Government stimulants seem to be working in China, car sales have been boosted 48% as of June. With GM getting a good share of the profits. China seems to be on the rise again, at least as per some optimists. Stimulants are a main element of Keynesian economics and are credited to have brough about the end of the Great Depression.
Where is the Sri Lankan economy heading?
Recently HSBC economist Prakriti Sofat created a stir in the local media by saying that the Sri Lankan economy would grow by four percent this year. The stir was created by the beautiful and intelligent Ms. Sofat herself just as much as what she had to say on the economy i suspect but lets leave the idle goss out and focus on the question here; is the economy actually heading for good times?
Exports are down, in all the major sectors as demand from major trading partners is still low (Sunday Leader; Exports down 28%). most of the optimism stems from hopes that the US recession will ease up. but this may take a while yet, and other major markets like Europe will only do better once the US recovers. Demand is strong from other markets like the Middle East and tea is pretty much the only major export product that is doing well as a result.
Consumer spending is down as loosening monentary policy is not being translated into consumer markets as banks are spooked by a 9% industry wide non performing loan rate (Sunday Leader; n.p.ls rise), and also due to the oligopolistic nature of the sector; interest rates are still too high. This discourages spending and limits borrowings for businesses, especially the small to medium scale businesses, which provide most of the employment in the country.
Government spending on development projects should be up, except that the government doesn't have any money to spend. Most forecasts are also betting on the IMF loan coming in, and previous optimism that we'd have enough capital inflows to make it unneccessary is likely to fall flat as foreign investment looks at all the other factors reducing the attractiveness of the market, like the lack of foreign inflows for instance, leading to a catch 22 situation.
In addition, penny wise pound foolish fiscal policies like the absurd taxes for petrol users help only in stunting the spending power of the wealthier sections of the population. Fiscal policy needs to be loosened for growth, and equally distributed to prevent distortions. Wherever money is spent its going to boost the economy, and its better off being spent in the market than being mismanaged by the government.
Inefficiency and corruption is another factor that will hold us back; state servants took away 53% percent of taxes as wages last year and we can bet our bottom rupee that there are more efficient ways to be spending our tax money. The creation of new ministries and the expansion of the cabinet doesn't exactly create a favourable impression of the governments plans for reengeneering and modernizing the state sector.
On the upside our trade deficit is taking a dive (Sunday Leader; Exports down 28%) but only because demand for imports have drastically reduced especially cars and electrical appliances. Foreign remittances are still as strong as last year and have helped balance the BOP.
So optimistic outlook? I don't mean to be a cyinc but yes ok. Though we still need a lot of things to fall into place and go our way. It is easy to be cast under the 'peace delusion' and assume that economic prosperity will come along just because the war is over. But the tough times are only beginning. Remember, we had all the chances to make it in the decades preceeding the war, but we lost our way.
Im still hoping for a clear vision or mission statement coming from the government devoid of any pre election crowd pleasing cheese talk. A serious long term plan, say for the next 30 or so years would be great to see being talked about, at least for a start.
Sri Lanka's Public Sector: Scamming the public. From LBO - Sunk tax revenues, corrupt and inefficient state organzations, who needs Sakvithi with a public sector like this?
Freakonomics, Why Skinny Stays in the Picture - Muscular men get more sex. I.e. they are more attactive to females. Therefore nature should favour muscular men, and scrawny men would vanish over the course of time. Right? not so right. find out why.
Real Struggle in Iran - What really went down, a fresh perspective. And why most of the big media and twitter warriors would consider hari kiri, if conjecture were a crime to be ashamed of, and if they were Japanese. Thanks to Aufidius for the heads up.
Karl Marx, The Future Results of British Rule in India - Marx's predictions of the outcomes of British rule in India. Well worth a read..Thanks to Brad De Long for the pointer.
Economix - Aaaargh-onomics - The economics of Pirates, nuff said.
Fortune, Dumbest Moments in Business, mid-year edition - And Its still just the middle of the year...
Milinda Moragoda, accused of corruption and mishandling in many corporate scandals leading from Pramuka Bank to the recent Ceylinco and SLIC brouhahas, crossed over to the government (in an effort to escape these allegations?) a while ago.
Today he was appointed the Minister of Justice and Law Reform before the president.
This must herald a new age of disintegration in the Sri Lankan judiciary system, esp the corporate governance area of it. Law reform in his eyes surely must mean the sale of public assets at dirt cheap prices to private interest and surely must facilitate the deterioration of public resources to even greater levels.
Mahinda Rajapakse promised that right after combating the terrorists; he would focus on eradicating corruption. Nice move Mr. President, no irony here at all. Another corrupt minister in an already unnecessarily huge cabinet is just what we need to make this land prosper.
