The unfolding economic crisis, the worst since independence and a 30-year civil war, is complicated because of contrasting and conflicting positions held by various and factious groups from politicians, civil society, industry, trade unions, and investors.
How do we attempt resetting the economy? Echelon asked Anushka Wijesinha about this, inviting him to share insights into the burning issues that led to the crisis and continue to impede recovery. Specializing in economic research, policy advisory, strategy formulation and implementation, Wijesinha advises international organizations on trade, competitiveness, private sector development and innovation in Pakistan, Myanmar, Maldives and Sri Lanka. He is a member of the Committee on Economic Stabilization, Recovery and Growth at the President’s Office. He is also on the boards of several Sri Lankan financial services companies.
As an economist specializing in trade and competitiveness, having exposure to best practices around the world, what works and what fails, in your view, and as you consider where we are now, 75 years after independence, what are the pressing challenges before us?
In my view, there are two fundamental problems confronting us today.
The first is this: we stand out as a country that never had a true consensus about the orientation of our economy or what our economic trajectory should be like, despite completing 75 years of independence and self-rule.
Over the years, we have embarked on several reforms piecemeal and backtracked on some of them. Or, we have tried to do things in an ad hoc manner, and the public discourse has always confined itself to narrow issues. Lately, there hasn’t been a consistent and bi-partisan effort to do some fundamental reforms, looking at the bigger picture. There are still such stark debates on the role of the state and the role of the private sector. There is still much suspicion of the idea of the private sector taking a larger role, and the state playing a smaller role, in the economy. Without consensus and clarity on this orientation, we keep oscillating every few years.
Let me cite two examples. First, in the 1990s and then again after the civil war ended in 2009, we attempted long overdue tax reforms. Each time, a presidential commission extensively studied the tax system, identified the problems and proposed sweeping reforms. And each time, we failed to implement far-reaching reforms that would have simplified the tax system, brought in a lot more clarity to encourage investments, broadened the tax net by dealing with rampant tax dodging and reenergized the tax administration.
The second is our descaling the 1977 liberalization of the economy and backsliding trade policy in the decades since then. The trade-toGDP ratio combining the contribution of exports and imports is a good indicator to measure our progress which is not impressive. In 2000, Sri Lanka had a trade-to-GDP ratio of 88% which declined sharply to 50.5% over the next two decades because we did not have a consensus about the economy we wanted to build. More recently, we tried deepening a trade agreement with India and finalizing one with Singapore. One was scuttled and the other nearly so.
Frankly, I am surprised that even after all these years, and with the quality institutions the British left us with, we are still having some big debates on some fundamental things, which most peer countries have long moved on from. This is why we keep oscillating quite sharply from time to time, only tinkering on the margins whenever we have something like an IMF programme.
It is not about minor adjustments, debating how much more to spend on a particular welfare programme or what level of exemption for income tax. Nor about whether it is time to privatize one particular SOE or another. It is not about those things at the margin. Instead, some far more fundamental questions about our economic orientation and the role of the state remain unanswered.
What is the second challenge?
Right now, everyone is focusing on the failures of politicians and elected officials. Everyone is saying we should send all 225 MPs packing. But here’s the thing: we can oust politicians for mediocrity or for not delivering. We do that through elections. But what about public officials?
As a younger person, I can only rely on the reminiscences of my elders who experienced what the public sector was like thirty, forty, or fifty years ago. They tell me that we used to have a conscientious, honest and efficient civil service which spearheaded some of the early momentous reforms and development programmes of this country, like the Mahaweli project or the 1977 liberalization programme, or the Greater C o l o m b o E c o n o m i c Commission, which had lined up investments from MNCs, including US-based Motorola and Harris Corporation.
Unfortunately, we do not have that public sector today, a public sector and civil service leadership that could effectively lead the country out of this crisis and give life to any reforms programme we produce. Could we today expect our public officials to be part of innovative solutions and be accountable and efficient? As we do this interview, there are state-sector unions on an islandwide strike asking for the PAYE tax on them to be removed, because earlier their employer was paying their tax contribution on their behalf!
