The Economic Analysis
Will there be changes in economic policies in 2015?
With less than three weeks for the presidential election, a question uppermost in the minds of the intelligentsia and business community must be: “Will 2015 be a turning point in economic policies?” There is no definite answer as the election campaign has paid scant attention to economic issues.
In as far as the incumbent President is concerned the campaign is based on the continuation of his development strategy. The opposition is focused on the abolition of the executive presidency and change of the constitution that would have significant consequences for economic policies. Whoever is elected, the economic challenges would be the same, but policies are likely to be different.
Economic policy changes
Most past changes in government brought about significant shifts in economic policies. Some have been drastic, others were policy continuity with change. Changes in policy, as well as the prospect of drastic changes in policies, created a climate of economic uncertainty that was a significant reason for the economy’s lower than potential economic performance. This environment of policy uncertainty and frequent changes in economic policies were not conducive to economic development.
Ideological persuasions, impractical policies, poor economic management, external shocks, ethnic violence, insurgencies, terrorism and the civil war were also significant reasons for lower economic performance.
First change in policies
The post-independent UNP governments followed liberal economic policies till 1956 with an emphasis on agricultural development and social welfare. The first change of government in 1956 was a political and economic turning point as it introduced several socialist policies that transformed the economy into a mixed economy.
Economic enterprises such as bus transport, the Bank of Ceylon, port services, petroleum import and distribution, among others, were nationalised. State industries were established and the Peoples’ Bank was set up. A comprehensive agrarian reform programme that included the Paddy Lands Act of 1958 was implemented.
Partial return to liberalism
The re-election of the UNP in 1965 resulted in a partially liberal regime from 1965 to 1970 that emphasised development of food crop agriculture. It restored foreign aid from Western countries that had been suspended owing to the nationalisation of petroleum distribution.
Towards socialism
The election of the coalition government led by the SLFP in 1970 pursued socialist policies from 1970-77. It expanded state ownership and control of the economy. The estates were taken over by the state and mismanaged. There was a ceiling on land ownership and houses. It discouraged foreign investment.
The government adopted an inward looking import substitution economic strategy with severe import and exchange controls as a means of facing the severe foreign exchange crisis. It was a period of severe economic difficulties owing to prolonged external shocks and economic disruption due to the youth insurgency in April 1971.
The external and internal shocks, inward looking import substitution strategy, state ownership and control of economic enterprises resulted in an era of poor economic performance and severe hardships.
Economic liberalisation
The liberalisation of the economy by the UNP government from 1977 to 1994 was a break from the past. The outward looking economic policies, liberal trade and exchange control policies, larger foreign assistance and export led strategies diversified the economy and achieved higher economic growth.
Ethnic violence in July 1983 however arrested the growth momentum. It was a setback to attracting foreign investment and developing tourism. The civil war that began subsequently and lasted for over a quarter century was a huge setback to the country’s economic development.
Continuity and change
The political change in 1994 did not result in a departure from liberal economic policies. The decade from 1994 to 2004 was one of continued liberal economic policies. Some of the nationalised ventures were privatised and liberal trade policies continued. The management of estates was handed over to private companies, telecommunications. Sri Lankan Airlines, the Gas Company and several other state enterprises were privatised,
The government described its policies as “Open economic policies with a human face”. It was a period of continuity and change in economic policy. However the economy operated under severe stress of the civil war in the North and East of the country and severe financial difficulties. An energy crisis disrupted industrial production and economic growth was arrested.
Last decade
The economic policy framework from 2004 to 2014 attempted to increase state control of the economy and adopted some inward looking economic policies. The development strategy has focussed heavily on economic and physical infrastructure development, especially since 2005 when the war ended. The foreign funded infrastructure led development strategy has achieved high rates of economic growth.
The last decade has seen changes that are once again a departure from previous economic policies. There has once again been a tilt towards more state control of the economy and inward looking policies. These years saw the intensification of the civil war, its end and a return to peaceful conditions in May 2009. Consequently the economy has grown by around 7 percent during this decade, though the country’s indebtedness remains high.
Summary
These economic changes together with external shocks and internal strife have resulted in a much lesser economic performance than the country’s potential. Adverse terms of trade and fluctuations in global demand have affected exports adversely. Internal disruptions to the economy consisting of ethnic conflicts, insurgencies, terrorism and a protracted civil war have setback economic development.
There has been a resurgence of the economy since the end of the war in 2009, but greater state control of the economy and misdirected priorities in public spending policies constrains the country from achieving its economic potential.
Future
Whoever assumes leadership after the polls, the fundamental economic problems are formidable. Foreign indebtedness, large public debt, burdensome debt servicing costs, large trade deficits, inadequate expenditure on social infrastructure, education, research and care of the elderly are challenges.
Whoever leads the government after the elections, it would be a good opportunity to reassess economic policies and adjust and change them to achieve sustainable economic development. Will the post 2015 regime learn from the past and develop pragmatic economic policies for economic development?
