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Economic Development in a Changing Landscape: Lessons from the Past and their
Policy Implications on 2020
Upali Vidanapathirana
Almost sixty years after independence, Sri Lanka is bestowed with a momentous
opportunity to chart her economy to prosperity. The conclusion of 30 year civil unrest on
the one hand and the political stability of the government on the other have enhanced this
opportunity substantially. Besides the reversal of global recession and devastating energy,
food and financial crises together with the shift of economic powers resulting in a new
world order as well as the Sri Lanka’s proximity to the Indian economic powerhouse
have reinforced this situation. The combined effect of all these conditions has engendered
an enormous socio-political potential for Sri Lanka that is incredible in the postindependent annals of Sri Lanka’s history to embark on a major development drive.
It is this setting that changes the socio-economic landscape of Sri Lanka poising for
vision 2020; the way forward paper is therefore is based on a set of assumptions that is
economically and socially sound.
However, Sri Lanka has to be mindful that her recent history is not without assertions of
missed opportunities. In the early 1950s, just after the independence, Sri Lanka was only
second to Japan in terms of her per capita income. Her export income was steady and the
inflow of foreign exchange was robust. Besides, she was following an economic policy
framework that was market oriented and her economic fundamentals were strong.
However, those countries including South Korea, Taiwan, Malaysia, Singapore that were
far behind Sri Lanka economically in the early 1950s surpassed her and by the early
1970s Sri Lanka was afflicted by economic, social and political turmoil which had
profound implications on her economic conditions.
It is evident that the countries listed above turned around as they became Asian economic
miracles when Sri Lanka disintegrated socially, politically and economically. This was
mainly because Sri Lanka’s policy framework failed her despondently to maintain a
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sustained rate of economic growth during the early decades of the post-independent
period. It is this situation that is often referred to as a lost opportunity.
Another related occurrence was the exceptional programme of public action Sri Lanka
charted in the 1950s and 1960s. The public investments on social welfare during this
period contributed to improve her quality of life (PQLI) in the mid 1970s. Consequently,
Sri Lanka’s adult literacy, infant mortality, life expectancy etc., transformed the country
to a status that was very different from the rest of developing countries. As stated by
Isenman (1980) ‘…for a poor country with incomes comparable to India or Pakistan, Sri
Lanka’s record in removing poverty and providing a higher quality of life is quite
remarkable…is ultimately dependent on a wide distribution of effective entitlements
…through social welfare programmes, public distribution systems’
It was Isenman who first opined that Sri Lanka’s high social indicators were exceptional
largely because of the country’s high social expenditures on education, health and social
development (Isenman, 1980; 237). This situation was reversed in the post-reform period.
The period after 1983 was marred by the protracted wars activated by different types of
youth moments bent on terror tactics in the South (1986-1989) and the North (19832009).
It is this backdrop that guided the Sri Lanka’s development landscape in the recent
history. This short history provides a useful socio-economic context to students of
economic development to gauge how and why countries fail to muster historic
opportunities.
This paper while portraying the possible development scenarios for the
next decade shall critically analyze this history to ascertain the opportunities missed and
the underlying reasons for those downsides. This is because Sri Lanka’s own history
provides the best laboratory for us to learn about the impact of policy failures and tactical
misfortunes to learn about economic planning and projections.
This paper defines economic growth as a process by which a nation's real output
increases over time. The most widely used measure of economic growth is the real rate of
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growth gauged by the gross domestic product adjusted for inflation (or national income
per capita). On the contrary, the concept of development is conceived as multidimensional process where the increase in GNP is only one of the core considerations.
This distinction is necessary as the two concepts are synonymously used by many writers
even in professional writings. As opined by Amartya Sen ‘development requires the
removal of major sources of deprivations arising from poverty as well as tyranny, poor
economic opportunities as well as systematic social deprivation, neglect of public
facilities as well as intolerance’.1
Given the complexity of the concept of development, the UNDP introduced the Human
Development Index (HDI-II) as a composite indicator of development combining an
assortment of interrelated dimensions. The HDI is a summary index that measures a
country's average achievements in three basic aspects of human development: longevity,
knowledge,
a
decent
standard
of
living
and
social
exclusion.2
The paper is divided in to three parts. Part one of the paper introduces its scope and
nomenclature briefly while part two surveys the post-independent economic development
history briefly to ascertain the underlying reasons that stalled her growth and
development potentials. Part three explores the current conjecture to establish why it is
unique. Part four construct a few scenarios outlining the socio-political underpinnings
necessary to achieve each of these scenarios. Part five concludes the paper.
