Sri Lanka has improved its score in an economic freedom index for 2011 compiled by US based Heritage Foundation and the Wall Street Journal.
Sri Lanka improved its score by 2.5 points to 57.1 making it the 107 freest economy out of 179 countries in the index, but the score remains below 60 in the ‘mostly unfree’ category. A decade ago Sri Lanka has had a much higher score.
Sri Lanka’s improvement reflected "major gains in trade, monetary, and investment freedom. Sri Lanka is ranked 19th out of 41 countries in the Asia–Pacific region, and its score improvement is one of the 10 largest in the 2011 Index," the Heritage Foundation said.
"Challenges to economic freedom in Sri Lanka are considerable," the compilers said.
"The average applied tariff rate has dropped significantly, but the persistence of non-tariff barriers still adds to the costs of trade.
"A lack of transparency and a burdensome approval process continue to impede much-needed growth in private investment.
"The heavy presence of the state in the economy continues to hamper private-sector development."
The country also had poor governance, political instability that has undermined reforms, the index said. Sri Lanka has had large policy swings with changes of government.
Analysts have pointed out that there in recent years a rising crony domestic production autarkists lobby that is targeting the poor with high import duties to make large profits, undermining people’s trade and food freedoms.
The Heritage Foundation said "import bans and restrictions, services market barriers, import fees, import licensing, restrictive standards and regulations," undermined trade freedoms though the official average tariff rate was 6.4 percent.
"Fifteen points were deducted from Sri Lanka’s trade freedom score to account for non-tariff barriers," the foundation said.
The central bank has improved monetary policy generating less inflation after 2007, but government influences prices through regulation, state-owned enterprises and subsidies, the foundation said.
"Fifteen points were deducted from Sri Lanka’s monetary freedom score to account for measures that distort domestic prices," the foundation said.
Sri Lanka has made gains in categories of monetary freedom, government spending, and investment freedoms.
In recent months the government has cut taxes on some goods including motor cars, and the central bank has further relaxed capital controls, which analysts say may help improve the index further in the future.
But Sri Lanka has slipped up on corruption.
"Corruption is perceived as widespread," the Heritage Foundation said. "Sri Lanka ranks 97th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. Anti-corruption laws and regulations are unevenly enforced.
"The police and judiciary are viewed as the most corrupt public institutions. Corruption in customs clearance enables wide-scale smuggling of certain consumer items.
"In 2008, the Supreme Court removed the Secretary to the Treasury from his position and ruled that he may not hold any public office in the future. In 2009, the Supreme Court, chaired by a new Chief Justice, allowed the former Treasury Secretary to resume his duties."
Courtesy - The Island
