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kej; uqøKh( wkjYHhsBack SideIPS - State of Economy Book Cover 175# 2011-10-14

State of the Economy

100/20, Independence Avenue, Colombo 7, Sri Lanka

SRI LANKA

2011

INSTITUTE OF POLICY STUDIES OF SRI LANKA


Copyright C September 2011Institute of Policy Studies of Sri Lanka

ISBN 978-955-8708-68-2

National Library of Sri Lanka-Cataloguing-In-Publication Data

Sri Lanka State of the Economy -- 2011 / Colombo : Institute

of Policy Studies of Sri Lanka, 2011 . --- 255 ; 26cm

ISBN 978-955-8708-68-2 Price Rs.

i. 330.95493 DDC 23

1. Sri Lanka - Economic conditions

Please address orders to:Institute of Policy Studies of Sri Lanka100/20, Independence Avenue, Colombo 7, Sri LankaTel: +94 11 2143100 Fax: +94 11 2665065Email: [email protected]: www.ips.lkBlog: ‘Talking Economics’ - http://ipslk.blogspot.comTwitter: www.twitter.com/TalkEconomicsSL

This report was prepared by a team led by Dushni Weerakoon, with the guidance of Saman Kelegama,Executive Director, IPS. Contributing authors are Ashani Abayasekara, Nisha Arunatilake, Samanthi Bandara,Buddhika Brahmanage, G.D. Dayaratne, Ayodya Galappatige, Asha Gunawardena, Dilani Hirimuthugodage,Suwendrani Jayaratne, Priyanka Jayawardena, Roshini Jayaweera, Chandana Karunaratne, Malathy Knight,Sunimalee Madurawela, Wimal Nanayakkara, Nethmini Perera, Dharshani Premaratne, ParakramaSamaratunga, Dushni Weerakoon, Kanchana Wickremasinghe and Anushka Wijesinha.

Referee comments from Wimal Hettiarachchi and S.A. Karunaratne, and input from the Publications andCommunications Unit of the IPS - D.D.M Waidyasekera for editorial support, Asuntha Paul for formatting,and Charmaine Wijesinghe for design and layout - is gratefully acknowledged.

Printed with VOC free, non toxic vegetable oil-based environmentally-friendly ink,

on FSC certified paper from well-managed forests and other controlled sources.

Printed by Karunaratne & Sons (Pvt) Ltd. ([email protected]).

Contents

Post-conflict Growth and Recovery

1. Policy Perspectives 1

2. Economic Performance: Post-conflict Growth 92.1 Introduction 92.2 Output and Employment 10

2.2.1 Output Growth 102.2.2 Consumption, Investment and Savings 122.2.3 Labour Force and Employment 12

2.3 Fiscal Policy Developments 142.4 Monetary Policy Developments 172.5 External Sector Developments 182.6 Conclusion 20

3. Accelerating Inclusive Growth in Sri Lanka: The Role of theExternal Sector 213.1 Introduction 213.2 Earnings from Exports of Goods and Services: An Overview 223.3 Emerging Global Economic Environment and Prospects for Exports 243.4 Inclusive Growth: The Distributional Impacts of Trade 27

3.4.1 Pro-Poor Growth: Manufacturing or Services Sector? 283.4.2 Trade and Gender Linkages 29

3.5 Trade and Inclusive Growth in Sri Lanka: Tea, Garmentsand Remittances 313.5.1 Garment Sector 313.5.2 Tea 333.5.3 Remittances 34

3.6 Conclusion 36

Post-conflict Growth: Making it Inclusive

4. Imperatives of Inclusive Growth 384.1 Introduction 38

4.1.1 Inclusive Growth: A Framework for Analysis 394.2 Patterns of Growth and their Inclusiveness 414.3 Improving Employability 454.4 An inclusive Growth Strategy for Sri Lanka 47

4.4.1 Improving Productivity and Sustainability in thePrimary Sector 47

4.4.2 Improving Connectivity and Making Use of EmergingOpportunities 48

4.5 Improving the Institutional Environment 504.5.1 Institutional Effectiveness and Inclusiveness 50

4.6 Conclusion 53

5. Social Protection as an Indispensable Instrument 545.1 Introduction 545.2 Poverty and Inequality in Sri Lanka 555.3 Social Protection Layout 57

