Takafumi Kadono

Sri Lanka must focus on developing an export-oriented industrialisation policy rather than relying on bailouts and handouts for economic recovery, the Asian Development Bank (ADB) said yesterday.

With the island nation slated to begin its restructured sovereign bond repayment in the next couple of years, ADB Country Director for Sri Lanka Takafumi Kadono stressed the need for a structured policy shift that will ensure the country does not have to resort to new borrowings. Drawing from South Korea’s economic transformation he highlighted how consistent leadership and policy direction, regardless of regime changes, played a key role in their success—an approach, he opined Sri Lanka too can learn from.

“The Korean government led the R&D efforts and also instructed private firms to invest more in this area while providing them with tax incentives to encourage companies to do so,” Kadono said, addressing the Sri Lanka Economic Summit organised by the Ceylon Chamber of Commerce.

“This is what a government should be doing. If they’re giving concessions to private companies or SOEs, they need to instruct them to help drive these policies forward, not just provide handouts or bail them out,” he added.

Speaking to a packed audience, Kadono went on to discuss the possible impacts of targeted industrial policies that could bring both good and bad outcomes to a country.

“If it’s done badly, it can lead to rent-seeking behaviours, unfair competition and a loss of efficiency and productivity in the long run,” the Country Director said. But if used wisely, targeted policies can be a powerful tool to drive economic growth especially if it promotes competition with clear metrics and sunset clauses, as seen in the case of South Korea. Kadono also referenced the concept of the ‘entrepreneurial state’ by Italian economist Professor Mariana Mazzucato who advocated for governments to actively create markets rather than merely regulate them.

“The government should not just be spending money; they need to invest. They should not just be regulating the market, but creating markets,” Kadono quoted.

Citing South Korea’s successful use of targeted policies such as the strategic privatisation of key SOEs like the Korea Electric Power Corporation, he opined that Sri Lanka could draw these examples to facilitate long-term economic resilience.

“So I think the new administration here in Sri Lanka has a role to play. To do that transparently, promote competition and adopt an export-oriented policy,’ Kadono said.