Part II
Post-Reform Development History: Lessons for the Future
1
2
Sen, Amartya, (2002) Rationality and Freedom, Harvard, Harvard Belknap Press
Longevity is measured by life expectancy at birth; knowledge is measured by a combination of the adult
literacy rate and the combined primary, secondary, and tertiary gross enrolment ratio; social exclusion and
standard of living by GDP per capita (PPP US$).The highest HDI score is recorded by Norway (0.963)
while the lowest HDI score is recorded by Niger (0.281). Sri Lanka’s HDI rank is 93 with a score of 0.751
which is much better than her South Asian counterparts.
4
If missing the post-independent economic prospects is callous slip for Sri Lanka, the proliberalization period offers an even worse slide.3 This is because Sri Lanka’s economic
liberation exercise commenced much before her other South Asian counterparts but she
failed to accomplish the professed benefits of the 1977 reforms or even the much
publicized second wave in 1989. The following sections survey these failures for the
benefit of future policy directions.
At the outset, unlike in many other policy domains, there was universal acceptance
among mainstream economists that free trade was more desirable for economic progress
of developing countries (Alston et. al, 1992; Mayda and Rodrik, 2005). Secondly,
literature supporting the efficacy of market-friendly policies and inevitability of state
failure had proliferated at a rapid pace during this period.4 Thirdly, the top positions in
the ministries of finance and public administration in the developing countries were
increasingly held by technocrats who promoted pro-reform ideas (Kanbur, 2001 and
Patnaik, 2007).5 Fourthly, more developing countries embraced reforms in recent years
on account of the explicit or implicit pressures from the multilateral donors.6 Finally,
while the achievements of the liberalized economies are highlighted to illustrate the
benefits of reforms, the failures are played down and often attributed to the flawed
implementation of reforms (Milanovic, 2005).
Once economic “reforms” of the kind stated above is adopted, they permeate all
economic sectors, communities, and constituencies, regardless of their location, size,
economic status, political aspirations or demographic characteristics. It is, therefore,
important to examine the implications of 1977 reforms in Sri Lanka on the economic and
3
The pre-reform economic model adopted by Sri Lanka was essentially a welfare oriented public action
driven approach which was reverse with the introduction of the 1977 reforms. The new package led to
curtailment of food, health and education subsides gradually. It should be noted that the previous strategy
also was criticized by some writers for its lack of long-term sustainability. In her own words, ‘Ceylon has
tasted the fruit before she has planted the tree’ (Robinson, 1959, p.41).
4
This proliferation was an outcome of a premeditated effort and sponsorship as revealed by Wade (2001).
They are now referred to as super-ministries and control power of financial allocations and reforms
dealing with public administration.
6
Nissanke and Thorbecke (2006) argued that the contemporary phase of globalization is an outcome of the
diffusion of an economic policy paradigm, which emphasizes the positive features of the liberal policies.
5
5
social fabric of the country as there is an established nexus between liberalizationgrowth-development-sociopolitical (in)stability of countries.
In terms of economic
implications, it is relevant to know whether the liberalization policies changed the growth
trajectory of the country for the better. Has the process of export-led industrialization
improved the balance of payments of the country? What is the score card of post-reform
Sri Lanka with regard to improving its ‘economic and social imbalances’? Has the
reforms-induced growth process had a far-reaching impact on the social well being of the
Sri Lankan people?
Turing back to the growth-liberalization nexus it is difficult to validate the assertion that
1977 reforms package and its subsequent enhancements positively contributed to change
the growth trajectory of Sri Lanka. In fact the average growth rate of the entire postreform period (1978-2009) has been 4.98 per annum which does not compare favourably
with those other countries where the reforms have allegedly had phenomenal growth
impact.7 The rate of growth indicated above may be better than what it was during the
pre-liberalization era of the country. However, it compares poorly with the growth rates
quoted for the success stories of economic miracles in Asia.
Graph 1 Economic Growth Rate for 1978-2009.
