JULY TO DECEMBER 2016

DIGEST

Financing for
Development

Fiscal Policy Barriers Beyond Benefits of a Green Shine in

for Growth: Tariffs: Potential New Star Ratings
Sustainable Financing Sri Lankas Singapore-Sri Lanka of Sri Lankan Hotels
for Development Exports to China Free Trade Agreement

page 06 page 14 page 18 page 22

CONTENTS
32 04 Sri Lankas Extended Fund Facility Arrangement with the IMF: Its
Mostly Fiscal
Editorial Executive Director
Saman Kelegama, DPhil (Oxon)

Deputy Director
06 Fiscal Policy for Growth: Sustainable Financing for Development
Dushni Weerakoon, PhD (Manchester)
08 ICT for Development: Why Sri Lanka Needs to Address the The annual IPS flagship Publication - Sri Lanka: State of the Economy 2016 - was recently launched
Gender Digital Divide under the theme of Fiscal Policy for Growth: Sustainable Financing for Development. Talking Economics Team
The widely distributed publication calls for fiscal consolidation efforts aimed at broadening Janaka Wijayasiri
10 Trade is Not Just for Big Businesses: Role of Sri Lankan SMEs in
Dishnika Perera
Trade Sri Lankas tax base while minimizing distortions, with expenditure measures aimed at rationalizing
spending and improving efficiency. Drawing from the Report and its theme, Raveen Ekayanake and Bilesha Weeraratne
Kithmina Hewage
12 The Red Dragons Leap: Chinas 13th Five Year Plan and its Kithmina Hewage in their article to TE Digest on Fiscal Policy for Growth: Sustainable Financing
Charmaine Wijesinghe
Implications on Sri Lanka for Development, highlights the perilous state of Sri Lankas public finances, and the urgency
36 08
for fiscal policy reforms to avert an economic crisis. Sri Lankas fiscal position in comparison to
14 Barriers Beyond Tariffs: Sri Lankas Exports to China
other developing countries is poor; government revenue generation is well below the desired level Contributing Authors
Abhinav Pandey
16 Regulating Financial Services for the Poor in Sri Lanka: A Closer while governments debt burden is much higher when compared to countries at a similar level of
Anarkalee Perera
Look at the Long-Awaited Micro-finance Act development. In this context, public expenditure needs to be rationalised by diverting resources away
Bilesha Weeraratne
from loss making, state owned enterprises towards investment with high economic returns. But this Chantal Sirisena
18 Benefits of a Potential Singapore-Sri Lanka Free Trade Agreement an uphill task, requiring political will to reform. Simultaneously, governments revenue base needs Chinthani Sooriyamudali
to be broadened given that revenue collection efforts have been unsatisfactory. In the article, they D. D. M. Waidyasekera
20 Sri Lankas Tourism Industry and the Foreign Ownership Debate
argue difficult reforms need to be undertaken to ensure macroeconomic stability and to improve the Dilani Hirimuthugodage

14 22 Green Shine in New Star Ratings of Sri Lankan Hotels countrys economic outlook. Dushni Weerakoon
Ganga Tilakaratna
24 Intellectual Property Rights as a Tool for Enhancing Ecotourism in On the trade and investment front, Sri Lanka has seen a steady decline in exports while foreign direct Janaka Wijayasiri
Sri Lanka investment (FDI) flows to the country remain unsatisfactory despite the end of the war. Towards Kanchana Wickramasinghe
increasing exports and improving FDI to the country and driving economic growth, Sri Lanka is Kithmina Hewage
26 Making Sri Lankan Tourism Accessible for All currently negotiating trade deals with India, China and Singapore, which are expected to be finalised Manoj Thibbotuwawa
during the course of this year. Sri Lankas forthcoming free trade agreement (FTA) with China is of Nipuni Perera
27 IPS Publications
importance given that it has the potential to be the biggest bilateral trade deal, in view of Chinas Priyanka Jayawardena
Raveen Ekanayake
28 Policy Instability : The Achilles Heel of Sri Lankas Productivity population and status as the worlds second largest economy after the USA. However, the article,
Samanthi Bandara
Barriers Beyond Tariffs: Sri Lankas Exports to China, argues that the ability to capitalize on a FTA
30 South-South Cooperation A New Lease of Life for Developing depends on Sri Lankas capacity to simultaneously address both tariff and non-tariff measures
Suwendrani Jayaratne
Countries Vishvanathan Subramaniam
(NTMs) in China. Concurrently, Sri Lanka is negotiating a FTA with Singapore, which was launched in Yolanthika Ellepola
32 Crop Insurance: Is it Workable in Sri Lanka? 2016, with the aim of improving trade relations between the two countries. The article Benefits of a
Potential Singapore-Sri Lanka Free Trade Agreement examines what Sri Lanka can gain from
IPS Photo Credit
34 Can Sri Lanka do more to help agricultural exporters meet such an agreement. Roshan Kaluarachchi
Sanitary and Phytosanitary Standards? Nalaka Liyanapathirana
Despite the poor macroeconomic and trade performance, Sri Lanka is witnessing a rise in tourism
36 Burning Health Costs for Poor in Sri Lanka since the end of the war. An important aspect that needs consideration in the countrys post-war
Institute of Policy Studies of Sri Lanka
12 18 38 Achieving Inclusive Health in Sri Lanka through SDGs
tourism development is Making Sri Lankan Tourism Accessible for All, while the right enabling
100/20, Independence Avenue
environment could benefit the industry, which is explored in the article Sri Lankas Tourism Industry
Colombo 07, Sri Lanka
40 Why Sri Lanka Need Comprehensive and Integrated Responses and the Foreign Ownership Debate by Chantal Sirisena. With the increase of tourist arrivals to the
Tel: +94 11 2143100, +94 11 2665068
to Mental Health Issues country, the demand for ecotourism also has seen a considerable rise. However, much needs to be
URL: www.ips.lk
done in order for the industry to reach its full potential. In the article, Intellectual Property Rights Blog: Talking Economics
42 Economics of the Olympics (IPRS) as a Tool for Enhancing Ecotourism in Sri Lanka, Dilani Hirimuthugodage highlights how IPRs Web: www.ips.lk/talkingeconomics
can be used as a tool to support the development of the sector while in the article Green Shine in
44 Decrease in Remittances in 2015: Glitch or Beginning of the End?
New Star Ratings of Sri Lankan Hotels, Kanchana Wickramasinghe explores the environmental,
Twitter: www.twitter.com/TalkEconomicsSL

46 Taxation in Sri Lanka: The Need for Radical Change? community and sustainability aspects in a new star rating system in the hotel sector and how hotels
DESIGN/LAYOUT
in Sri Lanka reap the benefits of the system to promote sustainable tourism in the country.
44 48 Inside IPS Shiran Sabar
In addition, the TE Digest contains articles on a broad range of economic issues, from ICT for
49 IPS News Development to Health Costs for Poor in Sri Lanka, which would be of interest to policy makers, Copyright and Disclaimer
economists, universities, development partners, the private sector and the general public.
50 Authors & TE Team All material published in the Talking Economics Digest
are copyright of the Institute of Policy Studies of
We hope you will enjoy the 11th edition of the Talking Economics Digest and look forward to your
52 Fast Facts Sri Lanka (IPS), unless otherwise specified. It cannot be
feedback on the articles, which you may post on our TE website. quoted without due acknowledgement to the IPS
53 In a Nutshell and the author. It cannot be reproduced in whole or
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The content, comments and posts of the Talking
28 Economic Digest and the IPS blog represent the views
Janaka Wijayasiri of individual authors and do not necessarily represent
the views of the IPS.
Research Fellow
janaka@ips.lk

February 2017
The Institute of Policy Studies of Sri Lanka (IPS) is an autonomous institution that aims to promote policy-oriented economic research and to strengthen the capacity for medium-term policy
analysis in sri lanka. Its mission is to contribute to the socio-economic development of the country through informed, independent and high quality research that seeks to influence the
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2 3
 Table 1: Selected Economic Indicators, 2015-2020 will take a cut in real
rupee terms in 2016-17;
2015 2016 2017 2018 2019 2020 household disposable
Real GDP growth % charge 4.8 5.0 5.0 5.0 5.2 5.4 incomes will drop as
Average inflation % charge 0.9 4.1 5.3 5.1 5.0 5.0 fiscal expenditures on
public sector salaries and
Export value growth % charge -5.6 -0.5 4.6 8.2 7.0 11.3 wages, expenditures on
Fiscal balance % of GDP -6.9 -5.4 -4.7 -4.0 -3.7 -3.5 other civilian goods and
Public debt % of GDP 76.0 77.2 75.5 73.1 70.7 65.2 services and transfers
and subsidies (of which
Private savings % of GDP 28.0 27.8 25.9 24.8 24.2 23.6
nearly 80 per cent go to
Private investment % of GDP 21.9 21.9 21.9 21.9 21.9 21.9 households) are squeezed
(Figure 1). On the revenue
Source: IMF, Staff Report for the 2016 Article IV Consultation side too, households
disposal incomes and
cost increases at bay, and ensure that a real depreciation of the currency firms profits will be
takes place. impacted with projected increases in collection from VAT and income
taxes (Table 2). Not surprisingly, the overall macroeconomic framework
Sri Lankas IMF programme signed in June 2016 has built all these points to declining private savings as a share of GDP, while private
elements into its framework fiscal tightening, a soft inflation target, investment stagnates at 21.9 % of GDP in the coming years (see Table 1).
and a flexible exchange rate regime. Within this framework, GDP growth
is expected to remain at a modest 5 % in the medium term, while export
earnings are forecast to grow steadily (Table 1). Clearly, imbalances While focusing on fiscal policy, the response of monetary authorities
are to be addressed in the short term by switching resources (flexible will also be critical to the question of who bears the cost of adjustment.
exchange rate) rather than attempting to boost national income. If the rupee is not allowed to float freely, interest rates will rise,
increasing the cost of credit
Figure 1: Current Expenditures to firms and households, and
thereby reducing domestic
250 expenditures. The prudent

inflation adjusted Rs.mn.

option is to allow the rupee
200 to move freely on underlying
economic fundamentals.
150 Monetary policy can then be
more stimulative to support

Sri Lankas
The often repeated pun on the IMFs acronym satirically suggests that it prescribes a 100 growth, discouraging savings
tighter fiscal policy, whatever an economys problem might be. Indeed, lower budget and encouraging borrowing
deficits and higher government revenues are central to Sri Lankas latest US$ 1.5 50 (as the predicted savings-

Extended
billion loan from the IMF. But, the economys booms and busts of recent years investment figures seem to
including the current economic distress go beyond merely the fiscal; much of it has suggest).
0
manifested in the monetary and exchange rate policy spheres. It is hard, however,
2014 2015 2016 2017
Fund Facility
to get away from the argument that all roads lead back to the fiscal quandary; the
frequent devaluation of the rupee for example, is a reflection in the monetary sphere Overall though, there is little
of fundamental imbalances in the real economy production, consumption, and
civil service wages other civilian g&s subsidies & transfers room to provide a fiscal and/

Arrangement
investment. And fiscal policy is where the adjustments begin. or monetary policy stimulus
Source: IMF, Staff Report for the 2016 Article IV Consultation
to accelerate growth in the
near term, evident by the

with the IMF:

The imbalances besetting the Sri Lankan economy produces twin deficits: budget For a real depreciation of the currency to occur, expenditure IMFs modest 5 % medium term growth estimate. It will draw the usual
deficits that mean debt is piling up and current account deficits that indicate overriding (consumption or investment) must be reduced. Therefore, the government criticism that fiscal austerity leads to a stagnant or shrinking economy, at
reliance on foreign capital inflows. At the heart of it, the imbalances mean a) national and/or private sector (firms and households) must curtail spending. This least in the short run, and exacerbates debt burdens needlessly. However,

Its Mostly
expenditure exceeds national income; and b) production of tradable goods and services is being done by cuts in both current public spending as well as tax there is no realistic alternative to fiscal tightening; Sri Lanka has pushed
is inadequate. So long as foreigners are willing to finance the external current account increases. itself to a corner, dragging public finances down with low tax receipts
deficit, the economy can muddle along. But, if there is a reversal of such flows, as and unaffordable spending sprees.

Fiscal
happened in 2015 (that coincided with a sharp increase in fiscal imbalances), painful The governments current expenditure is to reduce from 15.2 % of GDP
adjustments have to be made. in 2015 to 13.9 % in 2016. Generous relief measures offered in 2015
What the economy needs most today is a credible fiscal consolidation
Table 2: Tax Revenue (% of GDP) plan that will restore macroeconomic stability and investor confidence
By Dushni Weerakoon
A current account deficit can be addressed by either cutting national expenditure or in the country. If the only means of getting there is inking an agreement
raising income. The latter cannot be increased sufficiently in the short term as GDP 2014 2015 2016 2017 with the IMF, then it is incumbent on the government to deliver on the
growth typically increases expenditures, and productivity improvements take time. terms swiftly. The loan amount, spread over three years, is relatively
Alternatively, governments can attempt to switch resources to produce more tradable Income tax 1.9 2.3 1.9 2.6 small. In the circumstances, Sri Lanka needs to act early and decisively
goods and services. This calls for a depreciation of the currency. But, a nominal to fully leverage the IMF deal as a confidence-restoring measure in its
depreciation alone is insufficient; expenditures must also be reduced to keep domestic
VAT 2.6 2 2.6 2.9 efforts to attract investment flows, both local and foreign.

