As Sri Lanka awaits with bated breath to experience some sense of relief from the ongoing crisis that has been brought about by severe economic mismanagement, the country is only at the beginning of a very arduous and painful journey, an ex-Central Bank Governor cautioned.
Former Central Bank Governor and senior economist Dr. Indrajith Coomaraswamy noted that the low-level equilibrium is being achieved at the expense of severe
economic contraction.
While economic growth is projected to contract by 8-9 percent in 2022, GDP is not expected go back to its 2021 level till 2025 or 2026. For the year 2022 so far, the authorities have been able to have “good” control of recurrent expenditure, and capital expenditure has been contained by a lack of foreign exchange.
However, the current level of economic contraction cannot be sustained for very long without disturbing social and political ramifications, he said.
“Up to now, Sri Lanka has not been able to make significant headway towards the economic transformation needed to increase productivity and create an export-driven high-growth economy.
The country is now being asked to do something it has not been able to achieve to-date. That is to stabilise the economy with prudent macroeconomic policies while introducing structural reforms that drive sustainable growth and higher value employment,” said Dr. Coomaraswamy, delivering the Sujata Jayawardena Memorial Oration in Colombo this week. To move forward, while reducing the shocks faced and achieving economic growth, the government must first have in place the necessary framework for macroeconomic policymaking, he highlighted.
Stressing the need for the framework to be designed with greater predictability and consistency, wherever feasible, these frameworks should be embedded in laws, said Dr. Coomaraswamy. He also said the Fiscal Management Responsibility Act needs to have greater teeth. Further, he noted that while fiscal forbearance should be avoided at all cost, there should be prudent fiscal and monetary coordination.
“They should be complimentary rather than contradictory,” he stressed.