10
Y = -0.4378Ln(x) + 6.097
R2 = 0.0399
8
6
4
2
0
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
-2
Growth rate
7
Log. (Growth rate )
The list of countries includes South Korea and Taiwan etc in the 1970-1998 where the economy
responded positively with a surge in the GDP growth that exceeded 6 percent continuously. In the case of
India the response to liberalization (1991) especially after 1995 has been tremendous where the average
growth rate hovered around 8 percent for more than a decade and half.
6
Source: Central Bank of Sri Lanka, Annual Reports, Various Issues.
Not only that the growth trend was inadequate but also it almost continued to slow down
until 2004. This slowing down may be evident in the trend curve of economic growth for
this period. Moreover, growth pattern of this period was characterized by regular
occurrence of fluctuations. Secondly, the reforms as initiated in 1977 failed to invigorate
export led development in the country. This is shown by the slow growth of export
earnings, worsening of the external balances and continuous depreciation of the country’s
exchange rate.
It is in this context that the vicious cycles of political instability-periodic economic
downturns need to be underlined. For instance, almost all the downturns marked in the
growth curve are associated with incidences of socio-political uncertainty pertaining to
terror attacks of one type or the other. This is applicable to the major troughs such as
1987-88 and 2001 as well as the other incidences related to the escalation of war in 2009.
This relationship is further buttressed by the behaviour of the share-market which is the
barometer of business confidence. The nexus between political instability-slowing down
of economic growth is particularly evident in the trend curve of the share market turnover
data since 1985. Many other data sets including the arrival and income data pertaining to
tourism support this contention. However, what is not clearly established is the direction
of causation, i.e., whether economic conditions deteriorated political instability or viceversa. This paper argues that this connection is two-way.
Figure 2- The fluctuations in the share market since 1985.
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
All Share Price Index
Milanka Price Index
1/2/09
1/2/08
1/2/07
1/2/06
1/2/05
1/2/04
1/2/03
1/2/02
1/2/01
1/2/00
1/2/99
1/2/98
1/2/97
1/2/96
1/2/95
1/2/94
1/2/93
1/2/92
1/2/91
1/2/90
1/2/89
1/2/88
1/2/87
1/2/86
1/2/85
0
7
Source: LPS Gamini (2006), Unpublished PhD Thesis
The idea that economic implications led to political instability stems from the argument
that the winners of economic reforms happen to be the rich while the losers are the poor.
In terms of distributive implications the winners are located in the top-most income
brackets living in the city centres while the losers belong to the bottom most deciles of
income living in the urban fringes and the rural areas.8 Such a process often ends up in
widening the economic divide in poor countries.9
This paper purports to examine the above conjecture to ascertain whether the case of Sri
Lanka has been any different. Some of the pertinent questions here are as follows. Where
are these ‘winners’ located in terms of income deciles, regions and communities? Have
the policy changes discriminated against the poor in terms of dividends of reform? Is it
correct to say that the losers of reforms belong to those who live in the the rural areas?
Both internationally and nationally literature abounds on the costs and benefits of
economic liberalization in general. The paper does not intend to discuss the theoretical
expositions that underpin this discourse. The sole intention here is to ascertain whether
there is any evidence to suggest that the income divide widened during the postliberalization period and if so, what was the impact of this widening of income on the
underprivileged.
Table 1 Income Inequality Trend (1980-2002)
Co-efficient
1973 1978/79 1981/82 1986/87 1996/97 2003/04
a) Spending units
0.35
0.43
0.45
0.46
0.43
0.46
b) Income receivers
0.41
0.5
0.52
0.52
0.48
0.5
c) Decile distribution*
0.33
0.22
0.2
0.2
0.23
0.22
Source: Labour Force and Socio Economic Surveys (1980/81 and 1985/86) and
Household Income and Expenditure Surveys (1990/91, 1995/96, and 2002).
8
This dichotomy of liberalization effects is found in many countries. One of the most critical examples is
China where the urban sector has received a disproportionate share of gains (Ravallion and Chen, 2004).
9
A popular slogan during the 1987-89 era was “Kolabata Kiri-Gamata Kekiri” highlights this distributive
tension.