5.4 Social Protection in Inclusive Growth in Sri Lanka: Who Needsthe 'Push'? 59

5.5 Social Protection Challenges and Gaps in Sri Lanka 635.5.1 Securing the Needs of the Most Vulnerable: Revisiting the

Social Safety Net Programme 645.5.2 Social Protection to Combat Multiple Vulnerabilities 645.5.3 Social Protection Challenges Emerging from Demographic

Transition 665.5.4 Improving Employability/Skills as a Social Protection Measure 675.5.5 Livelihood Support as Social Protection 67

5.6 Conclusion 68

6. Education and Health Services for Sustainable Growth 706.1 Introduction 706.2 Education 71

6.2.1 Current Status and Objectives 716.2.2 Equity Issue 726.2.3 Key Sector Challenges and Issues 746.2.4 Current Policies and Programmes 76

6.3 Health 776.3.1 Current Status and Objectives 776.3.2 Equity Issues in Health 796.3.3 Emerging Needs and Current Policies 816.3.4 Current Policies and Programmes 82

6.4 Conclusion and Policy Implications 82

7. Agriculture Sector and Challenges to Inclusive Growth 847.1 Introduction 847.2 Economic Growth and Agriculture 857.3 Employment and Poverty 86

7.3.1 Growth and Distribution of Employment 867.3.2 Land and Rural Poverty 88

7.4 Agriculture Sector Growth 897.4.1 Food Crop Sector Growth 89

7.5 Where Things Went Wrong 947.6 Way Forward 95

8. Inclusive Growth and the Fishery Sector 978.1 Introduction 978.2 Sri Lanka's Fishery Sector: An Overview 97

8.2.1 Fish Production 978.2.2 Fishery Sub-sectors 998.2.3 Fish Exports and Imports 1028.2.4 Productivity in the Fishery Sector 1038.2.5 Employment in the Fishery Sector 1048.2.6 Socio-economic Conditions in Different Segments of the

Fishery Sector 1048.3 Recent Development Activities 107

8.3.1 Recent Developments in the Marine Fishery Sector 1078.3.2 Developments in Inland Fisheries and Aquaculture 108

8.4 Conclusion and Way Forward 109

9. Small and Medium Enterprises: Key to Inclusive Private Sector Development 1119.1 Introduction 1119.2 Private Sector Enabling Environment and SME Development 112

9.2.1 Industrialization and Private Entrepreneurship: Policies,Institutions and Trends 112

9.3 SMEs in Sri Lanka: Policy and Institutional Framework 1149.4 Towards Inclusive Private Sector Development and SME Growth: Key

Policy Challenges 1169.4.1 Creating an Enabling Environment for Inclusive Private Sector

Growth 1169.4.2 Revisiting Strategic Industrial Policy 1189.4.3 Access to Credit: Unleashing the Potential for SME Growth 119

9.5 Conclusion 120

10. Towards a Competitive and Inclusive Knowledge Economy 12110.1 Introduction 12110.2 Advent of the 'Knowledge Economy' Concept 12210.3 What is a Knowledge Economy?: Definitions and Determinants 12310.4 Sri Lanka as a Knowledge Economy: Status, Comparison, Inclusivenes 124

10.4.1 Business Environment and Economic Incentives Regime 12510.4.2 Information Communication Technology (ICT) Infrastructure 12710.4.3 Research and Innovation System 13110.4.4 Education and Skills 133

10.5 Way Forward - Strong Institutional Framework 137

Policy Reflections

11. Driving Infrastructure Developments for Inclusive Growth 14011.1 Introduction 14011.2 Role of Infrastructure in Inclusive Growth and Poverty Reduction 14111.3 Infrastructure Development and Inclusive Growth in Sri Lanka 142

11.3.1 Policy on Infrastructure Development 14211.3.2 National Level Infrastructure Development 14411.3.3 Rural Infrastructure Development 146

