From stability to transformation: What Sri Lanka’s industrial policy experience teaches us
“The best way to predict the future is to create it.” — Peter Drucker By Prof. Asoka S.Seneviratne Introduction Sri Lanka has never been without industrial policy. For decades, successive governments have attempted, in different forms, to promote manufacturing, protect domestic industries, attract foreign investment, develop exports, create employment and move the economy towards higher […]
Sri Lanka's industrial policy journey has been marked by a blend of interventionism and liberalization. Initially, the country relied heavily on import substitution, quantitative restrictions, state enterprises, licensing, and protection to foster domestic production and minimize reliance on imports. However, this approach had its limitations. Industries could thrive within protective tariff walls without attaining the international competitiveness needed for long-term growth.
In 1977, Sri Lanka embarked on a significant shift towards economic liberalization, embracing greater openness, private investment, export orientation, and integration with global markets. This transformation led to the emergence of internationally competitive sectors like the apparel industry, which provided employment and foreign exchange earnings. However, despite these successes, a critical question arose: why didn't the success of this liberalization lead to a more comprehensive industrial transformation?
The reason lies in the inadequacy of either protectionism or liberalization alone in establishing an industrial strategy. Both approaches, when implemented independently, fail to create a robust foundation for industrial transformation. True industrialization demands institutions capable of (i) identifying opportunities, (ii) coordinating investments, (iii) fostering technological upgrading, (iv) demanding performance, and (v) adapting policies when necessary.
This brings us to the IMF's 4A framework, which offers valuable insights into Sri Lanka's industrial policy challenges and the required institutional changes for future transformation.
The first pillar of the 4A framework, Ambition, highlights the importance of having clear development objectives. Ambitious policies are crucial, but they must be supported by an institution with the capability to translate these ambitions into coherent action. While Sri Lanka has had ambitious policy statements in the past, including plans for export development, industrialization, investment promotion, technology development, regional industrialization, and value-added production, the lack of institutional coordination has hindered consistent progress.
To move beyond merely stabilizing the economy and towards true industrial transformation, Sri Lanka must focus on institutional changes that align with the IMF's 4A framework. This transformation should become a central focus of the 2027 Budget, shifting its emphasis from mere taxation and expenditure to a comprehensive strategy for economic transformation through industrial policy.
Written by urgent.news from The Island Sri Lanka's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
