A paradigm shift in the political-economy required
Public must be willing to make sacrifices now,
for long term benefits later

A senior economist said Sri Lankans will have to make sacrifices now in order to realize greater benefits in the future and the government will have to move away from the political-economic path governments have traversed on for decades.

Dr. Sirimal Abeyratne said the rest of Sri Lanka will need to make a big sacrifice to develop the North and East so that communities can be meaningfully integrated and development of the entire country sustained, considering the government’s fiscal constraints to meet the urgent needs of the once war-torn regions and at the same time stimulate the economy that is now feeling the ill affects of the global financial crisis.

"Why is this necessary? It is good economics. But good economics is not good politics and now is the time government will have to engage the public to make difficult decisions for the sake of the future," said Dr. Abeyratne, Senior Lecturer, Department of Economics, University of Colombo.

"The government has a huge role to play in rehabilitating, reconstructing and integrating the economies and the people of the North and East with the rest of country. The government would have to bear a massive expenditure which cannot be imagined until the communities and private sector are able to stand on their own two feet," he told a seminar yesterday.

"The people know such expenditures are unavoidable and have to be made for the good of the entire country," Dr. Abeyratne said.

But problems in the country’s fiscal policy side have been accumulating for decades. These deep rooted problems will make it ever so hard for government to meet the needs of the North and East and at the same time stimulate the country’s economy which is grappling with the global economic crisis.

Abeyratne said the government will have to rely more on external finances because raising taxes will be a problem with 90 percent of the economy in contraction, facing falling revenues, as a result of the global financial crisis.

Dr. Abeyratne spoke at a public seminar on reviving the North of Sri Lanka organised by the Pathfinder Foundation.

"The biggest debtors and defaulters are public enterprises. Some of them are white elephants serving no purpose. They must be carefully looked at and depending on how bad they are, must be eliminated or made commercially viable," he said.

According to Abeyratne, more than 33 percent of government revenue is spent on interest payments. Another 25 percent is spent on various subsidies.

Reviewing these issues will no doubt invite doom because these issues have lost elections for governments in the past. But Abeyratne said the government must somehow manage its finances and engage the people and educate them on the hard economic choices that will have to be made.

The shake up of the country’s public sector structures is inevitable if the government is serious about its intensions for the future of the country.

Increasing taxes is not an option. Abeyratne believes the government has exhausted the limit. Taxes ideally have to be reduced now so that the economic activity is fostered. The government needs to increase the tax base and its administration needs to improve.

After the countries economy opened out to the world in 1977, weak industries began to survive and the gains were seen much later. But with the onset of the decades- long war, the North and East did not have the time to recover and benefit from the open economy, Abeyratne believes, whereas the South, particularly the Western Province, has the time and space to reap the benefits of the open economy to a greater extent.

"The North and East not only lost out in development. The provinces lost their human resources, investor cluster, assets and institutions. Everything will have to be built from scratch and this will require massive expenditures," he said.

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