11.4 Infrastructure Development and Employment 15011.5 Conclusion and Way Forward 150

12. Developing Tourism for Inclusive Growth 15112.1 Background 15112.2 Tourism and Economic Development 152

12.2.1 Contribution of Tourism 15212.2.2 Emerging Trends 154

12.3 Tourism and Inclusive Growth in Sri Lanka 15512.3.1 Tourism Resources and Infrastructure 15512.3.2 Distributional Aspects of Tourism Benefits 15512.3.3 Environmental Sustainability 157

12.4 Key Policy Issues and Implications 157

13. Natural Disasters, Climate Change and Inclusive Growth 15813.1 Background 15813.2 Profile of Natural Disasters in Sri Lanka 15913.3 Increased Disaster Vulnerability due to Global Climate Change 16013.4 Impacts of Natural Disasters on Inclusive Growth 161

13.4.1 Direct Economic Costs 16113.4.2 Distributional Impacts of Natural Disasters and Climate Change 162

13.5 Disaster Management System in Sri Lanka 16313.5.1 Measures to Reduce Physical Vulnerability 16313.5.2 Measures to Reduce Socio-economic Vulnerability 164

13.6 Implications for Policy 164

14. Strategic Remedies for Rising Food Prices 16514.1 Introduction 16514.2 Global Food Prices 16614.3 Foodflation in Sri Lanka 16914.4 Coping with Soaring Food Prices 170

14.4.1 Coping Strategies during the 2007/08 Food Crisis 17014.5 Way Forward 17114.6 Conclusion 173

15. Social Determinants of Health 17415.1 Introduction 17415.2 Growth, Social Inclusion and Health 17515.3 Sri Lanka's Health Sector Achievements 17615.4 Relevance of SDH for Sri Lanka 177

15.4.1 Health Inequity 17715.5 Way Forward on SDH Approach in Sri Lanka 17915.6 Conclusion and Policy Implications 180

16. A Rational Drug Policy: An Imperative of 'Health for All’ 18216.1 Introduction 18216.2 Burden of Disease 18316.3 Sri Lanka's Drug Policy 18416.4 Why Sri Lanka Needs a Rational Drug Policy 185

16.4.1 A Case of Shortages: Paracetamol 18616.5 Present Status of Drug Regulatory Regime 18716.6 Conclusion 188

17. Accessibility and Affordability in the Power Sector 18917.1 Introduction 18917.2 Power Sector and its New Developments 190

17.2.1 Overview of the Power Sector 19017.2.2 Recent Developments in the Power Sector 192

17.3 Electricity Sector and Inclusive Growth 19417.3.1 Household Sector 19417.3.2 Commercial (Hotel) and Industrial Sectors 197

17.4 Conclusion and the Way Forward 199

Prospects

18. Prospects 200

Appendices

Appendix A: Macroeconomic Indicators i

Appendix B: Capital Market xxvi

LIST OF FIGURESFigure 2.1 : GDP and Sectoral Growth 10Figure 2.2 : Emerging External Debt Profile 15Figure 2.3 : External Debt Dynamics 16Figure 2.4 : Demand for Credit 17Figure 2.5 : Inflation Trends 18Figure 2.6 : Exports, Remittances and Tourism 18Figure 2.7 : Trends in Nominal and Real Exchange Rate Movements 19Figure 3.1 : Trends in Export Earnings 23Figure 3.2 : Sri Lanka's Export Share 24Figure 3.3 : EU and US: GDP, Consumption and Unemployment Rates 25Figure 3.4 : Sri Lanka's Share of Exports to US, EU, ASEAN and SAARC 26Figure 3.5 : Departures for Foreign Employment by Sex and Manpower Levels 31Figure 3.6 : Sri Lanka's Export Share in the USA and EU T&G Markets 32Figure 3.7 : Sri Lanka's Market Share in Major Tea Markets 34Figure 3.8 : Top Destinations of Labour Migrants from Sri Lanka by Country 36Figure 4.1 : Framework for Inclusive Growth Analysis 40Figure 4.2 : Contribution to GDP by Industrial Sector and Province 41Figure 4.3 : Changes in GDP, Poverty and Sectoral Shares of GDP

across Provinces 42Figure 4.4 : Change in Access to Education, by Class 46Figure 4.5 : Change in Access to Health, by Class 46Figure 5.1 : Poverty Headcount Ratio by Districts 55Figure 5.2 : Percentage of Households by Socio-Economic Group in Each

