Advocata Institute CEO Dhananath Fernando – Pic by Sameera Wijesinghe

• In K. Sivagananathan Memorial Oration, Advocata Institute CEO Dhananath Fernando says SL must target 5% GDP growth per annum to emulate  Singapore’s economic growth model
• Attributes Sri Lanka’s inadequate growth to accumulation of short-term dollar-denominated debt
• Urges for increased PPPs, semi-privatisation, and effective governance to strengthen SOE sector
• Cites regulatory burden and excessive documentation as causes for reduced trade competitiveness
• Highlights issue of low FDIs, which never exceeded $ 1.5 b annually
• Advocates redirection in public funds towards integral sectors such as education and healthcare

By Janani Kandaramage

A top economist on Monday called for urgent reforms to State-owned Enterprises (SOEs), trade and investment, governance, and public expenditure structures to drive growth and development in Sri Lanka-paving the way for it to emulate Singapore in the future.

Advocata Institute CEO Dhananath Fernando reiterated the importance of maintaining financial resilience in the face of crisis by encouraging significant bouts of GDP growth annually.

“If Sri Lanka strives to grow at 3% annually, we will reach Singapore’s development only in another 105 years. If we choose to grow at 5% we will become Singapore only in another 64 years, and if we target 6% each year we can expect to become developed in another 54 years. However, it is estimated that if 8% of GDP growth is achieved annually, we can expect to become Singapore in 2064, another 41 years,” Fernando said in delivering the veteran late banker K. Sivagananathan 23rd Memorial Oration at the Bank of Ceylon auditorium.

The Advocata CEO attributed the underlying issue of Sri Lanka’s stagnant economic growth to an excessive accumulation of short-term dollar-denominated debt. This financial strain was further exacerbated by investments in infrastructure projects that failed to yield sufficient revenue generation. As a result, the mismatch in the debt maturity profile and the inadequate return on investment has significantly strained the country’s fiscal stability.

He also noted that approximately 50% of money borrowed was to settle interest on loans, raising the risk of accumulated debt and therefore setting a dangerous financial precedent for the future.

“Debt accumulation can pose a serious threat to the country, potentially leading up to a second debt restructuring program which we cannot afford to experience. Therefore, we must prioritise growth to around at least 5%. Although there are concerns surrounding the fact that growth may not filter across all segments of the population, it is essential that we focus on stimulating aggregate demand as that will intrinsically trigger a cycle where business prosperity uplifts everyone employed,” he opined.

Fernando placed specific emphasis on reforms to the SOE sector, aimed at promoting greater Public-Private Partnerships (PPP) and quality controls to SOE goods and services. He believes Government regulation is a necessity to ensure enterprises remain stable and productive, ensuring consumer confidence that can drive investment. He justifies this aspect of Government intervention by arguing that all companies are inherently taxed by the state at 30% as corporate tax. In addition, PPPs and quasi- privatisation in key sectors will create a competitive business environment conducive to efficiency and economic advancement.

Speaking about trade and investment, the Advocata CEO criticised the excessive documentation involved in shipping arguing that these requirements create delays and increase costs, thereby hindering local trade competitiveness. Expressing disappointment over local FDI inflows, he said the country’s FDI has persistently remained below the threshold of $ 1.5 billion. For instance, FDI inflows amounted to $ 1.18 billion in 2022, compared to around $ 779-780 million, up from $ 687 million in 2020 highlighting the need for prompt efforts directed at boosting FDI flows.

He also spotlighted the problem surrounding the escalating ageing population, which has led to massive surges in pension expenditure. In 2023, Sri Lanka’s Public Services Pensions (PSP) payments amounted to Rs. 372.3 billion (approximately $ 1.15 billion), representing 7.9% of the Government’s recurrent expenditure and 12.1% of its revenue.

“If we refrain from diverting an excessive portion of our revenue to pensions, we will be able to raise spending on educational and healthcare facilities across the country, even to remote areas where this is lacking. Building more schools and hospitals to enhance access, as well as improved qualified staffing and resources will empower more people which is a necessary ingredient to economic growth,” Fernando said.

Other measures he highlighted include commitment to ethical economic governance and reconciliation, ensuring political and social stability that encourages long-term economic forecasting and planning.

“A clean governance framework similar to what the current administration aspires, will eradicate corrupt and bureaucratic structures while promoting fair and sustainable development through fair distribution of resources aimed at reducing social inequalities,” he emphasised adding “Although these targets remain distant, it is crucial that we stay optimistic and committed to this dream of a developed Sri Lanka.”