How tech support can fix an ailing economy

  • CBSL Governor Dr. Nandalal Weerasinghe notes how digital systems can curb irregularities and streamline operations

BY Sumudu Chamara

Sri Lanka is in need of drastic improvements in its usage of technology, especially digital technology, to not only stay up to date with technological advancements, but also to counter inefficiencies and irregularities in existing economic service providing and production-related systems, and to streamline and expedite them. While this may be a costly and lengthy task, the country can take a number of steps with the resources and systems it already has. Before looking at large-scale initiatives, however, the country should first increase its usage of technology.

These remarks about the pressing need for improving the use of technology in Sri Lanka were made by Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe, who further noted the importance of this being carried out through a gradual and well planned process that is convenient for the public. This was during a discussion titled “Technology as a Catalyst for Economic Revival”, which was moderated by Ernst and Young Consulting Partner Arjuna Herath, during the Sri Lanka Internet Day 2022 event held by the Federation of Information Technology Industry Sri Lanka (FITIS) on Tuesday (22).

Technology and productivity

During the discussion, Dr. Weerasinghe pointed out the necessity for increased and effective use of technology in many areas of the economy, and stated that this would in turn improve the country’s economic performance, while supporting the CBSL’s responsibilities pertaining to stability of the economy, prices, and the financial system.

He highlighted that productivity in export-targeted production and overall production is one major area where the increased use of technology can play an important role, noting that this is crucial when it comes to export basket diversity and promoting exports. Improving productivity and making it easier for the export sector to do business, and improving the efficiency of the financial system through technology, according to Dr. Weerasinghe, are some areas in which adopting technology can play a greater role. 

“The use of technology to improve productivity in all sectors across the economy is important,” he observed, adding that the increased and effective use of technology should not however be limited to the export sector, and that it should also focus on various services provided by, and functions of, the public sector, especially those involving monetary transactions.

Technology’s role in structural reforms

Dr. Weerasinghe highlighted the importance of structural reforms aimed at rectifying structural weaknesses, and how technology could be employed in such reforms. 

“Structural imbalances in Sri Lanka’s economy are not new. When it comes to State-owned enterprises (SOEs), for example, for several decades, certain Government-run businesses have been making losses and taxpayers are bearing the burden. Also, inefficiencies in their operations have created a lot of problems for the people who are doing business with them, in terms of costs. It is not just a burden on taxpayers, but also on the private sector. All these issues need to be addressed,” he explained. 

Dr. Weerasinghe stressed that there are major issues when it comes to doing business in Sri Lanka such as inefficiency and structural issues, and that these have resulted in people migrating to countries where there is an efficient and more business-friendly environment. One way of addressing this issue, according to him, is adopting modern technology. 

He pointed out that when paying taxes or Customs duties, or when exporting goods, Sri Lanka still relies on systems that are managed manually rather than through technology. Even though there is some level of technology involved in these processes, he noted, this has to improve further. The lack of technology used in service providing public institutions was also noted. “When there is human intervention, inefficiency comes in,” he emphasised.

Meanwhile, during the discussion, Ernst and Young Consulting Partner Arjuna Herath pointed out that when it comes to digital services provided by foreign entities, there is no level playing field, and that there is a feeling that a fair amount of revenue is draining out of the country without any tax payments by foreign entities. 

In response, Dr. Weerasinghe stated that providers of any information and communication technology or digital services are fairly taxed, adding however, that the main issue in this case is how the taxation is implemented. Adding that the difficulty in addressing this issue is getting people and entities to pay taxes, he further said that the tax net is weak due to poor administration, while the lack of use of technology to maintain records on people and entities is also a challenge. 

“We should first have a proper system to capture this data. The law is in place, but the application of the law is weak because we do not have a proper system in place,” he opined.

Increased use of technology for efficient services

Speaking of the ongoing attempts to adopt technology in providing services, Dr. Weerasinghe said that he recently held discussions with private bus operators with regard to introducing a digital transport card for buses. According to him, even though the technology necessary for such a system exists in Sri Lanka and the private bus sector has been requesting the implementation of this system, it has yet to materialise. Among the benefits of such a system are a decrease in irregularities and the ability to properly record data.

Moreover, Dr. Weerasinghe spoke of the challenges in adopting technology, and said that the adoption of technology by the financial sector has taken a lot of time due to numerous delays. Acknowledging that there are infrastructure-related issues behind this situation, among other issues, he said that despite the necessary systems being in place, there are delays in adopting the relevant technology. 

“Even opening a bank account is not easy. That is because we do not have systems such as video-based know your customer/client (KYC) facilities, and we do not use that data to facilitate transactions. Also, the Government’s announcement per the proposal to make online transactions mandatory for the public sector with effect from 2023, encourages a little more online transactions, but in order to enable people, we need to introduce a simpler and easier technology.”

Adding that Sri Lanka has already taken certain initiatives to improve the use of digital technology among people, Dr. Weerasinghe said that one of the steps Sri Lanka should take in the future is introducing digital National Identity Cards (NIC) and digital KYC systems, an area in which India has achieved a lot of progress. 

“Once you do that, it will enable and make it easier for financial service providers to provide their services in a much more efficient way. I think that this is the way we are moving towards. We however have some work to do in that regard. It is not just the CBSL. We have other infrastructure to put in place. For example, the NIC or passport being linked to the banking system, or company registration being linked to the banking system, so that it will be easier for them to operate, is required.” 

Emphasising that in a context where India has achieved significant progress in some of the aforementioned technology related initiatives despite the fact that it is not a high income country, Sri Lanka could also take similar initiatives and achieve progress, he said. 

“This is the way we should go. But, we need to address certain bottlenecks in the overall use of technology first. We can then facilitate the said initiatives.”

Introduction of digital currency

Also, Dr. Weerasinghe spoke of potential technology-related initiatives in the near future, and explained that it takes time and a gradual approach. According to him, in this process, the priority should be to use more technology such as digital KYCs and to enable all banks and financial institutions to do that first, which he said would create opportunities to move forward.

With regard to digital currency, stressing that Sri Lanka should not take hasty decisions, he added: “Although we have seen those implemented in other markets, we should not jump in and try to implement everything at the same time without proper sequencing. We have done research about digital currency, and have looked into what other countries do. 

“The best place we can learn from is India. They are experimenting with this initiative. We have to have a lot of investment as this is a very costly decision. India can afford it, but in our case, we have to look at the cost. CBSL digital currency will reduce the cost of printing notes, which is a huge and increasing cost. So digitalising the currency is a medium- to long-term strategy.” 

What is more, Dr. Weerasinghe highlighted that the digital currency the CBSL is looking at is not the same as cryptocurrency. 

“I think that we have to wait and see, because these are evolving technologies. We are carefully looking at emerging technologies, and how central banks are practically using this. Certain central banks are already experimenting with it. We would like to learn, and we have done some research. I do not think that Sri Lanka will be introducing a CBSL digital currency in the near future; however, we are looking at it.”