Province 59Figure 5.3 : Percentage of Poor Households by Socio-Economic Groups 60Figure 5.4 : Poor Households and Households in First Four Household

Expenditure Deciles by Province 61Figure 5.5 : Informal Sector Employment by Major Industry 62Figure 5.6 : Formal/Informal Sector Employment by Occupational Group 62Figure 5.7 : Informal Sector Employment in Non-agricultural Sector by District 63Figure 6.1 : Distribution of Out-of-Pocket Expenditure on Education 75Figure 6.2 : Total Expenditure on Health 77Figure 6.3 : Child Nutrition and Health Status by Wealth Quintile 80Figure 6.4 : Child Nutrition and Health Status by Sector 80Figure 7.1 : GDP Growth in Sri Lanka 85Figure 7.2 : Agriculture Sector Contribution to GDP 85Figure 7.3 : Investment in Agricultural Research and Extension and

Productivity Growth 93Figure 8.1 : Total National Fish Production by Sub-sector 98Figure 8.2 : National Fish Production 100Figure 8.3 : Fish Exports 102Figure 8.4 : Ornamental Fish Exports 102Figure 8.5 : Fish Imports 103Figure 9.1 : SME Policies in Sri Lanka: Re-inventing the Wheel 116Figure 10.1 : Comparison of Business Environment Infrastructure: Sri Lanka,

India and Singapore 126Figure 10.2 : Comparison of ICT Infrastructure: Sri Lanka, India and Singapore 128Figure 10.3 : Provincial Distribution of Fixed Phones 129Figure 10.4 : Comparison of Research and Innovation Infrastructure: Sri Lanka,

India and Singapore 131Figure 10.5 : Comparison of Education and Skills Infrastructure: Sri Lanka,

India and Singapore 133Figure 10.6 : Computer Literacy in Sri Lanka across Urban, Rural and

Estate Sectors 136

Figure 10.7 : Computer Literacy in Sri Lanka across Provinces 136Figure 10.8 : Students by Medium of Study across Sri Lanka 137Figure 11.1 : Impact of Infrastructure on Economic Growth and Poverty

Reduction 141Figure 11.2 : Contribution of Transport and Communication to GDP 142Figure 11.3 : Public Investment 143Figure 11.4 : Electrification Level in Sri Lanka 145Figure 12.1 : Impacts of Tourism 152Figure 12.2 : Tourist Arrivals and Earnings 153Figure 12.3 : Tourist Arrivals and Employment Generation 154Figure 12.4 : Percentage of Tourists by Purpose of Visit 155Figure 12.5 : Distribution of Hotel Rooms and Guest House Rooms by District 156Figure 13.1 : Chronological Trend of Disaster Events in Sri Lanka 159Figure 13.2 : Number of People Affected due to Disasters 160Figure 14.1 : World Food Price Index 166Figure 14.2 : Global Food Commodity Price Indices 167Figure 14.3 : Correlation between Oil and Food Prices 167Figure 14.4 : World's Production, Supply and Utilization of Rice, Wheat,

Cereal and Grain 168Figure 14.5 : Global and Domestic Food Price Trends 169Figure 14.6 : Major Food Commodity Prices 169Figure 17.1 : Functional Structure of the Electricity Industry 190Figure 17.2 : Level of Electrification by District 195Figure 18.1 : Inflation Trends 204Figure 18.2 : Exchange Rate and Interest Rate Trends 205

