Economy 2024 Featured

Transforming Sri Lanka’s Economic Landscape: An In-Depth Look at the Economic Transformation Bill 2024 

In May 2024, Sri Lanka introduced the Economic Transformation Bill, a legislative framework aimed at addressing a range of economic challenges and opportunities. The bill focuses on promoting sustainable development, enhancing productivity, and creating equitable opportunities for all citizens. This article explores the key components of the bill and the institutions involved in driving these changes. 

National Policy on Economic Transformation

The National Policy on Economic Transformation lays the groundwork for Sri Lanka’s strategic economic goals, emphasizing sustainable development, economic prosperity, productivity enhancement, and social progress. The policy aims to ensure that all citizens can achieve an adequate standard of living, characterized by sufficient food, clothing, housing, and improved living conditions. It also promotes rapid development through public and private economic activities supported by appropriate laws and planning controls, while implementing measures to prevent economic crises.

Key Provisions and Targets

  1. Debt Restructuring: 
  • Public Debt: Reduce the Public Debt to GDP ratio below 95% by 2032. 
  • Financing Needs: Limit the Central Government Annual Gross Financing Needs to GDP ratio below 13% by 2032. 
  • Debt Service: Cap the Central Government Annual Debt Service in Foreign Currency to GDP ratio below 4.5% by 2027. 
  1. Transformation to a Competitive Economy: 
  • Export-Oriented Economy: Transition to a highly competitive, export-oriented, digital economy. 
  • Net Zero Target: Achieve Net Zero emissions by 2050. 
  • Global Integration: Increase integration with the global economy. 
  • Modernized Agriculture: Boost farmer productivity, incomes, and agricultural exports through modernization. 
  • Inclusive Growth: Promote inclusive economic growth and social progress. 
  1. Economic Growth: 
  • GDP Growth: Achieve 5% annual GDP growth by 2027 and sustain above 5% growth thereafter. 
  • Unemployment: Reduce unemployment to below 5% by 2025. 
  • Female Labor Participation: Increase female labor force participation to 40% by 2030 and 50% by 2040. 
  1. Trade and Investment: 
  • Current Account Deficit: Maintain the current account deficit below 1% of GDP annually. 
  • Exports: Increase exports to 25% of GDP by 2025, 40% by 2030, and 60% by 2040. 
  • Foreign Direct Investment: Achieve Net Foreign Direct Investment of at least 5% of GDP by 2030. 
  1. Poverty Reduction: 
  • Poverty Headcount Ratio: Reduce the multi-dimensional poverty headcount ratio to less than 15% by 2027 and below 10% by 2035. 

Government Responsibilities 

The Cabinet of Ministers is tasked with preparing and presenting a policy framework and strategy report every five years, starting in 2025, to Parliament. All government policies, programs, regulations, and directives must conform to the National Policy on Economic Transformation. The Minister of Economic Policy must present an annual report to Parliament detailing the measures taken to achieve the policy targets. Parliament retains oversight control over the Cabinet in executing these powers and responsibilities. 

Consideration of Long-Term Targets

It is worth noting that setting targets up to 2050 in legislation may be overly ambitious. Similar long-term targets have been seen before, such as those in the Fiscal Management Responsibility Act (FMRA) of 2003, which included budget deficit targets that were frequently unmet. The inclusion of such distant targets in the Economic Transformation Bill could potentially face similar challenges in adherence and practical implementation. 

Key Institutions Driving Transformation 

However, in order to achieve the set targets, according to the bill several key institutions will assist in achieving the rapid growth targets for national economic transformation, including the Economic Commission, Investment Zones SL (Zones SL), Office for International Trade, National Productivity Commission, and Sri Lanka Institute of Economics and International Trade. 

Economic Commission of Sri Lanka (ECSL) 

The ECSL is established as a body corporate with perpetual succession and a common seal, tasked with creating and maintaining a robust investment climate, promoting sustainable foreign direct investment (FDI), evaluating the need for Investment Zones, and enhancing the ease of doing business. Managed by a Board of Members with expertise in various fields, the ECSL’s powers include recommending the declaration of Investment Zones, formulating and overseeing the implementation of reforms, and promoting domestic and foreign investments. 

Investment Zones Sri Lanka (Zones SL) 

Investment Zones Sri Lanka (Zones SL) is designed to manage and regulate designated investment zones, aiming to boost economic activities in key sectors. Its objectives include facilitating the creation and expansion of investment zones, enhancing the investment climate, and creating significant employment opportunities. Zones SL is governed by a Board of Members, comprising ex officio and appointed members, and is committed to maintaining transparency by publishing all relevant laws, regulations, and administrative rules on a centralized website. 

Office for International Trade (OIT) 

The OIT is established to promote and develop Sri Lanka’s international trade, coordinate all international trade activities, and facilitate the growth of exports. The OIT’s powers include recommending measures to remove market access barriers, conducting trade negotiations, and appointing International Trade Officers. Managed by a Board of Management (OIT Board), the OIT has its own Fund for operational expenses and must submit an annual report of its activities and progress in international trade to the President. 

National Productivity Commission (NPC) 

The NPC is established as an independent body corporate with perpetual succession and a common seal, tasked with promoting economic growth through increased productivity. Its powers include requesting information, publishing and disseminating findings, and managing its funds. Governed by a Board of Members, the NPC’s operations are managed by the Chairperson and other members. The NPC has its own Fund and must submit an annual report to the Speaker within four months of the end of each financial year. 

Sri Lanka Institute of Economics and International Trade 

The Sri Lanka Institute of Economics and International Trade (the Institute) is established as a body corporate with perpetual succession and a common seal, serving as a platform for research and policymaking in economics, international finance, and international trade. Its objectives include providing cutting-edge research, stimulating policy ideas, and fostering dialogue among stakeholders. The Institute is managed by a Board of Governors, comprising ex officio members, and has its own Fund for operational expenses. 

Conclusion 

The Economic Transformation Bill of 2024 establishes a framework aimed at driving Sri Lanka’s economic growth through strategic institutions and policies. The Economic Commission of Sri Lanka leads investment promotion and regulatory oversight, while Investment Zones Sri Lanka (Zones SL) supports industrial and commercial development. The Office for International Trade focuses on global trade integration, and the National Productivity Commission aims to enhance economic efficiency and competitiveness. The Sri Lanka Institute of Economics and International Trade provides support for evidence-based policymaking and capacity-building. Collectively, these entities aim to transform Sri Lanka into a competitive, sustainable, and inclusive economy, positioning it as a key player in the global economic landscape.

By Sanjaya Ariyawansa
Senior Economist 
The Ceylon Chamber of Commerce

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