Sri Lanka’s economy is exhibiting signs of tentative improvement following the recent downturn. However, opinions among economic experts vary on this development. Professor H M Navaratne Banda from the Department of Economics at Kelaniya University provides insights into the nuances of the current situation.
Q: It is mentioned that bankruptcy may be avoided by April or May. What are your thoughts on this possibility?
A: What is crucial to us is the programme we have undertaken to avert bankruptcy by April and May. To prevent bankruptcy, the country’s economic development should be accelerated to a level where foreign debts can be paid off. For that, we need to generate significant revenue from tourism, foreign remittances, or exports. However, we haven’t seen substantial progress in these sectors. Even with the IMF, we are still servicing the debt without investing it in ways that could yield returns to eliminate bankruptcy. The current state of agriculture and small to medium-scale industries does not support the claim of averting bankruptcy. Therefore, it is vital to address the factors contributing to this situation realistically. The mere availability of goods without queues does not mean prosperity. People suffer due to the lack of purchasing power.
Q: Which specific areas should the government prioritise to promote economic advancement?
A: Firstly, the government should prioritise the development of the tourism industry by implementing programmes to attract tourists to the country. Efforts should be made to improve tourism to at least the 2019 level. Foreign service can contribute to tourism by promoting Sri Lanka. Tourists must be given the opportunity to consume locally produced items, and their peace of mind should be assured.
Secondly, establishing a system to send skilled workers abroad could significantly contribute to foreign exchange earnings. Vocational training must be conducted, and ambassadors should actively seek foreign employment opportunities.
Thirdly, addressing the challenges faced by small and medium-scale industries, particularly those related to increased costs due to taxes, is essential to make our products competitive in terms of price in foreign markets.
Lastly, developing local agriculture, which is negatively impacted by VAT imposed on inputs, should be a priority.
Q: What is the impact of the current situation on the general public?
A: The rise in VAT has impacted consumers, resulting in reduced consumption and diminished production capacity for producers. Implementing programmes that support and promote local industries to address these challenges and foster economic prosperity is essential.
Q: Is it possible for taxes alone to stabilise the economy?
A: Relying solely on taxes can further contract the economy. Instead, tax revenue should be invested in initiatives that reduce production costs, improve quality, and create employment opportunities to stimulate economic growth. Merely allocating funds for relief programmes without addressing the root causes of economic challenges will perpetuate the economy’s contraction. Providing job opportunities through tax revenue utilisation is essential for sustainable economic development.
Providing welfare for persons with disabilities, elders, and those suffering from chronic illnesses is reasonable. However, offering relief to the labour force cannot be approved. It is like giving a fish instead of a fishing rod. This system has existed for more than 75 years since 1948.
Q: Should Sri Lanka strengthen its tax net?
A: Yes, expanding the tax base and ensuring compliance across all sectors of society, including the business class, is crucial. Currently, corporates evade taxes without facing adequate punishment. Implementing timely tax collection systems and addressing tax evasion will contribute significantly to economic development. The current practice of collecting taxes late does not sufficiently contribute to the economy. Taxes should ideally be collected monthly, aligning with the practice in developed countries. This approach allows the government to utilise tax funds more effectively for development. Currently, in Sri Lanka, tax evasion remains a pervasive issue.
Q: What are the implications of privatising government institutions?
A: Considering the privatisation of consistently loss-making government institutions may be an option if efforts to address the reasons for their losses prove unsuccessful. However, thorough analysis and solutions should be pursued before resorting to privatisation. It is essential to understand the underlying causes of losses and implement corrective measures before making any decision in this regard.
Q: Does the lack of understanding of the economic crisis, irrespective of political affiliation, hinder economic progress?
A: Engaging in opportunistic politics impedes the government’s and opposition parties’ sincere efforts to develop the country’s economy. Cooperation and collaboration, rather than political rhetoric, are essential for fostering economic growth that benefits all citizens.
Developing the country’s economy can benefit everyone without succumbing to opportunistic politics.
Nethmi Pujani Ratnayake