In the race for growth Sri Lanka could outmatch its South Asian counterparts by focusing on capital market formation, promoting trade with India’s five southern States and encouraging transshipment to become the most open country in the region, Prime Minister Ranil Wickremesinghe said yesterday.

It would also be a sound framework to rejuvenate Sri Lanka’s economy in the short term, Wickremesinghe noted, insisting that the biggest challenge is to figure out how to deliver jobs and increase incomes through existing enterprises while dealing with high levels of debt.

“We are not that far behind. If Sri Lanka focuses on capital market formation, factor in regional markets such as the five southern Indian States, develop our ports to promote transshipment we will become the most open in South Asia, which is not saying much for South Asia but there it is,” he said. Indian states such as Tamil Nadu, Kerala, Telegana, Andhra Pradesh and Karnataka that have been experiencing double digit growth could provide trade impetus for Sri Lanka, Wickremesinghe pointed out, estimating that trade could reach as much as $1 trillion.

Wickremesinghe, addressing the inauguration of the Sri Lanka Economic Association Annual Sessions acknowledged that even though the Government had taken significant steps to draw up policies on trade liberalisation, global integration, strategies to improve exports and investment as well as striding forward on fiscal consolidation it was still challenged by the need to assist local companies to grow and take full advantage of the benefits offered by these measures.

“How can an economy exhausted by debt create jobs? We have taken the first step in making the economy stable. I don’t think any country in South Asia has had to deal with this level of debt but we will somehow forge ahead.

Clearly we need to modernise agriculture and industry and in my experience the best way to do it is through markets. If Government could do this then the economies of Eastern Europe would have seen a very different outcome, so the way forward is to allow market forces to function while the Government acts as the regulator,” he said.

The Prime Minister recapped Sri Lanka’s history noting that it had a liberal trading economy for thousands of years, which was only rolled back over the past few years. He pointed out liberalisation efforts have been mired in sporadic “stop-go” cycles rather than being allowed to evolve gradually. He highlighted the example of Bangladesh, which when it separated from Pakistan, had half the per capita income of Pakistan, but decades later is en route to surpassing its neighbour’s per capita income.

“Bangladesh, after some unsuccessful tinkering with a closed economy, liberalised and now it is up to Sri Lanka to do the same. We have a good opportunity for doing that now because we have formed a National Government. A National Government is not the easiest thing to manage but it gives stability and ensures both parties will largely follow the policies outlined because they are made together. There are no U-turns.”

Wickremesinghe praised the Central Bank for its management of monetary policy but acknowledged its task will remain challenging over the next two years as Sri Lanka tackles a spike in debt repayments.  Measures taken by the Government to roll back red tape, negotiate Free Trade Agreements (FTAs), reform State Owned Enterprises (SOEs) and implement fiscal consolidation were essential but the Prime Minister conceded that these were medium to long term policies.

“Some SOEs can be made efficient but that will take time,” he said. Private sector was a more positive option with the Government readying to introduce a trade investment package to assist local companies to become resilient to competition that may come from pending FTAs. The Prime Minister called on economists at the conference to assist the Government to understand the best way to take on reforms and draft policy measures.

“I wish we weren’t in this position. But we want to accelerate the speed. We need to understand how to help our industries grow because they are the ones that can deliver the fastest.”