Will there be changes in economic policies in 2015?
With less than three weeks for the presidential election, a question uppermost in the minds of the intelligentsia and business community must be: “Will 2015 be a turning point in economic policies?” There is no definite answer as the election campaign has paid scant attention to economic issues.
In as far as the incumbent President is concerned the campaign is based on the continuation of his development strategy. The opposition is focused on the abolition of the executive presidency and change of the constitution that would have significant consequences for economic policies. Whoever is elected, the economic challenges would be the same, but policies are likely to be different.
Economic policy changes
Most past changes in government brought about significant shifts in economic policies. Some have been drastic, others were policy continuity with change. Changes in policy, as well as the prospect of drastic changes in policies, created a climate of economic uncertainty that was a significant reason for the economy’s lower than potential economic performance. This environment of policy uncertainty and frequent changes in economic policies were not conducive to economic development.
Ideological persuasions, impractical policies, poor economic management, external shocks, ethnic violence, insurgencies, terrorism and the civil war were also significant reasons for lower economic performance.
First change in policies
The post-independent UNP governments followed liberal economic policies till 1956 with an emphasis on agricultural development and social welfare. The first change of government in 1956 was a political and economic turning point as it introduced several socialist policies that transformed the economy into a mixed economy.
Economic enterprises such as bus transport, the Bank of Ceylon, port services, petroleum import and distribution, among others, were nationalised. State industries were established and the Peoples’ Bank was set up. A comprehensive agrarian reform programme that included the Paddy Lands Act of 1958 was implemented.
Partial return to liberalism
The re-election of the UNP in 1965 resulted in a partially liberal regime from 1965 to 1970 that emphasised development of food crop agriculture. It restored foreign aid from Western countries that had been suspended owing to the nationalisation of petroleum distribution.
Towards socialism
The election of the coalition government led by the SLFP in 1970 pursued socialist policies from 1970-77. It expanded state ownership and control of the economy. The estates were taken over by the state and mismanaged. There was a ceiling on land ownership and houses. It discouraged foreign investment.
The government adopted an inward looking import substitution economic strategy with severe import and exchange controls as a means of facing the severe foreign exchange crisis. It was a period of severe economic difficulties owing to prolonged external shocks and economic disruption due to the youth insurgency in April 1971.
The external and internal shocks, inward looking import substitution strategy, state ownership and control of economic enterprises resulted in an era of poor economic performance and severe hardships.
Economic liberalisation
The liberalisation of the economy by the UNP government from 1977 to 1994 was a break from the past. The outward looking economic policies, liberal trade and exchange control policies, larger foreign assistance and export led strategies diversified the economy and achieved higher economic growth.
Ethnic violence in July 1983 however arrested the growth momentum. It was a setback to attracting foreign investment and developing tourism. The civil war that began subsequently and lasted for over a quarter century was a huge setback to the country’s economic development.
Continuity and change
The political change in 1994 did not result in a departure from liberal economic policies. The decade from 1994 to 2004 was one of continued liberal economic policies. Some of the nationalised ventures were privatised and liberal trade policies continued. The management of estates was handed over to private companies, telecommunications. Sri Lankan Airlines, the Gas Company and several other state enterprises were privatised,
The government described its policies as “Open economic policies with a human face”. It was a period of continuity and change in economic policy. However the economy operated under severe stress of the civil war in the North and East of the country and severe financial difficulties. An energy crisis disrupted industrial production and economic growth was arrested.
Last decade
The economic policy framework from 2004 to 2014 attempted to increase state control of the economy and adopted some inward looking economic policies. The development strategy has focussed heavily on economic and physical infrastructure development, especially since 2005 when the war ended. The foreign funded infrastructure led development strategy has achieved high rates of economic growth.
The last decade has seen changes that are once again a departure from previous economic policies. There has once again been a tilt towards more state control of the economy and inward looking policies. These years saw the intensification of the civil war, its end and a return to peaceful conditions in May 2009. Consequently the economy has grown by around 7 percent during this decade, though the country’s indebtedness remains high.
Summary
These economic changes together with external shocks and internal strife have resulted in a much lesser economic performance than the country’s potential. Adverse terms of trade and fluctuations in global demand have affected exports adversely. Internal disruptions to the economy consisting of ethnic conflicts, insurgencies, terrorism and a protracted civil war have setback economic development.
There has been a resurgence of the economy since the end of the war in 2009, but greater state control of the economy and misdirected priorities in public spending policies constrains the country from achieving its economic potential.
Future
Whoever assumes leadership after the polls, the fundamental economic problems are formidable. Foreign indebtedness, large public debt, burdensome debt servicing costs, large trade deficits, inadequate expenditure on social infrastructure, education, research and care of the elderly are challenges.
Whoever leads the government after the elections, it would be a good opportunity to reassess economic policies and adjust and change them to achieve sustainable economic development. Will the post 2015 regime learn from the past and develop pragmatic economic policies for economic development?
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