Amid din of anti-corruption blitz, Economic debate should not drown

Sri Lanka has made remarkable strides in stabilizing its economy, undertaking one of the largest fiscal adjustments in its history—equal to nearly 8 percent of GDP over three years. The adjustment was sharper and faster by international standards, when compared with more than 330 similar efforts in 123 countries worldwide since 1980, according to a new World Bank review of Sri Lanka’s public finances released on Tuesday.

- 

Yet, the country is not out of the woods. Bound by the IMF programme, Sri Lanka has little room outside a liberal economic framework.

The World Bank notes that fiscal measures have restored stability, but at a cost: households now face higher indirect taxes, real public-sector wages have fallen, and growth has slowed due to lower public investment.

World Bank suggests the next phase of fiscal calibration should focus on raising revenue in fairer, growth-friendly ways and improving the quality of public spending.

The challenges ahead are daunting

Sri Lanka must service its foreign debt, rebuild reserves, and create jobs.

To improve living standards, growth must remain well above five percent. Current projections fall short of that benchmark. With such what some modest rates economists call "natural growth" requiring little government effort the country risks drifting rather than driving toward prosperity, according to former Deputy Governor of the Central Bank, Dr W.

A. Wijewardena.

He said earlier that Sri Lanka must shift its focus towards fostering innovation, empowering and entrepreneurs, moving beyond its current economic trajectory to achieve a prosperous future with a sustained growth rate of over eight percent.

Dr Wijewardena cautioned that the nation should not be complacent with the current nominal stability, economic arguing that a growth rate of around five percent is effectively "zero growth" for a country such as Sri Lanka that needs to catch up.

"For a country like Sri Lanka to become a prosperous nation within a single generation, we must have a compound growth rate of about eight percent year after year," Dr Wijewardena said.