity is thus eroded.

Inherent in these developments is a challenge for those sections of the international community that wish to stand up and be counted as humanists and the ‘Conscience of the World.’ A responsibility is cast on them to not only keep the UN system going but to also ensure its increased efficiency as a humanitarian aid provider to particularly the poorest of the poor.

It is unfortunate that the US is increasingly opting for a position of international isolation. Such a policy position was adopted by it in the decades leading to World War Two and the consequences for the world as a result for this policy posture were most disquieting. For instance, it opened the door to the flourishing of dictatorial regimes in the West, such as that led by Adolph Hitler in Germany, which nearly paved the way for the subjugation of a good part of Europe by the Nazis.

If the US had not intervened militarily in the war on the side of the Allies, the West would have faced the distressing prospect of coming under the sway of the Nazis and as a result earned indefinite political and military repression. By entering World War Two the US helped to ward off these bleak outcomes and indeed helped the major democracies of Western Europe to hold their own and thrive against fascism and dictatorial rule.

Republican administrations in the US in particular have not proved the greatest defenders of democratic rule the world over, but by helping to keep the international power balance in favour of democracy and fundamental human rights they could keep under a tight leash fascism and linked anti-democratic forces even in contemporary times. Russia’s invasion and continued occupation of parts of Ukraine reminds us starkly that the democracy versus fascism battle is far from over.

Right now, the US needs to remain on the side of the rest of the West very firmly, lest fascism enjoys another unfettered lease of life through the absence of countervailing and substantial military and political power.

However, by reducing its financial support for the UN and backing away from sustaining its humanitarian programs the world over the US could be laying the ground work for an aggravation of poverty in the South in particular and its accompaniments, such as, political repression, runaway social discontent and anarchy.

What should not go unnoticed by the US is the fact that peace and social stability in the South and the flourishing of the same conditions in the global North are symbiotically linked, although not so apparent at first blush. For instance, if illegal migration from the South to the US is a major problem for the US today, it is because poor countries are not receiving development assistance from the UN system to the required degree. Such deprivation on the part of the South leads to aggravating social discontent in the latter and consequences such as illegal migratory movements from South to North.

Accordingly, it will be in the North’s best interests to ensure that the South is not deprived of sustained development assistance since the latter is an essential condition for social contentment and stable governance, which factors in turn would guard against the emergence of phenomena such as illegal migration.

Meanwhile, democratic sections of the rest of the world in particular need to consider it a matter of conscience to ensure the sustenance and flourishing of the UN system. To be sure, the UN system is considerably flawed but at present it could be called the most equitable and fair among international development organizations and the most far-flung one. Without it world poverty would have proved unmanageable along with the ills that come along with it.

Dehumanizing poverty is an indictment on humanity. It stands to reason that the world community should rally round the UN and ensure its survival lest the abomination which is poverty flourishes. In this undertaking the world needs to stand united. Ambiguities on this score could be self-defeating for the world community.

For example, all groupings of countries that could demonstrate economic muscle need to figure prominently in this initiative. One such grouping is BRICS. Inasmuch as the US and the West should shrug aside Realpolitik considerations in this enterprise, the same goes for organizations such as BRICS.

The arrival at the above international consensus would be greatly facilitated by stepped up dialogue among states on the continued importance of the UN system. Fresh efforts to speed-up UN reform would prove major catalysts in bringing about these positive changes as well. Also requiring to be shunned is the blind pursuit of narrow national interests.

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Egg white scene …

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Hi! Great to be back after my Christmas break.

Thought of starting this week with egg white.

Yes, eggs are brimming with nutrients beneficial for your overall health and wellness, but did you know that eggs, especially the whites, are excellent for your complexion?

OK, if you have no idea about how to use egg whites for your face, read on.

Egg White, Lemon, Honey:

Separate the yolk from the egg white and add about a teaspoon of freshly squeezed lemon juice and about one and a half teaspoons of organic honey. Whisk all the ingredients together until they are mixed well.

Apply this mixture to your face and allow it to rest for about 15 minutes before cleansing your face with a gentle face wash.