LIST OF TABLESTable 2.1 : Sectoral Performance 11Table 2.2 : Consumption, Investment and Savings 12Table 2.3 : Demographic and Labour Force Trends 13Table 2.4 : Government Revenue and Expenditure 14Table 2.5 : Select Monetary and Financial Indicators 17Table 3.1 : Growth in Goods and Services Exports 22Table 3.2 : Projected World Output 24Table 3.3 : Informal Private Tea Sector Daily Wages by Gender 30Table 3.4 : Top Ten Destinations of Sri Lanka's Garment Exports 32Table 3.5 : Main Export Markets for Sri Lankan Tea 33Table 3.6 : Departures for Foreign Employment by Manpower Levels and Sex 35Table 4.1 : Labour Productivity by Major Economic Sector 43Table 4.2 : Contribution to Total Employment by Industrial Sector

and Province 44Table 4.3 : HCI by Major Industrial Group of Head of the Household

and by Sector 44Table 4.4 : Percentage Distribution of Employed Population by Occupation 45Table 4.5 : Access to Infrastructure by Sector and Province 47Table 5.1 : Types of Scocial Protection Measures 56Table 5.2 : Causes of Risks 58Table 5.3 : Examples of Social Protection Interventions by Life Cycle Stage 58Table 5.4 : Current Transfer Payments to Households and Other Sectors 64Table 6.1 : Net Enrolment Rates in Major Education Cycles by Economic

Groups 72

Table 6.2 : Completion Rates in Major Education Cycles and ExamSuccess Rates 73

Table 6.3 : Comparison of Select Key Health Indicators 76Table 6.4 : Distribution of Health Facilities by District 78Table 6.5 : Sanitary Conditions and Mortality Rates by Sectors 79Table 7.1 : Key Statistics of Labour Force 87Table 7.2 : Incidence of Poverty by Land Holding Size 89Table 7.3 : Annual Average Food Availability by Major Food

Commodity Groups 90Table 7.4 : Extent and Production of Major Food Crops 91Table 7.5 : Profitability of Some Major Food Crops in Sri Lanka 94Table 8.1 : Marine Fish Production by District 98Table 8.2 : Changes in Total Fishing Fleet 99Table 8.3 : Inland Fish Production by Districts 101Table 8.4 : Labour Productivity in Marine Fisheries 103Table 9.1 : Distribution of Industrial Establishments by Size and Provinces 113

Table 10.1 : Elements of a Knowledge Economy (KE) and Descriptions 124Table 10.2 : Sri Lanka's Rank in Key 'Doing Business' Indicators 125Table 10.3 : Number of Fixed, Mobile, and Broadband Subscribers 128Table 10.4 : Broadband Internet Costs in Sri Lanka vis-a-vis South Asia 129Table 11.1 : Sector-wise Public Investments 143Table 11.2 : Funding for Infrastructure 144Table 11.3 : Small and Medium Scale Water Supply Projects 148Table 11.4 : Access to Services 149Table 11.5 : Development of Irrigation Facilities 149Table 13.1 : Cost of Relief for Selected Disasters 162Table 15.1 : Select Health Indicators 177Table 15.2 : Infant Mortality Rate by Mothers’ Education Level 178Table 17.1 : Recent Financial Performance of CEB 191Table 17.2 : Planned Generation Mix of the Sri Lanka Grid 191Table 17.3 : Level of Electrification by Sector 194Table 17.4 : Rural Electrification Schemes 195Table 17.5 : Affordability of Electricity 196Table 17.6 : Ownership of Electric Equipment 197Table 17.7 : Total Subsidy or Surcharge on Consumers 198Table 18.1 : Sources of Foreign Financing 203Table 18.2 : Fiscal Trends 204

LIST OF BOXESBox 4.1 : Differing Views on Growth, Poverty Reduction and Human

Development 39Box 4.2 : Improving Access to Credit 51Box 10.1 : Asia Foundation Economic Governance Index 127Box 10.2 : e-Sri Lanka Programme 130Box 10.3 : Performance Review of the Vidatha Programme 132Box 10.4 : Sri Lanka's Nenasalas 135Box 11.1 : Gama Neguma Programme 146

ACRONYMS

ADB Asian Development BankALMP Active Labour Market ProgrammesASEAN Association of South East Asian

NationsAWPR Average Weighted Prime Lending

RateBDS Business Development ServicesBOP Balance of PaymentsBPO Business Process OutsourcingBRIC Brazil-Russia-India-ChinaCBO Community Based OrganizationsCBR Crude Birth RateCBSL Central Bank of Sri LankaCDR Crude Death RateCEB Ceylon Electricity BoardCECA Comprehensive Economic

