Balancing Economic Stability


Using neorealism theories to examine small State issues:  International Relations as an academic discipline exist to aid us in comprehending how States act in the system of international politics. The global development discourse saw major shifts in the 90s as concepts of sustainable development enter the arena of international politics. At this time and especially since the turn of the twenty-first century, the UN adopted the definition Small Island Developing States (SIDS). 

The small islands dotting the Indian Ocean such as Mauritius, Seychelles, the Maldives, Sri Lanka and Réunion are emerging at the centre stage of great power politics unfolding in the region. In order to create significant changes to the current commercial environment and spur economic growth in the global arena, these five Island States are striding on a new development trajectory by embracing port development. The sectoral composition in the economies of these islands   has changed profoundly over time. Despite their economies being vulnerable to external shocks, these islands in the Indian Ocean have been able to craft strong growth-oriented developmental pathways.

In spite of having relatively high debts, for these islands the long-term challenge is to sustain their unique combination of resilience in the face of shifting economic circumstances and adaptability to new paths for growth. Since these Island States have recorded very high growth rates and sustained increasing human development indicators through a combination of good macroeconomic policies and solid institutions in tandem with fiscal and monetary policies, these islands have helped anchor economic growth and ensured competitiveness. The dominant lesson here is the public sector can efficiently form and implement sectoral policies to revive the private sector.

The role of islands in shaping new security architecture is often overlooked while the traditional powers of the Indian Ocean continue to work together across the maritime domain to maintain a balance of power.  In order to diversify the reliance on a mono-crop as the key source of foreign earnings, Sri Lanka and Mauritius took advantage of the rising demand for textiles and apparel from the EU and the US, which provided a solid base for expansion. These five Island States have preferential access to trading partners, mainly the EU. The combined economic vision plan for these Islands will continue to be a new impetus with notable characteristics. Through economic diplomacy they could aim to act as the building blocks towards facilitating regional socio economic upliftment.

Shaping financial stability

Sri Lanka is on a developmental approach to revive its socio-economic growth. While the country’s poverty levels have declined over the years, disparity in income distribution continues to be amongst the highest in South Asia. It is commonly acknowledged that 75 per cent of the island’s population is from the rural sector which is heavily reliant on primary agriculture for food and income.

In recent decades, a hallmark of economic management in this island State has been prudent fiscal policy. Over the past years, the country’s development programme had been founded on interventions at the State level with borrowings from foreign States at high interest rates. The Covid-19 pandemic had exposed the volatility of Sri Lanka’s economy.  Solid economic diplomacy combined with well thought out policies is vital to increase foreign currency inflows and to improve the island nation’s production capacities. In fostering its economic diplomacy beyond 2022, Sri Lanka should seek to enhance its economic links with its closest neighbour, India, which has a substantial economy. Moving beyond Asia, as trading partners, the EU and the US play a substantial role in Sri Lanka’s economy. Sri Lanka’s current foreign policy standing with a more balanced viewpoint presents prospects to further develop links.  The sense of an existing shadow Government and impending Elections which could cause market instability closer to the polls seems to have lowered investor confidence.

 Maldives economic growth

The Maldivian economy has historically depended on fishing as its primary source of income.  In the past decades, the income levels of the nation have experienced exponential growth. The main driver of economic growth is tourism contributing to more than 28 per cent of the country’s GDP and to 60 per cent of its foreign exchange. In 2020, Maldives’ national debt amounted to approximately 146.05 per cent of its gross domestic product (GDP). The country’s per capita GDP growth for 2022 is expected to be 6.4 per cent.   Over the longer term, global warming and the impact of erosion are worrying features for Maldivian authorities.

Policy Reforms of Seychelles Mauritius and Réunion

Seychelles situated off the East coast of Africa, consists of over 115 islands in the Indian Ocean. Within the concept of SIDS, Seychelles helps to highlight macroeconomic and geographical realities. With its high dependency on tourism and fisheries, climate change poses long-term sustainability risks. Seychelles has the highest GDP per capita in Africa .Since independence, Seychelles has sustained social development. Seychelles is exploring with the World Bank the prospects of innovative hybrid solutions known as ‘blue barriers.’

Over the years, Mauritius has shaped a strong growth-oriented developmental pathway. Situated off the South East coast of Africa, Mauritius became a High-Income Country in July 2020.   Presently, around 68 per cent of the country’s population is of Indian descent. For decades agriculture has been the bedrock of the Mauritian economy with a per capita income of USD 12,740 as of 2019. In the 1960s, the country’s mono-crop economy was dependent on sugar cane as its main source of foreign earnings. Currently, the blue economy of Mauritius features coastal tourism, fishing, seafood processing and seaport activities.   In 2021, its GDP grew by 3.9 per cent. With its unique geographical location, the recovery of Mauritius pivots on creating fiscal space to address long standing structural challenges and enhancing readiness for future shocks. 

An important feature of Reunion’s economy is tourism. France appears to comprehend the strategic prospects of Réunion. For more than a century the economy of Reunion was founded almost entirely on sugar. In the field of renewable energy, Réunion seeks to attain 50 per cent renewables in its energy mix prior to achieving total energy self-sufficiency. In the digital field, companies enjoy opportunities in its green economy.

 Common development vision

Island States may balance or bandwagon regardless of theoretical approach as politics continues to develop and these States continue to face new challenges and new opportunities. Located near key transit routes providing access and influence over important chokepoints and waterways, the key geographies of Mauritius, Seychelles, the Maldives, Sri Lanka and Réunion have the potential to impact geopolitical competition. 

About the Author :

Dr. Srimal Fernando received his PhD in the area of International Affairs. He was the recipient of the prestigious O.P. Jindal Doctoral Fellowship and SAU Scholarship under the South Asian Association for Regional Cooperation (SAARC) umbrella. As a Lecturer he focuses on comparative politics of Small Island Developing States (SIDS). Dr. Fernando is an academic specialist in International Relations and an adviser on New Regional Diplomacy. He has received accolades such as the 2018/2019 ‘Best Journalist of the Year’ in South Africa (GCA) Media Award for 2016 and the Indian Council of World Affairs (ICWA) accolade. He is the author of ‘Politics, Economics and Connectivity: In Search of South Asian Union.

By Dr. Srimal Fernando