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Serving Sri Lanka

This web log is a news and views blog. The primary aim is to provide an avenue for the expression and collection of ideas on sustainable, fair, and just, grassroot level development. Some of the topics that the blog will specifically address are: poverty reduction, rural development, educational issues, social empowerment, post-Tsunami relief and reconstruction, livelihood development, environmental conservation and bio-diversity. 

Sunday, July 09, 2006

Potential for economic prosperity, reforms and poverty reduction

Sunday Times: 06/07/2006" By Sunil Karunanayake

The rapid growth and poverty reduction in the western province over the past 20 years shows that Sri Lanka has the potential to sharply reduce if not eliminate poverty.

The reasons for this region’s rapid growth, namely the trade and industrial reforms undertaken in the 80’s and 90’s indicate that Sri Lanka is a country where reform works.

These reasons also suggest how to get the rest of the country growing by reforming agriculture so that the same market forces that propelled the industrial Sri Lanka can propel the rural sector. However, the politics of reform are such that it is very difficult to build a winning coalition that will support the reforms.

Nevertheless, the recent experience with education sector reforms show that it is possible to make progress with seemingly intractable problems.

One can only hope that the forces behind trade, industrial and now education reforms will rally behind the remaining reforms, thereby enabling Sri Lanka to achieve its true potential. These comments were made by Shantayanan Devarajan, the Sri Lankan-born Chief Economist of the South Asia Region of the World Bank and co-author of the recent report on “Economic Growth in South Asia” when he addressed the Central Bank’s monthly lecture recently.

He said following substantial market oriented reforms the Sri Lankan economy has grown at over 5 per cent a year for over two decades, Since 1990 per capita GDP grew at 3 per-cent, yet during this same period the share of people living in poverty fell by only 3 per cent age points. This was due to the over concentration of economic activity in the resource rich western province.
From 1997 to 2003, the western province has grown by 6.2 per cent annually while the rest of the country grew by 2.3 per cent.

According to research Sri Lankan reforms in trade liberalisation, deregulation and promoting investment was instrumental in the success of the western province. Meanwhile the rest of the country has seen very little reform.

In agriculture the common pursuit of the rural farmers, reforms in land markets and paddy cultivation as well as policies to improve the marketability of the agricultural products have been elusive resulting in stagnation of rural incomes. Dr Devaranjan cites the Sri Lankan case as a good textbook example how market oriented policies can unleash economic growth and prosperity and the absence of such policies can lead to stagnation and persistent poverty.

Need for agricultural reforms

The provincial stagnation has or may give an indication that reforms have made rich richer while poor incomes have stagnated, however Dr Devarajan does not believe so, on the contrary he attributes rural poverty to contentious politics in Sri Lanka and state intervention of the economy.

In agriculture dominant rural areas reforms have not taken place in particularly paddy cultivation, reforms in land markets and policies to improve the marketability of the agricultural products have been elusive.

Agriculture poverty is around 40 percent. Sri Lanka has also inherited and maintained policies in land provisioning, fertilizer subsidies, protective import tariffs perhaps at attaining self-sufficiency in rice.

Dr Devarajan believes self-sufficiency is being achieved at a high cost and mostly the victims have been the poor adding to the increase on poverty.

Forcing farmers to continue paddy farming at subsidised costs through the regulation of paddy lands provisioning and undiversified leaves them at the mercy of the weather. It is also argued that laws restrict the farmers from using productive irrigated land to cultivate alternate crops with higher economic returns.

Land Development Ordinance (LDO) restricts the land used by the farmers to be used as collateral neither for credit nor for lease or purchase. Dr Devarajan argues reforms to these constraints would benefit the farmers.

Education reforms progressive

Sri Lanka’s education system has been celebrated around the world as one that has achieved universal primary education and high levels of literacy at very low per-capita incomes.

Towards the end of 1990’s however it was becoming clear that Sri Lanka’s education system was facing serious “Second generation challenges”. The abandonment of English and introduction of Sinhala and Tamil as the medium of instruction in the late fifties decade contributed to the universal access to primary and secondary education in the country but this same policy has meant gradual erosion of English language skills among students to the point where only 10 per cent of 4th grade students have a mastery of the language.
To compete in the global market place Sri Lankans are finding that English Language skills are essential and there is a need to teach the subject from Grade 1 including re-introduction of English as a medium of instruction. Dr Devarajan noted that Sri Lanka has of late embarked on a programme, the Education Sector Development Framework and program (ESDFP) which involves many bold and far reaching initiatives devolving managerial authority to schools, forge links with communities, strengthening teaching of English from Grade 1 and introducing English as a medium of instruction etc.

What is noteworthy is these reforms were initiated by the UNP-led coalition and continued by SLFP led coalition (with JVP as a partner) in 2004.

Accelerating reforms

Dr Devarajan’s presentation was clear and the message is loud. Reform is nothing new, man has matured in civilization by reacting to changes around him and adapting to changes, a stagnant thought process or a society couldn’t progress. Change is inevitable. As reiterated by the World Bank economist the western province model has demonstrated that Sri Lanka has immense potential to grow and improve the living standards of people and eradicate poverty. Poverty is the mother of all conflicts.

Conflict leads to mistrust, civil war and loss of property and lives.

Today Sri Lanka is playing a heavy price for inconsistency in policies and stalled reforms, CEB’s daily loss of Rs 50 million a day is said to be equivalent to one rural hospital.

The railway once a model government entity is in economic ruins and is unable to serve the public efficiently. Universities have become too radical and are unable to produce graduates who could meet the global challenges. The provincial council system has become a miserable failure giving poor returns and adding to fiscal constraints. How long should the poor in this country suffer to satisfy the politicians and few trade unionists and continue to stall reforms?

Thoughts for the week

The magnificent five-nil whitewash over the English in their home soil inflicted by our cricketers amply demonstrated Sri Lankan’s potential for success.

On the other hand in Germany, England also made an unceremonial exit from the prestigious FIFA world cup, no doubt these two events may have shocked the old empire; the only silver lining was the prompt resignation of celebrated England skipper David Beckham, perhaps a lesson for Sri Lankan leaders.

(The writer could be reached at suvink@eureka.lk)

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