4 5
 Fiscal Policy
Sri Lankas public finances are at a perilous state. Already weakened by years of
low revenue growth and high external debt to fund a public investment-led growth
process, systemic weaknesses coalesced in 2015 to put the country on the cusp
for Growth:
of falling into a public debt triggered economic crisis. A ballooning fiscal deficit and
excessive public debt accumulation has resulted in a rising debt service burden; the
conduct of monetary policy and exchange rate management has been compromised
in attempts to deal with the fallout of funding the fiscal deficit gap.
Sustainable
Therefore, fiscal policy reforms are urgently required to avert an impending
economic crisis. At the outset, public expenditure needs to be rationalized by
diverting resources away from loss-making public entities and towards investments
Financing for
with high economic returns. Simultaneously, the governments revenue mobilizing
framework should be re-evaluated in view of broadening the revenue base and
maximizing revenue potential. Only fundamental reforms to public finances will
guarantee a measure of macroeconomic stability and improved growth outlook.
Development
Fiscal Trends
Successive Sri Lankan governments since independence have accumulated
By Kithmina Hewage and Raveen Ekayanake unsustainable fiscal deficits due to a combination of populist expenditure projects
and low revenue streams. Despite some improvements, deficits have continued
to average 7-8 per cent of GDP with knock-on effects on other critical areas of
macroeconomic policy management, most notably fuelling high and volatile rates
Figure 1 : Fiscal Deficits and Public Debt Figure 2 : Revenue and Expenditure
Source: Estimated using data from Ministry of Finance and Planning, Annual Report, Colombo (various years).
of inflation. With rising fiscal imbalances, the countrys indebtedness also rose
peaking most recently at 105 per cent of GDP in 2002 narrowing the options for
policy maneuverability and limiting the ability to respond appropriately to domestic
and external shocks.
Since 2009, Sri Lanka appears at first glance to have made some headway in
reversing the countrys fiscal fortunes. The fiscal deficit fell progressively to 5.4 per
cent of GDP in 2013, while the public debt-to-GDP ratio too climbed down steadily
to around 70 per cent of GDP. However, the explanation for this lies in more robust
nominal GDP growth over the same period than any underlying efforts at addressing
structural weaknesses in fiscal policy management. As could be observed from
Figure 3, Sri Lankas fiscal position in comparison with other developing and
emerging market economies is extremely poor. Government Revenue generation is
well below the desired level, while the government debt burden is much higher than
countries at similar levels of development.
Government Revenue
The bulk of Sri Lankas tax revenue is sourced through indirect taxes, followed by
direct taxes and non-tax revenue. A Value Added Tax (VAT) and a Nation Building Tax
(NBT) are the main contributors of indirect tax revenue. Whilst the share of direct
6 7
taxes has remained more or less unchanged over the years, revenue from
indirect taxation and non-tax sources have declined significantly from
a high of 5.9 per cent of GDP in 2004 to a historic low of 2.6 per cent
of GDP in 2015. Consequently, revenue as a share of GDP has declined
persistently from around 17 per cent in 2000 to a historic low of 11.5 per
cent in 2014. Alarmingly, this is despite a steady rise in per capita income
in the country over the same period. In response, governments have
resorted to offset the decline in indirect tax revenue through an increase
in trade taxes. These policies have thus negatively affected the trade and
investment productivity of the country. These unsustainable practices
continue despite a slew of recommendations made by a Presidential Tax
Commission made in 2010.
Figure 3 : Comparative Trends in Government Revenue and Debt
Government Revenue
Government Gross Debt
Expenditure
The composition of current expenditures primarily made up of
salaries and wages, interest payments on public debt, and transfers and
subsidies has hardly changed either, underlying the lack of meaningful
reform efforts in public finance management. Sri Lanka has a large and
growing cadre of public sector employees, estimated to account for
approximately 15 per cent of the total employed in 2015. Aside from
the heavy fiscal recurrent expenditure burden of salaries and a non-
funded public sector pension scheme, the Treasury must also grapple
with transfers to loss making SOEs. The government has identified 55
SOEs as strategically important. However, eleven SOEs among these
have incurred heavy losses especially in the commercial operations
of the energy, aviation, commuter transport, and plantations sectors.
This unsustainable financing strategy has been worsened through the
extension of government Treasury guarantees, which has effectively
increased government liabilities, and thereby creates knock-on effects on
the profitability of other state institutions and enterprises.
Contrastingly, funding for critical areas such as education and health
as a percentage of GDP has declined. Adequate investments in health
and education are important not only to ensure a skilled and productive
work force, but also to meet broader objectives of socio-economic
development and equity. Furthermore, evidence suggests that although,
education and health services are provided free of user fees, households
on average spend 6.2 per cent of their monthly expenditure on health and
education, leading to widening inequality.
Public Investment
Sri Lankas public investment lagged behind for years due to other
expenditure priorities, especially defence spending during the conflict.
The post-conflict growth agenda saw a renewed focus on public
investment, albeit financed mostly through external borrowings.
The negative impacts of debt-financed investments are somewhat
ameliorated with pertinent investments in projects that produce high
returns in dollars (or other exchange) through direct or indirect means.
Such returns would better facilitate the repayment of debts. However,
politically motivated investments with low returns have resulted in the
necessity for debt rollovers and an increasingly expanding debt service
burden.
Areas for Reform
The legacy of Sri Lankas welfare-state, history of populist public
spending programmes, poorly managed SOEs, and a bloated public
sector bureaucracy have made rationalization of expenditures an uphill
task. If performance of public finance management on the expenditure
front has been mixed, fiscal performance on the revenue front has clearly
been very poor since the early 1990s.
The fiscal landscape marked by high deficits and government
borrowing leaves little leeway to reorient public investment toward
high return, high productivity sectors such as education and health care.
Some degree of expenditure rationalization is necessary, particularly with
regard to the loss making SOEs, poorly targeted subsidies and transfers
and populist spending measures adopted from time to time. Therefore
much will depend on the political will to reform
In the near term, the solution lies squarely in reversing the progressive
decline in Sri Lankas revenue collection efforts. The widespread and
ad hoc use of tax incentives as a tool to entice investments has led to a
severe erosion of the tax base. This has also contributed to increasing
the complexity of the tax structure, leading to issues of monitoring and
compliance. Sri Lanka must urgently reevaluate this policy stance in
view of broadening the tax base and rationalizing the tax structure with
the broad aim of simplifying revenue administration and increasing
compliance.
Another critical area of intervention that needs attention is to address
distributional weaknesses of the current tax system. Historically, Sri
Lankas tax structure has been a regressive one, with the bulk of revenue
generated through production taxes. Whilst the government expressed its
intention to arrest this trend and make the structure more progressive,
a number of recent tax policy changes introduced in 2016 work counter
to this stated objective. With limited fiscal resources constraining
investments in social sectors such as health and education and gaps in
fiscal support for social protection, especially of the more vulnerable such
as the elderly, regressive tax structures will further undermine efforts
towards equitable growth and development in the country.
ICT for Development: Why Sri Lanka
Needs to Address the Gender
Digital Divide
By Anarkalee Perera
Nearly three decades since the adoption and ratification of the
Convention on the Elimination of All Forms of Discrimination against
Women (CEDAW), womens economic empowerment is gaining
increasing policy priority as a fundamental strategy to achieve inclusive
growth. In contrast to previous schools of thought, development policy
today is informed by the idea that women constitute the largest untapped
potential for economic development and harnessing that potential is the
single most impactful step to reach all other development goals.
While the nexus between womens empowerment and
Figure 1: Women Bear an Asymmetric Burden of Poverty
development is well established, there has been little
focus on understanding the tools for empowerment;
particularly, the potential for Information and
Communications Technology (ICT) to facilitate womens
economic empowerment and stimulate broader growth.
Despite extensive empirical evidence of the propensity
for ICT to advance development, womens access to
technology remains significantly low with 25% fewer
women having access to internet when compared to men
in the developing world. These trends hold true in the
Sri Lankan context as well, with womens participation
in the information economy lagging significantly behind Source: Womens Refugee Commission
that of men. As Sri Lanka continues to make ICT a policy
priority in its development agenda, it must consider
the consequences of excluding women and girls from the information
revolution, and work to bridge fundamental disparities in access to
technology.
Sri Lankas Gender Digital Divide: Why Dont Women
Have Access to ICT?
Social and cultural factors contribute significantly towards shaping
womens participation in the information economy. Even policy
interventions designed to promote inclusiveness among all socio-
economic groups tend to underestimate the gender dimensions of
information gatekeeping. While evidence suggests that internet usage
8 9
by women is higher in countries that are more gender equal and
rank higher on the Human Development Indicators (HDI), Sri Lankas
progressive ranking has done little to promote womens access to ICT. A
study conducted by Kottegoda et.al (2012) reveals that girls use of and
participation in rural telecommunication centers is deterred by concerns
over safety as well as stigmas attached to mixing with boys. Despite the
seeming inconsequentiality of these factors, these examples highlight the
propensity for culture to define womens relationship to technology.
Moreover, poverty is another significant constraint to ICT access. While it
is true that this limitation affects both genders, statistics (Figure 1) show
how women bear a disproportionate percentage of the burden of global
poverty as a direct result of the lack of income, social protections, gender
bias and social and cultural influences. The UNDP report on gender
dimensions of the MDGs in Sri Lanka also reveals a higher incidence of
women in new poverty groups.
The feminization of poverty around the world and in Sri Lanka has
significant consequences for women because it regulates access to ICT
and limits the ability to break the cycle of poverty: If women are more
likely to be victims of poverty, they are less likely to own and utilize
technologies, which in turn limit their ability to graduate from poverty.
Why ICT Matters for Women and Economic Development
introduction of long distance learning promoted by e-education
shows that out of the total economically active population, only
Supporting womens participation in the information economy has direct
positive impacts on gender equality as well as economic development in
a country. Outlined below are some of the ways in which ICT facilitates
the economic empowerment of women and stimulates development.
I. Supporting Female Entrepreneurs
Female entrepreneurs have long been deemed engines of economic
development, and harnessing their potential is vital to achieving
sustainable growth. The rise in the number of female-owned Small
and Medium Scale Enterprises (SMEs) has provided Sri Lanka with an
unprecedented opportunity to scale-up entrepreneurship among women,
and increasing access to ICT is key to leverage this potential. ICTs are
particularly well poised to help overcome barriers that are specific to
female entrepreneurs such as lack of access to equity, information and
limitations on mobility and time.
Source: Authors Compilation Based on IPS Research
Lack of access to capital remains one of the core constraints to female
entrepreneurship with women facing barriers in discrimination and
implicit gender bias. Although women constitute over 31% of SME
entrepreneurs inSri Lanka, they are statistically far less likely to access
private equity or venture capital. ICTs can help women bridge these
fundamental disparities through Crowdfunding platforms such as
Crowdfunder, Kickstarter and Indiegogo, which replace traditional means
of capital investments and offer women alternate platforms to fundraise.
In fact, research reveals that female entrepreneurs are almost ten times
more successful in raising capital via online platforms than with
traditional banks, and five times more successful when compared
to their venture capital investments. Moreover, ICTs offer female
entrepreneurs tools to bridge gaps in knowledge and training. The
initiatives supports womens continued education by affording them
the flexibility to manage work and familial obligations.
II. Advancing Female Labour Force Participation
A breakdown of female labour force participation in Sri Lanka
34% are women. Disaggregated data on womens participation in
industries related to Science and Technology reveal even lower numbers:
the National ICT Workforce Survey of 2013 confirms that women
constitute only 29.7% of the total ICT sector in the country. An increase in
access to ICT and training in IT literacy will provide opportunities for Sri
Lankan women to participate in the labour force by opening up sectors
of employment (in technical fields) that are traditionally dominated by
men. Despite the lack of comprehensive data, evidence suggests that
the asymmetrical representation of women in these occupations can
be linked to low rates of concentration in technical fields at all levels of
education.
Increasing ICT access to girls at a young age should, therefore, be
a policy priority when considering gender parity in the information
economy. Statistics from GirlsWhoCode - an organization providing
coding camps to girls in the United States - reveal the extent to which
access to IT literacy can boost the female technical workforce: over
90% of the girls who participate in their programme went on to major in
computer science or a closely related field of study. While initiatives such
as Connect to Learn, are working to increase IT literacy rates
among teenage girls in rural communities in Sri Lanka, these
efforts need to be strongly supported at an institutional level
by local and national governments.
III. Empowering Women to be Change Agents in
Economic Development
As a result of the pervasiveness and innovation of technology,
ICTs are emerging as strategic tools to combat significant
challenges to economic development such as poverty,
mortality and malnutrition. Mobile technologies, for instance,
are revolutionizing healthcare delivery around the world, with
organizations such as Dimagi, GiftedMom, MomConnect, and
MAMA leveraging low-cost SMS based services to provide
timed and targeted antenatal and neonatal information to
pregnant women and their caregivers. These initiatives have
resulted in significant reductions in maternal and infant
mortality in communities that lack access to basic healthcare
facilities. Similar initiatives in Sri Lanka include Mobile for
Development a programme that aims to leverage SMS
services to educate 150 women in two rural communities on
child care, health, hygiene and financial management. The
importance of empowering rural women as economic actors cannot be
underscored. As primary decision makers on health, education, nutrition
and education within the family unit, rural women ensure the wellbeing of
not only their families but also their entire communities.
The Way Forward
It is evident that when women have access to ICT tools they are capable
of harnessing their economic potential to unleash positive economic
outcomes. While anecdotal evidence points to significant gender
disparities in access to ICT, the lack of data on IT literacy and access
to ICT is a core constraint to understanding the issue. The collection
and dissemination of data is, therefore, vital to inform policy making
and set policy priorities that are necessary to achieve Sri Lankas
development goals. Furthermore, it is important to develop a stronger
mandate for gender mainstreaming across all areas of policy making.
In recognizing that womens access to ICTs is contingent upon the
realization of womens rights more broadly, it is critical to incorporate
gender perspectives across a wide range of development policies
in order to ensure that women have the opportunity to overcome all
factors psychological, material, skills and usage that regulate their
participation in the information economy. If Sri Lanka is serious about
achieving its status as a regional ICT enabled commercial hub for South
Asia, it must begin this process of mainstreaming soon to ensure that
women are not left behind.
Trade is Not Just for Big Businesses:
Role of Sri Lankan SMEs in Trade
By Janaka Wijayasiri
Small and medium enterprises (SMEs) play an important role in
economies in terms of their contribution to national output, employment
and share of firms operating in countries. In Sri Lanka, they form the
backbone of the economy and can be found in all sectors of the economy.
The SME sector in Sri Lanka accounts for 52 per cent of the GDP, and
45 per cent of the total employment, whilst making up more than 75 per
cent of the total number of enterprises in the country. Moreover, SMEs
are significant employers of women and youth. In developing countries,
for example, one in three SMEs are owned by women though the figure is
reportedly less in South Asia. In Sri Lanka, the figure is about 22 and 39
per cent in the case of small and medium scale enterprises, respectively.
By enhancing SMEs opportunities in the global economy, the lives of
many individuals and communities can be improved. For this reason,
SMEs are receiving prominent attention in the global agenda. For
example, the Sustainable Development Goals (SDGs) under Goal 8
recognizes the potential of these enterprises to support inclusive and
sustainable growth and decent work for all.
However, SMEs participation in trade simply does not equal their
economic importance domestically; SMEs trade relatively less
internationally compared to their larger counterparts in both developed
and developing countries. According to the World Bank Enterprise Survey,
exports represent about 6.2 and 11 per cent of total sales of small
and medium scale enterprises, respectively in manufacturing sector
compared with 23 per cent for large firms. The differences are much
greater in South Asia and Sri Lanka (Table 1). Even in a region such as
developing Asia with the highest forward and backward participation
of SMEs in global value chains, most manufacturing SMEs have low
participation rates in international trade compared to larger enterprises.
10
In Sri Lanka, there are 3,027 SMEs registered as exporters. However,
they contribute to less than 5 per cent of Sri Lankas exports (compared
to 235 large firms, which account for bulk of the export revenue).
Smaller the Business, the Bigger are the
Barriers to Trade
According to international firm surveys, trade barriers, poor access to
information, costly requirements/regulations, burdensome customs
procedures and lack of trade finance are major hurdles to international
trade for SMEs. These costs in trading represent bigger barriers for SMEs
than large firms, and this appears to be true in the case of Sri Lanka.
Non-tariff measures (NTMs) are particularly burdensome for SMEs
because of their fixed costs, which are independent of the size of the
exporter. Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade
(TBT) measures are costly for smaller firms to meet. When a restrictive
or new measure is introduced in a foreign market, it has been found
that larger firms can comply more easily and at a lower cost. According
to the ITC Flagship Report SME Competitiveness Outlook: Meeting
the Standards for Trade, standards affect small firms twice as much
as larger firms; a 10 per cent increase in the frequency of regulatory/
procedural trade obstacles decreases exports of large firms by 1.6 per
cent compared to 3.2 per cent in the case of SMEs.
High tariffs are also considered a major obstacle to exporting by SMEs;
which are more sensitive to changes in tariffs than larger firms. High
tariffs not only reduce the participation of SMEs in trade but they also
reduce the volume of exports. Whilst SMEs in apparel sector in Sri Lanka
do not face many problems related to NTMs when exporting to the USA,
SMEs Contribution to Sri Lankan economy
52% of GDP 45% of
employment
22-39% of SMEs are 75% of
owned by women entreprises
which buys 44 per cent of apparel from the country, they find high tariffs
affect their competitiveness in the international markets, amongst other
issues.
Access to information about border procedures/regulations and
markets are another issue for SMEs. Timely publication of trade related
Table 1: Proportion of total sales that are domestic sales (per cent)
Sri Lanka South Asia
Small 99.8 96.5
Medium 83.0 90.6
Large 44.5 69.0
Source : World Bank Enterprise Survey (2011)
procedures/regulations, and establishing an inquiry point on export/
import procedures were identified to be of high priority for traders,
especially SMEs in Sri Lanka based on a transport and trade audit of
Sri Lanka recently undertaken by the IPS. In fact, there is increasing
evidence that trade facilitation encourages smaller firms which would
have otherwise sold to the domestic market to enter export markets.
Therefore, the implementation of the WTO Trade Facilitation Agreement
(TFA) will be particularly beneficial for SMEs by improving transparency
of information on rules and regulations governing foreign markets.
Importantly, Sri Lanka earlier this year ratified the Agreement, which will
enter into force once two-thirds of the WTO membership has formally
accepted it.
Access to finance is a common problem for SMEs across countries
including Sri Lanka; SMEs often struggle to obtain finance including trade
finance, which constrain their development and opportunities for trade.
Selling abroad involves various costs ranging from marketing to adapting
products and packaging to meet foreign requirements; all of which
entail additional costs and require credit. Lending to SMEs suffers from
informational problems, and the inability to provide collateral/ guarantees
and credit history means that SMEs incur higher interest rates and fees
compared to larger firms. This problem is compounded by the difficulty to
access affordable trade finance and lack of dedicated financial services
for the trading sector, which further reduces their export potential.
Development of e-commerce provides export opportunities for SMEs to
engage in international trade. Online platforms can dramatically reduce
the cost of doing business across borders, eliminating the barriers
created by distance. However, affordability and access to communication
and infrastructure (i.e., logistics of shipping a good or delivering a
service, ICT security and data protection, payments) create difficulties
for SMEs. Thus, SMEs tend to be less represented online than larger
enterprises.
Trade Policy Solutions
At a time when growth in world trade is slowing down to 1.7 per cent,
it is important to ensure that trade is inclusive by allowing SMEs,
particularly those owned and led by women to participate in international
trade. Some steps can be taken to expand SMEs trading potential
through trade policy.
In this regard, WTO and regional trade agreements (RTAs) can help
reduce tariffs and NTMs and increase transparency in the trading system
for SMEs. While SMEs are not always specifically mentioned in WTO
Agreements, multilateral rules can have the effect of reducing trade
costs that hinder SMEs from entering foreign markets. As mentioned,
implementing the WTOs TFA could reduce trade costs by an average of
14.5% per cent and increase the participation of SMEs in trade.
It is only recently that RTAs are increasingly addressing SMEs with
specific provisions. However, most SME
related provisions in RTAs are framed in
best endeavour language. For example,
All countries
93.8
SAFTA agreement, which Sri Lanka is a
member, makes reference to SMEs under
89.2
export promotion and pledges Support
77.3
for improving technical, managerial
and entrepreneurial skills of small and
medium size enterprises engaged in
export production. In the case of Sri Lankas other trade agreements;
there is no reference to SMEs at all. Nevertheless, it is important to note
that draft national trade policy of Sri Lanka acknowledges the SMEs
role in trade and the need for inclusive policies to improve their supply
capacities to enter into global markets.
However, trade policy is one of the important tools to allow participation
of SMEs in trade in parallel with other policies to redress challenges
SMEs face in terms of access to finance, infrastructure, information,
technology, skills development, and wider issues affecting firms at all
levels. These include creating an enabling environment for their growth
and expansion up the value chain to increase their contribution to
exports of the country. For example, Sri Lanka can also support SMEs
to participate in trade by helping them get easy access to trade finance
and information by setting up credit guarantee schemes or keeping
businesses updated about developments/business opportunities in
export markets using the commercial sections of embassies to address
financial issues and information failures, respectively; some of which
have been highlighted in the recently presented budget speech.
11
 Thus, this condition especially in regard to China has been identified
as a sandwich trap, where the country is trapped between cheap labor
competition from below, and exclusion from higher value-added markets
from above.
It is in this conjuncture that China has unveiled its 13th Five Year Plan.
This broad, ambitious proposal aims to double Chinas income per capita
by 2020, compared to 2010 levels. In other words, the plan envisions
a development trajectory not hindered by slowdowns vis--vis Middle
Income Trap.
The 13th Five Year: Future Scope for Development
Chinas development policies are closely aligned to its socialist roots;
reforms are orchestrated as per the five year plans proposed by the
Central Committee (CC) of the Communist Party of China (CPC). The five
year plans are thus important precursors for growth as they delineate the
policy reforms and development endeavors that would be implemented in
the medium to long term. In such a scenario, the recently ratified (by the
Opportunities for Sri Lanka
Chinas efforts to limit its excess production capacity under the new plan
will create a window of opportunity for developing nations to obtain vital
Foreign Direct Investment (FDI). The close ties between Sri Lanka and
China, coupled with the island nations proximity to international trade
routes, make it an ideal destination for investments being reallocated.
The close diplomatic ties provide scope for bilateral ventures that
accelerate the transfer of capacity to Sri Lanka. Sino-Lankan cooperation
is already evident in this field high level negotiations are already under
way to a construct a Special Investment Zone in Hambantota. China
has shown interest in partnering with the government in developing
special economic zones in other regions of the island as well. In a recent
trade discussion, the Chinese Ambassador to Sri Lanka, H.E Yi Xianliang,
has stated that his nation is prepared to commit over $5 billion in FDI
over the medium to long term for special economic zones.
Such investments will help improve the labour force by creating

The Red
employment opportunities and will provide an impetus to maximize
National Peoples Congress) 13th Five Year Plan becomes even more
productivity potential. Furthermore, the creation of similar manufacturing
important.
enclaves will set an ideal foundation for Sri Lanka to integrate into global

Dragons
Chinas rapid development has been well documented. Since the initiation of market The 13th Five Year Plan is molded upon Secretary General Xi Jinpings supply chains in the future.
reforms in 1978, Chinas GDP growth has averaged 10% per annum; an unparalleled call for China to adapt to a New Normal. Under this concept, Chinas
feat amongst developing nations. Such brisk growth rates have been instrumental development objectives will shift from expanding product volume and The regional focus of the 13th Five Year Plan is inextricably linked with

Leap: Chinas
in developing large swathes of the nation and in lifting a significant portion of the capacity to upgrading product quality and production innovation. Chinas One Belt One Road (OBOR) initiative. Sri Lanka, being a strategic
population from poverty. Furthermore, the new plan calls for a shift from high speed to medium- partner of the Maritime Silk Road, has the potential to position itself
to-high speed growth. Growth will therefore be maintained at around the as an Asian growth hub in the heart of the Indian Ocean. For instance,

13th Five Year

However, growth rates have dipped over the last few years between 2012 and 6-6.5% mark, a shift from the target of 7.5% set by previous plans. The Sri Lanka can analyze Chinas success story in positioning Shanghai
2015, the Chinese economy grew at an average of 7.4% per annum. Whilst this 13th Five Year Plan, being a document comprising 20 sections and 80 as a centre for international trade and investment. Using Shanghais
plunge corresponded to a global downturn, some argue that Chinas languid growth chapters, details several areas of focus. Some examples are: experiences as a base, Colombo (coincidentally a sister city of Shanghai)

Plan and its

rates paint a deeper picture, one that shows an economy overheating amidst supply can perhaps be revamped as a Special Economic Zone catering towards
side inadequacies. Chinese authorities have dismissed such claims, but do agree 1. Supply Side Reform: Over the next decade, the State will deepen the Indian subcontinent.
that if necessary policy reforms are not executed in the next few years, the nation the reform initiatives in regard to State Owned Enterprises, reorient

Implications on
would find itself facing the middle-income trap. This concern has been echoed by public capital flow and reevaluate the existence of certain monopoly However, it is pertinent to note that foreign investment is no panacea
Finance Minister Lou Jiwei who noted in 2015 that there was a 50% chance of industries. Furthermore, tax reforms will be initiated and incentives for development. Authorities have to ensure that the inward foreign
China sliding into the Middle Income Trap in the next five to ten years. for private entrepreneurship will be strengthened. Chinas primary investment is favorable to Sri Lankas future aspirations, and is not

Sri Lanka
goal in undertaking such large scale endeavors is to absorb undertaken with the intention of inflaming regional power politics.
The Middle Income Trap: Implications for China excessive production and phase out excessive
Figure 2: A comparison of Chinas outward FDI and inward FDI between 2003-2015
production capacity. Such reform is essential to
The Middle-Income Trap is often generalized as a developmental trap, a predicament fulfill Chinas ambition of realigning its economy as a 140
By Vishvanathan Subramaniam associated with diminishing rates of productivity in economies that have been quality-oriented and innovation hub. 120
experiencing rapid growth.
2. Innovative Development: This is a prerequisite for 100
Chinas rapid growth was spurred by the manufacturing sector, as firms utilized any potential foray into the high value market. While 80
the low wage structure to produce goods that were price competitive in the China is the second largest contributor to global 60
Figure 1: A Twenty Year Breakdown of Chinas GDP Growth global market. The strategy has borne sizeable R&D investment, the per capita breakdown is far
dividends China has been successful in 40
from ideal. The 13th Five Year Plan aims to create
alleviating more than 800 million citizens above a domestic field more conducive for investments 20
16
the poverty threshold. However, such successes in innovation. The state will provide incentives for 0
14 now act as an impediment to the continuous indigenous innovation and in addition, will procure

201*
5
200

200

200

200

200

200

200

201

201

201

201

201
use of a similar strategy. Chinas burgeoning international patents where necessary to ensure that
12 Outward FDI Foreign investment in China
middle class has now caused a wage spiral innovative practices are not hindered.
that has reduced the comparative advantage of
PERCENT OF GDP

10 Source: Ernst & Young

manufacturing in China. Firms are incentivized 3. Regional Development: Domestically, the state
8 intends to continue its policy of integrated development especially
to invest in Bangladesh, Thailand, Indonesia
6 and Mexico (rather than China) as their labour between the Beijing, Tianjin, Hebei Districts and Municipalities. The Asian Century
costs are considerably lower. This predicament Furthermore, plans to create a Yangzte River Economic Belt will
4 is further exacerbated when one examines the be commenced. On an international scale, China will continue to
The initial decades of the new millennium have often been tagged as the
gap in productivity and innovation between China support the One Belt One Road initiative to promote cooperation
2 Asian Century a projected shift of power back to the continent after
and high income nations. Lapses in such fields between Asian nations.
its deep slumber in the socio-economic hinterlands. As the curtains rise
0 act as a hindrance in development endeavours; 4. Open Development: Under the new Five Year Plan, China will on this rejuvenated stage, the limelight shines bright on China. Its plans
it creates a scenario wherein China lacks the
6
7
8
9
0
1
2
3
4
5
6
7
8

9
0
1
2
3
4
5

continue to invest in Special Economic Zones as a means to for the future have ramifications for all Asian nations, Sri Lanka included.
199
199
199
199
200
200
200
200
200
200
200
200
200

200
201
201
201
201
201
201

YEAR
resources to integrate into the higher end of the promote international production capacity, global trade and Only time will tell if such plans and policies usher in a shift in the global
value added market. investment. paradigm.
Source: The World Bank

