Is There a Paradigmatic Shift in Economic Policy?

By Sumanasiri Liyanage | Published: 2:00 AM Jan 1 2021

By Sumanasiri Liyanage

This is the second analysis of Budget 2021. Last week’s column focused on short term ramifications of the budget under two headings, recovery and assist. This column aims at discussing the long-term goals of sustainable development posing the question if Budget 2021 lays the foundation for such a development. Of course, a yearly budget may not be used for such a formidable task unless it is presented as part of a long-term economic plan. Since 1977, there has been no economic planning except projected long-term targets. For example, a projection was specified that the total national output should be increased to the present figure of US$ 87 to US$ 125  by 2025. The question as to why and how have often times been left unanswered.

Budget 2021 has similar projections; and once again there are two unanswered questions, why and how? Sri Lanka’s per capita income level declined in 2019 and was expected to decline further in 2020 in face of a substantial negative growth of the GDP. Hence, it is understandable to give priority to increase the production, GDP.

Changing Global Context

‘Budget 2021 has recognised significant changes in the global economy in the last a few years. Irrespective of the economic standing of the country, irrespective of the challenges we are faced with, we must acknowledge the paradigm shift in world economy, which moved forward with industrialisation and has now entered a technology driven economy. As policy makers, we must view this as a reason to move away from our outdated strategies and when developing the agricultural, industrial and services sectors the infusion of technology should be prioritised in accessing the integrated production and service processes’. 

Although many questions may be raised on this assessment and the ramifications of these changes, one may easily ask ‘what kinds of technology transformations are projected?’ There is no doubt that significant changes have taken place in the technology sphere, the basic nature of the production process has not yet undergone a revolutionary change. That’s the reason why when a substantial portion of the production of the Apple I-Pad was transferred to the countries of the Global South, then US President Obama asked Steve Jobs “what can be done to bring those jobs back to the US”, Steve Jobs answered “those jobs will never come back.” 

Take an example. There have been so many renewed technological changes in agriculture, like zero-budget natural farming for the enrichment of soil and the Push-Pull Technology Platform to reduce pests, but there is no specific mention in Budget 2021 about these new agro-ecological technologies. Ironically, it talks about the continuation of the fertiliser subsidy. In such a backdrop, the following promise is nothing more than a banality. In preparing the economic development plan of our country, we must highlight the country and the Nation as one which is rich in biodiversity, committed to eco-sensitive sustainable development with a unique identity, equipped with a rich cultural history and legacy. Our production process should be modelled to harness such comparative advantages that arise in the background of the country being endowed with natural beauty, rivers, wild animals and one which owns an oceanic resource which is larger than the size of the island.  

Protecting Sovereignty in a Conflictual Context

Budget 2021 claims that in opposition to the policies of the previous Government its economic policies have been designed to protect country’s sovereignty while utilising the country’s locational capital. It says: ‘We should formulate our national policies with a long term strategic vision, protecting our sovereignty, to exploit development opportunities that arise as a central hub, in the new economic order of the world, to both the conventional western advanced economies and the powerful emerging eastern economies. We must develop the Hambantota and Colombo Ports together with the Airports to be a centre in the international commercial processes, expanding the domestic economic opportunities, within a broad national vision.’ Even before the budget was passed after the third reading, news has come out that a plan to hand over the Eastern Container Terminal (ECT) to Adani Group in India was in preparation. The excuse was the previous Government had signed a Memorandum of Cooperation (MoC) with Japan and India so that it had to be respected.

Things have changed considerably since the MoC was signed. Quad was formed by the USA with both India and Japan as members and the US has extended the Indian Ocean Region to include it into their Indo-Pacific strategy. In such a backdrop, handing over the ECT to one of the members of Quad would have a serious negative impact. So, continuation with the ECT deal does not go with the so-called broad national vision. 

Long-term Economic Targets 

Let me turn to stated long-term economic targets that are summarised in Table 1.

This long-term perspective shows that there is no room for Sri Lanka to entertain the so-called Singapore dream. According to the calculation by a senior CBSL researcher, if the growth rate of Sri Lanka is maintained at 5 per cent it would take 58 years to reach Singapore’s per capita level. If the growth rate is 7 per cent per annum, Sri Lanka needs 42 years, and if Sri Lanka can grow its economy by 10 per cent per annum 30 years is needed to reach the level of Singapore. 

Reading the following statement extracted from the Budget 2021 proves the Government has not deviated from the neoliberal policy paradigm that has been introduced to Sri Lanka. ‘Reducing the revenue-expenditure gap of the Government annually from 9 per cent to 4 per cent is one of the key milestones in the management of fiscal policy. In order to reach that milestone, it is essential to reduce the public debt from 90 per cent of Gross Domestic Production (GDP) to 70 per cent and to minimise the risk in the debt composition caused by sourcing of foreign loans. It is required to reform the banking and financial sectors to ensure availability of credit and financing for the production process and associated transactions. We believe the Central Bank should have a new perspective on the monetary policy regarding money and liquidity management.’ 

Hence, it is clear the dream that we have been forced to believe since 1978 is a myth, a fantasy. The Budget 2021 does not demonstrate another trajectory of development notwithstanding the fact that emulating Singapore’s path of development is unrealistic, incorrect and unachievable.

What’s the Alternative?

This is a big question especially when all mainstream economists with a few exceptions uphold the development path that was delineated in the Washington Consensus. As I mentioned above, new technologies have been advanced now in the sphere of agriculture and those technologies are eco-friendly and cost reductive. Moving away from the industrial agriculture paradigm to the ecological agriculture paradigm would definitely show the country a new path of development. I intend to address these issues in future.    

The writer is a retired teacher of Political Economy at the University of Peradeniya. 

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By Sumanasiri Liyanage | Published: 2:00 AM Jan 1 2021

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