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Vision 2025: A new economic vision shaping the future of Sri Lanka

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Authors: Srimal Fernando and Mizly Nizar*

Sri Lanka geopolitically positioned at an important inter section in the Indian Ocean is on a developmental approach to reinvigorate its socio-economic growth. The interconnectivity between India and Sri Lanka and the broad-based economic expansion policy   plans of ‘New India 2022’ and ‘Vision 2025’ of Sri Lanka indicates the extent to which the two countries vie to continue with reforms to increase growth , jobs and  wages.

Sri Lanka’s vision 2025 is founded on a set of core principles including a strategy for national exports, social market economy and a skill pool to match the demands of the job market. Vision 2025 has fixed targets of achieving an annual export income of US$ 20 billion, increase foreign direct investment (FDI) up to US$ 5 billion and to create employment opportunities for at least a million Sri Lankans by 2025. This ambitious goal is however not without apprehension. The statistical figures in the recent past since the new government came into power in 2015 indicate a steady decline in annual Gross Domestic Product (GDP) growth rates.  The 5 % growth rate in 2015 has fallen to a low of 3.1 % in 2017.

The looming elections which could cause market volatility closer to the polls and the sense of the existence of a shadow government appears to have lowered investor confidence. Hence a strong political leadership is cited   as the   defining factor   for the success of this   vision plan in the next few years. Furthermore, another important factor to boost investor confidence and enhance the economy is to have concrete measures for transparency and accountability in all processes in both the public and the private sector administrations.

It is commonly acknowledged that the key element to enterprise reforms in Sri Lanka   is the development   of the micro enterprise sector with the promotion of Small and Medium Enterprises (SMEs) which   generate   over 50% of GDP. Hence, subsidies for small agricultural holdings can be perhaps cited as one of most important factors that can drive the economic growth levels of SMEs while also facilitating the country to achieve required levels in food security.

Though the country has seen a decline in poverty over the years, income disparity remains one of the highest among Asian countries.  The Poverty Head Count Index had dropped from 8.9 in 2009/10 to 4.1 in 2016. However, despite the rising income levels as reflected through per capita GDP estimates, income inequality remains high with the poorest 20% of the population accounting for only 4.8 % of the income while the richest 20% have earned 50.8% of the total income. Hence, while initiating measures to boost economic growth, it is imperative to have processes in place to increase the share of national income available to the poor.

Foreign Direct Investments (FDIs) are important to boost the economy for small countries such as Sri Lanka. FDI’s in the country have seen a steady increase from USD 680 million in 2015 to USD 1.4 billion in 2017. It is expected that the new Inland Revenue Act and the Foreign Exchange Act aimed at promoting the investment climate will help Sri Lanka achieve its target of US$ 5 billion by 2025.

Over  the past  ten years the nation’s  development  agenda  has been based on   state level   interventions  with borrowings  from  foreign  nations   at high interest rates. These loans put pressure on the country’s economy. Heavy borrowings from China and India come with their own strategic interests impinging on Sri Lanka’s development agenda. The National Unity Government elected in 2015 began to advocate radical economic reforms by obtaining loans through the International Monetary Fund (IMF) to boost economic growth. One of the most widely adopted economic reform measures entail tax reforms to increase government revenue, as agreed with the IMF in exchange for a $1.5 billion, three-year loan.

The country’s export performance had recovered after the slump in the years 2015 and 2016 to USD 11.4 billion in 2017 slightly higher than the 2014 figure of USD 11.1 billion. Improvement in export income occurred through the restoration of the GSP + with effect from May 19, 2017 providing exports from Sri Lanka preferential market access on par with countries such as Bangladesh, Pakistan and several countries from Africa and South America.

The recent investment of USD 1.5 billion by China in the Colombo Port City project helped boost the country’s economy. Another important foreign exchange earner to the country is worker remittances amounting to USD 7.2 billion in 2017 from around 1.8 million Sri Lankans working abroad.

Although economic reforms as cited above have played a role in attempting to increase economic performance, there is still a long way to go in meeting the set targets in the Vision 2025 Sri Lanka policy report. Despite having measures in place to achieve these objectives, the most important transformation for Sri Lanka should be one that reflects sustainable economic growth that is inclusive while incorporating measures for multidimensional development in the socio, economic and political spheres.

*Mizly Nizar is a foreign policy analyst and a former visiting lecture at the  Bandaranaike Centre for International Studies (BCIS)and the Open University of Sri Lanka.

Research scholar at Jindal School of International Affairs, India and an editor of Diplomatic Society for South Africa

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Economy

Retirees worldwide will outlive their savings by a decade – and women will fare worse

MD Staff

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Retirees in six major economies can expect to outlive their savings by years. Women should prepare to bear the brunt of such shortfalls, going without retirement savings for at least two years longer than their male counterparts.

As government and employer-sponsored retirement plans are under strain globally, individuals have found themselves to be increasingly responsible for their retirement savings. Despite this, savings have not accelerated fast enough to make up for the deterioration of traditional retirement plans, suggests a new report by the World Economic Forum, Investing In (and for) Our Future.