12 13

Barriers Beyond Tariffs: Sri Lankas
Exports to China
By Janaka Wijayasiri and Nipuni Perera
Sri Lanka Stepping Up Its Game
Sri Lanka is stepping up its game in trade by going full steam ahead
on negotiating free trade agreements (FTAs) with three of its major
trading partners - India, China and Singapore. The -government hopes
to conclude discussions and strike comprehensive trade deals with India
and Singapore by December 2016, and with China by the first quarter
of 2017. Sri Lankas recent enthusiasm for FTAs with major trading
partners, dubbed in the media as FTA Mania, is not without good
reason. Deeper trade integration and investment cooperation, access
to markets/cheaper inputs and enhanced competitiveness etc., are
among some of the potential benefits that FTAs offer partner countries.
However, when tariffs are brought down through FTA negotiations, non-
tariff measures (NTMs) can reduce the utilization of FTAs if they are not
effectively dealt with. As experienced under the Indo-Lanka Free Trade
Agreement (ILFTA), many Sri Lankan exporters have faced a multitude of
difficulties in entering the Indian market due to the prevalence of NTMs
such as state taxes, standards, and administrative procedures, quotas,
etc. which were outside the scope of the Agreement. Hence, NTMs
should be identified at the onset in the trade negotiations and addressed
along with tariff reductions/eliminations for FTAs to deliver the desired
benefits.
Sri Lanka-China FTA: Game Changer?
Sri Lankas forthcoming FTA with China is of importance given that it has
the potential of being the biggest bilateral trade deal in view of Chinas
population and status as the worlds second largest economy after the
Figure 1
Bilateral Sri Lankas trade with China has been growing
faster than its trade with the rest of the world over
trade with the last 5 years and China has emerged as:
China
Sri Lankas 2nd
largest trading
partner
2nd largest source
of imports after
India
6th largest export
US$ 305 mn
market after USA,
UK, India,
Germany, Italy
US$ 3,727 mn
Source: Compiled from WITS Database
14
USA. So far, there have been three rounds of FTA negotiations with China;
the last one was recently concluded in Colombo after a space of 1.5
years.
Figure 2
Impact of
According Joint Feasibility Study, Chinas
bilateral trade imports from Sri Lanka will increase due to
China-Sri Lanka Free Trade Agreement by:
liberalisation
Table 1: Non-tariff measures (NTMs) Classification
Tea (56% or $12.4mn) Fish & Fisheries
(47% or $2.1mn)
Fruits & vegerables
(unspecied)
Machinery & electronics
(29% or $4.5mn)
Gems & Jewellery
(42% or $0.9 mn)
Coconuts
Rubber products
(120% or $22.1 mn) (30% or $10.1mn)
Source: Compiled from Joint Feasibility Study on a China-Sri Lanka Free Trade
Agreement (2014)
China is currently Sri Lankas second largest trading partner, while also
being Sri Lankas second most significant source of imports, accounting
for 20% of Sri Lankas total imports in 2015 (Figure 1). China is less
important as an export market, accounting for just around 2.9% of Sri
Lankas exports. But, China holds promise as an emerging export market
as Sri Lankan exports to China have been growing at a faster rate than
with the rest of the world; it is thus likely to emerge as an important
export market with the signing of a FTA.
A joint feasibility study on the China-Sri Lanka FTA identified that the
proposed FTA would facilitate an increase of bilateral trade, particularly in
certain product sectors of interest to Sri Lanka including, but not limited
to, tea, rubber products, fish and fisheries products, textile and clothing,
coconut products, gems and jewellery, fruits and vegetables, machinery
and electronics. The study highlights that trade liberalization will
increase in Chinas imports from Sri Lanka between 29% (machinery and
electronic product)and 120% (rubber), depending on the export product
in question (Figure 2).
An independent study by IPS identified a total of 541 products in which
Sri Lanka has a comparative advantage vis--vis the world, including
China. Of the 541 potential exports to China, Sri Lanka already exports
244 products. The remaining 297 products with trade potential to China
are currently not exported by Sri Lanka to China but are imported by
China from elsewhere in the world, presenting new market opportunities
for Sri Lankan exporters. However, the ability of the proposed FTA to be
a game changer for Sri Lankas trade front depends on the countrys
capacity to simultaneously address both tariff and NTMs amongst other
issues to capitalize on the untapped trade potential in China.
Challenges: Tariff and Non-tariff Measures (NTMs)
NTMs are policy measures other than tariffs that can impact trade
flows and include technical and non-technical measures (Table 1).
If NTMs are imposed by countries excessively beyond the specified
measures to restrict imports from other countries, then they can be
considered a Non-Tariff Barrier (NTB). The impact of NTMs on overall
trade restrictiveness has been found to be significant and often more
trade restrictive than tariffs.
The prevalence of NTMs has been a major concern for Chinas trading
partners. The WTO in its fourth Review of Chinas Trade Policy called on
China to address NTMs as countries have voiced concerns regarding their
prevalence; these include anti-dumping duties, technical trade barriers,
sanitary and phytosanitary issues, operations of state-owned enterprises,
customs process, export restrictions, and the protection of intellectual
property rights.
Imports
Technical Measures Sanitary and Phytosanitary Measures
Technical Barriers to Trade
Pre-shipment Inspection and Other Formalities
Non-Technical Measure Contingment Trade-Protective measures
Non-automatic Licensing, Quotas, Prohibitions and Quantity Control
Measures other than for SPS or TBT Reasons
Price-control Measures, Including Additional Taxes and Charges
Finance Measures
Measures Affecting Competition
Trade-Related Investment Measures
Distribution Restrictions
Restrictions on Post-Sales Services
Subsidies (excluding export subsidies Under p7)
Government Procurement Restrictions
Intellectual Property
Rules of Origin
Exports
Export-Related Measures
Source: UNCTAD (2012)
A study conducted by IPS, based on interviews with several major
exporters to China and related trade associations, finds that both tariff
and non-tariff measures are encountered by Sri Lankan companies
exporting to the Chinese market. Generally speaking, non-tariff measures
seem to be more challenging than tariff barriers for agricultural exports,
while the opposite is true for industrial exports.
Agricultural Exports
Agricultural exports covered in the study (tea, fish and fisheries and fruits
and vegetables) are mostly burdened by NTMs, compared to tariffs. With
regard to NTMs, the commonly cited problems faced by agricultural
exporters to China revolves around high sanitary and phytosanitary (SPS)
requirements compared to other export markets, and the lack of mutual
recognition of standards and certificates. For example, tea exports to
China are subject to rare-earth content testing, which is unique to China
and not a requirement in other markets. Moreover, the exact particulars
of this standard are not clear. It is also revealed that testing for rare-
earth content is problematic as the available testing facilities in Sri Lanka
are insufficient the current facilities can only specify if rare-earth
content is present or not in tea, but the levels of rare-earth cannot be
determined as per se Chinese requirements. Moreover, China does not
recognize testing and certificates provided by Sri Lanka, while testing in
China is considered to be time-consuming and complex.
Issues relating to quarantine and testing/certification are reported
across other agricultural export categories as major impediments, as
well as lack of transparency with regard to the food safety regulations.
The frequency of test reports and the levels/limits required in China
are considered to be greater than in any other markets. The lack of
necessary testing facilities in Sri Lanka to meet testing and certification
requirements applicable to China is also highlighted as a major concern.
For example, fisheries exporters state that other markets require
exporters of shrimp to obtain an antibiotic test report for one pond in
a shrimp farm, while for China, antibiotic reports have to be provided
for each and every pond in a farm. Meanwhile, obtaining quarantine
requirements for fruits and vegetables are stated to be extremely
cumbersome and time-consuming, involving a lengthy approval process.
For example, it takes Sri Lanka nearly three years to obtain quarantine
certification to export bananas to a few ports in China.
Industrial Exports
In comparison, tariffs are reported to be more challenging for industrial
exports covered in the study (textile and apparel products, rubber and
rubber products and gems and jewellery). Currently, China provides duty
free access under several FTAs to a number of countries with which
Sri Lanka directly competes. For example, textiles and apparels are
subject to an MFN rate of 16% when entering the Chinese market,
while under the China-ASEAN FTA, imports from Indonesia, Malaysia,
Philippines, Cambodia, Myanmar, Vietnam and Thailand have duty
free access to China. Although Sri Lanka has preferential access to
the Chinese market under the Asia Pacific Trade Agreement (APTA),
the margin of preference offered does not provide a competitive
advantage to Sri Lankan exporters. Rubber and rubber products
are subjected to duties ranging from 15-30%, similar to gems and
jewellery (0-5% on gems, 10.75% on base metals, and 17.5-30%
on jewellery) compared to duty-free access for ASEAN members.
However, exporters report stringent testing and specific requirements
in China such as GB (Guobiao in Chinese) testing in the case of
textiles and apparels. The latter requires more detailed test reports
compared to other export destinations and Sri Lanka lacks the
necessary facilities to undertake such testing.
Recommendations for Negotiations
Sri Lankan exporters face both tariff barriers and non-tariff barriers
when entering the Chinese market. An FTA, which does not address
NTMs, may not be sufficient in delivering the expected trade gains for Sri
Lanka. Therefore, it is imperative for China-Sri Lanka trade negotiations
to simultaneously address both tariff barriers and NTMs. Given that
the agreement with China is going to be a comprehensive one, SPS/
TBT issues will be taken into account during the negotiations. Some of
the key issues to figure in negotiations, include but are not limited to,
(a) addressing NTMs in addition to tariff concessions as a priority, (b)
setting up Chinese accredited testing laboratories in Sri Lanka whilst
(c) enhancing capacities and efficiencies of testing laboratories in the
country which China may consider assisting under the umbrella of
economic and technical cooperation, (d) striking Mutual Recognition
Agreements (MRAs) on standards, (d) translating all trade-related
documents/ regulations/ information into English, (e) appointing nodal
points in both countries to handle issues at the point of clearance;
and (f) establishing better relationships/coordination between relevant
respective competent authorities to facilitate trade.
15
Regulating Financial Services for the
Poor in Sri Lanka: A Closer Look at the
Long-Awaited Microfinance Act
By Ganga Tilakaratna and Chinthani Sooriyamudali
The UN Day for Eradication of Poverty is Observed Today, 17th October
2016, under the theme Moving from Humiliation and Exclusion to
Participation: Ending Poverty in all its Forms. Microfinance has been
widely recognized as an important tool for addressing poverty. Hence,
this article to mark this Day reviews the Microfinance Act of Sri Lanka
that came into effect in July 2016 and discusses its benefits and
concerns.
Microfinance is an important tool in addressing poverty and vulnerability.
Sri Lanka has a long history of microfinance dating back to the early 20th
century. At present, Sri Lankas microfinance sector comprises a range of
different institutions including co-operative societies, Non-Governmental
Organizations (NGOs), microfinance companies, development banks,
and special state programmes like the Divineguma community-based
banks. Despite a large number of microfinance providers, many of them
lack proper regulation and supervision. Considering that the poor and
vulnerable are the target group of clients in the sector, it is inarguably
important to ensure proper regulation and supervision of the industry.
To this effect, the long awaited Microfinance Act (No. 06 of 2016) came
into effect from July 2016, after several drafts over nearly a decade. The
Microfinance Act is expected to be beneficial to the clients, providers and
the microfinance industry as a whole.
16
Key Features of the Act
The Act provides for: the licensing, regulation and supervision of
companies carrying on microfinance business; the registration of
non-governmental organizations accepting limited savings deposits
as microfinance non-governmental organizations; for the setting
up of standards for the regulation and supervision of microfinance
non-governmental organizations and micro credit non-governmental
organizations and to provide for matters connected therewith or
incidental thereto licenced companies can mobilize savings.
As such, the Act broadly applies to two types of entities engaged in
microfinance activities. They are: (i) Companies registered under the
Companies Act, No. 7 of 2007, except companies limited by guarantee,
private companies, offshore companies and overseas companies
(hereafter referred to as MF companies); (ii) NGOs registered under
Voluntary Social Service Organizations Act, No.31 of 1980 (hereafter
referred to as MF NGOs). The Act does not apply to the following entities
even though they may engage in microfinance related activities:
1. Licensed commercial banks or licensed specialized banks
established under the Banking Act, No.30 of 1988
2. Finance companies established under the Finance Business Act,
No.42 of 2011
3. Co-operative societies registered under the Co-operative Societies
Law, No.5 of 1972 or under Statute of a Provincial Council
4. Divineguma community-based banks and Divineguma community-
based banking societies established under the Divineguma Act,
No.1 of 2013
5. Entities formed in terms of the Agrarian Development Act, No.46 of
2000
According to the Act, the MF companies that opt to be licensed will fall
under the direct authority of the Monetary Board of the Central Bank of
Sri Lanka (CBSL). With the aim to ensure that the objectives of the Act
are achieved, the Department of Supervision of Microfinance Institutions
has been established at the CBSL. The NGOs that wish to apply for a
certificate of registration under the Act fall under the direct authority of
the Registrar of Voluntary Social Service Organizations. In this case, the
Registrar, under the directives issued by the Monetary Board, will carry
out all the regulation, monitoring, and supervision. However, the Monetary
Board will not directly regulate or supervise the MF NGOs.
The Act does not require all eligible microfinance providers to be
licensed. It stipulates that a licence enables a microfinance provider
to accept savings from their clients. Those providers who opt to not
to be licensed can continue their business as usual and engage in
microfinance activities but are not allowed to accept savings.
The licensed microfinance providers are subject to directions issued by
the Monetary Board (for example, with regard to terms and conditions
in the case of savings, loans, investment as well as reserve funds, non-
performing loan ratio, fit and properness of the management, etc.) The
exact guidelines are currently being designed by the CBSL.
Why is it Important?
Establishment of a sound regulatory and supervisory framework for the
microfinance sector has been a long-felt need to ensure the financial
soundness of microfinance providers and to build confidence among
depositors, borrowers, and funders. Such a regulatory framework would
help achieve financial sustainability of the organizations and greater
financial inclusion in the country. The majority of microfinance providers
lacked prudential regulation, with a few exceptions like the Sanasa
Development Bank and the Regional Development Bank. The absence of
regulations has been a major barrier for many microfinance providers in
attracting external funds.
Furthermore, many non-bank microfinance providers were not permitted
to mobilize savings from their members/clients prior to the Act. The only
exceptions were co-operatives such as Thrift and Credit Cooperative
Societies (TCCSs) and the Samurdhi/Divineguma Development banks.
A key provision of the Act is that the regulated microfinance providers
are authorized to accept savings deposits. From the viewpoint of
microfinance providers, this is advantageous in that savings deposits can
constitute an additional source of financing; they can mobilize internal
funds thereby reducing their dependence on external funds. This, in turn,
would also help these institutions to enhance their lending capacity and
become financially viable in the long-run. Additionally, savings act as
partial collateral for their loans and can be used to repay loans in case of
defaults, thereby reducing the institutions credit risk.
From the perspective of the low-income groups (i.e., the target group
of customers), this is favourable in that it can contribute to encouraging
more savings among them. Microfinance providers are more accessible
for the low-income groups (compared to more formal financial service
providers). As such, this step was taken to enable microfinance providers
to mobilize savings has the potential to play a crucial role in boosting
savings among low-income groups. However, in order to fully realize
this potential, it is important to raise awareness on the newly introduced
regulation among the targeted population as well as the microfinance
providers who will ultimately end up licensed under the Act.
Moreover, lack of regulation has hindered the ability of microfinance
providers to compete with formal/regulated organizations that provide
financial services to low-income groups. The Microfinance Act shall help
such microfinance providers to compete on an equal footing, specifically
in terms of attracting customers as well as investors. Furthermore,
although not explicitly stipulated, the Act is expected to create the
background necessary for microfinance providers to join the Credit
Information Bureau (CRIB), which maintains consolidated information
on borrowers and lending institutions in the country. So far, the CRIB
Membership had only been extended to commercial banks, licensed
specialized banks, leasing companies and finance companies that are
under the supervision of the CBSL. Hence, the majority of microfinance
providers are not integrated into the CRIB. However, allowing these
institutions to integrate into the CRIB is of great importance, given the
high and increasing level of multiple borrowing and rising debt levels
in the microfinance sector. This would allow microfinance providers to
screen their clients and minimize risks.
Issues and Challenges
The Act does not apply to all the providers of microfinance. A number
of microfinance providers including the Divineguma community banks
and co-operatives such as the thrift and credit co-operative societies
(TCCSs) will continue to be governed by their current Acts while only the
MF companies and MF NGOs will be covered by this Act. Even for the MF
companies and the MF NGOs, being licensed/registered is mandatory
only if they wish to mobilize savings while the others can continue
business as usual. Interviews with some stakeholders revealed that
approximately 15-20 MF companies are expected to apply for a license,
primarily the more established ones with a larger outreach. As such,
a large number of microfinance providers would continue to operate
outside of the regulation and supervision stipulated by the Microfinance
Act.
Furthermore, as per the Act, the Monetary Board has the power to impose
interest rate caps on the licensed/certified microfinance providers. While
there are merits of imposing interest rate caps to prevent microfinance
providers from charging exorbitant rates of interest on loans to the poor,
interest rate caps may encourage the regulated microfinance providers
to move away from lending to the poorer segments as this is often riskier
and involves higher transaction costs. Instead, they may choose to lend to
better-off clients (a possible mission drift in the sector!).
Moreover, some stakeholder interviews revealed that there could
be potential implementation challenges with regard to instilling the
necessary financial, managerial and governance discipline required
from the regulated microfinance providers. Certain adjustments will
need to be made by the microfinance providers, incurring certain costs.
Furthermore, capacity building of staff at the Department of Supervision
of Microfinance Institutions of the CBSL, and raising awareness among
the public about the Act and the licensed providers that are able to
mobilize savings, are key to its successful implementation.
17
 with New Zealand in 2000. More recently, it has concluded negotiations
on three agreements with Turkey, the EU, and 12-TPP countries these
agreements are yet to be implemented.
Singapores growth strategy over the past decades has been based on
a policy of outward orientation and reduced barriers to international
trade and investment. While being fully committed to the WTO, it has
simultaneously pursued trade liberalization through the regional and
bilateral routes in order to sustain its global competitiveness in the
international market.
Singapores FTAs aim to drastically reduce or completely eliminate
customs duty to facilitate cross border movement of goods between two
or more countries. A majority of Singapores regional and bilateral FTAs
focus on progressively eliminating tariffs on all goods within a transition
period after the implementation of the FTA. For example, Turkey will
remove tariffs on Singapores exports on 80 per cent of the products
Table 1: Characteristics of some of Singapores bilateral FTAs in force
the last 5 years has been disappointing. Major products exported from
Sri Lanka include petroleum oils (other than crude), tea, rubber tyres,
previous/semi-precious stone, flour, and fish. As a source of imports,
Singapore was Sri Lankas fifth main import partner and contributed to 5
per cent of Sri Lankas total imports. In 2015, Sri Lanka imported goods
worth US$ 923 mn from Singapore and main imports included petroleum
products, machinery, electronic equipment, chemicals, plastic, and food
stuff.
An FTA will provide Sri Lanka duty free access to Singapore and vice
versa for almost all goods --- bilateral trade between the two countries
can be expected to expand from the current level of just over US$ 1 bn.
Moreover, Singapore is an important member of the ASEAN and it is the
most liberal economy in the region, with a high trade to GDP ratio. More
importantly, a FTA with Singapore will provide Sri Lanka a gateway to
larger ASEAN market given that many of the regions companies are
headquartered in Singapore.
An Agreement may also lead to an increase in foreign direct investment
from Singapore, which is the fourth largest investor in Sri Lanka. In
2014, US$ 102 mn worth of Singaporean FDI came into the country.
Currently, there are over 100 Singaporean companies operating in
Sri Lanka and they are involved in a wide range of activities including
property development, tourism, food and beverage processing, and

Benefits Singapore and Sri Lanka officially launched negotiations for a FTA by the respective
trade ministers on 18th July 2016; the event was witnessed by Prime Ministers Lee
Hsien Loon and Ranil Wickremesinghe, who was in Singapore on a two day visit. This
telecommunications. To date, Singapore has invested altogether US$ 530
million in Sri Lanka, and Singaporean companies have expressed interest
in urban infrastructure projects, construction of Export Processing Zones,

of a Potential
follows the visit to Sri Lanka of S. Iswaran, Trade and Industry Minister of Singapore, in projects in and around Colombo, and manufacturing. Interestingly,
June, who stated that The potential for a good quality bilateral free trade agreement Sri Lankan companies have invested US$ 120 million in Singapore,
between Singapore and Sri Lanka is there. Our officials have done the studies, and and Sri Lanka companies may also benefit from an Agreement due to

Singapore
they feel both sides stand to benefit significantly, and it will smoothen the way for our greater ease in which they can do business in Singapore. Together with
business commitments to work together. In turn, Minister for Development Strategies commitments to protect bilateral investments, a FTA can be expected
and International Trade, Malik Samarawickrama agreed that there would be mutual to encourage greater cross-border trade and investment flows between

Sri Lanka
benefits for both countries under a comprehensive FTA. Subsequently, the first meeting Singapore and Sri Lanka.
of the trade negotiating officials from both sides met and the foundation was laid for
the next rounds of negotiations. In addition, an Agreement with Singapore will include liberalization of

Free Trade In recent years, Sri Lanka has lagged behind in pursuing FTAs compared to its
neighbours in South and South East Asia. At the moment, Sri Lanka has only four trade
the services sector through the provision of national treatment and
removal of market access restrictions on service suppliers in sectors
committed. Singapore has pursued both a positive and a negative list

Agreement
agreements two bilateral agreements with India and Pakistan and two regionals with
South Asia and some Asia Pacific countries and one in the pipeline with China. In
comparison, Singapore has a network of 21 bilateral and regional FTAs in force with
By Janaka Wijayasiri and Abhinav Pandey 32 trading partners. In 1992, Singapore signed its first FTA, the Common Effective
Preferential Tariff Scheme with its ASEAN neighbours and its first bilateral agreement
Sailent Features of Singapore (SIN) - Sri Lanka (SL)
approaches to services liberalisation with its FTA partners and has
liberalized areas of interest to both parties. Service sectors currently
liberalized in Singapore include telecommunications, banking, financial,
education, and environmental services. However, liberalization of labour
mobility has been restricted under Singapores FTAs. Even the most
Source: UNESAP Asia-Pacific Trade and Investment Agreement Database
spirited free traders like Singapore have been restrained about opening
immediately after the FTA comes into force. This will rise to more than 95
its borders to admit labour from abroad. Singapores vision of a Global
per cent over 10 year period. Singapore in turn has granted immediate
duty-free access for all imports from Turkey. However, it should be noted
City has resulted in a high influx of both high and low skilled foreign

Economic Relations that Singapore has on average a duty rate of 0% on all imported goods,
and excises duty on few items (liquors, tobacco, motor vehicles, and
wage workers. Due to public backlash for the high presence of foreign
workers in the country (foreigners now make up around two out of five
residents), Singapore has tightened its employment of foreign workers
petroleum products).
more recently.
In addition to trade in goods, Singapores FTAs generally cover trade-
in-services and investments and some include intellectual property In conclusion, the signing of a bilateral FTA between Sri Lanka and
protection, government procurement, and other cooperation measures, Singapore has the potential to improve trade relations between the
reflecting Singapores economic strategy which is shifting from a two countries. An Agreement will most likely remove customs duty on
manufacturing-centric economy towards service and investment-based almost all goods; however Sri Lanka has little to gain in the context of
one. A summary of the key characteristics of some of Singapores trading goods due to the minimum amount of exports and Singapores
21 85 923 4 existing bilateral FTAs is given in Table 1. existing duty free access. Mobility of labour to Singapore should not be
anticipated based on its existing FTAs. However, a bilateral FTA has the
# of FTAs Value of exports Value of Rank of SIN In terms of trade in goods, Singapore is not a significant export market of potential to facilitate an increase in Singapores FDI to Sri Lanka while
Singapore has to SIN from SL imports from as source of
signed ($ mn) SIN ($ mn) FDI to SL Sri Lanka. In 2015, exports to Singapore amounted to US$ 85 mn or less Sri Lankan service providers can gain by having more market access in
than 1 per cent of Sri Lankas total exports while growth in exports during Singapore.

