Strengthening institutions, policy interaction needed: Saman Kelegama

Oct 21, 2015 (LBO) – Sri Lanka can achieve greater economic progress with a reforms agenda which strengthens interactions between institutions, policy processes, the head of the Institute of Policy Studies (IPS) said.

“The agenda setting for reforms must begin with attempts to strengthen interactions between institutions, policy processes and policy outcomes,” Saman Kelegama, executive director of IPS said.

“The environment in which many of these sorts of transitions take place is strongly influenced by broader factors such as the quality of institutions and governance in a country.”

However, he says that such reforms are politically difficult to deliver through the legislative phase, and are often even more difficult to implement.

“Reforms generate distributional impacts that create ‘losers’ and ‘winners’, entailing short-term adjustment costs and the potential for long-term benefits,” he said.

“Thus, while reforms need to be ambitious in scope, it is typically the case that ambition may have to be tempered by political economy realities.”

Kelegama was speaking at the launch the IPS policy report “Sri Lanka State of the Economy 2015” on the theme “Economic Reforms – Political Economy and Institutional Challenges” on Tuesday in Colombo.

The report examines in details the many interrelated reforms that touch on important economic policy.

They include reforms in trade and investment, labour market, foreign employment, education, health, social protection, agriculture and the environment.

Kelegama also says that Sri Lanka’s fiscal constraints, contracting labour force and skill deficiencies suggest that a rise in infrastructure investment will spur growth only temporarily.

“Sustaining higher growth in the long run must come from a competitive export sector through improvements in productivity, notably due to innovation and to investments in human capital,” he said.

Overhauling Sri Lanka’s tax system, tackling loss making state-owned enterprises (SOEs), improving labour market efficiency, filling skill gaps in the work force, improving productivity of agriculture, delivering a better safety net to the poor and vulnerable are amongst a raft of reforms that need attention, he said quoting the new report.