Let us assume that we can build consensus (the first challenge) around a reform programme and development paradigm for our economy. I think part of our private sector would be ready to deliver, quickly building competencies over a short period. However, I cannot see that sufficiently in our public sector.
The poor quality of the public sector is the biggest impediment to recovering from this economic crisis. Many public officials – especially those in economic development ministries, agencies and roles – lack the skills, competencies and capabilities. Institutional structures do not reward or motivate performance, and the lack of accountability is egregious. In New Zealand, all ministry secretaries are called Chief Executives, and that immediately sets the tone and elevates them and sets clear expectations. They are very clear about their duties and responsibilities. Accountability and rewards go hand-in-hand with clear KPIs. In that country, politicians and public officials know where their responsibilities begin and end.
How do we fix the public sector problem?
The more I work closely with the public sector and government, the more I am worried about this. There are standout public sector leaders, but they are a rare breed and they are woefully under-compensated. There are individuals in the public sector who are motivated to do something great, and not because the system offers any incentives. However, for the most part, the system treats overperformers or underperformers alike, and therefore, you tend to incentivize everyone to be around the middle, which is mediocre.
First, we need to fix the size problem: the public sector is unhealthily bloated. We have multiple government entities ostensibly meant to be helping enterprises, when they are simply surviving on higher taxes on enterprises, and they are not made accountable for their lack of service delivery and impact. Next, the relationship between the ministers and the public officials needs fixing, and I believe there are a few legal amendments that can achieve these changes. The Ministers should only set policy and oversee the implementation of programmes – not micromanage, interfere, or politicize.
We need permanent secretaries and civil service leaders who are not beholden to elected ministers so they can build expertise in their subject areas, and implement without the worry of retribution at the next election. We also need to change the remuneration structure where we reward much better at the top while cutting the fat in the middle and bottom layers. For decades we have fattened the bottom with politicians promising state-sector jobs to win votes. By depoliticizing recruitment and investing in digital technology, we could improve efficiencies and shed excess weight to create resources to remunerate top performers and invest in training and skills development.
I see an impressive transformation of the public sector in India – they have introduced exam-based recruitment across the civil service (even for office assistants) and this has hugely minimised politicization. With India taking over the presidency of the G20, public officials are proactively engaging think tanks and driving hard to lead improvements in that country. They’ve even introduced mechanisms to hold them (public officials) to account for delivering specific goals. Each year, India sends many public servants to top schools for executive education like the Harvard Kennedy School. They can afford to do a lot of it, but I think we can selectively do so too.
Is there any hope of resolving these two problems: building consensus around orienting our economy and public sector reforms?
We missed an opportunity after the Aragalaya last year, and the change of administration. There was a window of opportunity for political leaders to try and build consensus around a course of action to lead the country out of the economic crisis and forge a common minimum reform programme.
The political parties represented in parliament may not agree on everything. However, their leaders could have seized the moment to show political maturity and astute leadership to debate and formulate a collective course of action for the sake of the economy. Instead, the MPs quickly scurried back to their corners of the boxing ring, to their narrow viewpoints, and the opportunity passed. Honestly, I did not expect that to happen as fast as it did. I had hoped this crisis would galvanize the political leadership to work together to bring the country out of the brink. To put aside their narrow views, for a larger mission. Consensus doesn’t mean you agree on everything. It means, I may not like all of it, but I can live with it and I won’t oppose it. I was disappointed with how quickly they gave up on building consensus, in favour of quickly going back to their political corners and saying and doing things for short-term political gain.
Can the private sector play a role in building consensus?
I think parts of the private sector have gotten better at being consistent about their view on the economic challenges and the reform programme needed to reset the economy. Some chambers have also begun to engage politicians across party lines, and also support communications around a common minimum reform programme. However, can they be more effective in building consensus than politicians? Time will tell. I am optimistic that some parts of the private sector are more astute in understanding the scope of reforms required to reset the economy and more consistent in their message to successive governments. However, only time will tell whether they can build broader consensus and support for the recovery process.