18 19
 tracking that has left investors perplexed. Sri Lankas need for FDI-led can be particularly disruptive in developing countries. The practise of
growth is undisputed, yet the position of current policy damages Sri buying up undeveloped land and banking for capital appreciation can
Lankas attractiveness. exaggerate the appreciation of land values and sometimes prevent
development in the area.
Figure 2: Sri Lankas Ranking vs. Regional Peers
On the other hand, some liberalization of land
Travel & Tourisms Total 2014 Travel & Tourisms Total 2014 ownership can be viewed as a positive step to
Contribution to GDP (% share) Contribution to Employment (% share) enhance Sri Lankas push for FDI. Such a move
Maldives 78.1 Maldives 62.0 could signal a renewed commitment to a recovery
Cambodia 29.9 Cambodia 26.4 in FDI inflows, which have suffered in the past 18
Thailand 19.3 Thailand 14.1 months. The ability to acquire property, with secure
Malaysia 14.9 Malaysia 13.0 rights of ownership or lease, at transparent prices
Philippines 11.2 Philippines 11.1 and with limited restrictions, is often considered
Sri Lanka 11.1 Sri Lanka an essential ingredient in investment decisions.
10.0
World World Deregulation does not only encourage investment
9.8 9.4
in land, but may more importantly also provide an
Indonesia 9.3 Indonesia 8.7
ancillary to investment in business. For example,
Vietnam 9.3 Vietnam 8.5
land owned by an investor can be used as security
Asia Pacific 9.2 Asia Pacific 8.4 for a capital raising.
India 6.7 India 7.7

Sri Lankas Tourism Industry and the Source: World Travel and Toursim Council, Country Rankings The approach to land ownership of the majority
of countries globally is that of an intermediate

Foreign Ownership Debate

Whilst land ownership laws have always had restrictions, the current path. Restrictions are placed on land essential for key sectors such as
legislation, Land (Restrictions on Alienation) Act, No.38 of 2014, places designated areas for agriculture or mining. This introduces far greater
a complete ban on the purchase of land by foreigners (individuals or flexibility than a complete ban on foreign ownership.
By Chantal Sirisena companies with foreign shareholding of
50% or more). Foreign individuals may Figure 3: Case Studies from Competitor Countries
The tourism sector is one of Sri Lankas success stories of the post- statistics, Sri Lanka is yet to find its niche in the fast changing global only lease land to a maximum term of 99
war economy. The industry represents Sri Lankas third largest foreign tourist landscape. According to the World Travel and Tourism Council Thailand Maldives
years, and must pay a lease tax of 15%.
exchange earner, accumulating $2.8 bn in earnings last year. In 2015, the (see Figure 2), tourisms total contribution to both GDP and employment Perhaps most punitively, the law also 100% ownership for hospitality projects No ownership restrictions and companies
sector recorded close to 1.8 mn tourist arrivals, equating to a compound of Sri Lanka is comparatively lower than regional competitors such as stipulates that this lease tax is applied with 100+ rooms and a minimum have the freedom to operate as a wholly-
annual growth rate of 22% over the past five years. These results Maldives, Cambodia, Thailand and Malaysia. Sri Lanka can, for example, retroactively from 1st January 2013 and investment of 500m THB owned foreign-investment
have been achieved through targeted investments in infrastructure do more to take advantage of opportunities in the MICE (Meeting, Corporate income tax holidays up to 8
paid upfront on the total value of the
development, tourist attractions, and strategic promotional campaigns. Incentive, Conference and Exhibitions) space given its heavy-weighting years 100% duty-free imports of construction
lease. materials
However, the industry holds further potential; critical to unlocking this is to high-end and Colombo-based hotels. Shopping and nightlife also Import duty reductions on machinery
Deductions on public utility costs and
the issue of foreign land ownership. hold potential for tourism with several new shopping malls under Revisiting the Legislation infrastructure construction
Overseas arbitration of disputes
development. Harnessing these prospects is something that foreign Legally backed investment guarantees
No restrictions on foreign experts and
Unmet Demand competition and ideas can catalyze. In the 2016 Budget, the Finance technicians
Minister announced plans to reverse Visa & work permits issued within 3 hours
Buoyed by the evident capacity for growth, foreign investment has begun A closer examination of supply also shows that the proliferation of new restrictions imposed by the new Land at one-stop-shop
to capitalize on the opportunity that tourism presents. Foreign investment projects is concentrated in the luxury space with 60% of proposed new Act. Specifically, the restrictions on land
into the hotel industry has experienced significant inbound growth since supply falling into the upscale category. Outside of the high-end segment, ownership by foreign nationals are to be Source: HVS - Market Update Maldives and BOI Thailand
the end of the war (see Figure 1). supply is limited. Mid-scale projects constitute just 10% of new supply. lifted, including the removal of the 15%
Similarly, on location, 65% of proposed projects are situated in Colombo. tax on land leases and associated conditions. As at 1st January 2016, In order to attract FDI flows into Sri Lanka, regionally competitive
Figure 1: Post-War Foreign Investment in Sri Lankas Hotel Industry Opportunities for development therefore lie in the the tax imposed on leasing land to foreigners was removed; however, deregulation and policy consistency needs to be considered. Thailand and
rest of the country; particularly in the North, East, and freehold ownership continues to be prohibited. the Maldives each provide interesting comparisons (see Figure 3).
250
Central regions.
$216m
Reports in June suggest the government is making headway in
200
$182m Inconsistent investment policies, particularly on land deregulating the ownership of freehold land. Proposals include
Creating the Right Environment
Conclusion of Civil
ownership, are a major sticking-point in Sri Lankas allowances conditional on nominal investments. Foreigners will be able
War, May 2009
150 investment case. Also in need of attention are issues Whilst ostensibly Sri Lanka has seen progress in attracting major
to purchase government-owned lands for personal purposes on the
$117m of air connectivity, domestic infrastructure and roads. investment from outside players such as Hong Kong-based Shangri-
condition that this comes with a US$ 1,000,000 investment. 10-year
100 Better connectivity is important in allowing Sri Lanka La Hotels and Indias ITC Group, the reality is that these investments
$68m
temporary visas will also be made available for foreigners investing in
$68m to benefit from its proximity to key feeder markets have transpired by circumventing the restrictions. The majority of key
excess of US$ 300,000.
50 such as India and the Middle East. Finally, the investments from foreign players are undertaken through the Strategic
Development Projects Act, which allows for the freehold of land as well
$2m $6m $8m $3m $6m $6m expected termination of the minimum room rate in Is there a Case for Liberalizing Land Ownership? as significant tax exemptions. Without these allowances, the Sri Lankan
0 Colombo can be another important step in removing
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
distortionary regulations. The case for foreign land ownership is contentious. Since land is a finite investment climate presents a far less attractive proposition that may not
Source: Board of Investment, Sri Lanka
resource and a key factor of production, governments can be motivated justify investments of this scale and risk.
Projects underway indicate a pipeline of 8,000 new rooms in the country Not for Sale to reserve its management and utilization for locals. Of the plethora of
(3,500 within the next five years). This sizeable expansion has led to rationales for controlling land, the most pertinent for Sri Lanka are that of Sri Lanka is competing with other FDI destinations in the South and
some forecasts of an oversupply of hotel rooms. However, the potential Land ownership laws have a history of unpredictability in Sri Lanka. The economic control as well as security. Also compelling is the preservation South East Asian region. In this context, stable policy and more flexible
for growth in demand is also understated. Despite encouraging growth past 24 months have seen a series of proposals, reversals and back- of the social fabric of communities. Foreign-based speculation in land land allocation could encourage the investment needed to grow.

20 21
 Green Shine in
New Star Ratings of
Sri Lankan Hotels By Kanchana Wickramasinghe
All registered hotels in Sri Lanka should now have a star rating
according to a new regulation, which came into effect recently.
Star classifications are primarily aimed at improving the quality of
services offered by hotels. The star ratings can also be used as a
marketing tool. Official star ratings are one source of information
on quality for customers among others such as customer ratings in
booking and review websites, information obtained through travel
agents, publications, etc. In addition to, imposing a mandatory
requirement for a star rating for all registered hotels, it is noteworthy
that the requirements or criteria for classifying hotels have also been
revised. This has been a long-felt requirement in the industry as the
previous criteria were much outdated. Most interestingly, a new set of
requirements/criteria are now being introduced in the new list to cover
environment and community aspects.
Environmental Aspects in New System
Accordingly, eight non-mandatory requirements under the title of
Environment, Community and Sustainability have been included.
They are applicable for any star category of tourist hotels.
22
Environment, Community and Sustainability
Aspects in New Star Rating System
The hotel shall be equipped with a Sewer & Wastewater treatment
plant/system approved by the CEA and maintained in good working
order. The treated effluent shall be recycled to effectively reduce
the consumption of water. Performance test certificates for the
plant shall be available.
Solar hot water heating shall be used for the production of hot
water requirements.
Effective, energy efficient methods of hot water production such
as air to water heat exchangers from air cooled AC systems, heat
pump systems, etc., shall be used.
Alternative, renewable fuel and / or energy shall be used (eg.,
Grilicidia as a fuel, Wind Energy, Solar energy for electricity
generation, etc.
Effective energy conservation measures shall be implemented. The
effectiveness of the measures shall be supported with historical
data.
A system shall be in place for recycling of waste. Food waste
shall be composted or used as animal fodder. Solid waste shall be
separated for re-cycling. A very clear arrangement shall be in place
for disposing of separated solid waste for re-cycling.
The use of plastic, polythene and PVC shall be discouraged. A policy
to minimize the use of the above items shall be in place. The use of
re-cyclable containers such as glass bottles, glass jars, etc., shall
be encouraged.
A system shall be in place to pass on benefits to the neighborhood
and the area. Policy on recruitment and procurement shall have
built in mechanisms to make the above process meaningful.
Source: Extraordinary Gazette No. 1963/28, 20th April 2016
Accordingly, energy management aspects are highlighted in the form
of improving energy use efficiency, energy conservation, and use of
alternative environmental friendly energy sources. This would help to
reduce operational costs as energy costs consists of around 18 per
cent of total operational costs on average (Miththapala, 2011). It will
have positive impacts certainly on the natural environment. Waste, both
solid and waste water, has also been incorporated to new requirements.
Environmental pollution is minimized by discouraging the use of polluting
materials. The last criterion aims to offer benefits to local communities,
and it relates to social dimension of sustainable tourism.
Research Findings
It is interesting to note that the star classified hotels are performing better
in terms of their environmental management according to a research
study carried out by the Institute of Policy Studies of Sri Lanka (IPS)
based on the registered hotels in the Western Province. The research
covered energy, water, and waste management aspects in 98 registered
hotels in the province. Accordingly, classified hotels adopt around 9 good
(energy, water, waste management) practices on average, where for
unclassified hotels it is around 6. Only a few hotels interviewed have
sewer and wastewater treatment facilities, and it was observed as a
common aspect for both classified and unclassified hotels.
It indicates that being classified increases the hotels orientation
towards improved environmental management practices. Therefore,
incorporation of the environmental aspects into official star rating system
is likely to bring in positive impacts.
As per the study sample, hotels in the unclassified category are smaller,
with an average number of rooms of 42 per hotel. In the classified
category, the average number of rooms per hotel was 110.
When asked about the constraints in adopting good environmental
management practices, lack of will and commitment was mentioned
around 28 per cent of the unclassified hotels in the sample. Also,
around one fourth of unclassified hotels are facing space constraints for
implementation certain practices may be owing to relatively smaller
scale of their operations.
Reflections
Inclusion of environmental aspects into the countrys official star rating
system should be viewed as a plus point for Sri Lanka as a destination
which is ambitious about promoting sustainable tourism. Though
the environment related requirements are not mandatory, the hotels,
which follow the requirements, are to obtain more marks against their
competitors. Sri Lanka should include this aspect in their marketing
activities to gain attention of environmental conscious tourists.
However, inclusion of environmental aspects to day-to-day activities of
hotels involves investments. Particularly, small registered hotels will
have to be assisted with capacity building and training support, as well
as financial terms.
Periodical reviews of the set requirements for star rating are also
required given the set targets of tourism industry. Changing aspects of
consumer demand, competition with other destinations and feedback of
stakeholders including the hoteliers should be necessarily considered in
reviews.
23
Intellectual Property Rights as a Tool for
Enhancing Ecotourism in Sri Lanka
By Dilani Hirimuthugodage
Sri Lankas tourism sector has many benefits. It is the countrys third
largest foreign exchange earner and contributes a substantial percentage
towards the Gross Domestic Product (GDP). In post-war Sri Lanka, tourist
arrivals have seen a tremendous increase and there is a significant
increase in investments in tourism as well as, infrastructure development,
through opening up of new tourist attractions and channeling of funds
for promotional campaigns. Concurrently, eco-tourism as well as cultural
and nature tourism have also increased in popularity due to the policy
Figure 1: Tourism Sector in Sri Lanka, 2014
Source: Annual Statistical Report (2014), Sri Lanka Tourism Development Authority
decisions and legal coverage of Tourism Act No. 38 of 2005, which has
provided several features such as identifying tourist development areas
with historical or environmental interest, identifying areas for trekking
and nature trails, etc. Figure 1 describes the importance of the tourism
sector in the Sri Lankan economy.
Ecotourism
There are different types of tourism and ecotourism is a sub-set
of tourism. The Mexican environmentalist and architect, Hector
Ceballos-Lascurain first introduced the concept of ecotourism in 1983.
The International Ecotourism Society (TIES) defines ecotourism as
Responsible travel to natural areas that conserves the environment,
sustains the well-being of the local people, and involves interpretation
and education of both staff and guests.
According to TIES, ecotourism in 2004 grew three times faster than
overall tourism. Nearly 90% of the British tourists recognize active
protection of the environment and support of local communities to be
part of hotel responsibilities when selecting holidays, whilst in Germany,
nearly 42% of travellers prefer environmental-friendly accommodation.
Furthermore, nearly 53% of American travellers prefer to experience local
customs and culture of the country they visit. A higher number of tourist
arrivals in Sri Lanka are from Western Europe (nearly 31%). Further, the
top ten sources of tourist arrivals are from the countries that show the
24
highest demand for ecotourism in the world (Figure 2). Moreover, nearly,
68% of foreign visits are for leisure or holiday, followed by other reasons
such as visiting relatives and friends. Thus, there is a greater potential to
develop ecotourism in the country.
Given Sri Lankas rich biodiversity, culture, and natural beauty, the
country has great potential to develop eco-tourism compared to many
other tourists destinations in the world. The countrys rich repository
of natural resources adds to ecosystem diversity.
Sri Lanka is also considered among the top
24-biodiversity hotspots in the world, which
provides several avenues to enhance ecotourism in
the country.
Intellectual Property Rights
(IPRs) in Tourism
IPRs can be used as a tool to support tourism
development through the creation and protection
of ideas, knowledge, and innovations in the sector.
The main IPRs in the tourism sector are trademarks,
geographical indications, industrial designs,
patents, copyrights, and trade secrets. Trademarks
are essential in the service sector to distinguish
one enterprise from another. Examples include
St.Moritz, Trivalley California, love NY. Moreover,
the most common marketing term used in the
tourism sector around the world is Destination
Branding. Further, destination branding embodies
many intellectual property rights, mainly trademarks. For an example,
New Zealands destination branding 100 Percent Pure New Zealand is a
success story and it has helped to increase the number of tourists visits
into the country.
Geographical Indication (GI) is also important especially for ecotourism,
where a particular ecotourism sector or a sub-sector such as birding
tourism, culture tourism, or forest tourism can be further developed by
protecting GIs. For example, GI registration of Turkish handicrafts has
improved the production of handcrafts in Turkey. Moreover, developing
countries could use GIs to promote their indigenous products in the
international market. However, the biological resources and farmers
traditional knowledge and skills have not been registered or documented
in most developing countries including Sri Lanka. With globalization,
biodiversity and traditional knowledge, skills, and technologies possessed
by the local farmers in developing their crop varieties are at stake. Thus,
implementing a proper protection system will lead to enhancing the
tourism sector especially, ecotourism, which also includes agro-tourism
and health tourism.
Traditional knowledge of village people is also important for ecotourism.
For example, British Columbia has identified Aboriginal culture as a
tourism attraction after Aborigines shared their traditional knowledge
with tourists. Prior to the introduction of Aborigine culture tourism, the
authorities made arrangements to preserve their traditional knowledge. In
Sri Lanka, a majority of villagers use traditional knowledge for health and (TRIPs) Agreement of the WTO and provide protection via geographical
agriculture purposes. Ecotourism includes tours of local farms to take indication, sui generis system, and folklore to enhance the tourism
a first-hand look at the growing, traditional methods of crop protection, sector; by prioritizing ecotourism, which has proved to be a booming
astrological practices in the field, attracting support from spirits and gods industry in the economy.
for cultivation, harvesting, and processing of locally grown food as well
as sampling them on site or in local restaurants and cafes. There are also It is clear that the country should have a well-established national
lectures and other learning opportunities for the tourists who also have policy on tourism focusing on ecotourism as it is identified as one of
the possibility of staying at one of the farms to absorb the experience. the main subsets of the tourism sector. The country lacks a well-built
protection system for tourism, including ecotourism; this may lead to
Copyrights are also used to protect promotional material. Thus, protecting exploitation by outsiders when natural resources are open for sightseeing
IPRs and taking measures to strengthen them will provide an incentive to and exploration. Therefore, when promoting tourism, it is important to
private and government investors to promote tourism in the country. identify and devise ways and means to strengthen customary laws for
the protection of traditional knowledge and natural resources of the
Existing IPR System community from exploitation by outsiders.
Presently, Sri Lanka does not have an established Figure 2: Tourist Arrivals by Country & by Region, 2014
IPR protection mechanism for the tourism sector.
Countries such as New Zealand, Switzerland, and
Hong Kong have implemented several types of IPRs
to promote their tourism industry. In 2016, Sri Lanka
tourism has identified tourism branding plan as one
of its main strategies. Sri Lanka has used several
taglines such as Paradise Island, Land like no other
and presently, Sri Lanka: Wonder of Asia in branding.
However, it is questionable whether the branding and
rebranding have been placed correctly when compared
to countries like Singapore (Uniquely Singapore & Your
Singapore), India (Incredible India), and Malaysia (Truly
Asia), etc. For example, have enough wonders been
identified in the country to promote under the brand
Sri Lanka: Wonder of Asia? What changes were made
in what is offered to tourists when moving from the
tagline Paradise Island to Land like no other?
Sri Lanka has made a request to the Committee on
Development and Intellectual Property (CDIP) projects
of the World Intellectual Property Rights Organization
(WIPO) to implement IPRs in the tourism sector in the
near future. The Intellectual Property Rights Act No: 36
of 2003 covers the IPRs in Sri Lanka. Currently, very
few hotels and restaurants use trademarks to promote
their businesses. However, on most occasions, only
large-scale hotels are concerned about registering
their trademarks or industrial designs. Thus, IPRs are
not commonly used in the countrys tourism field. Source: Annual Statistical Report (2014), Sri Lanka Tourism Development Authority
The Way forward Further, it is essential to increase public awareness on the subject, and
keep them updated, as they are an entity that has a voice and the power
Despite the countrys rich cultural heritage and biodiversity, the tourism to influence the government. As SMEs in the hotel sector is expanding
sector has yet not reaped the benefits of IPRs, especially the benefits that and the number of unclassified hotels are increasing, it is vital to provide
the sector can gain from promoting brands, establishing GIs, etc. There knowledge on the values of the culture and traditional knowledge
are several activities relating to ecotourism, which could be strengthened amongst the general public and the importance of safeguarding the
through strong IPRs. For example, there are several locations, which countrys resources.
can be developed as ecotourism destinations by introducing GIs (tours
in tea estates/cinnamon estates/ paddy fields, etc.). Branding Sri Lanka
as a tourism destination should be carefully carried out considering its In addition, it is important to have a separate unit or a committee at the
competitive strength, strategic position, and competitors. Rebranding Intellectual Property Office or at the Sri Lanka Tourism Development
should not just be a change in the slogan but be accompanied with Board to promote and monitor tourism sector related IPRs and to provide
variations that are offered to tourists. financial and other advisory support to investors and people who are
engaged in this area of the tourism sector. Further, it is of utmost
As a developing country, Sri Lanka should take advantage of the importance to provide necessary inputs to WIPO, CDIP with the aim of
arrangements provided by the Trade Related Intellectual Property Rights implementing necessary IPRs in the tourism sector in Sri Lanka.
25
Making Sri Lankan Tourism
Accessible for All
By Kanchana Wickramasinghe
ARTICLE TO MARK WORLD TOURISM DAY 2016 (27th September)
Sri Lanka is witnessing a rise in tourism since the end of the war. An
important aspect that needs consideration in the countrys post-war
tourism development is making tourism accessible for all, which is
also the theme of this years World Tourism Day. This year, the day
aims to generate awareness on Promoting Universal Accessibility.
Awareness is being created to give special attention to the needs of
disabled (permanent or temporary), families with small children, ageing
population, etc. The Tourism for All concept includes aspects of
accessibility, sustainability, and equitable participation by all.
There are positive examples from around the world on attempts to make
tourism more accessible in their respective
destinations. For instance, in India selected Percentage of Tourists by Age Category
heritage sites were made easily reachable 35
for both domestic and foreign tourists to
visitors with visual and other impairments. 30
Interestingly, it was successful in striking
Percentage of Tourists
25
a balance between strict conservation
attempts and tourism, which is accessible. 20
There are many other examples from 15
Japan, Canada, Spain, etc., on various
10
initiatives on accessible tourism.
5 reasons for the decline and measures necessary to reverse this trend and
An Opportunity
0
2006
As World Tourism Organization (UNWTO)
highlights, accessible tourism can bring
in customer satisfaction and increased
Source: Annual Statistical Report 2015 Sri Lanka Tourism Development Authority
competitiveness to the destination. This is
a well proved fact according to available
good practices. Thus making tourism more accessible should be
considered an opportunity that can deliver positive benefits.
The World Population Aging 2015 report of the UN says that by 2030,
older persons (aged 60 years or more) ratio to persons with other age
categories will be 1:6. This will have clear implications on the tourism
industry. Older tourists have stable incomes with more leisure time when information about accessible hotels and tourist sites to travel agencies
compared to other age categories. Also as UNWTO points out, they have
more free time to travel anytime during the year. In Sri Lanka, one can
observe an increasing trend of old age tourists visiting the country, as per
the data presented in the Annual Statistical Report 2015 of the Sri Lanka
Tourism Development Authority (SLTDA). Over the past five years, the on
average the percentage of old age people (60 years or more), who visited
the country was around 11.4 of overall visitors. This can be used as a
market opportunity by the industry by introducing appropriate strategies
and facilities to address the specific needs of old age visitors.
Steps Taken
The new hotel classification system, which came into place recently, has
certain criteria addressing some aspects of making tourism inclusive
26
Latest Publications
PUBLIC OR PRIVATE: DETERMINANTS OF
CHOICE OF HEALTHCARE PROVIDERS IN
SRI LANKA
TRADE AND TRANSPORTATION AUDIT:
SRI LANKA
By Suwendrani Jayaratne, Dharshani
By Sunimalee Madurawela Premaratne and Janaka Wijayasiri
November 2016 November 2016
for all. The hotel classification system has incorporated two aspects on
Health Economic Series No. 3 Working Paper Series No. 26
facilities for guests with restricted ability and public toilets, as minimum
requirements for each category of the hotels. Compliance with the
This study was carried out with the Given that Sri Lanka is an island economy,
Design Standards of the Accessibility Regulations No. 1 of 2006 is listed
objectives of identifying the main it can position itself much better than its
under facilities for guests with restricted ability. Under the availability of
determinant factors in selecting a healthcare South Asian neighbours to facilitate trade
public toilets, it mentions at least one toilet with facilities for differently
service provider for in-patient treatments and out-patient treatments and and gain from higher levels of trade, investment and economic growth.
able or wheel chair users shall be available. In addition, under the non-
to identify the usage preferences of different social segments. In this context, this study aims to, (a) assess the current status of trade
mandatory requirements for any star categories of tourist hotels, Wheel
facilitation in Sri Lanka and, (b) identify trade facilitation reforms required
chairs and stretchers shall be available for use in case of an emergency.
in the country and their prioritization.
In addition, the National Policy on Disability for Sri Lanka of year 2003
highlights the need for having accessible tourism under its sectoral TAXATION IN SRI LANKA: CURRENT INTELLECTUAL PROPERTY RIGHTS IN
policies and strategies on Access to the Built Environment and TRENDS AND PERSPECTIVES PROTECTING NEW PLANT VARIETIES AND
FARMERS TRADITIONAL KNOWLEDGE:
By D D M Waidyasekera THE CASE OF RICE IN SRI LANKA
October 2016
Working Paper Series No. 25 By Dilani Hirimuthugodage,
Parakrama A. Samaratunga
The study attempts to analyze the current September 2016
3-9 trends and perspectives of taxation and Working Paper Series No. 24
20-29 fiscal policy in Sri Lanka. Commencing with
analyzing the functions of a tax system, it The objectives of this study are to identify
30-39
identifies the declining revenue ratio to GDP as perhaps the dominant the best possible protection method for new plant varieties and farmers
40-49
factor in Sri Lankas current fiscal problems. The study analyses the traditional knowledge in Sri Lanka, focusing mainly on the seed paddy
50-59
sector. Further, to propose feasible techniques and methods to enhance
60 & over make the tax system an effective instrument of economic growth. productivity and investments in the agriculture sector by implementing a
strong intellectual property rights system.
2015
2010
2013
2008
2009
2007
2011
2012
2014
Year Sri lanka state of the economy 2016: Fiscal policy for growth:
sustainable financing for development
The IPS annual flagship report management. Under the overall theme of Fiscal Policy for Growth:
Accessible Tourism. It aims at improving accessibility to all visitors Sri Lanka: State of the Economy Sustainable Financing for Development, the report calls for fiscal
(both local and foreign) who have a disability. Apart from the need for provides a critical assessment consolidation efforts aimed at broadening Sri Lankas tax base and
including the necessary guidelines for new hotels, it mentions the need of the countrys economic minimizing distortions, with expenditure measures aimed at rationalizing
to: (a) incorporate accessibility guidelines during refurbishments and performance and near term spending and improving efficiency. The report argues for sound fiscal
reconstructions, (b) making major tourist sites and attractions accessible outlook for macroeconomic policy setting as a priority for macroeconomic stability, a fundamental
according to accessibility guidelines, and (c) making available the stability and growth in the context prerequisite for sustained growth.
of developments in both the
(both local and international) and on the internet. global economy and domestic The report discusses and recommends improvements in public finance
policy arena. Each year, the report management in detailed chapters related to; promoting exports and FDI
It is noteworthy that the tourism businesses including the hotel sector also examines key medium term policy priorities to achieve sustained under financing constraints, labour market reforms under tight fiscal
have considered accessibility aspects in offering their services in their growth and better socio-economic development outcomes for the conditions, advancing Sri Lankas education system through innovative
web marketing. However, there is a lack of information regarding country. funding, health care financing, improving efficiency and mobilizing
this in Sri Lanka as a tourist destination. UNWTO highlights that all resources for poverty reduction initiatives, financing urbanization,
aspects related to accessibility should be reflected across the tourism This years Sri Lanka: State of the Economy 2016 report focuses on the sustainable development under economic constraints: MBIs and
value chain, which include destination management, information and many interrelated problems constraining investment and productivity environmental fiscal reforms and role of economic incentives in
advertising, urban and architectural environments, modes of transport across the Sri Lankan economy owing to weak public finance financing agricultural investments.
and stations, accommodation, food service and conventions, cultural
activities, and other tourism activities and events. Sri Lanka should
understand the existing gaps in terms of accessible tourism and orient its Visit our YouTube Channel IPS Sri Lanka for Interviews with the Authors.
strategies to discover the possible economic potentials of this emerging
market. For Details on IPS Publications Contact:
Amesh Thennakoon, Publication Officer, 011 214 3107 or 011 214 3100 | amesh@ips.lk or publications@ips.lk
27
 general or particular industries such as the import of motor vehicles,
would have a drastic effect on a firms ability to make future investment
Innovation and Technology
commitments. Moreover, the sudden cancellation of the Port City Project
following the election without prior consultation with the investors would The islands position in international economics, however, necessitates
have sent a negative signal to other investors looking at Sri Lanka as comparisons beyond the South Asian region. Sri Lankas comparative
advantage does not lie in
Figure 1: Most Problematic Factors for Doing Business in Sri Lanka low-wage labour such as
those of Bangladesh and
Policy instability 12.9 therefore, it needs to be
Access to financing 9.7 attractive to investments that
Inefficient government bureaucracy 9.1
Tax rates 8
have progressed further up
Tax regulations 7.8 the technology ladder. As
Inadequate supply of infrastructure 7.6 the Global Competitiveness
Inflation 7.4
Poor work ethic in national labor force 6.5 Index demonstrates, however,
Corruption 5.6 Sri Lanka lags behind on
Insufficient capacity to innovate 5.4
their efficiency enhancers
Government instability 5.2
Foreign currency regulations 4.7 such as labour market
Inadequately educated workforce 4.4 efficiency and financial
Restrictive labor regulations 3.7
Crime and theft 1.7 market development. Even
Poor public health 0.1 more concerning is that
0 4 8 12 16 Sri Lanka ranks low on its
Technological Readiness
Source: Global Competitiveness Report, 2016/17 index with a meagre score
of just 1.7 out of 7 in ICT
a viable destination. Especially in terms of FDI, policy stability (across Use. Comparatively, countries against whom Sri Lanka competes to
governments) is crucial and a clear economic vision is imperative to attract investment, such as Malaysia and Thailand, have performed
attract the types of investments necessary for Sri Lankas progress. much better in upgrading their technology and are thus technologically
prepared better for future
developmental challenges.
Figure 2: GCI Score Range across 12 pillars in South Asia, 2016-17 Consequently, investors
7 are likely to be attracted by
India these countries rather than
Sri Lanka
Sri Lanka.