8
The table above shows that income divide measured in terms of Gini ratio widened
considerably since 1978. These figures support the idea that the liberalization policy
package as practiced in Sri Lanka defied the basic tenet of development which is the
distributional justice thus causing serious problems of deprivation. 10 Consequently, the
incidence of Head Count (HCI) poverty also increased significantly.11 For instance,
poverty statistics at national levels increased from 19.5 in 1979 to reach 27.4 by 1987
while poverty in the rural sector in particular increased sharply from 22.7 in 1979 to 31.6
during the same period.12
Similarly, unemployment, continued to be around 15 percent while inflation too remain
double digit. The combine adverse effect of unemployment and inflation is depicted in an
indicator known as Misery Index which too has worsened after the introduction of
economic liberalization.
13
It is in this backdrop that Sri Lanka underwent two major
civil uprisings, that is, one in the South directed by the Peoples Liberation Front (JVP)
and the other in the North lead by the Liberation Tigers of Tamil Elam (LTTE).
The reforms therefore were exclusive to the extent that they marginalized the poor in the
extreme south and also in the north. Pyatts (1987) argued that the 1983 violence and the
subsequent escalation of ethnic tension in the country stemmed partly from the economic
reforms that discriminated against the ethnic Tamils in Northern Sri Lanka. With respect to
the Northern Province there were two contentious issues, i.e., land settlements under the
Mahaweli Scheme and inaccessibility to income and employment opportunities in the rest of
the country as they were distributed among the supporters of the ruling party (Pyatts, 1987;
10
11
See for instance, Shan (1985), Edirisingha (1986), and Anand and Haris (1087).
Poverty HC computations are based on the Foster-Greer-Thorbecke (FGT) measures defined as
P  1 / nX  z (Z  X i ) / z 

12
See Lakshman WD (1997) for information on poverty incidence.
For instance, the Misery Index that takes into account the combine effect of unemployment and inflation
rose fro 26.9 in 1978 to 38.1 in 1990. It is difficult to plot Misery index due to non availability of
unemployment data in the 1980s.
13
9
Lakshman, 1997). 14 The response of the south to the non-inclusive growth came in the form
of second JVP insurrection in 1987.15
This paper does not purport to legitimize either of the insurrections which were bent on
terror tactics that caused colossal damage to the social fabric of Sri Lankan Society.
However, the policy framework that was adopted by the then governments did not have the
foresight to remove the adverse effects of the economic policy framework to alleviate
social underpinnings that contribute to such possibilities.
Part III
The Current Conjecture (2005-2010)
The current conjecture is important from the point of view of the political economy
framework in particular to figure out the types of possibilities that lie ahead of Sri Lanka in
the next decade. This analysis therefore attempts to highlight some of the changes that
occur as a result of the succession of Mahinda Chintana policy framework in 2005 which is
ingeniously different from the generic economic liberalization package that was in
existence previously. However, before commenting on the policy framework it is
worthwhile making few observations on the current conjecture of Sri Lankan polity.
The points that are raised here have strong economic underpinnings. First, in 2009, Sri
Lanka managed to crush the ruthless terror network within the country that had serious
politico-economic influence on Sri Lanka. According to different estimates, the impact of
war on Sri Lankan economy was assumed to be in the range of 1 to 2 percent of GDP
growth (Marga, IPS, ). Although, these estimates may look tentative, their basic viewpoint
was valid on account of the scarce resources that were wasted. The colossal defense budget
and the inaccessibility of almost one third of the country for productive utilization were
two major manifestation of this wastage.
14
15
Many others like Yapa (1999); Gunasingha, (1988); Lakshman (1997) subscribed to this viewpoint.
See, GOSL (1990) Report of the Presidential Commission of Youth GOSL.
10
Second, the peace dividends of the conclusion of war are visible the spheres such as the
buoyant sectors of tourism and share-market. However, other more solid achievements
such as increased private sector investments and direct foreign investments (DFI) although
are yet to come they may pick up gradually. Third, Sri Lanka’s economy has reached the
lower middle income status which will have far-reaching effects of peoples’ spending
patterns together with national savings and investment. Fourth, the proximity of Sri Lanka
to Indian economic power house will have positive spillover effects that would increase her
economic possibilities and potential. Fifth, Sri Lanka’s stock of human resources is literate
and trainable and hence would enhance her capacity to compete with other countries for
investment opportunities. All these factors together would espouse new vistas for the
country that lagged behind her real potential for the past few decades.
