Sri Lanka Development Forum
Colombo, Sri Lanka
JUNE 6, 2002
Hon. Minister of Finance, Mr. Choksy,
Hon. Ministers,
Ms. Mieko Nishimizu – Vice President for South Asia/World Bank,
Members of the Donor Community,
Your Excellencies,
Distinguished Visitors,
I wish to thank all the organisers of the Sri Lanka Development Forum – 2002, for inviting me here today and giving me the opportunity of meeting with you all and participating in the proceedings. I wish also to express my gratitude to the World Bank, the Minister of Finance and all the Government Officials as well as the Private Sector representatives for the dedicated efforts they have put into preparing this meeting. I would like also to extend my very special gratitude to the Members of the Donor Community for their magnanimity towards Sri Lanka and for believing in us. Your confidence has given us the courage to face the challenges of dark and difficult times.
This is the first aid group meeting, now known as the Development Forum, to be held in Sri Lanka. I am particularly happy that the World Bank and the IMF and the Donor Community readily agreed to the proposal I made at the last Development Forum Meeting held in Paris, in December 2000, to hold the Sri Lanka Meeting here in Colombo.
I wish to briefly touch upon our achievements from 1994 to 2001, a period of seven years of my first Government. I shall leave the rest in the capable hands of the Minister of Finance & the Prime Minister, who I am sure would detail the new government’s economic policy and programmes.
Our vision for the economy is to build a modern, stable and prosperous economy, which would be competitive, combining growth with equity. The economic system we are building is open, whilst being people friendly and based on democratic institutions. Attention will be paid to protect Sri Lanka’s specific National identity and its cultural heritage. Our vision gives a crucial place to ending the ethnic conflict through power sharing and equal opportunity to all our peoples.
The objective of our economic policy is to transform the economy by 2010 into a strong and modern one that could sustain 7% – 8% annual growth through higher investment and productivity as well as efficient management. This would require further integration with the international economy and a facilitating environment for the evolution of a dynamic private sector, which could effectively compete in the International markets.
Our growth strategy was based on our strategic location that gave us the potential to act as a regional commercial hub for financial services, shipping, aviation and trade. The natural beauty of the country and its environmental diversity, the quality of our human resource base and the strength of our private sector are also resources that we could draw on. The rural economy, which generates income for over 50% of our population, was targetted to be re-vitalised through technological advance and enhanced rural infrastructure development.
When I took over the reigns of the Ministry of Finance & Planning of the Peoples Alliance Government in mid 1994, we were faced with numerous challenges for economic development. There was no stated vision for development nor action plans to proceed with. We proceeded first to formulate a long term and a medium term vision of development for the economy. This was translated into annual action programmes, with a particular focus on the Ministries handling the major development subjects. For the first time the Sri Lankan economy was developed with a clear medium term policy and short term action programmes.
We then proceeded to set up new systems for review of the progress of implementation of the work of all Ministries, specially the ones handling development. Regular monthly meetings were held between the Minister of Finance, and the relevant Ministers and Officials. For this purpose the Ministry of Finance & Planning and the Ministry of Plan Implementation were re-structured. It may be relevant to mention here, that it was the first ever restructuring undertaken of the Ministry of Finance, in the last Century.
Restructuring of the many financial institutions, such as Banks and Insurance, the Departments of Customs, Inland Revenue and Excise were also undertaken. The new Government is continuing this work, especially the creation of a new Revenue Authority proposed by us two years ago, in conjunction with the ADB and the IMF. Most of the major regulations that dealt with finance, revenue collection, banking and insurance were streamlined and amended. I am told that the largest number of Acts of Parliament regarding the financial sector was brought in during the period 1995 – 2000.
An important aspect of our economic policy was to strengthen the fundamentals of the economy. Budgetary deficits had remained high for several years before 1994, at over 10%. Budgetary discipline and strict financial management succeeded in reducing the budgetary deficit to around 8% from 1995 to 2000. Inflation was reduced from an average of 16% from the previous decade and a half to 8% during the same five-year period. Bank interest rates were reduced from around 25% to 28% to between 16% & 19%. Unemployment was reduced from around 14% to 7½%. In nominal terms the GNP and the Per Capita income doubled during this period. Small and medium scale self-employment projects increased significantly. Our progress met with a series of unprecedented setbacks in 2001. The increase in oil prices, global recession, September 11th, the LTTE attack on the airport, severe drought and emergency war expenditure necessitated by the intensification of hostilities, were the major causes for this situation. Yet the resilience of the economy we built up was amply demonstrated by the fact that our economy avoided a collapse as happened elsewhere. It is noteworthy that the people of Sri Lanka endorsed our policy by voting us back into government in 2000.
We also focussed on the urgent need for infrastructure development. Much work was done on the development of roads, power supply, drinking water, irrigation as well as education and health.
For the first time Sri Lanka saw the emergence of a network of express roadways.