Policy
6
A high level of productivity is essential in realising the governments vision, a more
Nepal
open economy with an emphasis towards attracting foreign direct investment (FDI) and
improving the countrys trade capacity. In this regard, the recent release of the Global 5
Bhutan Sri Lanka Bhutan

Instability:
Competitiveness Index for 2016/17 by the World Economic Forum and Sri Lankas
drop in rankings should be a major cause of concern for policy makers. Notably, this 4 India
India India India
India Best performer South Asia Way Forward
comes almost simultaneously as the Asian Development Bank (ADB) revising its growth Median South Asia
Pakistan
projections for the country from 5.3% to 5% in 2016 due to weak industrial performance Bhutan
Sri Lanka
Worst performer South Asia
China Although Sri Lanka has

The Achilles
3 Pakistan Pakistan
and fiscal consolidation. Undoubtedly recent floods and droughts have had some impact Bangladesh Nepal
Pakistan experienced political
on economic performance; however, the release of the Global Competitiveness Report
Nepal Nepal stability in its recent past
sheds light on a more structural weakness in the economy that inhibits the countrys 2
Nepal since the conclusion of
progress. The following article elaborates on some key aspects highlighted through the

Heel of
Bhutan
the conflict, the country
report. 1 has failed to translate
Institutions Infrastructure Marco- Health and Higher Goods Labor Financial Technological Market Business Innovation that stability into stable
Policy Instability and Investor Confidence economic primary education market market market readiness size sophistication
policies. The absence of

Sri Lankas
environment education and training efficiency efficiency development

Source: Global Competitiveness Report, 2016/17 policy stability, therefore,

Sri Lankas failure to fully utilize its post-conflict economic growth dividend has has hindered the countrys
been well reported. One of the reasons for this failure is the overdependence on a post-conflict growth

Productivity Sri Lanka in Comparison

state-led development strategy that also increased debt levels immediately after the
war. Consequently, the country has failed to attract any large-scale investment that
could potentially upgrade the countrys technology and attract investment in ancillary
industries, or catalyse domestic entrepreneurship in this area. Since the change in
By Kithmina Hewage
government, whilst a more open and inclusive growth strategy appears to be pursued, its
implementation has been dogged by policy instability.
The intensity of policy instability is recognized as the most problematic factor for doing
business in Sri Lanka. Ad-hoc policy changes, be it regarding VAT rates, national budget
allocations, and a general absence of a clear national economic strategy in the public
domain has resulted in a growing confidence gap between private sector investors and
the government. For example, continuous changes to VAT and import duties, be it in
In addition to the reduction in global competitiveness, Sri Lanka should
also be worried by the relative improvements being made by their
counterparts in the region. India, for example, has made significant
strides in their level of competitiveness over the past two years.
South Asia is one of the fastest growing sub-regions in the world,
especially due to Indias rapid emergence. Investment flows into the
region will, therefore, likely increase over the next decade or so and Sri
Lanka should pay urgent attention to its deficits in order to effectively
position itself as a viable investment destination.
with the policy environment becoming increasingly unattractive for
investment both from home and abroad. Therefore, it is imperative
that the government recognizes this deficit and create a mechanism
through which both the general public and the private sector are given
a clear economic vision for the future. A strong correlation between the
Development Plan, expected to be introduced by the Prime Minister
soon, and the budget for 2017 would be a good start in collating differing
policy agendas towards a single vision. In doing so, the country should
also address labour inefficiencies and promote better innovation from
within through public-private partnerships. Each of these areas will
reverse the nations recent decline in competitiveness and thereby
become a more attractive destination for investment.

28 29

South-South
The adoption of the Sustainable Development Goals (SDGs) along with the
recent ratification of the Paris Agreement on climate change has heralded
a new era of development policy discourse. Rather than concentrate on a
Cooperation
purely economic measurement of growth and development, the international
community has now embraced a more holistic approach that better represents
the economic, social, and environmental challenges faced by countries. In
A New Lease of doing so, countries have also taken up a new gamut of policy objectives,
which will require significant financial, technical, and political support from
Life for
all stakeholders. A key lesson from the previous development era, led by the
Millennium Development Goals (MDGs), is that developing countries cannot
depend on developed countries to fulfill their obligations of development
Developing
finance. With only a handful of developed countries fulfilling their obligation to
direct 0.7% of GNI for Overseas Development Assistance (ODA), domestic and
Countries
alternate forms of financing development have become increasingly important.
It is under these conditions that the United Nations celebrates its Day for South-
South Cooperation.
By Kithmina Hewage
What is South-South Cooperation?
South-South Cooperation is a broad framework for collaboration between
developing countries in the political, economic, cultural, environmental, and
technical domains. This effort was officially adopted on the 12th of September
in 1978 at the Buenos Aires Plan of Action for Promoting and Implementing
Technical Cooperation among Developing Countries. The rapid emergence
of developing countries such as Brazil, India, and China as economic
heavyweights, however, has significantly altered the landscape of South-South
Cooperation. Rather than act as purely a means of goodwill, South-South
Cooperation has become a tool for emerging economies to demonstrate their
economic and diplomatic strength, commonly referred to as soft-power. In
effect, these emerging economies are directing more resources in the form of
foreign aid and foreign direct investment to finance the development processes
of fellow developing countries. It is important to note, however, that increasing
levels of South-South aid flows do not reduce the levels of commitment by
developed countries.
30
Is it an Alternate Means of Finance?
In addition to increasing levels of aid flowing between developing
countries, the dynamics of international aid flows are also changing,
especially due to the considerable overlap between the recipients of
foreign aid from developed countries, and those from other developing
countries. This particularly holds true to the African region, especially
Least Developed Countries (LDCs). Additionally, South-South Cooperation
is also identifiably focussed on regional cooperation. Sri Lanka is a key
beneficiary of this extension with a large component of its external
development finance flowing from China and India.
While influencing traditional aid flow dynamics, research suggests that
South-South Cooperation is not significant enough to act as an alternate
means of finance. This is due to both the quantity of aid provided and the
economic characteristics of the donor nations. LDCs, due to their poor
economic conditions require large amounts of external financing to carry
out their policies while also attempting to improve growth. However,
compared to the aid needed, the amount provided by other developing
countries account for a significantly small proportion.
For example, estimates suggest that emerging donors contribute only
7-10% of global official aid. Consequently, aid recipients continue to
depend heavily on traditional donors as a means of finance. Stakeholder
interviews also suggest that the significance of traditional donors
Table 1: Main recipients of aid from selected developing donors
Country Main Recipients
Brazil Haiti, Cape Verde, East Timor, Lusophone and Southern American countries
China Africa (46%), Asia (33%), Latin America (13%)
India Bhutan (36%), Afghanistan (25%), Nepal (13%), Approximately 85% to Asia, 15% to Africa
South Africa Southern African Development Community (70%), and other African countries.
Source : Walz and Ramachandran (2011)
is further increased by the long-established structures of global
economic governance, namely the Bretton Woods Institutions. The
policy prescriptions advocated by the World Bank and other multilateral
donor agencies are closely associated with aid disbursement policies
of traditional donors. Notably, however, LDCs and low-middle income
developing countries believe that the establishment of the BRICS Bank
would offer a reasonable alternative to existing financial structures in
the long-term. This is likely to occur due to better coordination between
emerging donors as well as the availability of a larger pool of resources
for assistance.
The ability for aid from other developing nations to act as an alternate
means of finance is further constricted by their respective market
orientations as well. Similar to aid dependent nations, emerging
donors economies have a considerably large primary sector. Therefore,
developing countries find it difficult to penetrate the markets of emerging
donors with their respective exports. Universal tariff preferences provided
by industrial markets through the Generalized System of Preferences
(GSP), the Lom Convention and other similar arrangements, therefore,
afford developing countries a better opportunity to integrate into the
world market and accrue benefits of the global trading system. However,
such trading agreements are often tied to aid negotiations and therefore
lead to engrained dependency cycles for aid recipients.
How does South-South Cooperation Facilitate
Soft Power?
Amidst these limitations, however, emerging economy donors are
increasingly influential in the realm of capacity development initiatives.
Through an increased emphasis on infrastructure and human capacity
development initiatives, cooperation among developing nations appears
to strengthen when negotiating at multilateral platforms such as the
UN and WTO. As noted previously, developing nations, especially those
dependent on foreign aid lack the necessary resources to dedicate
towards capacity improvements. For example, These limitations are
particularly acute in training negotiators and gaining technical expertise.
Consequently, aid recipients suffer from weak trade policy creation
and depend on consultants associated with aid donors from developed
nations.
Emerging donors, appear to be paying special attention to this deficit
and dedicate a significant portion of their aid towards developing
trade and economic policy related human capacity in other developing
countries. Given that emerging donors are unable to compete against
their developed counterparts on the scale of aid, they are more focussed
on addressing issues of soft-power. Among the emerging donors, India
is seen to be especially keen on such efforts along with considerable
support from China.
For example, India hosts and trains trade
negotiators and ministerial officials from other
developing countries, especially from LDCs
and newly acceding countries to the WTO.
Moreover, China set up the China Programme
in 2011 to finance internships at the WTO
Secretariat and other training facilities along
with round table meetings for LDCs and newly
acceding nations. These efforts from emerging
donors are aimed at better integrating other
developing nations into the multilateral treaty
mechanism. In doing so, the institutional
capacities of LDCs in particular are improved and the coordinating
mechanisms used during multilateral negotiations are strengthened.
Consequently, such efforts are seen as strengthening cooperation
between developing nations and conversely reducing the influence of
developed nations.
The Future of South-South Cooperation
Thirty-eight years since the adoption of the Buenos Aires Plan of Action,
South-South cooperation has evolved significantly and is becoming
an important instrument of international political economy. The role
of emerging economies in this regard, therefore, is indubitable. The
emergence of outward FDI from these developing countries is even
more significant and provides countries like Sri Lanka an opportunity
to attract a more diverse group of investment. Moreover, this could also
facilitate the process of diversifying the countrys export markets and
tap into faster growing markets rather than traditional markets in the US
and Europe, which are becoming increasingly crisis prone and slow in
recovery. South-South Cooperation is unlikely to replace existing routes
of North-South economic and political cooperation. However, there is a
vital role for South-South Cooperation to play as a complement to the
development processes of each other.
31
 Crop Insurance:
Farmers have been severely affected by various natural calamities - floods,
droughts and excessive rainfalls during the recent years. At macro level,
the decrease in paddy production due to unfavourable weather conditions
Is it Workable in
including droughts was 27% in 2014, when compared to production
statistics of the previous year. Whilst important, weather related risks are
merely one component when it comes to overall risks and uncertainties
Sri Lanka?
faced by farmers which include price risks, market risks, etc. Recent
unexpected changes in climate patterns have worsened the situation.
By Kanchana Wickramasinghe When affected by a natural calamity, farmers face numerous additional
issues in farming as well as in their household economy. A farmer
from Nachchaduwa who was severely affected by floods in 2014 said:
Everything was washed away, Not only rice, our maize cultivations were
also destroyed. Floods and droughts are widespread disasters, which
have area-wide implications. We did not have any other income. We,
farmers tend to work as agricultural labourers in others fields when we
face difficulties. But when everyones cultivations are destroyed, where
can we go? he added, highlighting their struggle in coping with such
events.
To this end, promoting effective risk management among farmers is
important. In facing the impacts of a natural disaster, there are several
ways of risk management, namely: avoiding risks, reducing risks and
sharing risks. Risk sharing has been gaining a lot of consideration which
comes in the form of insurance.
Insurance
Crop insurance was introduced to Sri Lanka several decades ago. It was
first introduced as a pilot project; later, the Crop Insurance Act (No 13 of
1961) was passed in 1961 to provide the required legal framework for the
operation of regular crop insurance. The Agricultural Insurance Law No.
27 of 1973 came into operation in 1974 to make provisions for a more
comprehensive scheme. The Agriculture and Agrarian Insurance Board
(AAIB) was established in 1999, which is the responsible government
agency for undertaking the government crop insurance programme now.
A private insurance company entered the crop insurance business in 1993,
and it is primarily being conducted as a welfare programme along with its
32
other financial services. Both insurance programmes are voluntary and
indemnity-based where insurance payout is based on the crop damage.
According to the Central Bank Annual Report 2015, when just these two
voluntary insurance programmes are taken together, only less than 4% of
the paddy-cultivated area (on average) is insured during 2003-2015. In
most of the cases, crop insurance is obtained as a requirement in getting
agricultural loans.
A survey of 750 farmers, conducted as a part of a research study by
the Institute of Policy Studies of Sri Lanka (IPS) last year, in selected
sites in the Anuradhapura district revealed that the demand for existing
insurance schemes is considerably low. Over 31% of the farmers
interviewed during the survey mentioned that they are not aware of how
crop insurance work. Another 23% of farmers have doubts regarding
the process of crop insurance. Most farmers during the discussions
highlighted that they do not understand the real benefits that crop
insurance bring in for small-scale farmers like them.
Farmer unawareness seems to be a major barrier for taking up insurance
in the rural areas. There has been a compulsory crop insurance
programme introduced in 2013 by the government, which was bundled
with the existing fertilizer subsidy programme. A mark-up was added to
cover the insurance premium when obtaining fertilizer at a subsidized
price. Due to the compulsory nature of the programme, the area
percentage insured recorded 72 and 90 during 2014/15 Maha and 2015
Yala, respectively. However, lack of awareness of its intended benefits is
also an issue with regard to this scheme.
Innovations in Crop Insurance
Index-based crop or weather insurance has been receiving much
popularity particularly in developing countries (such as in India, Kenya
Ethiopia), as a way out for certain inefficiencies of indemnity-based
crop insurance. In index-based weather insurance, the payout is based
on a certain weather index, for instance, rainfall. The weather index is
correlated with the crop yield. Index insurance is characterized by low
transaction costs, as it does not require crop damage assessments in the
field. In addition, it lacks moral hazard and adverse selection problems,
which are associated with traditional indemnity-based insurance
products.
Sri Lanka has a very short history in this regard. It is vital to implement
an effective awareness creation programme to educate farmers on the
benefits of index-based crop insurance. However, the discussions with
key stakeholders reveal that there are several technical challenges
in implementing index-based insurance in Sri Lanka. The absence of
required rainfall and yield data are significant in this regard. Lack of
weather stations and delays in getting data on a frequent basis are
attributed to the unavailability of rainfall data in most cases.
What Works for Sri Lanka?
As of now, crop insurance is not a popular tool for climate risk
management, although both public and private crop insurance schemes
have been in place in Sri Lanka for several decades. Given the recent
variations in climate patterns, it is important to identify gaps with
regard to crop insurance take-up as a risk management strategy. In
particular, the aspects of crop insurance demanded by farmers have to
be researched in the case of Sri Lanka.
IPS is currently conducting a comprehensive research to study risk
management strategies of farmers and demand for climate insurance
amidst a changing weather pattern. The study aims to bring in suitable
policy recommendations to help farmers better manage climate risks and
improve adaptation.
This article is based on an IPS research study titled Risk Management
Strategies and Demand for Climate Insurance by Dry Zone Farmers
in Sri Lanka, funded by the Global Development Network (GDN).
The research proposal submitted by Kanchana Wickramasinghe
won First Prize for the Japanese Award for Outstanding Research
on Development in the Global Development Awards and Medals
Competition of the GDN in 2014.
33