It is in this backdrop that one examines the policy package of the 2005 regime in general
and the current regime that assures the continuation of its foremost features. The reversal of
some of the stern conditions of the liberalization package adapted specifically since 1990
by the Mahinda Chintata package in terms of its content and implementation would warrant
examination at this stage.
Public Investment Programme
Few salient features of the economic policy making and implementation differ the first
phase of Mahinda Chintana different from the previous five years. One such variation has
been the increase of public investments that underlined major infrastructural development
projects consisting of roads, bridges, power plants, ports, telecommunication and irrigation,
and water supply (IPS, 2010, p.135). This added emphasis on public investment was seen
in terms of the five year average of the public investments as well as the doubling of the
rate of growth of public investments.16 These investments are scattered throughout the
country favouring those provinces, like Southern, Eastern, Northern, North-western, and
the Central that have been deprived of such investment programmes earlier.
16
As indicated in the CBSL report(s) the five year moving average of public investments remained at 314
billions for 2000-2004, increased to 641 billions for 2005-2009 period. Similarly the growth rate of public
investments increased from 10.7 per annum to 20.5 per annum.
11
Accordingly government investment in infrastructure has risen both in rupee terms as well as
real terms. For instance, the total investment that was 5.3 per cent in 2006 increased to 7.0 of
GDP by 2009. This is important in a country where over the years investments in capital
expenditure in particular were curtailed in the name of financial conservatism to appease the
donor agencies. The effects of the falling public investments on road, irrigation and power
generation were devastating; in the late 1990s the irrigation system fell into disrepair resulting
in silted reservoirs and dilapidated water canals thus reducing the command area of reservoirs.
As a result of the lowered carrying capacity of the irrigation system, cropping intensity fell
from a ratio of around 140 in the early 1980s to 115 by 2004.17 Given that the potential of
HYV rice varieties to produce higher yields depends on the availability of irrigation water,
quality of seeds reaching farmers at right costs and quantities, and the access to extension
services, the reduction of public investments hindered the progress of the agricultural sector. 18
The effects of falling investments on highways and road system in the country had similar
adverse impact as they contributed to wastage of energy, air pollution, wear and tare of
vehicle fleets and more than anything else the opportunity cost of time lost in a competitive
economic environment. The fertilizer subsidy and doubling the guaranteed price of paddy by
the revitalized Paddy Marketing Board mechanism thus had a direct impact on the reduction
of rural poverty by 2006/07.
The second most important change was the reversal of regional inequality as seen in terms of
the reduction of the GDP share of Western province from 52 % in 2003 to almost 45 by 2009.
This does not mean that the GDP of the Western province has fallen in absolute terms but the
income share of all the other provinces has gain in relative terms. This redistribution of
opportunities may be an outcome of the increased investment on infrastructure that increase
efficiency of production and trade dynamics of the provinces.
17
If the total acreage of say 100 hectares is cultivated fully twice a year, it results in an ideal cropping
intensity of 200; the reduction in this ratio shows the extent to which developed land is not fully utilized.
The current level of 115 is an indication that agricultural land is underutilized due to systemic deficiencies.
18
Contaminated seeds or seeds with low genetic makeup caused crop failure in the district of Kurunegala.
It was argued that by handing over the seed production and distribution to private agencies, the state
compromised its pricing and quality assurance aspects (Divaina newspaper, 25 April.2006; 5).
12
The economic geography of distribution with respect to Sri Lanka has therefore been much less
skewed when compared with regional capitals including Bombay, Hanoi and Kuala Lumpur.
The skewed distribution stated above stems from the absence of proper infrastructure to
connect cities with the periphery. The proposed network of highways would answer this
problem.
The regional development programmes focusing on the East (Awakening the East) and
the North (Northern Spring) have intensified the flow of public investment programme to
the war revenged districts. These investments may change the current status regional
disparities. It is in this context that Sri Lanka as an economy that learnt harsh lesson from
13
regional inequality of opportunities would concentrate on her policy dialogue to increase
equity of opportunities and life chances of the vulnerable communities. Chart 3 below
presents data on redistribution of income by provinces during the period 2005-2009
which is a welcome sign in terms of long term development of the country.
