Economic Prospects of Sri Lanka

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The economy of Sri Lanka suffered a memorable crisis that basically started in the year 2019 which led to unpredictable levels of inflation, a shortage of foreign exchange reserves and scarcity of medical supplies and commodities across the country. In common perception it was due to several factors which include tax cuts, money creation and nationwide policy of shifting to biological farming, after effects of the Easter attacks  and ultimately the global spread of Covid-19 which brought the world economy to its lowest ebb.

The accumulated effects of all reappeared in a violent form in 2022 resulted in the large protests against the economic policy of the ruling Government in front of the President’s House and public places. It led the nation to announce in April that it was defaulting, the biggest failure of the country’s economy since its independence in 1948. However, in February 1948, when Sri Lanka got independence, it was really ahead of many Asian countries in spheres of economic and social indicators and compared to Japan had an exceptionally high reputation in the international community. At the time literacy registered 95.7 per cent and the malaria eradication policy had cut the death volume from 20 per thousand in 1946 to 14 by 1947, while life expectancy in 1948 was 54 years, just below to Japans 57.5 years.

In addition, Sri Lanka had a stable macro-economy and established a Central Bank of Sri Lanka with the entering of International Monetary Fund’s Bretton Woods System of currency in August 1950. With its linking of world’s economic system, it adopted a progressive control and relax policy to adjust its economic pace which further followed the policy of partial liberalisation between 1965-70. The up and down in Sri Lankan policy indicated its adjustment with larger framework of global economy along with position of foreign exchange.

Economy

Historically, Sri Lanka remained famous as a trading hub of world economy due to its geographical location which made it a centre of east-west trade with irrigated agriculture as described by foreign travellers who visited the region from time to time.

Especially, Fa Hsien, who travelled the land in 400 BC and an Indian voyager-cum-monk, who hailed from Egypt, visited the region in 6th century respectively, had elaborated the economic system of Sri Lanka with its features and importance. One reason for its linking with nations of the area was the large networks of ships which easily carry commodities from one place to another.

Many things like, silk, aloes, cloves sandalwood and other products it received from one side and send it to the other destination and thus, becoming a centre of regional/ intra continental commerce. However, this hope and aspirations of Sri Lanka to become an overtaking nation of the region belied by 1960 when several issues including the ethnicity emerged and received national importance. Internal bickering, social tension, violent ethnic fights, and long history of struggle between Tamil and Sinhalese had damaged the pace of economy than anything else. There onwards, nationalism and ethnic conflict became Sri Lanka’s identity till the end of violent ethnic struggle in the year 2009.

The new situation deteriorated Sri Lanka’s commercial skill and it failed in evaluating global market forces focusing only on foreign exchange and as a result, it lagged behind many countries in Gross Domestic Products (GDP) in comparison to 1960. Several small countries of the region like, Korea, Malaysia, Thailand, Indonesia, and Taiwan progressed two to three times more between 1960 and 1980.

Economic decline

With the passage of time, the voice of nationality became louder as well as in the ruling circle and Sri Lanka began expending its national resources in combating terror groups active in the island particularly with the LTTE, who were demanding a separate Tamil homeland waged a long violent war for decades. Meanwhile, a policy shift from socialist orientation to liberalisation moved during the reign of UNP between 1977-1994 and it began deregulating, privatising and opening up the economy for international competition.

A country with low resources and least foreign investment due to social tensions and deteriorating conditions of law and order, it failed miserably on global competition of trade and commerce, reaching the foreign debt 101 per cent of its GDP in the year 2001. Although, the UPFA Government that took over in 2004 focused its attention on mass production of goods consumed by the people of Sri Lanka like, rice, grain, and other agricultural items for domestic purpose, the last 30 years of the separatist war certainly slowed down the overall development of the country in all sectors. Once again, the new Government headed by Mahinda Rajapaksa, halted the process of liberalisation and began re-nationalising previously owned state enterprises.

Economic status

In the post-2009 phase the economy of Sri Lanka grew at a higher level up to 8 per cent in 2010 followed by 9.1 per cent in 2012 due to the boom in non-tradable businesses but it did not last long and fell to 3.4 per cent in 2013. It was the time when the Government began thinking about the recovery of the economy by creating a megapolis in the western part of the country and the erection of several businesses with technological developments in the various specialised sectors along with plan of tourist spots to attract foreigners to visit the Island nation.

Diversified attention of the Government resulted in lifting the EU ban on fish supply from Sri Lanka. Despite some improvements in other sectors, Sri Lanka failed to earn a good name in economic sphere when from 2015 onwards national as well as international agencies began to warn or threaten the Island nation about the dire consequences which appeared in 2022. It compelled the people of Sri Lanka to face an unprecedented historic hardship of their life as well as a humiliating position globally which they never expected.

Author:

The opinions expressed are those of the author Dr. Rajkumar Singh  who is the Professor and Head of the Department of Political Science and Dean of Social Sciences at B.N. Mandal University, Madhepura (Bihar), India

By Dr Rajkumar Singh