Can Sri Lanka do more to
help agricultural exporters
meet Sanitary and
Phytosanitary Standards?
By Chantal Sirisena
Sanitary and Phytosanitary (SPS) issues are a major consideration for companies engaged in
international trade of agricultural produce. Agricultural exports (tea, spices, coconut, etc.) account
for almost one-fourth of Sri Lankas total exports (Figure 1), providing an important source of
foreign exchange and livelihoods for people in the country. However, earnings from agricultural
exports experienced a notable decline in 2015, falling by 11.2% to USD 2,481 million. With the
spotlight on exports to drive growth, more needs to be done to support the industry.
There are a slew of international and national public and private - standards for every food
product relating to animal plant health and food safety. The interactions between Sri Lankas
regulatory bodies and the private sector can play a crucial role in facilitating the compliance
process. Staying informed of the latest developments and implementing processes to efficiently
comply, are necessary to remain competitive against other exporters and import-country
domestic producers.
SPS Gaining Prominence
As tariff barriers fall, SPS measures are gaining prominence as one of the main sticking points
for trade flows. Particularly, developing countries are concerned that their exports to richer
countries are hampered by unnecessary new measures. The World Trade Organisation (WTO)
gives countries the freedom to set their own standards as long as these conform to the minimum
international guidelines. However, there is a fine balance to strike between safeguarding the
welfare of domestic consumers whilst avoiding unnecessary regulations that ultimately result in
protectionism unfairly benefiting domestic producers.
Tackling Evolving Standards
Given the raft of standards and revisions that take place regularly, the dissemination of this
information is vital. The Sri Lankan Standards Institute (SLSI) is the designated National
Standards Body in Sri Lanka and is the primary point of contact with the International
34
Organization for Standardization. Exporters, however generally reach out
to their respective industry regulatory bodies such as the Sri Lanka Tea
Board (SLTB) to keep up-to-date with new standards. When problems
arise in relation to new standards implemented by specific countries,
the result can be a dramatic decrease in market share for Sri Lankan
companies in those markets.
There are some countries that opt to implement their own standards
and testing/certification schemes despite the existence of equivalent
international ones. This often requires respective country officials to
undertake factory visits and issue certification following inspection. This
is a cumbersome process and requires renewal, which is prone to delays
and further issues. This was experienced by Sri Lankan tea companies
exporting to some African and Middle Eastern countries. Some exporters
complain that the difficulty in meeting individual country standards
resulted in a diminished market share.
Another instance of this was in Iraq where new standards set the
yeast and mould count for tea at 100ppm compared to 1000ppm
recommended in the ISO guidelines. These stricter rules are prohibitive
for tropical countries such as Sri Lanka where moisture levels are
naturally higher. Similarly, Iran introduced a limit on copper of 6.5ppm,
which was far more stringent than the 100ppm international standard.
Figure 1: Agricultural exports make up 24% of Sri Lankas total exports
Agricultural
Exports, 24%
Industrial Tea, 13%
Exports, 76%
Source : CBSL Annual Report, 2015
There is an escalation process by which these matters get resolved.
The first is through the two trading companies themselves, whereby
companies ask assistance of their counterparts in the importing country.
Once this avenue is exhausted and the issue persists, the industry
regulatory body can get involved on the companys behalf. There was
an example of this in the tea industry where the SLTB intervened on
behalf of Sri Lankan tea exporters. The case related to rare earth testing
in China where there were concerns that the measures were having the
effect of a non-tariff barrier rather than implementing necessary safety
standards. To resolve the issue, the SLTB visited China to discuss the
matter with the Chinese authorities and find out more about the tests and
their limits. When this does not yield results and there is evidence that
exporters are being unfairly disadvantaged, the matter can be taken to
the WTO SPS Committee.
In 2005 and early 2006, Sri Lanka raised a specific trade concern in
the SPS Committee about the European Unions import restrictions
on cinnamon exports from Sri Lanka. The issue related to Sri Lankas
practices of burning sulphur as a way of protecting cinnamonfrom
possible fungi and insects.This traditional practice left some sulphur
residue. Through the SPS Committee, Sri Lanka was able to clarify that
the residue levels were not in breach of the international standard and
reported soon after that the issue had been satisfactorily resolved.
Information Asymmetries and Institutional Capacity
Constraints
However, these instances of successful resolution are in the minority.
Problems still arise in two forms - (1) the presence of information
asymmetries and resulting uncertainty over what compliance requires
and (2) limited capacity in Sri Lankas regulatory bodies/testing facilities/
inspection procedures that limit the ability of local exporters to compete
abroad.
The lack of standards harmonization between countries and the sheer
breadth of coverage of the standards makes staying current with
developments a challenge for exporters. Furthermore, confusion often
arises where standards are unclear on their product coverage resulting in
buyers purchasing conservatively and avoiding otherwise good suppliers.
Where standards are known, exporters are often hindered by inefficient
domestic processes or lack of facilities in the country. Companies
complained of lack of coordination between the relevant government
agencies responsible for SPS issues. Moreover, companies report difficult
relationships with the regulator. In many
cases, testing requirements are such that
it is more cost effective to send samples
abroad for testing rather than carry them out
locally. The regulatory and standards bodies
also have limited capacity. Exporters point
to several instances of delays in certificate
Coconut,
3% Spices,
4%
issuance and testing as agencies cannot
handle large numbers. Furthermore, many
processes for export approvals are still
manual, held back by systems in place at
Other, 4% regulatory bodies.
Seeking Solutions
Further work should be done by regulatory
authorities to facilitate knowledge sharing
and engender trust with the exporters.
Internal inefficiencies need to be addressed
urgently; documents should be processed in electronic formats and
agencies should be able to work together where multiple departments
are required for the certification process.
Investment is also required in domestic testing. Capacity of the SLSI and
other authorized laboratories needs to be raised to improve the efficiency
of existing services and recognition of Sri Lankan tests and certificates
in importing countries. Sri Lanka should seek to negotiate Mutual
Recognition Agreements on standards, testing and certification under
its existing trade agreements. Technical support from the main trading
countries would also be helpful to ensure that the country meets the
standards required in such markets.
Life would be simpler if every country adopted the ISO standards.
However, the likelihood is that countries will continue to diverge in
their expectations, aided by increasingly savvy consumer groups in
markets abroad. The difficulty for Sri Lankan exporters will be keeping
up to date with these trends, particularly in markets which are already
very stringent, such as the EU. The way forward for Sri Lanka is to
be proactive in setting standards rather than be standard-takers,
particularly in products where Sri Lanka is the largest producer/exporter.
35
 hospitals during the day. Then, why do people opt for Figure 3: Rising Health OOP Expenditure (inflation adjusted prices)
private consultations? The main reason could be the
opportunity cost, as public sector OPD service hours 400
are limited, if they go to a government hospital,
350
they have to take a day off from their workplaces.
Therefore, when a family member falls ill, the 300 Fees to private medical
breadwinner generally prefers to go to a private practitioners
250
medical doctor so they do not have to compromise
Payments to private
their day-wage. Another reason for seeking a private 200
hospitals/ nursing homes
medical practitioner is the shortage of medicine in
150
government hospitals. Purchase of medical/
100 pharmacy products
The second largest driver of OOP health care 50
costs is medicine. Households spend around one-
fourth of their OOP health spending on medicine, 0
however, many families cannot afford the high 2006/07 2009/10 2012/13
rates, especially those undergoing treatment for Source: DCS, Household Income and Expenditure Survey (HIES) reports
chronic diseases. Yet, they end up spending a
high price on medicine. While one reason for this Communicable Diseases (NCDs) such as heart diseases, diabetes, etc.
is seeking health care from private practitioners, the other pertinent Furthermore, with the growing ageing population and increasing burden
reason is the prevailing drug shortages in government hospitals. Due of NCDs (15% of the total population receive treatment for any acute
to drug shortages, doctors prescribe medicine to buy from outside and illness), which requires a patient to intake medicine for a long period,
people have to bear the cost. As a result, people opt to go for private medical investigations, frequent visits to doctors, will also result in an

Burning Health
practitioners, as they anyway have to bear the medicine cost. increase in OOP expenditure in the future.

Figure 2: Distribution of Out-of-Pocket Expenditure on Health

With the aim of controlling the medicine

Costs for Poor prices, the present government has

100% Other
90%
Spectacles/hearing aids
taken some initiatives to regulate the
80% prices of medical drugs. The much-

in Sri Lanka
70% Purchase of medical/ debated National Medicinal Drugs
pharmacy products
60% Regulatory Authority Bill was ratified in
50% Payments to private March 2015. Recently the Government
40% hospitals/ nursing homes
By Priyanka Jayawardena introduced a controlled price for 48
30%
Payments to medical laboratories essential pharmaceutical drugs based
20%
Sri Lanka provides free health care for all citizens, which has been a on the new pricing mechanism --
What are the Driving Costs of Health OOP? 10% Consultation fees to specialists
national priority for decades. With a wide network of health care services, Maximum Retail Price (MRP) formula.
0%
the countrys public sector health care delivery system accounts for Fees to Ayurvedic practioners However, there are many challenges
Most of the health OOP expenditures are on private doctors fees. The t 2 3 4 5 6 7 8 9
es st
almost all preventive care and most in-patient care. While the public or ich
e
in its implementation such as the cost
countrys health system allows anyone to directly go to a government or Po R Fees to private medical practitioners
health care delivery system is remarkably successful in providing a of imported dugs, availability of good
a private dispensary/hospital, or consult a specialist in a private hospital. Source: Constructed using Household Income and Expenditure Survey (HIES) 2012/13 Data
universal service, there are certain limitations in the system, especially quality drugs etc.
in the provision of curative care such as drug
Figure 1: Out-of-Pocket Expenditure on Health The third highest health OOP expenditure is on hospital charges, which
shortages, limited out-patient care services
1% 1% accounts for 21% of health OOP expenditure. However, this cost mostly
(obtaining appointments before 12.00 noon, longer
Fees to private medical practitioners involves the richest decile people (see Figure 2).
waiting times, etc.), and limited access to specialist Addressing Critical Concerns
care. These reasons have created a demand for Fees to Ayurvedic practioners Burden of Health OOP on Poor
private sector health care services. The private The burden of health OOP expenditure definitely affects household
23% Consultation fees to specialists
sector also plays an important role to fill this gap, It is clear that the private doctor fees and the medicine costs are the welfare. With the rising ageing population and the increasing demand for
but it results in out-of-pocket (OOP) expenditure for 38% main drivers of health costs for lower income groups (see Figure 2).
Payments to medical laboratories long-term care, the household welfare can be further burdened. There
health care. For example, 57% of the health OOP expenses, of the lowest decile should be certain price regulations on most essential health care services
Payments to private hospitals/ nursing homes households are for doctors fees followed by 30% of OOP health such as private medical practitioner fees, prices of essential drugs, etc.
Despite the free health care services in the public 21% Purchase of medical/ pharmacy products expenses for medicines. The households that report non-zero private It is also important that the Government should take urgent action to
sector, which include doctors fees, medicine costs, doctor fees spend around Rs.1,500 per month for doctors while smoothen the implementation of the controlled price on essential drugs.
5% Spectacles/hearing aids households who reported non-zero medicine cost, spend around
laboratory tests, and hospital charges, households 9% With the aim of increasing accountability of private doctor consultations,
still spend a considerable amount of money on 2% Other
Rs.1,196 per month for medicine. Are these costs affordable to the poor? the government could also consider introducing a government authorized
health. For example, according to the Household More importantly, how have these costs changed over time? receipt system.
Source: Constructed using Household Income and Expenditure Survey (HIES) 2012/13 Data
Income and Expenditure Survey (HIES) 2012/13,
Figure 3 depicts that the inflation-adjusted prices of main health OOP
on average, a household spends around Rs. 1,564 per month on health, Despite free health care services, households spend around 38% of
expenditure items medical and pharmaceutical products and hospital In addition, it is a necessity to improve access to free health care
which accounts for 4% of the household budget. This health OOP the health OOP expenditure on doctors fees (see Figure 1). However,
fees have increased over the period while private doctor fees remain high services. The Government should consider expanding out-patient services
expenditure may be too much for some people and raises concern on the specialists care accounts for only 5% of the households health spending,
but have not varied much during the period. The high private doctor fees especially in rural areas giving flexibility for income earners of the family.
factors that drive these costs in the context of the countrys free health which implies that in most cases people need the doctors basic service,
and increasing medicine prices may pose a threat to household welfare, In addition, it is necessary to take measures to solve the drug shortages
care policy. Given this backdrop, the article explores some policy options that is available free of charge in all government hospitals. On the
especially for families with patients who need long-term care for Non- in government hospitals.
of the countrys health sector. other hand, a majority of the private practitioners serve at public sector
36 37
 NCDs and mental health issues are on the rise, and are the leading
causes of deaths in Sri Lanka, accounting for 75% of all deaths, while
14% of deaths occur due to injuries. Meanwhile, Ischaemic heart disease
has become the leading cause of hospital deaths in the country. Further,
premature mortality deaths between the ages of 30 and 70 stands
a situation then impels people to seek alternative health care services,
particularly by moving towards the private health sector. A majority
of people does not have health insurance, and pay for the services
out of their pocket. Meanwhile, a majority of the people is financially
insecure and that is further underlined by the high rate of out of pocket

Achieving
at 18 people out of 100 in the country. Moreover, mortality due to NCD is expenditure on health (OOP). Besides, inequity in health outcomes is also
projected to increase in the coming years with high exposure to NCD risk persistent. Accordingly, ensuring equity in health outcomes is pivotal for
factors (i.e., exposure to agricultural and industrial chemicals, unhealthy Sri Lanka and which can be addressed by the SDG on UHC.

Inclusive
food habits, use of alcohol and tobacco) despite demonstrating a relative

Figure 1: SDG Targets on Health Preparing for a New

Global Agenda is a

Health in Sri Challenge

Lanka
Technically, there is no doubt
End precentable
that SDG Goal 3 is relevant to Sri
Reduce the global MMR newborn and
to less than 70 per under- Lanka. However, Sri Lanka has the
responsibility of making adjustments

through SDGs
100,000 live births 5 child deaths
to SDGs to suit the country, but
Reduce the number of 3.1 3.2
deaths and illnesses within the given framework. It is
End the
from hazardous 3.9 epidemics of important to form an institutional
By Samanthi Bandara chemicals and air, water 3.3 AIDS, TB, mechanism (apex-body) with a
and soil pollution and malaria and strong political commitment, which
contamination NTD

The global development framework has evolved to be more
inclusive beyond 2015, with the integration of Sustainable
Development Goals (SDGs) in economic, social, and
environmental aspects. Health with regard to achieving
Universal Health Coverage (UHC), takes notable recognition in
linking to the goals in the sustainable development agenda.
It is well-known that Sri Lanka is placed much ahead in terms
of health outcomes compared to neighbouring countries.
However, regional disparities remain. This is further aggravated
by the demographical (health of ageing population) and
epidemiological transitions, as well as the countrys move
towards a high-income level. Conversely, financial insecurity
when it comes to seeking care has arisen because of public
health services that are inadequate in quality and quantity. This
in turn has created an increase in out of pocket expenditure.
In this context, the emergence of the sustainable development
agenda, subsequent to the Millennium Development Goals
(MDGs), with a comprehensive and exclusive goal for health
opens another window to set the newest targets and respective
actions towards UHC.
SDGs on Health is Antecedent, but
Divergent
Subsequent to the MDG agenda, the 17th anniversary of the UN
Assembly embarked on a new vision, which is the 2030 Agenda
for SDGs. This introduced 17 goals and 169 targets, of which,
Goal 3 comprising 9 sub-goals and 4 implementation goals are
assigned for health with an aim to ensure healthy lives and
promote well-being for all at all ages (Figure 1). So far, more
than 15 indicators are identified to measure the outcomes of
the set goals.
While the MDGs were exclusively framed to strengthen
human development, SDGs go beyond this, capturing a wider
spectrum on economic, social, and environmental dimensions.
This integration is the key to making health in SDGs critically
3
can ensure effective planning,
different from other development agendas. One can argue that the first three SDG GOOD HEALTH
implementation and monitoring
health sub-goals (Figure 1) are to continue MDG targets further. This is correct, as AND WELL-BEING
of SDGs. The SDGs should also
the said three sub-goals still exist to point out crucial areas of a countrys health be prioritized to be aligned with
outcomes. national health policy initiatives
through proper financing estimates,
The focus of SDGs is not limited to diseases. It also sets insistent targets towards Achieve UHC 3.8 Reduce premature and monitoring and evaluation
3.4
reducing inequity in health within and between societies, with an emphasis on mortality from NCDs systems at regional and national
UHC, which identifies the determinants of health within and beyond the health levels. Importantly, setting up a
sector. As such, SDG 3.8 on achieving universal health coverage is a platform, coordination mechanism between
which incorporates all other sectors, reinforcing the existing approach on health health and beyond the health sector
in all policies. Making commitments towards UHC via SDG is commendable, but Ensure universal access to Strengthen is vital to ensure that overlaps and
it can only be successful if the following two factors can be accomplished. Firstly, sexual and reproductive 3.7 prevention and duplications do not occur.
health-care services 3.5 treatment of
UHC can be achieved once the dimensions of health service coverage, financial
protection, and population coverage are cumulatively addressed. Secondly, 3.6 substance abuse
intersectoral collaborations/actions with other SDG goals, namely, poverty Reduce Next, the biggest bottleneck is
reduction (Goal 1), provision of water and sanitation (Goal 6), urbanization and deaths and finding financial, physical, and
injuries due to human resources and employing
service delivery in human settlement (Goal 11), provide a perfect complement
road traffic
towards achieving UHC. Besides, the SDG agenda has explicitly stated the need to accidents
them in an effective and efficient
take steps towards ensuring equity by phrasing that no one will be left behind. manner. The estimated cost for
The SDGs have also envisioned addressing health system issues in terms of achieving SDGs, particularly in
supporting health research and development, increasing health financing, developing countries is in the
strengthening human resources, and increasing capacities for risk reduction and range of US $ 3-7 billion per year,
risk management through implementation targets. and every year a gap of US$ 2.5
reduction in the previous years. To combat the said epidemic, the country
billion remains. However, a clear
Relevance of SDG 3 to Sri Lanka has already taken measures by implementing a NCD National Policy,
funding source has not been identified. Even for Sri Lanka, increasing
fiscal space is tricky when looking at the current spending on health.
and National Multisectoral Action Plan for the Prevention and Control of
Within the South Asia region, Sri Lankas health system has been well ahead Even achieving UHC requires 5% of GDP on health, and reducing OOP
NCDs 2016-2020. Therefore, SDG 3.4 3.6 and 3.9 can complement the
to sustain basic health outcomes. This is also highlighted in the the 3rd MDG to below 40% of the total health spending. Therefore, Sri Lanka has to
national initiatives on NCDs, which can then accelerate NCD prevention
report. However, the country still needs advanced interventions to smoothen the make a significant effort to be financially secure before starting the SDG
and control.
drive towards basic health outcomes. For instance, Sri Lanka has already met agenda. Prior to seeking funds from outside, the country can peruse
the universally agreed upon SDG targets in terms of maternal mortality, neonatal SDG 3.7 on ensuring universal access to sexual and reproductive health- opportunities through the private sector as done by other neighbouring
mortality, and under 5 mortality. However, these targets are only being achieved care services is already consistent with Sri Lankas national targets. To economies (e.g., Singapore, Malaysia, and Thailand). This can be done
at national level and regional disparities persist. As such, the continuation of this end, it is crucial to give priority to reducing teenage pregnancies, through public-private partnerships. In addition, reorienting the existing
MDG health targets through SDG 3.1 and 3.2 are still pertinent. Even though Sri unsafe and illegal abortions, and increasing contraceptive prevalence resource allocation mechanisms to align with SDG targets would also
Lanka is free from a few infectious diseases (e.g., Malaria, Filariasis), some of the rate. open avenues to fill the required additional resources. Implementing the
diseases, particularly HIV, Dengue, and TB are on the rise. Accordingly, SDG 3.3 on agreed SDG agenda may not be straightforward. However, the country
infectious diseases can still contribute to Sri Lankas health sector improvements, An inadequate and inequitable public health service is one of the crucial can start the implementation of SDG 3 by making suitable amendments
towards implementing target-oriented interventions to combat such diseases. factors, which create inequity in health outcomes in the country. Such within the present system.

38 39

Why Sri Lanka Need
Comprehensive and Integrated Responses to
Mental Health Issues
By Yolanthika Ellepola
Today marks the World Mental Health Day under the theme Dignity in
Mental Health-Psychological and Mental Health First Aid for All. The aim
of this years theme is to prepare people to confidently tackle the stigma,
isolation, and discrimination that continue to affect those who suffer from
mental health conditions, their families and caregivers.
Psychological first aid covers both psychological and social support.
Therefore, investment in psychological first aid is an important
component of the longer-term effort to ensure that anyone in acute
distress due to a crisis is able to receive basic support and for those who
require more than psychological first aid, will receive additional support
from health, mental health and social services.
Mental, neurological, and substance use disorders are common across
all communities and age groups and countries, irrespective of income
levels. Depression for example affects 350 million persons globally and
is the single largest contributor to years lived with disability. The cost of
depression was estimated to be at least USD 800 billion in 2010 in lost
economic output, and is estimated to more than double by 2030.
According to the Mental Health Atlas 2014, only a mere 68% of World
Health Organization (WHO) member states have a stand-alone policy
or plan for mental health. With 14% of the global disease burden
attributed to these mental disorders, 75% of those people in many
low-income countries do not have access to the treatment they require.
Implementation of policies protecting people with mental disorders is
weak, and family members are partially involved in caring for them.
This article outlines the mental health status in Sri Lanka and highlights
the issues faced by both patients and caregivers. It further reiterates the
40
44.6 per 100,000 population, while for females its 16.8 per 100,000
population. Suicidal rates have increased in the last two decades with
approximately 10 suicides reported island-wide daily, with half the
victims having suffered from depression. The high incidence of suicide
stems from impulsiveness and the inability to cope, which has resulted in
the major causes of death among youth.
Hurdles in Mental Healthcare
Stigma, Isolation, Discrimination
Stigma is an overarching barrier associated with mental disorders
worldwide but more prominent in Asian countries where communities
are family-orientated. Many Asian families including Sri Lankan families
Figure 1: Distribution of OPD Reported Patients at NIMH-2014
Patients
Admissions
Clinical Referrals 1,360
Psychiatric Intensive Care Admissions
Transfer in
1,104
Total OPD consultationsa
Source: National Institute of Mental Health, Annual Report (2014).
urgency for a comprehensive and integrated response to mental health
hide mental illness from society to avoid discrimination in terms of
and care services.
marriage engagements and employment prospects. Even when help has
been sought, evidence show that reintegration into families is poor, due
Status in Sri Lanka
to the associated stigma. This leads to a vicious cycle whereby people
with mental illnesses continue to be undiagnosed, leading to isolation,
Sri Lanka, unlike other WHO member states, initiated a mental health
particularly if action is not taken to understand and support families
legislation in 1873, which was later revised in 1956 with legal provisions
experiencing mental health care problems.
concerning mental health welfare, disability, and general health
legislation. An official mental health policy was approved and published Figure 2: Age Distribution of Patients Admitted to NIMH, 2014
in 2005 and further revisions to the policy are still underway.
A significant number of people in the country suffer from psychiatric 5000
illnesses and serious mental disorders. Available data suggest that 4500
about 10% of the population are afflicted with more common psychiatric 4000
ailments. 3500
3000
Figure 1 depicts a total of 11,723 OPD patients were reported in 2014 2500
by National Institute of Mental Health (NIMH), of which 83% were 2000
admitted. Amongst the admissions, 2,591 patients (26%) urgently 1500
required psychiatric and intensive care and 1,341 patients (13.6%) were 1000
transferred to the Institute from other hospitals. Given that treatment 500
is centralized and only available in the cities, and most patients are 0 discrimination, which cause considerable
reluctant to obtain medication, they enter hospital at the late stages of Under 11 12-16 Years 17-49 Years 50-60 Years 70 Years and
their illness, which implies that they require intensive care. Years
Source: National Institute of Mental Health, Annual Report (2014).
From a total of 7,062 patients (Figure 2) admitted in 2014, 62% of
patients admitted were within the age group of 17-49 years, of which
2,970 patients were male. The country also has one of the highest Conflicts in Service Provision
suicide rates amongst youth with recent protracted conflict and the The absence of knowledge among patients, families and friends
tsunami aggravating mental health needs. The suicide rate for males is underlies the stigma associated with the disease and also acts as a
barrier to seek mental health services. Patients often seek traditional
medicine first prior to attending community-based mental health services
thereby delaying early diagnosis and treatment. Given that community-
based mental health services are not readily available throughout the
country, traditional medicine is the primary choice. However, patients
often prefer if both traditional healers and western methods of treatment
such as community mental health caregivers co-exist and work together.
Poor Funding and Scarcity of Human Resources
Mental health care in Sri Lanka is plagued by poor funding and a scarcity
of trained human resources.67 consultant Psychiatrists200 patients
visiting the Colombo National Hospital on a daily basis, the inequality
in the provision of care is a serious
cause for concern. The deficit of trained
mental health workers is worsened
by geographical inequity, with the
majority of psychiatrists located in the
Western Province. A large proportion of
8,618 postgraduates trained in psychiatry in the
last few decades, have not returned to
Sri Lanka upon their completion of their
overseas training. Others have worked
in Sri Lanka for a few years and migrated
2,591 overseas for better prospects. Also, the
absence of a proper referral system and
poorly developed multidisciplinary teams
makes it difficult for psychiatrists to
deliver services optimally.
11,723
Although community-based mental
hospitals are considered to be more
accessible and reduces the reliance of
tertiary care, their services seems to
be provided in an ad-hoc manner. At the same time, outpatient clinics
in tertiary care hospitals have inherent problems. Lack of a culturally
appropriate service to accommodate the needs of diverse patients, fear
of experiencing discrimination in the treatment setting, language and
communication barriers, lack of familiarity with mainstream mental
health services are many of the hurdles faced by mental health patients
and their families.
Way Forward
Addressing the diverse and complex
mental health issues requires multiple
approaches to intervention and
support provision. This demands the
development of professional services
Male
such as psychiatrists and community-
Female based mental health services to
Total supplement the traditional societal coping
strategies, dealing with interpersonal
and social problems such as stigma and
Unknown suffering to individuals and their
Above
families. Therefore, the Government of
Sri Lanka should consider providing a
comprehensive and integrated response
to mental health and care services, which
educate people on mental health issues in community-based settings
and implement strategies to create awareness on preventing mental
health issues.
41