Figure 3- The Trends of the GDP Share by the Provinces
60
50
40
30
20
10
or
th
er
n
N
en
tr
al
N
or
th
C
st
er
n
N
S
ab
or
th
W
e
E
as
te
rn
va
U
en
tr
al
C
ar
a
ga
m
uw
a
th
er
n
S
ou
W
e
te
rn
0
Source: Central Bank of Sri Lanka
Another politically receptive change that signifies the 2005-2009 era was the curtailment of
the privatization programme that commenced in the 1980s and accelerated its pace in the
1990s until 2004.19 Although the economic merit of this curtailment may be debatable its
soci0o-political advantage was significant in a country where such deals are often
questioned on account of legitimate grounds.20 All these factors together contributed to
remove the underlying causes of possible social tensions that could have triggered political
upheaval in the late 2010.
Part IV
Scenarios for 2020 and Economic Underpinnings
19
The number of state enterprises privatized in the 1980s stood at which increased to XX in the 1990s
when privatization proceeds were considered an important source of deficit financing. However, a major
contentious issue was not the privatization programme per se but how it was carried out leading to
allegations of corrupt deals.
20
Some such shady deals including the Waters Edge were questioned by the Supreme Court of the country
where the guilty was severely reprimanded.
14
A fundamental presumption of this paper is that development and growth are symbiotically
related. As argued by many writers sustained growth often precedes development and
hence development without growth cannot sustain. It does not mean that mere growth does
guarantee development; this is because development is inescapably driven by development
oriented economic polices. Whereas growth has occurred at least in some countries without
scant respect to development priorities listed under the HDI indicators or millennium
development goals, in general sustained growth supports savings and investment on public
goods such as health, education, and social security which are major concerns of
development today. Indeed there have been instances where development has taken place at
least for short spells under low growth settings. Some of the best examples for this can be
drawn from Sri Lanka, Kerala sate of India and Cuba in the 1970s. However, these may be
cited as exceptions.
It is this premise that is used in this section of the paper in developing scenarios for 2020.
The paper conjectures that Sri Lanka is presented with one of the best opportunities for
charting her development to transform Sri Lanka to one of the fastest growing economies
in Asia in the decade 2011-2020. This aspect is discussed because there is a debate whether
Sri Lanka can be made a miracle. The answer is in the affirmative because there has been
ample evidence in the recent economic history of South Asia (India) and East Asia (China,
South Korea, Taiwan, Singapore and Hong Kong) that miraculous long term growth is
feasible.
The following table provides a few scenarios that may be possible under a set of
assumptions and conditions.
Table 2- Possible Scenarios for Economic Growth21
Investment as %
21
ICOR22
GDP Growth
GDP per Capita
GDP per Capita
The scenarios presented here has used Harrod Domar Model developed by Sir Roy F Harrod (1933) and
Evsey Domar (1946) to project economic growth. It has assumed that savings (investment) and
productivity capital would determine the scenarios projected herein under zero inflation and fixed exchange
rate regime.
22
ICOR assesses the marginal amount of investment capital necessary for an entity to generate the next
unit of production; a higher ICOR value indicates that the entity's production is inefficient.
http://www.answers.com/topic/incremental-capital-output-ratio-icor#ixzz16Bs8WdLB
15
GDP
Rate
24
26
28
32
34
4
3.7
3.5
3.5
3.4
6
7
8
9
10
Rs for 2010
2370
2370
2370
2370
2370
Rs for 2020
4244
4662
5116
5610
6147
Source: Developed using data from the Budget Speech 2010
There is a controversy on the doubling of per-capita GDP during 2005-200923. In the first
place, the growth rate of GDP during this period was satisfactory except for 2009 which
was globally a bad year. Secondly, the increase of per capita GDP from US $ 1000 plus to
US $ 2000 plus has taken into account the GDP (at Market Price) at a time when the US
dollar was relatively week. This doubling was possible as the change in GDP was
converted to US dollars using an exchange rate that was almost constant. However, the
issue at stake for Sri Lanka is not whether Sri Lankan GDP can be doubled within a
stipulated period but rather can she sustain a high rate of growth of around 8 per cent in the
next 10 years.
