Shifting from Washington to Beijing consensus : have we got it right? - Eran Wickramaratne

The Sri Lankan economy grew at an average of about 5 per cent over the past two decades. However it achieved a GDP growth rate of over 8 per cent in 2010 and 2011 which has declined to 6.5 per cent by the third quarter in 2012. The post-war growth rates were achieved largely due to the integration of the North-East Economy, and the public investment programme of 6 per cent
of GDP over the last three years. The GDP growth has decreased in 2012 and a sustainable high growth is questionable.

To sustain a growth over 8 per cent per annum will require an investment of US$ 3-4 billion per annum.

The net Foreign Direct Investment (FDI) in 2010 and 2011 has been $435 million and $896 million, respectively, falling far short of the required investment. Sri Lanka’s domestic savings rate as a percentage of GDP has been between 15 per cent-20 per cent, while public savings as a percentage of GDP has been minus one to minus 4 per cent due to inefficiency and losses in government corporations. India and China with domestic savings rates of 31 per cent and 53 per cent (World Bank data) are foregoing present consumption for future growth, unlike Sri Lanka. China’s huge trade surplus of $231.1 billion in 2012 is testimony to its export-led economic growth. In contrast Sri Lanka’s exports have declined from 24.3 per cent in 2006 to 17.8 per cent of GDP in 2011. Increased investment would be needed to fuel and sustain economic growth.

The public investment programme at 6 per cent of GDP is increasingly under pressure as export revenues drop and the oil import bill keeps rising. Foreign investors are not queuing to invest given the sorry state of governance evidenced by irresponsible legislation and executive actions in expropriating private property, even though these properties were previously given by Government as concessions to investors. The unjust and illegal removal of the Chief Justice and the appointment of a Presidential Advisor as the new Chief Justice, have destroyed any remaining semblance of an independent Judiciary. The new Liberal economic model has dominated the world economic order since the 2nd World War.