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Extracted from the report, 'Regaining Sri Lanka: Vision and strategy for Accelerated Development'.

The economic crisis facing Sri Lanka has a number of dimensions - all of which must be addressed to accelerate economic growth and increase prosperity. To do this, four key challenges must be overcome.

Some devastated buildings of the north

Increasing employment - creating 2 million new jobs: A good job with an adequate income is the desire of all Sri Lankans and has, unfortunately, been beyond the reach of too many for too long. Productive employment available to all is also critical to the success of a Government's economic policies. While the official statistics suggest that there has been progress increasing the number of jobs in recent years, a careful review of the situation makes it clear that the challenge of providing sufficient productive, desirable employment opportunities is greater than might be expected.

To get a better sense of the extent of this challenge, consider the statistics reported in the Central Bank of Sri Lanka Annual Report 2001.

* Of a total workforce of 6.7 million, 6.2 million are now 'employed', leaving 528,000 people that are officially unemployed. (This excludes the North and East, where the number of new jobs that will be required is not known, although it will be substantial.)

* Among the so-called 'employed' are people that have worked for as little as one hour per week in paid employment. This definition hides many who are significantly under-employed and who are in need of full time productive jobs. (It has been estimated that the number of 'under-employed' amount to as many as 20 per cent of the total workforce, or approximately 1.3 million people).

* Also included as 'employed' are approximately 673,000 people that are classified as 'unpaid family workers', many of who would no doubt welcome full-time, paid work if it were available.

* There are also approximately one million overseas workers, roughly 75 per cent in the Middle East, many of whom are engaged in low paid, menial jobs and would prefer to work at equal or better paying jobs at home.

* Among the 'employed' are approximately 1.2 million employees in the public sector, including the government and State Owned Enterprises (SOEs). It is well-known that there is much overstaffing in these sectors, thus many of these employees are also seriously under-employed, although ostensibly employed full time.

A streamlined, more efficient public sector would release these workers to more productive employment in the private sector, increasing their economic welfare and strengthening the national economy.

* Finally, and most importantly, there will be between 400,000 and 500,000 new entrants to the workforce in the next several years that will need jobs.

A minimum of two million new jobs must be created during the next several years if this challenge is to be fully met. This would provide productive jobs for those currently unemployed and the new entrants to the workforce. It would also offer improved alternative employment opportunities for people now under-employed and employed in low productivity jobs.

Overcoming the public debt crisis: If the country cannot control its finances, it cannot control its economic future. Government debt has expanded dramatically in recent years, to the point where today the size of the public debt is larger than the country's GDP. As a result, the revenues required to service this debt each year now exceed the total revenues of the government.

This has left no choice but to continue to incur large budget deficits if the government is to meet its essential day-to-day responsibilities. This year the deficit target is 8.9 per cent of GDP. Based on a mid-year review, the Government remains on track towards meeting this deficit target, although to continue to do so will require much effort, discipline and sacrifice.

However, this large budget deficit also means that the total amount of public debt will increase even further. To put this in some perspective, the total public debt translates to Rs. 77,500 for every man, woman and child in the country.

The additional borrowing required to meet this year's deficit will add approximately Rs. 6,000 to this burden. It should be clear that if these large deficits continue unabated, the public debt would grow faster than the economy. Eventually, we or our children will have to face the prospect of being unable to repay these debts. However, long before that our reputation as a country that can manage its resources and maintain its credit worthiness will be damaged to the point where we will be unable to recover.

Meeting the challenge of bringing the public debt under control requires decisive actions in two areas. The first objective is to create an environment where national income grows faster than the public debt, permitting the country to 'outgrow' the debt burden. And the second objective is to reduce the budget deficit to slow and eventually reverse the increases in public debt. This will entail both reducing public expenditures as well as increasing revenues.

These adjustments are unavoidable and will have to be well managed to ensure that the burdens are shared fairly and do not impose an excessive burden on the most vulnerable members of society. It is also essential that these reforms be carried out in ways that do not limit the prospects for increased economic growth.

Bringing an end to the conflict in the North and East and establishing a lasting peace offers the prosect of reduced military expenditures and focusing resources on improved economic development for the entire country. It also raises new challenges. Nearly two decades of war has left destroyed or badly neglected infrastructure and institutions throughout the country.

It will be necessary to invest in major reconstruction efforts in all regions to lay the foundation for substantially higher rates of economic growth. While significant assistance from the international community can be expected in these endeavours, the country will need to generate much of the resources for these efforts itself.

Meeting these needs will place large additional demands on the government budget, demands that the current budget has no way to meet. The country can begin to adequately meet these demands only if there is significantly higher growth in employment and incomes, increasing our tax base.

The Relief, Rehabilitation and Reconciliation (RRR) process has been initiated to address some of the immediate challenges arising in building a lasting peace. The RRR focuses on meeting the basic needs of the people affected by the conflict: improving economic conditions: and facilitation reconciliation among all ethnic groups. Our ability to build a peaceful and prosperous future and regain the promise that Sri Lanka offers future generations depends on the outcome of the RRR process, which depends critically upon meeting the country's economic goals.

Increasing income levels - higher productivity and increased investment: Our goal is not only to substantially increase the numbers of people employed, but also to increase peoples' incomes. However, incomes can only grow in line with increases in productivity. Without productivity growth, any attempt to raise incomes will only lead to higher inflation, which robs the workers of any value in salary increases and leaves the country worse off in the end.

Raising productivity is also the key that will allow business and farmers to compete more effectively at home and in overseas markets. Increased investment and higher economic growth will be achieved only if the country can produce and sell more and do so with lower costs. This will require all sectors of the economy, including the public sector, to work more productively.

Meeting the challenges of overcoming the burden of the public debt, creating two million new jobs and generating sufficient resources for reconstruction throughout the country will all depend upon the extent to which widespread productivity improvements and increased investment can be realised. This lies at the heart of our program and will be the standard by which all actions will be measured.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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