Sri Lanka’s Economy: Challenges And Way Forward
October 2, 2012
By W.A. Wijewardena -
Dr. W.A. Wijewardena
Sri Lanka’s impressive performance since the end of the war
Since the end of the disastrous war conclusively three years ago, Sri Lanka was poised for a rapid take-off filling everyone with hopes of a bright future ahead. As a herald of these hopes, several macroeconomic indicators recorded impressive performance in the first two years of the new era. The overall real economic growth rate which amounted, on average, to less than 5 per cent per annum in the whole of the post-independence period shot up to 8 per cent in 2010 and 8.3 per cent in 2011. The unemployment rate which was above 10 per cent of the labour force in 1990s started to fall sharply, finally settling at low 4.2 per cent by mid 2011. Given the normal unemployment in an economy due to people leaving jobs in search of better jobs and people waiting for acquiring the necessary skills to get themselves employed, this rate of unemployment denoting employment at 96 per cent connotes more or less a state of full employment of the country’s work force. The poverty level as measured by the number of people below poverty as a percentage of total population fell from above 15 per cent a few years ago to below 9 per cent by end-2011. Inflation which had been eroding the real welfare of people at the rate of 23 per cent per annum in 2008 was tamed and contained at an annual average of 5 per cent in the subsequent three year period. The Sri Lanka rupee which was exchanged at the rate of closer to Rs 115 per US dollar in 2009 was strengthened to reach a level of Rs 110 per US dollar by mid 2011. Though Sri Lanka’s trade deficitexpanded phenomenally, its exports continued to rise at an unprecedented rate of over 20 per cent per annum in 2010 and 2011. The confidence which the investors had about the future health of the Sri Lanka’s economy was amply demonstrated by an unprecedented improvement in the indices of the Colombo Stock Exchange in 2010 making it one of the best performing markets in the world.
All these indicators of reported good performance contributed to raise the high hopes which everyone – politicians, policy makers and the general public – had about the Sri Lanka’s future. Encouraged by the super performance of the country’s economy in the first two years of ending the war, the country’s top policy makers set on a mission of projecting this high growth into indefinite future by having such goals as ‘doubling the per capita income of the people in US dollar terms, within 6 years and thereby making Sri Lanka a nation to be awed, respected and emulated by others in Asia. The development tagline, ‘Sri Lanka: The Emerging Wonder of Asia’, was coined in order to market this highly ambitious goal of the nation.
But 2012 started to see a reversal of all these achievements which Sri Lanka had made in the previous two years.
