Recently, the government launched the roadmap on Investment Climate Reforms in Sri Lanka at Temple Trees aiming to improve the business climate in the country in order to attract investors. During the ceremony to launch the road map Prime Minister Ranil Wickremesinghe stressed that the government is looking at fast-track reforms aiming to move up on the Ease of Doing Business Index and increase the rank up to 70.
At present, status of the country in terms of the Ease of Doing Business Index is quite bad. This is the indicator that reflects the status of the country in terms of facilitating business.
According to World Bank, Sri Lanka’s rank in the Ease of Doing Business Index has gone down to 110 in 2016 from 109 recorded in 2015. The rank is considered as a key indicator that reflects the quality of the business and investment climate of the country.
Ease of doing business is an index published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a country.
The indicator reflects the efficiency of government regulations, transparency obtaining construction permits, registration, getting credit, tax payment mechanism., etc., and ountries are ranked as per the index.
The Premier Ranil Wickremesinghe, speaking at the launch said that several new laws would be introduced to ensure the reforms would be implemented.
“This is Sri Lanka’s last chance,” Wickremesinghe said. “Sri Lanka was only behind Japan, Korea and Malayasia in 1977 but now when I look back there are only a few behind us. China was behind us, now we only have Afghanistan, Laos, Cambodia and Myanmar.”
The island needs to look at attracting new investments and move away from infrastructure-driven growth which was financed by borrowings, he said.
According to the Central Bank Annual Report 2016, Sri Lanka’s external sector continued to be under pressure in 2016, characterised by modest foreign exchange inflows and higher outflows. The pressure experienced in the external sector was a reflection of global as well as domestic developments. On the external front, monetary policy normalisation in the United States, slow pace of economic growth in advanced economies such as the European Union and Japan, and geopolitical uncertainties in the Middle East impacted adversely on Sri Lanka’s Balance of Payments (BOP). On the domestic sphere, lack of substantial foreign investment inflows, higher import demand, outflows on account of debt service payments and outflows from the government securities market posed a challenge towards external sector stability during the year.
Accordingly, the mismatch in the demand for and supply of foreign exchange emphasises the need for urgent policy measures to address imbalances in the external sector. Restoring external sector stability in a challenging environment requires the building up of external buffers with policies to reduce spill-over effects from adverse developments in other sectors. As such, in addition to allowing the exchange rate to be determined through market forces by aligning it with the movement of REER indices, short to medium term measures are required to strengthen the level of international reserves.
Short- term measures in building reserves would entail reliance on debt-related sources, such as ISB issuances and foreign exchange swap arrangements. However, these measures need to be supplemented through foreign inflows, such as increased earnings from merchandise and services exports and FDIs to ensure the external stability on a sustainable basis. There is a need to formulate a comprehensive export strategy so as to focus on the diversification of the export base, integration into the global production sharing chains while harnessing the potential to enter global markets through preferential trade agreements. Improving the country’s competitiveness, maintaining policy consistency, improving institutional setup and the prioritisation of export promotion in the development agenda is crucial to the creation of a more conducive environment for exporters. At the same time, policy initiatives to harness the country’s potential as a service exporter, in the areas of Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), tourism and maritime services are crucial to the improvement of the country’s share of exports in the global market. A multi-pronged policy initiative is also essential to encourage the attraction of much needed FDI, as non-debt creating inflows are vital to address the chronic BOP issue faced by the economy over several decades.
In a recent forum, the issues relating to court procedure was highlighted. member of International Court of Arbitration Dr. Harsha Cabral said long time taken to court procedures has adversely affected Sri Lanka in attracting Foreign Direct Investments (FDIs) and has resulted in Sri Lanka lagging behind in ranking of the Ease of Doing Business Index, Addressing a seminar organized by the Lakshman Kadirgamar Institute (LKI) he said, as a result of the existing structure of the legal system, it takes a long time to settles cases relating to arbitration and this discourage investors from investing in Sri Lanka.
He suggested to introduce reforms to reduce time taken to arbitration, added that reform process in Sri Lanka is very slow.
Dr. Cabral also predicted that arbitration in near future will be carried out online as it is mostly based on documentation rather than hearing.
Delivering a speech, World Bank representative during the forum said, the roadmap to improve the investment climate is in place as is the Task Force to lead the work, but as with all windows of opportunity they are unfortunately time bound. Inaction over a period of time; and more importantly lack of results will hasten the window’s closure. Finally, there is a need to build more buy-in from the citizens in this process. This is because when a country opens up its not only government that has a role to play, but the private sector, media, NGOs and citizens do, too.
It was added that Sri Lanka has potential to show that its predicted score is a positive one. To do this it must stay on the reform path. Consistency and determination to deliver high quality reforms will earn credibility. The Doing business team put out a set of criteria at the beginning of every year against which performance is assessed.
“It is possible that at times a country’s rating will fall even though they have carried out many reforms; but other countries may have done more and deeper ones. So, it is wise to review what the target reforms are and ensure that they too are included in the priorities. A steady pace of creating a robust regulatory and institutional foundation will help Sri Lanka raise its ranking,” statement added.
It is a long journey, but targets will remain dreams in the absence of commitment. So far it was the case. There have been enough plans, lacked implementation. Let this roadmap not to be one of those dreams.