Economics of the Olympics
By Suwendrani Jayaratne and Kithmina Hewage
Olympics is not only a revered festival of sports but is also an interesting case study of
economics. The summer Olympics brings together over 11,000 athletes from 204 countries
that participate in 42 different sporting disciplines. Over 6 million tickets are sold while billions
join over live broadcasts of the event. Countries vie to host the games by investing large
amounts of money and time in preparation, with the expectations that it would bring about
growth, development and prestige to the hosting countries. However, some economists argue
that although the reasons of wanting to host are many, none seems more prevalent than the
desire for an economic windfall. The economic toll an event of this magnitude can take on
host countries is considerable and the 2016 games preparations at Rio de Jeneiro seemed to
highlight this predicament. While the city bid and won the rights to host the games at a time of
an economic boom in 2009, Brazil is now facing the deepest recessions since 1901. As a result
of its dramatically changed economic fortunes, the city has struggled to adequately prepare for
the game. This article aims to look at the economics behind Olympics and is based on economic
analyses carried out by several economists, in particular one by Robert A. Baade and Victor A.
Matheson (2016) published in the Journal of Economic Perspectives.
Bidding for the Games
The bidding process itself is no easy task with cities investing vast amounts of money to outdo
competition and convince the Evaluation Committee of the
International Olympic Committee (IOC) to select their city
Table 1: Costs of Hosting Recent Olympic Games
to host the games. Host cities are selected around 7 years
prior to the event following an open-bidding process and the
preparation process includes creating detailed architectural
renderings, financial estimates and pre-event marketing.
It has been estimated that Chicago for example, spent at Atlanta (1996)
least US$ 70 million and Tokyo US$ 150 million for their
unsuccessful bids to host the 2016 games.
Sydney (2000)
Host countries are generally expected to bear the entire cost Athens (2004)
of organizing and hosting the Olympics. However, the IOC Beijing (2008)
generally affords some funds for the event. Historically, the London (2012)
host cities used to come from the developed nations in Rio (2016) Total Cost
the period 1896 to 1998, over 90 per cent of the hosts came Source: Compiled using Robert A. Baade and Victor A. Matheson (2016)
from the developed world. However, developing countries are
encouraged to bid with countries like China and Brazil given the opportunity to host the games.
Infrastructure for Athletes and Visitors
There are 3 major cost components of the Games. One is the cost of building and developing
the required sporting infrastructure of the host city. Given the number of sporting events and
their nature, it is unlikely that a particular city would have the entire sporting infrastructure
and is most likely that there might be a need to build or expand for instance, a velodrome or a
natatorium or a ski-jumping complex.
Another key cost component is the cost of building general infrastructure such as buildings to
house the athletes and guests. The IOC requires the host city to have a minimum of 40,000
42
hotel rooms for spectators and an Olympic Village
which can house 15,000 athletes and officials.
This in itself can be a challenge for host cities. For
instance, Rio de Jeneiro despite being a popular
destination had to build 15,000 new hotel rooms
to meet this requirement. Although this can have
long-term dividends, it may also result in severe
over capacity once the games are over. In Norway
for instance, following the 1994 Winter Olympics
in Lillehammer, 40 per cent of the citys hotels
have gone bankrupt. Other general infrastructure
costs include the cost of getting the visitors to the
sporting venues Rio embarked on a mass transit
extension which would transport 300,000 daily at a
cost of US$ 2.8 billion.
Third are the operational costs, which include
opening and closing ceremonies, event
management and security. Long being the target
of terrorist acts and other possible disruptions,
security costs of the games have escalated rapidly
over the years. Security costs of the Sydney games
in 2000 is estimated to be US$ 250 million while
that of Athens after 4 years is said to be around
US$ 1.6 billion, an amount that have stayed around
the same in the past decade.
Short-Run Benefits of Hosting the Games
Despite the high costs, short-run benefits of
the Games include the boost from construction,
tourist booms during the games and significant
proceeds from sponsors, ticket sales, licensing
and media revenues. While the revenue generated
can be divided any way the organizers want to, the
ultimate decision lies with the IOC.
Expenditure
Type of Expenditure (bn, 2015 US$)
Sports Infrastructure 0.765
General Infrastructure 0.959
Total Cost 3.576
Sports Infrastructure
General Infrastructure
Total Cost
Total Cost
Total Cost
Total Cost
The largest source of revenue in recent times
has been from television broadcasting rights.
However, only less than 30 per cent of the revenue
was shared with the local organizing committee.
Further, earnings from international sponsors are
split while the host city gets to keep ticket revenue,
domestic sponsorships, and licensing fees. Table
2 gives a breakdown of the revenue earnings
and shows that hosting costs of for example in
the London games was almost 4 times the total
revenue.
Large-scale projects such as that of the Olympics also lead to an
increase in economic activity in the short-run. Countries with high
unemployment may gain from the additional economic activity. However,
studies find that the numbers do not meet the expectations. Some cities
also show a crowding-out effect with a drop in the regular visitors to
the city during the games -- Beijing experienced a 30 per cent drop in
international visitors and a 30 per cent decline in hotel occupancy during
the month of the Olympics in 2008 compared to the year before.
Long Run Impact
Much emphasis has been given to the Olympic Legacy created in the
host nation. This legacy is seen to include improvements in infrastructure,
increased trade, foreign investment, and/or increases in tourism that
last beyond the Olympics. For instance, the Games are seen to leave a
legacy of high-quality sporting facilities that can catalyze improvements
in the sport for future generations in the country. Moreover, investments
in general infrastructure can provide long-run returns and improve the
standard of living in the host city. Similarly, increased media attention
and affiliated coverage on the country can create an allure for tourists
to visit the host city and country after the Games. Finally, the Olympics
Table 2: Direct Revenues - Breakdown
London 2012 Organizing
IOC 2009-2012
Revenue Source (US $ bn) Committee (US $ bn)
Revenue
Broadcast Rights 2.723 0.713
International Sponsors 0.475 0.300
Domestic Sponsors 0.000 1.15
Ticketing 0.000 0.988
Licensing 0.000 0.119
Total 3.198 3.270
Hosting Costs - 11.401
Source: Compiled using Robert A. Baade and Victor A. Matheson (2016)
are seen as a means to attract foreign investments as global brands
become more familiar with the host city as part of the Olympics or even
separately.
The eventual outcome of the Olympic Legacy, however, depends on
several factors that determine if the host city is left with a legacy similar
to that of Los Angeles (1984) or Athens (2004). The sporting legacy of the
Olympics on domestic sporting facilities is one of the most overvalued
and evidence suggests that rather than catalyzing sports, the city is left
with a heavy burden of building and maintaining facilities that have little
to no use beyond the Games. Therefore, these venues effectively become
white elephants and like many venues used during the Athens 2004
Games, fall into disrepair.
Sporting Facilities
In recent years, Olympics hosts have attempted to build stadiums and
facilities in order to repurpose after the Games. However, such efforts
have rendered limited successes due to the specialized nature of some
facilities needed for particular sports, their irrelevance to the sporting
culture of the host nation, and the expense of conversion. For example,
the aquatic centre in Beijing, dubbed the Water Cube was repurposed
as an indoor water park at a cost exceeding $50 million. Similarly,
the Queen Elizabeth Olympic Stadium in London has been converted
to a football stadium for West Ham United. However, while the final
construction cost was 429 million and the conversion cost exceeded
272 million, the football club contributed only 15 million towards those
costs and will be paying just 2.5 million per year as rent on a 99 year
lease.
General Infrastructure
Unlike specific sporting infrastructure, general infrastructure investments
during the Games have the potential to reap benefits in the long term.
For example, the Olympic villages in Atlanta and Los Angeles were
successfully converted into new dormitories for local universities.
Similarly, the city also benefits through heavy investment in improving
transport infrastructure within the city as well as access points to and
from host venues. Some studies find that investment for the Games do
not necessarily provide higher returns than what could be expected if the
same investments were made alternatively. However, it is likely that the
political will required for urban redevelopment at the scale needed for the
Olympics is seldom generated in a vacuum.
The positive returns associated with infrastructure investments, however,
depend heavily on the current and future needs of the host city. For
instance, the Olympic village in London was successfully converted to a
residential apartment complex since a significant demand exists for such
housing in London, particularly closer to the finance district. This trend
can also be extended to other investments, especially with tourism and
hotels. As noted earlier, some believe that media coverage and exposure
to a host city can increase the allure of a city as a tourist destination.
However, this expected increase is unlikely to occur when said
destination is already a popular tourist destination like London or
Rio de Janeiro. Barcelona and Salt Lake City are considered success
stories in putting the city on the map following its hosting duties.
At the time, these cities were often overlooked by tourists for
better-known destinations, but coverage of the citys sporting and
non-sporting attractions led to an influx of tourists with Barcelona
experiencing the fastest growth in tourism among European cities
immediately after 1992. Therefore, while hosting an Olympics can
generate post-Games tourism flows, they are heavily dependent on
other factors. Failure to account for these factors may lead to the
over-supply of hotels and other facilities that can have a negative
knock-on effect on the economy.
A False Premise?
Amidst the limited potential for the Games to create positive net benefits
for host cities, countries especially those from developing countries
are increasingly keen to bid. Obviously, the decision to host a global event
of such magnitude is not strictly based on economic factors and thus
relies heavily on political considerations. Moreover, such events create
obvious winners and these bids are often supported by special interests
that will benefit most through the event. For example, Bostons bid to host
the 2024 Games was supported by leaders in the heavy construction and
hospitality industries.
The overall benefits reaped by Los Angeles and the economic recovery
that took place in Barcelona during their respective hosting periods has
intensified the attraction of hosting the Olympics. However, the significant
difference is that at the time, Los Angeles was the sole bidder and was
in a unique position to bargain a beneficial deal for the city. In contrast,
with the deluge of bidding cities, the IOC has greater power in deciding
a host city and tends to select one that promises a more expensive and
flamboyant event, irrespective of the potential costs. These costs in fact
notoriously inflate between the bidding stage and final implementation
stage, which exacerbates the issue further. Therefore, countries should
be more cognizant of the economic realities and the long-term burdens
associated with hosting the Olympics. Thus, the priority should be on a
purpose-built Olympics rather than purpose-built stadiums.
43

