Sri Lanka govt fails to manage economy

President Sirisena's government recently introduced price controls on essential items as a response to country's wide protests

Sri Lanka's unity government, which has been in power for 18 months, has failed to properly manage the country's economy as inconsistent policies, ad hoc measures and public sector expenditure increases have compounded the problems, an economic forum was told on Tuesday.

The government has failed to correct the excesses of the Mahinda Rajapakse regime and massive mis-spending of the past, the forum was told.

"My sense is that those expectations have not been met. The excesses of the Rajapakse regime have not been corrected. There has been the supreme idiocy of price controls," said Professor Razeen Sally of the National University of Singapore while addressing the Sri Lanka Economic Summit 2016.

Sally said inconsistent policies, ad hoc measures and public sector expenditure increases were compounding problems.

President Maithripala Sirisena's government recently introduced price controls on essential items as a response to country's wide protests over a 4% increase of VAT.

"Fiscal consolidation and consistent policies have been a challenge for Sri Lanka in recent years, with fiscal volatility being reflected in inconsistent and ad hoc policies," Sally said.

The government has faced accusations of being too inconsistent with the economy with two political parties in the unity government, the Sri Lanka Freedom Party of Sirisena and the United National Party of the Prime Minister Ranil Wickremesinghe, thinking differently.

"There shouldn't be further ad hoc measures and public sector expenditure increases. We need better appointments for key positions. We need new blood, and we need a message of practical economic reform," Sally said.

"Sri Lankas exports, as a percent of GDP, fall far below other countries in the region," said Central Bank Governor Indrajit Coomaraswamy.

Sirisena in his address said Sri Lanka was engaged in large scale mis-spending which has pushed up debt and has to re-think subsidies but cutting entitlements is extremely difficult within the exiting political culture.

When asked why Sri Lanka cannot follow other countries, Sirisena said, "There is a different political system in such countries compared to this country."

"These decision have political consequences. We need better fiscal administration and fiscal discipline," he said.

Sirisena said the government had a large debt because of massive mis-spending in the past as a result of which people were beginning to suffer.

The unity government has blamed the legacy of large debts left behind by Rajapakse who had invested on large scale infrastructure projects that have failed to pay dividends.