Blog New Government Gives Sri Lanka a Fresh Start
Almost three decades of civil war and years of misrule, meant that “Sri Lanka missed the opportunity to be to India what Hong Kong is to China,” he said in his keynote address.
The election of a new government in January with a clear commitment to “eradicate corruption, improve transparency and instil the rule of law” has set the country on a confident path towards more widely-shared prosperity, he added.
Karunanayake forecasts GDP growth this year of 7-7.5 percent driven by core industrial sectors, such as tourism, agriculture and petroleum. However, they need substantial investment to enable Sri Lanka to catch up with regional rivals. He also identified logistics, infrastructure and housing as sectors that need to be boosted.
His government intends to revise investment rules to attract overseas flows and it will continue to cement trading relationships with other nations. Sri Lanka has already signed Free Trade Agreements (FTA) with India and Pakistan, and hopes to link FTAs with China and the U.S.
“Little Sri Lanka needs help to meet its people’s expectations and become the pearl of the Indian Ocean,” said Karunanayake.
The government needs to balance fiscal discipline with its mandate to raise the population’s standard of living. One of its first acts during its 64 days in power was to impose a one-off tax on the richest one percent to help redistribute wealth and shore up its finances.
Karunanayake acknowledged that the external account is a problem. Almost 50 percent of the country’s public borrowing is denominated in foreign currencies so he favors a stronger rupee to reduce debt servicing costs. However, a higher currency penalizes exporters.
The solution, he said, is to ease barriers of entry for foreign investment which would raise skill levels and efficiency.