Quality of Policies and Institutions a Must

CEYLON TODAY | Published: 2:00 AM Dec 2 2021
FT Quality of Policies and Institutions a Must

Countries with greater economic freedom exhibit better performance, Sirimal Abeyratne, Professor in Economics and Head of the Department of Economics at the Colombo University, stated in a booklet titled Economic Freedom of Sri Lanka: Twists and Turns.

Sri Lanka, which has scored 6.88 for its Economic Freedom Index in 2018, is ranked 83rd position out of 162 countries. Thus, it is a “moderately free” economy in the world as per our country classification.

However, he emphasised the importance of improving   Sri Lanka’s current status of economic freedom in order to ensure its economic progress and prosperity. 

 “The nation’s reforms need to be aimed at enhancing the quality of policies and institutions by considering both the ‘lagging areas’ of economic freedom and the ‘variations’ in economic freedom across the areas and within the areas,” he stated.

In the area of the size of the government, fiscal consolidation should be achieved particularly in widening the direct tax base and rationalising the indirect tax system; the former requires setting up an efficient information system and the latter a consolidation and simplification of multiple taxes. 

The component score for the government ownership of assets requires improvement through SOE reforms and land reforms. 

The reforms aimed at State control over ownership and operations of the SOEs are expected to lessen their fiscal burden on the one hand and to improve the cost competitiveness in economic activity which depends directly or indirectly on the supplies of the SOEs on the other hand. 

The government can also undertake reforms aimed at improving and ensuring private land ownership which would enhance long-term land consolidation and land productivity. 

Sri Lanka has continued to perform poorly in the area of legal system and property rights so that it requires a broad-based reform programme aiming at quality improvement in all its components. 

Therefore, as one of the important pillars of a market economy, Sri Lanka needs to emphasise on the quality improvements in rule of law. 

Similarly, an area where Sri Lanka has poorly scored is freedom to trade internationally. 

Even though initial policy reforms were aimed at trade liberalization, the lack of smooth continuity and the ad hoc revisions intermittently have led significant setbacks in freedom for international trade.

 The reforms should be aimed at rationalising tariffs and eliminating para-tariffs as well as removing the regulatory barriers in order to reduce trade costs and administrative bottlenecks. 

The government’s heavy reliance on trade as a source of tax revenue should be changed by shifting the focus away from taxes on international trade to domestic taxes, particularly to direct taxes. 

Apart from that, the controls of the movement of capital and people are another component that needs to be revisited in improving the quality of regulations and reducing their negative implications over freedom for international trade. 

Regulation is another area where Sri Lanka needs to adopt far-reaching reforms in order to reduce lengthy bureaucratic procedures and red tape barriers and to improve the business environment. Particularly with respect to labour market regulations, it is necessary to introduce mandated costs of worker dismissals as well as laying-off flexibility, while maintaining a fair balance in working conditions between government and private sectors. 

Significant improvements can be introduced in business regulations as well. Particularly, the reforms should be aimed at improving administrative requirements, bureaucracy costs, and impartial public administration. 


CEYLON TODAY | Published: 2:00 AM Dec 2 2021

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