The Sri Lanka economy has come a long way from where it was few years ago to a more stable position but more radical reforms are essential to sustain growth, said a former Central Banker and a renowned economist.
“From a macro-economic perspective, yes, we have improved a lot in terms of inflation and economic stability when compared to where we were in 2022 and 2023 but going forward debt sustainability alone is not sufficient,” said Dr. Roshan Anne Perera.
Commending the Government’s stance which was laid out in the Budget to stick to the IMF program she emphasised the need for pro-growth strategies if the country is to come out of the woods.
“We need 5-6% sustained economic growth in the next 10-15 years if we are to get over the crisis and emerge stronger,” Dr. Perera said.
“Doing the same thing over and over again will not help us address the issue. We have been depending too much on certain sectors for growth. There is more that we could do to achieve higher economic growth. There has to be economic reforms, trade diversification with new products and strategies to face emerging external shocks,” she said, adding that the US tariffs is a wakeup call for Sri Lanka which has been complacent with the few products that we have been exporting. We need to move away from the traditional and conventional export basket of garments which is a major component of our exports to the US.
Stressing the need to look for new markets with niche products, Dr. Perera said the most urgent need now is for the Government to negotiate for a better trade arrangement with the US.
“Of course we need to look at our protectionist measures such as tariffs and para-tariffs when importing from the US as a short to medium term solution,” she said.
Going forward Dr. Perera said Sri Lanka needs to build its revenue buffers. “If not it would have to eternally seek the help of the IMF to bail us out.”
“India and many East Asian economies when hit by crisis sought the help of the IMF but they emerged from the crisis. In Sri Lanka’s case we have not been able to get out of the crisis. When we were with the IMF the economy was in good shape but when we were without it the economy was in a bad shape,” she said, adding that we have not learnt from each time we went to the IMF.
Referring to the ‘Regaining Sri Lanka’ document she said it stated that debt was a major issue which Sri Lanka needs to deal with to get out of the issue. The document she said states that each person is indebted by around Rs. 3,000.
“So the answer to why Sri Lanka doesn’t come out of the economic crisis is that we don’t have a domestic solution or a national strategy other than relying on someone like the IMF to bail us out,” Dr. Perera said.
However, she stressed that the country is more disciplined in terms of its fiscal management with the IMF.
On the debt to GDP, which is still high at around 95% and 60-70% of the revenue used to service debt, she said the focus should be on growth enhancing strategies as the IMF will support only help get out of debt.
‘Optimising resource utilisation, digitisation of the economy, adopting AI for business operations, increasing female labour force participation, addressing the brain-drain issue and access to lands for development projects are some of the key areas that needs to be looked into in developing the economy.
Discussions between Sri Lanka and the International Monetary Fund on the fourth review of the Extended Fund Facility program commenced in Washington last week.