Using the arguments of the Harrod-Domar model Sri Lanka’s ability to sustain her national
savings would depend on her ability to amass private and public savings. As the GDP
increases, the ability of an economy to save too increases. Secondly, by managing the
public debt prudently, the state can contribute to raise national savings. This would enable
Sri Lanka’s ability to increase total investments. Related to this would be the ability of the
country to attract foreign direct investments that are non-speculative in nature.
The ICOR shows the efficiency of investments made in a country may be dependent in the
main on a) technology in use, b), quality of infrastructure, and c) productivity of labour.
Each of these variables demands an overhaul to ensure that ICOR to become manageable.
They are expected improve in the years to come as more emphasis is paid on ICT,
infrastructural investments and the new focus on investing on higher education and skill
developments. These aspects in effect would contribute to change the ICOR favourably. It
is in this context that the sustainable increase in the GDP becomes realistic.
23
The doubling of GDP is best explained in terms of rule of 72 where number 72 divided by the rate of
growth will result in the number of years required to double the GDP (any other value).
16
However, as argued elsewhere in this paper, increasing the economic growth rate of Sri
Lanka would be contingent on her ability to maintain political stability in the first place and
her capacity to uphold a policy framework that is consistent. These two conditions are
indispensable to ensure avoid conflicting signals to economic agents who to increase
savings and undertake investment opportunities. It is customary that in countries such as
Sri Lanka, even major economic policies have a tendency to change with every change of
government and also with the change of cabinet ministers. Such volatility in policies is
inimical to economic growth and development.
Two other conditions also become critical with respect to the acceleration of economic
growth rate. They are a) management of economic fundamentals, and b) improving the
investment climate of the country. The question of managing economic fundamentals is
critical to ensure internal and external stability of the economy. Internally, for instance
soaring fiscal deficit may give rise to inflationary pressures while an unmanageable
outflow of foreign exchange may result in volatile exchange rate. Both conditions affect the
investment climate adversely.
There are other conditions that are necessary to assure an enabling economic environment.
For instance, with respect to the Global Competitive Index Sri Lanka’s position with
respect to higher education for the year 2010/2011 has been as low as 69 which compares
with India (39), Thailand (38) and Malaysia (24).24 Similarly, cost of Doing Business
Report (2009) ranks Sri Lanka as low as 105 out of 183 countries.25 Of the 11 sub indices,
Sri Lanka fared poorly in Paying Taxes (166), Registering Property (148), Dealing with
construction permits (168) and enforcing contracts (137). Another major concern is the
productivity levels that are low and slow in improvement. These are concerns that
undermine Sri Lanka’s ability to attract investors whether they are foreign or local. In an
environment where investments flow freely across national boundaries the concerns
regarding the economic environment matters a lot.
24
Global Competitiveness Report (2010) World Economic Forum: the overall position of Sri Lanka has
improved to 62 from 79 in the 2010/2011 report. Yet our records for higher education requires substantial
boost.
25
See, The World Bank (2009) Doing Business 2010- Sri Lanka, The World Bank, Washington DC.
17
Identifying priority sectors -what is more important
Concluding Remarks
That trade is vital; that reforms are necessary; that private sector has a role; 2020 can be
made brighter; not the job of the president or a political power but everybody yearns and its
for mother Sri Lanka
Schedule 3.1- Comparison of conditions of malnutrition (pre reform and first phase)
Source
Data
Marten as quoted by 1978-81
Gooneratne (1983; 259)
Gooneratne
Gunawardena
(1983:258-59)
Aspect covered
Calorie
and
protein
deficiency
and 69/70, 78/79 Energy
and
& 80/81
protein intake
Anand and Harris (1987) 78/7
81/82
Sahn (1987; 810)
78/79
&81/82
Edirisinghe (1987;3839)
78/79
&81/82
& Calorie intake
Major finding
About 66.5 % of the
population rated as calorie
deficient
Both energy/ protein intake
possible from food stamps
halved between 1979-1982
Calorie intake of the lowest 3
deciles falling
Calorie intake / An increase of under nutrition
adult
among all groups less than
2000/day; fall of 45% or more
for those below 1600/day
Calorie intake group.
Malnutrition among the
for the poorest poorest 30 % fell sharply
30%
18
Source: As per studies listed above.