In six economies analysed, most male retirees can expect to live past their savings by nearly a decade. Women can expect to go even longer without their savings, as they will likely live more than 10 years without retirement savings to rely on due to their longer average lifespans.

These shortfalls can vary greatly by country and gender; men in the United States are expected to outlive their savings by about eight years while women in Japan will live nearly 20 years past their savings account. Despite these vast differences, the average retiree in Australia, Canada, Japan, the Netherlands, the United Kingdom, or the US will not be able to last through retirement on savings alone.

Image: Investing in (and for) our Future, World Economic Forum

These shortfalls must be addressed, by both individuals and policy-makers, to ensure that seniors can enjoy life throughout their non-working years.

Governments must act to create retirement landscapes that prevent savings shortfalls. Currently, retirement policies in many countries, including India and China, can often hinder optimal retirement savings and investments.

Though governments should act, they would be wise to avoid implementing one-size-fits-all retirement policies as individual retirement needs can vary greatly from person to person. Instead, governments should change, or even roll back, their regulations to allow individuals to make investments that will increase their long-term returns.

A new report from the World Economic Forum identifies two key investment changes governments should allow so individuals can most effectively address their savings gaps. Both identified actions aim to optimize investment so retirement savers can achieve higher yields from their savings.

1. Consider risk from the perspective of someone saving for retirement

“The real risk people need to manage when investing in their future is the risk of outliving their retirement savings,” said Han Yik, Head of the Institutional Investors Industry, World Economic Forum. “As people are living longer, they must ensure they have enough retirement funds to last them through their longer lives. This requires investing with a long-term mindset earlier in life to increase total savings later on.”

Many people are far too risk-averse in their retirement investing. While consistent saving is important to build retirement money, being mindful of long-term returns on retirement portfolios is crucial to ensuring that an individual doesn’t outlive their savings. Many young to middle-age savers should change their risk outlook, understanding that outliving their savings is a far greater risk to them than short-term investment risk.

2. Diversify the investment of saving accounts, by geography and asset type

While focusing on long-term returns is often beneficial for retirement savers, diversification can preserve those returns by mitigating overall investment risk.

Currently, most retirement investment vehicles are largely based on traditional equity and fixed-income investments that have the advantages of being easy to value as well as having high liquidity. However, given the long-term nature of retirement savings, that liquidity comes at a cost. Although they require adequate understanding and sound financial advice, investment in alternative assets, particularly illiquid assets, can bring strong diversification benefits to a retirement investment portfolio.

In this area, again, policy-makers must ensure their retirement policies do not hamper the ability of individuals to make the best long-term choices for their portfolios. In most countries, default retirement options focus on liquidity and the ability to perform daily valuations at the expense of long-term growth. Governments should consider changing or even rolling back these regulations to allow retirement savers to invest in the assets best suited to their individual retirement goals.

In addition, many retirement portfolios also tend to have a heavy domestic focus. Diversifying the geography of investments in portfolios can reduce risk to home country economic events. By expanding the locations of their investments, retirement savers, particularly savers from smaller economies, can protect themselves from market or economic slumps in an individual economy while still maximizing their returns.

Decumulation, or spending in retirement, is another key area of well-being after the working years yet there is far less research dedicated to it.

For instance, today’s retirement spending projections are based on the rule that retirees will withdraw 4% of their portfolio each year they are retired. However, the World Economic Forum and Mercer suggest that this estimate does not match how retirees spend in the real world, with much higher spending in early retirement years and less as retirees age. This spending volatility highlights the need for new retirement solutions that both allow for flexible spending while also ensuring savings that last through retirement.

“With populations around the world living longer than ever before, we need far more creative decumulation solutions for longevity protection” says Rich Nuzum, President, Wealth at Mercer. “There are some alternative solutions emerging such as pooled annuity funds, but older individuals are going to need a more diverse range of financial tools to help protect against longevity risk.”

Some countries, such as the UK and the Netherlands, have begun to recognize the importance of robust policies for the decumulation period and are even considering rolling back regulations for retirement savings. However, there is much more to be done in this area to ensure that seniors can thrive during their period of enjoying the funds they have worked so hard to save over their working years.

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Economy

Sustainable development: Within reach in Iran and Asia and the Pacific

Armida Salsiah Alisjahbana

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Climate change is increasing the intensity and frequency of natural disasters in Asia and the Pacific. The tragic loss of life and the destruction wrought by recent flooding in the Islamic Republic of Iran is a reminder of the threat to lives, livelihoods and societies posed by extreme weather events. A reminder that only an integrated response to economic, social and environmental challenges can pave the way to sustainable development.

The floods which swept across the Islamic Republic of Iran in spring this year were devastating. They affected 10 million people and 500,000 people were displaced of which half were children. Hospitals and schools were destroyed, denying 100,000 children and education and thousands access to basic health care. Large sections of the country’s road network were affected, which will weigh on the economy, but also impact on many families’ daily lives. Damages have been estimated at $4.7 billion, a third of which concern the agricultural sector, critical to many livelihoods.

