Economic reforms imperative for economic stability and growth | Print edition

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The main concern of the government and the concern of the people are the severe shortages of their basic needs. These require immediate foreign aid to resolve.

At present, aid provided by foreign countries provides respite to overcome severe shortages that threaten people’s lives. Much more international aid is needed for our survival in the coming months.

Foreign finance

However, the country’s external financial vulnerability is a fundamental imbalance that needs to be addressed by reforming the economy. The way out of the country’s economic malaise is through a comprehensive program of reforms.

Reforms

Immediate, short-term corrective action could go some way to remedying the current problems. However, the fundamental problems of the economy could only be solved by comprehensive economic reforms. Constitutional, economic, administrative, educational and social reforms are essential for the economic and social development of the country.

Sore

Many of these reforms are painful and difficult to implement due to their political unpopularity and the country’s ideological political culture. However, they are imperative.

Many reforms are difficult to implement due to their political unpopularity and the country’s ideological-political culture. However, these are prerequisites for solving the county’s economic problems, economic stability and growth.

Political unpopularity

So far, successive governments of the past have failed to implement much-needed structural economic reforms, although some have undertaken some reforms. The political unpopularity of these reforms was the main reason for this failure.

Privatization

The privatization of telecommunications has been a remarkable success. He transformed telecommunications into what it is today. The privatization of the management of state-owned estates has improved their production and reduced the burden of losses suffered by them on the state coffers. The reversal of the privatization of Sri Lankan airlines has been a huge financial burden.

Unrecognized

What is rarely recognized is that the political and social environment of the country makes such reforms impossible. This is particularly the case with regard to economic reforms. Reforms will continue to be discussed endlessly. Their adoption and implementation will continue to be postponed until they are unavoidable. The country will fail to adopt the necessary reforms and will remain underdeveloped and go from crisis to crisis.

This is particularly the case with regard to the economic reforms that we will focus on in this discussion. Have we reached that critical moment when reforms are needed?

Acquired rights

The vested interests of politicians have been an important factor in not reforming state enterprises. This constraint was seized upon by a former finance minister when he said: “All my cabinet colleagues are for privatisation, but no one is for the privatization of companies in their ministry”.

Fees

It is also common knowledge that in the allocation of cabinet portfolios there is a premium to obtaining a ministry where the minister has control of many resources and opportunities for large commissions.

Opportunity

Will the severity of the economic crisis that the country is going through be an opportunity to transform the economy? Is the serious economic crisis an opportunity to undertake fundamental structural reforms? Are we at a turning point in the country’s economic development?

Reforms

Albert Hirschman, in his book, The Strategy of Economic Development, puts forward the thesis that countries only adopt reforms when they are going through serious crises. This view is based on the economic development experiences of Latin American countries, where their deep-rooted economic problems could only be solved through a wide range of reforms.

It was not until the depths of their crisis, when “deep surgery” was needed, that the necessary reforms were undertaken. This is the plight of Sri Lanka today.

Economic reforms

Economic reforms are essential for short-term financial stability and long-term economic growth. These must be complemented by comprehensive administrative, educational and social reforms for a timely economic and social transformation of the country.

Reforms needed

Necessary economic reforms include tax reforms, public enterprise reforms, trade reforms and social protection programs. All have implementation difficulties.

These include economic difficulties that make them politically unpopular. Others are difficult to reform because of vested interests and political gains that ensure their survival in inefficiency and corruption. Ideological biases also hinder the adoption of reforms. This is particularly the case with regard to the privatization of loss-making state enterprises.

Privatization

Pivatization is considered the sale of family silverware. There is a lack of understanding of the burdens these companies place on the population and their distortion of public spending and the resulting negative impact on the economy. Public awareness that these loss-making companies have been among the causes of the current economic crisis is warranted.

Summary

The current main concern of the government, and that of the people, is the severe shortage of foreign exchange and the resulting shortages of basic necessities and the escalating prices that are making their livelihoods unbearable. These require immediate action to resolve.

Foreign aid received provides respite to overcome severe shortages that threaten people’s lives. Immediate, short-term corrective action could alleviate the immediate problems to some extent.

However, the fundamental problems of the economy could only be solved by comprehensive reforms. These are painful and difficult to implement due to their political unpopularity and political culture. However, they are imperative.

The ultimate and lasting solution to the balance of payments crisis is the adoption of macroeconomic reforms. The country’s external financial vulnerability is a fundamental imbalance that needs to be addressed through economic reform.

In conclusion

To the extent that economic and social reforms are essential for immediate economic and financial stability, comprehensive reforms in administration, education and social welfare are vital for the country’s long-term development.

The immediate task of the government is undoubtedly to solve the serious shortage of foreign exchange which is causing serious hardship to the people. In the immediate term, it is a question of finding ways and means by which essential foodstuffs, fuel, medicines, fertilizers and raw materials for industry could be imported. Short-term methods must be found to replenish reserves.

The biggest and most difficult challenge is the adoption of economic reforms that would stabilize the economy. Macro-economic policies must stabilize the economy. These would include containing the budget deficit, reducing monetary expansion and reducing losses in state-owned enterprises. Unless these reforms are effectively implemented, the country would continue to live beyond its means and the balance of payments would widen, reserves would decline and debt repayment would be difficult.

The ultimate and lasting solution to the balance of payments crisis is the adoption of macroeconomic reforms. The country’s external financial vulnerability is a fundamental imbalance that needs to be addressed through economic reform.

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