Don’t forget to apply your favourite moisturiser, after using this face mask, to help seal in all the goodness.

Egg White, Avocado:

In a clean mixing bowl, start by mashing the avocado, until it turns into a soft, lump-free paste, and then add the whites of one egg, a teaspoon of yoghurt and mix everything together until it looks like a creamy paste.

Apply this mixture all over your face and neck area, and leave it on for about 20 to 30 minutes before washing it off with cold water and a gentle face wash.

Egg White, Cucumber, Yoghurt:

In a bowl, add one egg white, one teaspoon each of yoghurt, fresh cucumber juice and organic honey. Mix all the ingredients together until it forms a thick paste.

Apply this paste all over your face and neck area and leave it on for at least 20 minutes and then gently rinse off this face mask with lukewarm water and immediately follow it up with a gentle and nourishing moisturiser.

Egg White, Aloe Vera, Castor Oil:

To the egg white, add about a teaspoon each of aloe vera gel and castor oil and then mix all the ingredients together and apply it all over your face and neck area in a thin, even layer.

Leave it on for about 20 minutes and wash it off with a gentle face wash and some cold water. Follow it up with your favourite moisturiser.

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Features

Confusion cropping up with Ne-Yo in the spotlight

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Ne-Yo: His management should clarify the last-minute cancellation

Superlatives galore were used, especially on social media, to highlight R&B singer Ne-Yo’s trip to Sri Lanka: Global superstar Ne-Yo to perform live in Colombo this December; Ne-Yo concert puts Sri Lanka back on the global entertainment map; A global music sensation is coming to Sri Lanka … and there were lots more!

At an official press conference, held at a five-star venue, in Colombo, it was indicated that the gathering marked a defining moment for Sri Lanka’s entertainment industry as international R&B powerhouse and three-time Grammy Award winner Ne-Yo prepares to take the stage in Colombo this December.

What’s more, the occasion was graced by the presence of Sunil Kumara Gamage, Minister of Sports & Youth Affairs of Sri Lanka, and Professor Ruwan Ranasinghe, Deputy Minister of Tourism, alongside distinguished dignitaries, sponsors, and members of the media.

Shah Rukh Khan: Disappointed his fans in Sri Lanka

According to reports, the concert had received the official endorsement of the Sri Lanka Tourism Promotion Bureau, recognising it as a flagship initiative in developing the country’s concert economy by attracting fans, and media, from all over South Asia.

Nick Carter: His concert, too, was cancelled due to “Unforeseen circumstances

However, I had that strange feeling that this concert would not become a reality, keeping in mind what happened to Nick Carter’s Colombo concert – cancelled at the very last moment.

Carter issued a video message announcing he had to return to the USA due to “unforeseen circumstances” and a “family emergency”.

Though “unforeseen circumstances” was the official reason provided by Carter and the local organisers, there was speculation that low ticket sales may also have been a factor in the cancellation.

Well, “Unforeseen Circumstances” has cropped up again!

In a brief statement, via social media, the organisers of the Ne-Yo concert said the decision was taken due to “unforeseen circumstances and factors beyond their control.”

Ne-Yo, too, subsequently made an announcement, citing “Unforeseen circumstances.”

The public has a right to know what these “unforeseen circumstances” are, and who is to be blamed – the organisers or Ne-Yo!

Ne-Yo’s management certainly need to come out with the truth.

However, those who are aware of some of the happenings in the setup here put it down to poor ticket sales, mentioning that the tickets for the concert, and a meet-and-greet event, were exorbitantly high, considering that Ne-Yo is not a current mega star.

We also had a cancellation coming our way from Shah Rukh Khan, who was scheduled to visit Sri Lanka for the City of Dreams resort launch, and then this was received: “Unfortunately due to unforeseen personal reasons beyond his control, Mr. Khan is no longer able to attend.”

Referring to this kind of mess up, a leading showbiz personality said that it will only make people reluctant to buy their tickets, online.

“Tickets will go mostly at the gate and it will be very bad for the industry,” he added.

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