Yet as tragic and costly as the recent floods have been, they are also part of a wider phenomenon: the increasing risk of natural disasters outpacing resilience in the Islamic Republic of Iran and in Asia and the Pacific. Sand and dust storms, drought, desertification and wind erosion are all expected to rise in South-West Asia by 2030. Intensified by climate change, these disasters are becoming increasingly frequent. They hit the poor and vulnerable hardest, particularly in informal settlements. Some of Iran’s least developed provinces have suffered the most, with successive sand and dust storms destroying crops and infrastructure, and undermining people’s health, study and work.

These challenges exemplify why economic, social and environmental considerations must be considered together, if we are to effectively mitigate the consequences of natural disasters and achieve sustainable development. Evidence from across the globe tells us ignoring the social impact of economic growth can place a huge strain on societies, and at its worst lead to instability and conflict. Ignoring the environmental cost of economic growth in many parts of our region has led to climate change and an increased risk of natural hazards, which entrench poverty and perpetuate inequality. Nowhere is an integrated, multilateral response needed more than in Asia and the Pacific, the most disaster-prone region in the world.

With this in mind, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has worked with the Islamic Republic of Iran to establish the Asian and the Pacific Centre for the Development of Disaster Information Management (APDIM) in Tehran. It will deliver targeted capacity development for disaster information management and knowledge sharing. A regional cooperation mechanism for combatting the sand and dust storms has already been adopted. This will work to reduce the causes of risk of multiple hazards, develop a sand and dust storms alert system and tap regional partnership networks to enhance technical support where it is most needed.

My ambition is for APDIM to fit into a broader regional development and cooperation effort. One to reduce the inequality and environmental degradation which have accompanied recent exponential economic growth in our region. Our analysis shows the investment needed to achieve sustainable development in Asia and the Pacific is within reach. Developing countries’ investment needs stand at an additional $1.5 trillion per year, or five percent of their combined GDP. In the Islamic Republic of Iran, we estimate investments needed to climate-proof basic infrastructure are equivalent to roughly 1 per cent of Iran’s GDP in 2018. Further investment would be required in education and people centered approaches to build resilient communities and economy.

Sustainable development which balances economic growth with the need for social inclusion and environmental protection is essential to ensure a prosperous Iran today and a clean, compassionate and safe future for our children. Investing in people, as well as investing in skies, land and water can ensure that future. The Islamic Republic Iran has the means and the will. Yet persistence will be required to achieve this ambition, and the United Nations family stands ready to assist in any way it can in the months and years ahead.

UNESCAP

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Economy

A sustainable greener future needs green employment skills

Olga Strietska-Ilina

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Climate change and environmental degradation are among the greatest challenges of our times. The signatory states of the 2015 Paris Agreement on climate change  recognized the need for urgent action. But a commitment to environmental sustainability by itself is not enough. On the one hand, climate change and environmental degradation reduce productivity and destroy jobs and the effects fall disproportionately on the most vulnerable. On the other hand, the transition to a green economy has the potential – if handled correctly – to create tens of millions of sustainable jobs.

So far 183 countries have committed to the Paris Agreement target (of keeping the rise in global temperatures to less than two degrees Celsius) by submitting national determined contribution (NDCs) documents that detail the adaptation and mitigation measures they plan. However, while two-thirds of these NDC’s recognize the importance of boosting capacity development and public knowledge of climate change, fewer than 40 per cent include any plans for skills training (or retraining) to support their implementation. What’s more, more than one in five have no plans for any training or capacity development measures at all.

This should ring alarm bells. Commitments to greening economic sectors such as energy, agriculture, waste management, manufacturing and transport can’t advance into concrete change if the necessary skills are not available. It is women and men with the right knowledge and skills who will take the decisions, and develop and maintain the technology, green production processes and sustainable investment strategies that are outlined in the NDCs and other policy documents.

Skilling, reskilling and upskilling covers not just technical skills but, core/soft skills (such as environmental awareness, analytical skills, teamwork, innovation, communications, leadership, negotiation abilities, and management and entrepreneurship skills), which can offer a comparative advantage because they can easily be transferred across occupations. Other most wanted skills include sales and marketing, customer handling, repair, digital skills, scheduling and budgeting, to mention just a few examples.

These issues will be discussed at the Global Forum, Boosting Skills for a Just Transition and the Future of Work  (6 June), where the Key Findings of a forthcoming report Skills for a greener future  (to be published later this year) will be discussed. The report includes information from 32 countries. The aim of the Forum is to highlight the need for concrete action on skills, identify occupational needs, skills gaps, and response strategies related to a sustainable future of work, and discuss possible multi-lateral collaboration that can advance green human capital.

We know this will require massive investment. But it can create millions of new jobs and repurpose many existing ones. Particular attention must be paid to ensuring that women are included in relevant skills training, so that these measures help reduce the gender gap and combat gender stereotypes rather than entrenching them. The number of high-skilled and – especially – middle-skilled jobs have the potential to grow if there is investment in relevant skills training. Workers in construction, manufacturing, agriculture and sales may gain employment if the green transition is supported by skills development. This requires good coordination across different ministries and between public and private sectors. Yet, our review of 32 countries shows that current policies are often piecemeal and lack subsequent action.

ILO

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