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1 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

2 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

3 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

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.

2

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 social fabric of the country as there is an established nexus between liberalization3

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 growth-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.

Source: Central Bank of Sri Lanka, Annual Reports, Various Issues.

7

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 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.

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

Pα = ( /1 n) ∑ X< z[ (Z − Xi)/z ]

12

α

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.

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 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 such as increased private sector investments and direct foreign investments (DFI) although are yet to come they may pick up gradually. Third, Sri Lankaâ&#x20AC;&#x2122;s economy has reached the lower middle income status which will have far-reaching effects of peoplesâ&#x20AC;&#x2122; 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 Lankaâ&#x20AC;&#x2122;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.

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 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 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.

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.

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 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 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

13 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

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 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 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 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 % GDP 24 26 28

21

GDP Growth Rate

ICOR22 4 3.7 3.5

6 7 8

GDP per Capita Rs for 2010 2370 2370 2370

GDP per Capita Rs for 2020 4244 4662 5116

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 32 34

3.5 3.4

9 10

2370 2370

5610 6147

Source: Developed using data from the Budget Speech 2010 There is a controversy on the doubling of per-capita GDP during 2005-2009 23. 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 Lankaâ&#x20AC;&#x2122;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 Lankaâ&#x20AC;&#x2122;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.

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 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 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 Lankaâ&#x20AC;&#x2122;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 Lankaâ&#x20AC;&#x2122;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.

Identifying priority sectors -what is more important 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

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;3878/79 39) &81/82 Source: As per studies listed above.

& 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 group.

Calorie intake Malnutrition among the for the poorest poorest 30 % fell sharply