Nearly 400 MW of electricity were added to the National Grid with the construction of new generation projects. The construction of projects for the supply of a further 350 MW were commenced. Some of these have already come into operation this year and others are due to do so, soon.
A large number of urban, semi-urban and rural areas were provided with drinking water.
In the field of irrigation we eschewed the policy of constructing massive and costly irrigation projects with doubtful productivity, replacing it with a policy of improvement and proper maintenance of the very extensive network of small and medium scale irrigation tanks already existing in the country.
In the field of education we undertook a difficult but a great task of modernising an archaic education system. A comprehensive new education policy was formulated and implemented since January 1998. The results of the performance by the country’s 4.2 million school pupils bear witness to the success of this programme. Much more needs to be done if we are to achieve the targeted results by the year 2005.
A new development policy was also formulated for the Health Services sector. Implementation commenced several years ago, although with much less success, due to various irrelevant obstacles placed along the path of the realisation of the new Health Services Policy. It is heartening to note that the present administration is continuing with these initiatives.
In the Industrial sector, a large number of new Industrial Parks for foreign investors, as well as for local industrialists, were opened outside of the Western Province, in the rural areas. Construction commenced a few years ago on a new 2000 acre Industrial Park cum settlement in Horana. For the first time, industrial output exceeded that of Agriculture during this period.
Serious attention was paid to the development of scientific research, as well as technical innovations by Sri Lankans. This has resulted in a significant increase of production in the field of fundamental scientific research, and also in the number of International Award winning inventions by Sri Lankans.
Thirty-six State Owned industries, which had run into serious trouble due to inefficient privatisation previously, were restructured and re-privatised in a more efficient manner. Large State Owned infrastructure institutions were re-structured, bringing private sector participation into ownership and management. Telecommunications, the National Airlines, the plantations sector, part of the Insurance Sector, the Gas Company were restructured. Ad-hoc decision making and actions in privatisation of State Owned enterprises was brought to an end, with the setting up of the Public Enterprises Reforms Commission (PERC), which was given specific powers to handle all privatisation operations, following clear systems and procedures.
We also made much effort to improve good governance and to improve efficiency and accountability in the systems of governance. Without this we are aware that a sustained economic growth cannot be achieved. In 1994 we inherited a directionless, inefficient and lethargic administrative system. We strove to restore dignity and pride to the Public Service as well as Professionals. We commenced a comprehensive reform of the public service in which I took a personal interest. We have achieved some success, but much more has to be done in this area. I hope the new Government will continue without delay to implement these reforms. I support the commitment of the current administration to good governance and hope that it will be able to maintain, the independence, integrity and accountability of the public service free from undue political interference and harassment.
Another far reaching reform that was undertaken by us was the floating of the Rupee in January 2001 to replace the policy of a shifting band, which was fuelling inflation.
The exchange rate policy does not act anymore as a obstacle to export competitiveness.
A wide ranging and a comprehensive poverty alleviation programme was formulated and implemented since 1994. The innumerable and ad-hoc welfare payments, which were in existence, were consolidated into a single income transfer scheme for the poor. This proved to be a much more efficient and rational scheme of poverty alleviation.
I am happy to note that you would be discussing two important schemes which were formulated and implementation commenced by my previous government namely the Poverty Alleviation Programme and the Relief, Rehabilitation and Reconstruction Programme for the North and East. The latter programme was first requested by me from the Donor Community at the Paris Aid Group Meeting in April 1995, even though the LTTE had unilaterally broken off the ceasefire agreement and the talks with the government of Sri Lanka and had begun armed attacks on military ships and aircrafts. We presented the final proposal to the donor community in 1998/1999. It was agreed upon at the Paris Aid Group Meeting in December 2000 and implementation began in 2001. The Poverty Alleviation Strategy is now formulated in its final form. I hope that it would be the basis for donor support in the coming years.
I trust that the discussions that you will have today and tomorrow will succeed in identifying problems and issues and finding solutions, in order that these programmes advance without delay. They are excellent programmes, which target two major problem areas in our process of development. The North East on one hand and poverty in general.
I would like to propose to you an area, which also needs urgent intervention. This is the poverty-ridden pockets in the Provinces other than the North and East. These are distant rural areas of the country.
We need to look at new programmes of action to economically empower the communities living in numerous pockets of these regions.
Last but not least, I must mention what you all know i.e. that sustained economic growth will not be possible without restoring peace and political stability to our country. We believe that this could be achieved only when every Sri Lankan citizen, irrespective of race, religion or political creed would live in dignity and equal opportunity. I do not need to take more time to describe the efforts made by my two governments to restore peace in Sri Lanka. We will continue to strive with commitment and to the best of our ability to realise our dreams for peace and prosperity. To achieve this, we need to sink differences and create an atmosphere free from mistrust, hatred and revenge, which would prove conducive for building one strong and united Nation.