INTERNATIONAL MIGRANTS DAY - 18TH DECEMBER 2016
Decrease in Remittances in 2015:
Glitch or Beginning of the End?
By Bilesha Weeraratne
Labour migration and related remittances play an important role in the
Sri Lankan economy. Until recently, labour migration from Sri Lanka was
dominated by females departing as housemaids. Subsequent to many
concerted policy efforts, such as the Family Background Report (FBR)
requirement, pre-departure training and upgrading existing skill training
to internationally recognized levels, this female and low skilled oriented
migrant worker flow is now transformed into a more skilled and male
centric flow.
As a result, in 2015 the sphere of labour migration experienced many
changes. In 2015, total departures declined to 263,307 from 300,703
in 2014, the share of females among migrant worker departures
further declined in 2015 to 34% from 37% in 2014, and the share of
housemaids also continued to shrink to reach 28% in 2015 from 30% in
2014. In fact, 2015 marked the first year since 1994, where the share
of housemaids dipped below that of skilled workers (31%). Other skills
groups, such as professionals and semi-skilled groups also experienced
growth to reach shares of 2.4 % and 2%, respectively.
This gender reversal and up-skilling of migrant workers, coincided with
the first ever decline in inward remittances in 14 years. In 2015, inward
remittances to Sri Lanka declined to USD 6,980 million from USD 7,018
million received in 2014. Does this 0.54 % decline in remittances mark
the beginning of the downward trend in remittances to Sri Lanka? Lets
hopes not! Nonetheless, since such wishful thinking alone will not
44
measure to maximize remittances. To that effect, the remainder of this
blog identifies five mechanisms that affect remittances and makes
related policy recommendations to ensure a continued steady flow of
inward remittances to Sri Lanka.
Mechanism 1: Shrinking Share of Reliable Remitters
Literature identifies that compared to males, females are more reliable
remitters. This reliability stems from the greater involvement of females
with the operation of the left behind household, and their tendency to
sacrifice more than males for family back at home. Additionally, females
also tend to remit more as a self-insurance mechanism against possible
Figure 2: The Decline in Remittances from 2014 2015
2014 2015
USD 7018 m. USD 6980 m.
negative shocks at destination. The recent policy efforts to discourage
the departure of female workers have inadvertently also contributed to
reduce the number of reliable remitters to Sri Lanka.
Mechanism 2: Growing Share of High Waged Remitters
Despite being less reliable, when they do remit, males are noted to remit
more. The reason behind such higher remittances from males is due to
their capacity to earn higher wages than women in similar jobs. This has
the potential to offset the less reliability of male remittances with larger
amount of remittances when they do remit.
Figure 1: Snapshot of Labour Migration in 2015 Similarly, the progressive up-skilling of migrant worker from Sri Lanka
also contributes towards a rising share of higher wage earners among all
Total Migration Female Migration migrant worker departures and their corresponding higher remittances.
Mechanism 3: Increasing Departure of Tied-Migrants
There is evidence that migration of skilled workers is often associated
with tied migration where spouse accompany migrant workers. In a
patriarchal society like in Sri Lanka, when male migrant worker shares
263,307 34%
are rising there is a higher tendency for tied migration of wives to take
place. Similarly, regardless of gender, better skilled migrants also tend
to induce tied migration from Sri Lanka. Extending this tied-migration
Housemaids Skilled Workers beyond spouses, better skilled migrants from Sri Lanka are also enticed
to take their children especially to enjoy higher education options
overseas. All this amounts to the absence of immediate family members
to receive regular remittances.
Mechanism 4: Shrinking Importance of Circular Migration
28% 31% Another aspect of skilled migration is that the better skilled migrant
workers often have opportunities to pursue other destinations to migrate
subsequently. This may alter the circular nature of labour migration
guarantee a steady flow of remittances, it is only prudent for Sri Lanka from Sri Lanka towards a pattern of step migration where migrants
to proactively understand the possible underlying mechanisms that may leave the first destination not to return to Sri Lanka, but to head to a
contribute to positive and negative changes in remittances and introduce second destination. The decline of circular migration and rise in step
migration would also lead to weaker links with the home country and a
corresponding decrease in remittances.
Mechanism 5: Growing Possibilities for Long Term Migration
Despite being recognized as temporary migrants, high skilled migrants
tend to continue foreign employment for multiple contract periods.
Such residence and employment in destination for extended periods
resemble more permanent characteristics of migration. As a result, such
extended stays also leads to weaker links with the home country and a
corresponding decrease in remittances.
How to Maximize Remittances?
In the context of gender reversal and up-skilling of labour migrants, as
summarized in Figure 3, the receipt of higher remittances are challenged
by two sets of competing forces.
On one hand, the rising share of males among migrant workers would
Figure 3: Balancing Future Remittances
$ $
Links
Reliability
Amount
lead to greater remittances to Sri Lanka only if the monetary value of
their remittances can offset their less reliability in remitting. Similarly, in
the case of rising share of better skilled workers among migrant workers,
greater remittances would only occur if higher wages and related
remittances can offset their weaker links with Sri Lanka.
In order to make these competing forces work towards maintaining a
high inflow of remittances, some policy approaches are a dire need.
Aptly the National Labour Migration Policy of 2008 identifies that the
diversity of Sri Lankan transnational communities requires differentiated
approaches between skilled and professional workers, and low-skilled
workers and ethnic communities, permanent and long-term migrants and
temporary migrant worker. The same policy identifies action plans for:
Reviewing existing incentives for migrant savings and
investments, and access to credit,
Developing and implementing a framework to provide
incentives for skilled and professionals to contribute to home country
development from abroad through; investment opportunities, tax benefits
etc. and schemes for giving back to the countrys development.
With the experience of a decline in inward remittances to Sri Lanka in
2015, now is the ideal time to transform the above policy plans into
actions. Additionally, Sri Lanka should also deploy differentiated
approaches between male and female segments of Sri Lankan
transnational communities, and highlight the importance of regular and
reliable remittances from male migrant workers.
If such appropriate interventions take place in a timely manner, Sri Lanka
would be able to revert to its growing trend and relegate the decline in
remittances in 2015 to a mere glitch.
45
Taxation in Sri Lanka:
The Need for Radical Change?
By D D M Waidyasekera
A countrys fiscal and taxation system is a major determinant of macro-
economic policy and sustainable growth, particularly in areas such
as government revenue, public debt, fiscal deficit, inflation as well as
resource allocation, income distribution and economic stability.
Currently, Sri Lankas fiscal and taxation system is at a critical juncture.
While overall GDP as well as per capita income have been steadily
increasing, the total government revenue and tax revenue have been
decreasing over time (Table 1).
Table 1: GDP, Per Capita and Revenue Ratio - Selected Years
Source: Central Bank Annual Report 2015 and various years.
As indicated in the table, the total government revenue, tax revenue and
even non-tax revenue have declined. The increase seen in 2015 was
due to the one-off taxes such as the Super Gain Tax and other levies
implemented during that year.
Respective governments have recognized the critical nature of the
situation and the necessity to reverse this trend. The Presidential Taxation
Commission Report of 2010 as well as the successive recent Budget
Speeches have stressed this issue.
46
Reasons for the Decline
The main reasons for this decline include;
1. Unplanned ad hoc tax incentives in the form of various tax holidays,
among others), the base and coverage still need to be enlarged. This
reliefs and concessions, duty waivers, etc., which have eroded
and narrowed the tax base. The tax loss is estimated to be around
1.35% of annual GDP.
2. Narrow tax base and coverage; the total number of taxpayers being
about 3% of the population.
3. Increase in allowable expenses in computing statutory income and
profit.
4. Periodic increases in tax free allowances and ad hoc reductions in
rates of tax both corporate and non-corporate sectors.
5. Ad hoc changes to the tax system to meet short-term cash flow
requirements of the government consequent to lack of consistency
in fiscal policy leading to uncertainty among tax payers.
6. Lack of elasticity and buoyancy in the tax system both being less
than unity.
7. Existence of a large informal economy resulting in large-scale tax
evasion and avoidance as well as black money.
8. The grant of periodic tax amnesties (11 since 1964) which have
been largely failures, not producing the expected results.
9. A complicated tax system and weaknesses in tax administration
and its mechanism.
Composition of Revenue Direct and Indirect
Another aspect in the current tax system, which needs change, is the
composition of tax revenue. Direct taxes comprise on average less than
20% of tax revenue (2% of GDP) while indirect taxes comprise over
80% or 8% of GDP. In this context, both the 2010 Presidential Taxation
Commission and recent Economic Policy Statement (EPS) of the Prime
Minister set the target of achieving a 40:60 ratio of direct to indirect
taxes by 2020. This has also been reiterated in the 2017 Budget speech.
Fiscal and Tax Incentives
In respect of tax incentives granted both under Law 17 of the BOI
and IRD, there are both pros and cons in granting such concessions
particularly in relation to attracting Foreign Direct Investment (FDI). On
average, Sri Lanka has attracted around US$ 500 million (about 1.5% of
DGP) as FDI during the last decade. However, the tax incentive regime
if considered necessary in a competitive international context, must be
designed, and implemented in a more methodical and cost effective
way. Their cost-benefit should be properly examined and subjected to
continuous review so that the impact on revenue is minimized and the
required economic objectives realized.
The 2017 Budget also proposes to minimize tax exemptions by removing
exemptions applicable on the income from investment on listed
securities, dividends, Unit Trusts and other instruments. Notional Tax
Credit applicable on secondary markets are also to be removed.
Base and Coverage
One of the important elements in securing a satisfactory level of tax
revenue is the base and coverage of the taxes. While certain steps to
broaden the tax base and coverage have been taken (for example, the
inclusion of public servants hitherto exempt from income tax, widening
the base of the VAT and NBT by adding the wholesale and retail sectors
includes a re-examination of the tax free allowances, the enhanced
allowable expenses under Section 25 of the Inland Revenue Act and other
sections.
Further, the constant changes in the rate structure, the multiplicity of
rates, the recent rate concessions for professionals, and the recent
proposals to change the basis of the corporate rate structure have tended
to further complicate the system.
Capital Gains
Capital gains were introduced in Sri Lanka in 1959. It underwent several
changes and was abolished in 2002. However, realized, capital gains are:
equivalent to income; minimize opportunities for tax avoidance; accrue
generally to the property owning class; and concentrated in higher
income brackets. Hence, the government in its 2017 Budget announced
its re-introduction from 1 April 2017 at the rate of 10%.
VAT Debate
The VAT introduced under VAT Act No. 14 of 2002 has drawn much
attention and debate recently, particularly its recent amendments. In
principle, a VAT system is superior to other forms of sales taxation due to
its non-cascading character; about 160 countries have a VAT system in
some form or other. However it has also several weaknesses.
In terms of revenue performance, the VAT in Sri Lanka has not shown
regularity and reliability. It has been characterized by volatility and the
need for complex manipulation to prevent revenue erosion in the form
of input credits and refunds. The problems of VAT in Sri Lanka relate to
constant changes in the threshold, a large number of exemptions, zero
rating list and rate structure. Problems also arise in the area of wholesale
and retail trade, financial services and existence of fraud. The much
vaunted self-checking and self-policing feature of the VAT system has
been found to be wanting. The VAT system is an ideal instrument for a
market economy but ill-suited due to administrative capacity. The 2017
Budget proposals envisages certain measures such as the removal of the
SVAT schemes, further broadening of the VAT base and consolidating VAT
Act to incorporate all amendments up to date.
Customs Duties, Excise Duties, and Other
Taxes and Levies
Customs duties in the form of three band tariffs of zero, 15% and
30%, brought in Rs. 132 billion or 9% share of revenue in 2015. Excise
duties including Special Excises are a potential source of revenue and
generated 34% share of tax revenue. There are other miscellaneous
taxes and levies including cesses, PAL, Telecom Levy, Stamp Duty,
Share Transaction Levy etc., which contributed to 17% of the revenue
in 2015. The complicated tax system in Sri Lanka of over 22 taxes and
levies needs simplification. Simplification however does not depend on
legislative measures alone but also on administrative procedures and
regulations.
Provincial and Local Taxation
Apart from national taxes, provincial and local taxation is also a
significant part of the Sri Lankan tax system. From a revenue point of
view, however, Provincial taxation is unsatisfactory, bringing in only 4%
of Central government revenue or 0.6% of GDP. Provincial expenditure is
around 11% of government revenue and the deficit is met by grants from
the Centre.
The problem has been complicated by the abolition of BTT in 2011,
its main source of revenue and its replacement by 100% Stamp Duty,
70% of motor vehicle fees and 33 1/3 % of NBT from the Centre. Local
government revenue may also undergo change with the proposed Grama
Rajjaya Concept involving the creation of 2500 new units at grassroots
level.
Revenue Administration
It is the level of efficiency of the revenue administration, which
determines the effectiveness of the revenue system. In the current
context, with the declining tax ratio and the urgent need to increase
government revenue, the effectiveness of the tax administration, its
structures, systems and processes need thorough examination, its
weaknesses identified and measures to rectify them and make the
administrative system an efficient and effective instrument of tax
collection.
Several measures have periodically been taken to remedy these
weaknesses and improve the efficiency of the tax administrative system
at Customs, Finance Ministry, and Inland Revenue. The 2017 Budget
contains further proposals such as establishing a National Tax Council
and Tax Ombudsman office, smart E-invoice devices for VAT and Excise,
streamlining Customs procedures among others. However, there is still
a long way to go; further measures are needed to improve revenue
administration and co-ordination.
47
INSIDE IPS
In this edition we feature, Manoj Thibbotuwawa, Research Fellow at
the IPS, with research interests in agricultural economics, agricultural trade,
food security and environmental and natural resource economics. Manoj holds
a PhD from the University of Western Australia, MSc from the Post Graduate
Institute of Agriculture in Peradeniya and BSc-specialized in Agricultural
Economics from the University of Peradeniya. He has also completed a post
graduate diploma in Modelling and Accounting for Sustainable Development at
the Institute of Social Studies (ISS), The Netherlands.
How long have you been with IPS and what is your
role at the Institute?
I have been with IPS for almost 13 years. However, my active
service at IPS is little over 8 years as I was on study leave from
2011-2015 for my higher studies abroad. My role at IPS is primarily
to engage in agricultural economics research. Since 2004, I
have been working on many areas related to agriculture such as
food security, agricultural trade, natural resource management,
marketing and value chain analysis, etc.
What inspired you to choose Agriculture as an area of
specialization and what aspect of agriculture are you
most passionate about?
I had a background in sciences in my secondary education and
most of my tertiary education in which I followed Agricultural
Science. Choosing agriculture for my higher education was an
important turning point in my life and it was greatly inspired by my
love for field cultivation or more precisely ager cultra which
is the Latin origination of the word agriculture. Also, I liked the
multidisciplinary nature of modern agriculture which encompasses
a blend of natural environment, economy and society. I am
passionate about working closely with the food security aspect of
agriculture because of its dynamism and importance to the people.
What are your career related achievements?
Looking back in my career, there are many achievements and
milestones. I started my career at IPS as a Research Assistant back
in 2004. Growing gradually for the past 13 years, to become a
senior researcher at IPS, with many important research related to
agriculture in itself is a great achievement for me. Added to that, I
have received the Endeavour Award from the Australian Government
to pursue my doctoral studies. Also, I have received NUFFIC Award
from the Netherlands Government for higher education.
Why do you think Agriculture research is important to
Sri Lanka?
Sri Lankas agricultural sector employs and sustains a majority
of the population, and impinges on critical areas of poverty, food
security and related social issues. However, with the declining
48
investment on agricultural research, poor performance of the sector
has become a serious issue of concern with regard to dealing with
the future challenges such as income inequality, food and nutrient
insecurity, climate change, etc. For that reason, we Sri Lankans
cant rule out the importance of investing more on agricultural
research for the betterment of the country.
What is your agenda for agricultural research at IPS?
I have already planned to engage in more research related to food
and nutrition security, food safety and quality management and
agricultural value chain development.
What advice can you give career starters who are
keen to explore this line of work?
My advice for the career starters, who are keen in this area, is to
have a sound knowledge on agriculture and good understanding of
economics. Also, developing good analytical skills is very important.
Manufacturing Sector: Strategy for Sustainable
Having a passion to travel and interact with people would be an
Economic Growth in South Asia held in New
added advantage as you would need to engage in extensive field
work.
for Policy Studies (SACEPS), Research, and
What aspects of your personal life help you do your
job well?
Dedication and hard work would probably be the major assets
in my personal life which have helped me greatly in my career.
Sometimes, my wife and son see me as a workaholic. However, I
always try to have the correct balance between my personal life and
career.
If you had to pick the 5 most important things in your
life, what would they be?
Relationships (Having a group of people that you can call family or
friends around is a great blessing); Health (Without taking care of
your body and mind, you wont be able to live the life you want);
Food (Food is not only a basic need but trying different food is a fun
activity); Achievements (Professional and personal achievements
are a motivational factor) and Peace (Freedom from disturbances/
balancing emotions will give you self-confidence and a positive
attitude to life)
Pros and Cons of Bilateral
International Investment Treaties
for Developing Countries
A seminar on Pros and Cons of Bilateral
International Investment Treaties for Developing
Countries was conducted by Dr. Manual Montes,
Senior Advisor on Finance & Development, South
Centre, Geneva at the IPS Premises in November.
Dr. Montess presentation focused on the
implications of signing Bilateral Investment
Treaties (BIT) for attracting foreign investment.
Job Creation in Manufacturing
Sector: Strategy for Sustainable
Economic Growth in South Asia
IPS Executive Director, Dr. Saman Kelegama and
Research Assistant, Vishvanathan Subramaniam
participated in a workshop on Job Creation in
(B2B) matchmaking platform dedicated to
supporting trade-led development.
Delhi on the 5th of December. The workshop
was co-organized by the South Asia Center
Information System for Developing Countries
(RIS) with funding provided by the Asia
Foundation (India).
Sri Lanka Economic Summit 2016
IPS Executive Director, Dr. Saman Kelegama
made a presentation on The Role of
International Trade in Facilitating Sri Lanka to
Emerge as a Regional Hub, at the Sri Lanka
Economic Summit (SLES) 2016, held in Colombo
in August.
SAEA 10th Annual Research
Forum: Agriculture for Sustainable
and Inclusive Development
IPS Executive Director, Dr. Saman Kelegama
delivered the key note address at the 10th
Annual Research Forum of the Sri Lanka
Agricultural Economics Association (SAEA)
organized by the SAEA together in partnership
with the IPS was held at the IPS Auditorium
on 8th December 2016. IPS Research Fellow
and President of SAEA Dr. Athula Senaratne,
delivered the welcome address while
Eng. Bandula Wickramarachchi, Secretary
to the Ministry of Primary Industries was the
Chief Guest at the event.
World Export Development Forum
2016
IPS Executive Director, Dr. Saman Kelegama
was a panelist at the World Export
Development Forum (WEDF), a unique
global conference and business-to-business
Speaking at the event Dr. Kelegama noted
that implementation of the trade facilitation
agreement under WTO is the next step of the
Government, adding that technical assistance
would likely be requested from the WTO.
Seminar on Recent Trends
in International Trade Policy:
Perspective from the US
Prof. Robert Z. Lawrence, Albert L.
Williams Professor of International Trade
and Investment at the Kennedy School
of Government, Harvard University, USA,
conducted a seminar on Recent Trends in
International Trade Policy: Perspective from
the US at the IPS.
The 9th South Asian Economic
Summit
The 9th South Asian Economic Summit
(SAES9) was held in Bangladesh under
the theme Reimagining South Asia in
2030 in October. Hosted by the Centre for
Policy Dialogue (CPD), the two-day summit
was jointly organized by the Research and
Information System for Developing Countries
(RIS) of India, Sustainable Development Policy
Institute (SDPI) of Pakistan and South Asia
Watch on Trade, Economics and Environment
(SAWTEE) of Nepal and the IPS of Sri Lanka.
IPS
NEWS
July - Dec 2016
The Think Tank Initiatives (TTI)
Regional Meeting and Data
Visualization Workshop
The Data Visualization Workshop was held
during 13th December, while the TTI 6th
Regional Meeting was held during 14 15th
December. IPS Deputy Director, Dr. Dushni
Weerakoon, Research Fellows, Dr. Ganga
Tilakaratna, Dr. Janaka Wijayasiri and
Charmaine Wijesinghe, Manager Publications
and Events, participated at both events.
Seminar on China-South Asia
Relations
A delegation consisting of academics from
the Peking University, and officials attached
to the Department of Asian Affairs, Ministry
of Foreign Affairs of China visited the IPS in
November.
49
 Authors & TE Team
Dushni Weerakoon
Dr. Dushni Weerakoon is currently the Deputy
Director of the IPS and Head of Macroeconomic
Policy research at the Institute. Since joining the
IPS in 1994, her research and publications have
covered areas related to regional trade integration,
macroeconomic policy and international economics.
She has extensive experience working in policy
development committees and official delegations
of the Government of Sri Lanka. She holds a PhD in
Economics from the University of Manchester, U.K.
Janaka Wijayasiri
Janaka has over 12 years of experience on trade
policy issues and heads the International Economic
Policy Unit. He has produced, individually as well as
jointly, many in-depth analytical reports and papers
for the Sri Lankan government, international, and
regional institutions. His also focuses on regional
and multilateral trade agreements and their
implications for the country. He holds a PhD from
Monash University. He is currently the Editor of
Talking Economics.
Kanchana Wickramasinghe
Kanchana Wickramasinghe is a Research Economist
at the IPS, with a focus on environment and
natural resource management policy research. Her
research areas include sustainable tourism, disaster
management, natural resource management, green
jobs and climate change. She holds a Masters in
Economics from the University of Colombo and a
BSc in Agriculture from the University of Peradeniya.
She also completed a post-graduate diploma at the
Institute of Social Studies, The Hague, Netherlands.
Bilesha Weeraratne
Bilesha Weeraratne is a Research Fellow at IPS
focusing on internal and international migration
and urbanization. She is also interested in labour
economics, economic development, and economics
of sports. Prior to re-joining IPS in 2014 Bilesha
was a Postdoctoral Research Associate at Princeton
University, USA. Bilesha holds a MPhil and a PhD
in Economics from the City University of New York,
USA. She is a member of the Talking Economics
Editorial Team.
Priyanka Jayawardena
Priyanka Jayawardena is a Research Economist
at the Labour, Employment and Human Resource
Development research unit at IPS. Her research
interests include education and skills development,
labour economics, inequality analysis, health
economics and child nutrition. She holds a BSc
(Hon) in Statistics and an MA in Economics from the
University of Colombo.
50
Ganga Tilakaratna
Ganga Tilakaratna is a Research Fellow
and is currently the Head of the Poverty
Unit at IPS, with research interests in
the fields of poverty, microfinance, and
social protection. She holds a BA (Hons.)
in Economics from the University of
Manchester, an M.Phil in Economics
from the University of Cambridge,
and a PhD in Development Policy and
Management from the University of
Manchester.
Manoj Thibbotuwawa
Manoj Thibbotuwawa is a Research
Fellow at the IPS, with research interests
on agricultural economics, agricultural
trade, food security and environmental
and natural resource economics. He
holds a PhD from the University of
Western Australia and has also obtained
a Post-graduate Diploma in Modeling
and Accounting for Sustainable
Development from the International
Institute of Social Studies in The Hague
(ISS).
Samanthi Bandara
Samanthi Bandara is a Research
Officer in the Health Economics Policy
Unit at the IPS. Her research interests
are health care financing, healthcare
evaluation, and impact assessment of
health policies/interventions. She holds
a BA (Hons.) in Economics with a special
module of Health Economics from the
University of Colombo and MSc in Health
Economics from the Centre for Health
Economics, University of Chulalongkorn
in Thailand.
Kithmina Hewage
Kithmina Hewage is a Research
Officer with research interests in
International Political Economy include
WTO issues, Trade and Development,
Export competitiveness, and Foreign
Direct Investment. He holds an MSc in
International Public Policy from University
College London (UCL) and a BA with
university and Departmental Honours
from the Johns Hopkins University, USA.
Kithmina is also a member of the Talking
Economics Team.
Dilani Hirimuthugodage
Dilani Hirimuthugodage is a Research Officer
working in the Agriculture Economic Policy
unit at the IPS. Her research interests include
agriculture economics, intellectual property
rights, food security and innovations in the
agriculture sector. She holds a Masters
in Economics (Distinction Pass) from the
University of Colombo.
Chantal Sirisena
Chantal is an economist and finance
professional. Her research interests are in
international trade, foreign direct investment,
migration, development finance and private
sector development. Chantal graduated
with First Class Honours in Economics from
University College London.
Suwendrani Jayaratne
Suwendrani Jayaratne was a Research
Officer working in the International Economic
Policy Unit at the IPS. Her research areas
include international trade and migration
and macroeconomic policy. She obtained
her Masters from the Australian National
University (ANU) in International and
Development Economics, and holds a BA
(Hons) in Economics from the University of
Peradeniya.
Nipuni Perera
Nipuni Perera was a Research Officer at
the IPS. Her research interests include
International Economics, Macroeconomic
policy and Industrial Policy, covering areas
such as International Trade, Regional
Economic Cooperation, SME Development and
Migration. She holds a BA in Economics from
the University of Colombo.
Raveen Ekanayake
Raveen Ekanayake was as a Research
Officer in the Industry, Competitiveness and
Regulatory Policy research unit at IPS. He
holds a BSC in Accounting and Finance from
University of London, and a Masters in Public
Policy from the Australian National University.
His research interests include Development
Economics and International Economics.
Yolanthika Ellepola
Yolanthika is a Research Assistant at IPS
working on health economics issues. She
holds a MSc in Public Management and
Governance from the London School of
Economics, UK, and a BSc (Hons) in Applied
Economics from the University of St. Andrews,
Scotland, UK.
Vishvanathan Subramaniam
Vishvanathan Subramanian is a Research
Assistant at IPS, with research interests
in Private Sector Development, Foreign
Direct Investment, Regional Integration,
Econometrics and Economic Modeling. He
holds a BSc (Phi Beta Kappa) in Mathematics
and Economics from Birmingham-Southern
College, USA.
Anarkalee Perera
Anarakalee is a Research Assistant attached
to the Poverty and Social Welfare unit. Her
research interests include Poverty and
Development Policy, with a focus on Public-
Private Partnerships (PPP), Information
and Communications Technology (ICT) and
Gender Policy. She holds a BA (cum laude)
in International Affairs and Economics with a
certificate in Development Studies from Mount
Holyoke College, USA.
Chinthani Sooriyamudali
Chinthani is a Research Assistant with
research interests on Poverty and
Development Policy, Econometrics and
Economic Modelling, Macroeconomic Policy
and Planning, and International Economics
and Trade. She holds BA (Hons) in Economics
from the University of Colombo.
Dishnika Perera
Dishnika Perera was Manager -
Communications & Strategic Outreach at
the IPS and was a member of the Talking
Economics Editorial Team.
Charmaine Wijesinghea
Charmaine is Manager Publications &
Events at IPS and is a member of the Talking
Economics Team.
D. D. M. Waidyasekera
D. D. M. Waidyasekera is a former
Commissioner of Inland Revenue, Secretary of
the 1990 Presidential Taxation Commission,
Past President of the Sri Lanka Institute of
Taxation and presently Editor/Consultant of the
Institute of Policy Studies of Sri Lanka.
51
 The Power and Energy Ministers initiative
to introduce spot tenders for the procurement
li lio
n In a Nutshell snippets from the
Talking Economics Digest
FAST of coal has resulted in a saving of nearly
US$ 7.6 million (Rs. 1.1 billion)
$ 7 . 6 m A credible fiscal consolidation plan under

US
compared with coal IMFs watchful eye is the only remaining option

FACTS purchase through long-term to restore macroeconomic stability and leverage

There are almost 100,000
child workers in Sri Lanka.
Micro Finance Act (MFA)
which will provide a regulatory
When completed in October 2017,
mechanism and the legal
Colombo's Lotus Tower at
clout to the micro finance
D.R. Wijewardena Mawatha will
sector was published on
stand as the tallest structure in the
July 11, 2016.
whole of South Asia at 350 meters.
investor confidence in the Sri Lankan economy.
tenders, an independent committee
Page 4
has found.
4.8 million
Developing and emerging
economies will add 4.8 million Countries should be more cognizant of the
to global unemployment economic realities and the long-term burdens
associated with hosting the Olympics. The priority
within the next two years ILO.
should be on a purpose-built Olympics rather
than purpose-built stadiums.
the most problematic factor for doing business in Sri Lanka.
Page 42
Chinas policy shifts have immense bearings
on the worlds development trajectory. This
Five mechanisms that affect remittances to article analyzes the primary hindrances to Chinas
Sri Lanka are shrinking share of reliable remitters, growth and the proposed remedies envisioned in the
growing share of high waged remitters, increasing latest Five year plan as well as the implications of Chinas
departure of tied-migrants, shrinking importance of priority adjustments on Sri Lankas future prospects.
circular migration, and growing possibilities for
long term migration. Page 12
Page 44
The intensity of policy instability is recognized as With the recent variations in climate
patterns, it is important to identify gaps with
Ad-hoc policy changes, be it regarding VAT rates, national regard to crop insurance take-up as a risk

According to the recent issue of the

Sri Lankan Airlines is set to
lose at least US$ 56 million
in revenue in addition to
Recent Economic Developments, other costs owing to the
the net worth of the Colombo 3-month day-closure of
Stock Exchange was the Bandaranaike
Rs. 3,076,000,000 a year ago International Airport (BIA)
and it has come down to
in 2017 for emergency
Rs. 2,792,000,000 as at
repairs on an ageing runway.
August 30, 2016.
US$ 56 million
269
hectares
Colombo International Financial Centre (CIFC)
formerly known as the Colombo Port City (CPC)
will have a reclaimed land area of 269 hectares.
budget allocations, and a general absence of a clear
national economic strategy in the public domain has
resulted in a growing confidence gap between private
management strategy in Sri Lanka.
Page 32
sector investors and the government.
Page 28
Chinas Yuan joins the International Periodical reviews of the set
requirements for the new star rating
Monetary Funds basket of reserve The potential for a good quality bilateral
system are required given the set
currencies in early October in a free trade agreement between Singapore and
Sri Lanka is there. Our officials have done the targets of tourism industry.
milestone for the governments
studies, and they feel both sides stand to benefit Non-tariff measures seem to be
campaign for recognition more challenging than tariff barriers for
Page 22
The chance of an significantly, and it will smoothen the way for our
agricultural exports to China, while the opposite
Elementary School as a global business commitments to work together.
Teachers job being economic - S. Iswaran, Trade and Industry Minister of Singapore is true for industrial exports.

automated in future power. Page 18 Page 14

Despite Sri Lanka making progress in two
reform areas, Sri Lanka fell a position from
109 in 2016 to 110 in 2017 in the
ease of doing business index
released by the World Bank.
is 0.4 per cent
According to the World Bank, Sri Lankas
economic growth is projected to grow at 4.8%
Given that emerging donors are
unable to compete against their developed
Sri Lanka should understand the counterparts on the scale of aid, they are more
OVER existing gaps in terms of accessible focused on addressing issues of soft-power.
RS.1,819 BILLION Poor access to information, costly tourism and orient its strategies to discover Among the emerging donors, India is seen to be especially

4.8%
this year and improve to 5.0% in
2017. These growth rates are,
however, among the slowest in the region.
The International Monetary Fund (IMF) approved the
requirements/regulations, burdensome customs the possible economic potentials of this keen on such efforts along with considerable
The Governments estimated emerging market.
procedures and lack of trade finance are major support from China.
expenditure for 2017 will be hurdles to international trade for SMEs. Page 26 Page 30
over Rs. 1,819 billion, according
Page 10
to the Appropriation Bill 2017
while the limit on borrowings

Sri Lanka ranked 31st in the
Global Youth Development
Index (YDI) 2016 which was
compiled by the Commonwealth
Secretariat based on a countrys
condition for the youth in terms
of employment, education, health,
civic and political spheres.
release of $ 162 m more to
Sri Lanka under its $ 1.45b
three year Extended Fund Facility (EFF) program
in November 2016.
The SME sector in Sri Lanka
accounts for 52% of GDP and
45% of total employment,
whilst making up more than 75%
of the total number of enterprises
in the country.
52% of GDP
$162m
Sri Lanka had exceeded a
tourist arrival target of
two million for 2016 and
expected the years revenue
to surpass $3.5 billion.
for 2017 has been set
at Rs. 1,489 billion.
Sri Lanka loses over
Rs. 9 billion annually due to
the illegal
fishing
by Indian
fishermen with around 5000 Indian
fishing boats entering Sri Lankan
waters at least three times a week,
according to Minister of Fisheries
and Aquatic Resource Development.

52 53
 SUPPORTED BY

A PUBLICATION BY THE INSTITUTE OF POLICY STUDIES OF SRI LANKA