Cooperation AgreementCEPA Comprehensive Economic

Partnership AgreementCPC Ceylon Petroleum CorporationCSDH Commission on Social

Determinants of HealthDCS Department of Census and

StatisticsDDEC Daily Dietary Energy ConsumptionDNP Department of National PlanningDS Divisional SecretariatEPF Employment Provident FundETF Employee Trust FundEU European UnionFAO Food and Agricultural

OrganizationFDI Foreign Direct InvestmentFTA Free Trade AgreementGCC Gulf Cooperation CouncilGCE General Certificate of EducationGSP Generalized System of PreferencesGDP Gross Domestic ProductHFA Health-for-AllHIES Household and Income

Expenditure SurveyICT Information and Communication

TechnologyIDP Internally Displaced Persons

IMF International Monetary FundIMR Infant Mortality RateIPP Independent Power ProducersISFTA India-Sri Lanka Free Trade

AgreementIT Information TechnologyITES Information Technology Enabled

ServicesMDG Millennium Development GoalsMFI Microfinance InstitutionsMMR Maternal Mortality RateMO Medical OfficersNCD Non-Communicable DiseasesN&E Northern and Eastern ProvincesNGO Non Governmental OrganizationNPL Non Performing LoanOOPE Out of Pocket ExpenditurePHC Primary Health CarePHCI Poverty Head Count IndexPHCR Poverty Head Count RatioPPP Public-Private PartnershipPSPS Public Sector Pension SchemePUCSL Public Utilities Commission of Sri

LankaRVA Regional Value ChainSAARC South Asian Association for

Regional CooperationSAFTA South Asian Free Trade AgreementSBA Stand-by ArrangementSDH Social Determinants of HealthSLBFE Sri Lanka Bureau of Foreign

EmploymentSME Small and Medium EnterprisesSPC State Pharmaceutical CorporationTEVT Technical Education and

Vocational TrainingTOT Terms of TradeTOU Time of UseTRC Telecom Regulatory CommissionUNDP United Nations Development

ProgrammeVAT Value Added TaxWB World BankWHO World Health Organization

Box 11.2 : Maga Neguma Programme 147Box 11.3 : Village Infrastructure Development through Gemidiriya 148Box 17.1 : The Roadmap for Tariff Rebalancing 193Box 18.1 : External Sector Performance 202Box 18.2 : Select Monetary and Financial Indicators 205

1

1. Policy Perspectives

As the global economy begins the arduous road torecovery, 'growth' has become the cornerstone forthe world's policy makers, be it the US policy on'foundations for long term growth', UK's 'strategyfor economic growth' or Japan's 'new growth strategy'.In this, Sri Lanka is no exception, setting itself anambitious medium term growth target in excess of 8per cent per annum in the country's new post-conflictenvironment. Indeed, Sri Lanka achieved it in 2010with a strong economic rebound, amidst a steadilyimproving macroeconomic environment. This wasin stark contrast to the experience a mere two yearsago, when economic performance was at best erratic,with unacceptably high inflation and dwindlingforeign exchange reserves. In 2010, Sri Lanka posteda record high of US$ 6.6 billion in official reserves,a moderate inflation rate of 5.9 per cent and a stableexchange rate for much of the year. The remarkableturnaround owes much to a renewed confidence inthe country's long term economic prospects, reinforcedby policy and political stability from a strongincumbent government.

Amidst the strong recovery and seemingly brightmedium term prospects for the Sri Lankan economy,there are, nevertheless, some concerns about specificaspects of the country's recent economic performance.The relatively weak recovery of private investment totake advantage of the country's new stability has beenone such area. Growth in private sector creditdisbursement was slow to pick up, as has been inflowsof foreign direct investment (FDI) to the country.Private sector credit growth was sluggish for much of2010, picking up only towards the latter months ofthe year, while net FDI inflows saw only a mildrecovery at US$ 435 million as against US$ 385 inthe crisis-ridden year of 2009. As in the previousyear, it was buoyant public investment that kept SriLanka's growth momentum moving to allow thecountry to reach a GDP growth of 8 per cent.

‘‘

For Sri Lanka, emergingfrom a costly era of along drawn conflict,

rising socio-economicaspirations must be met

to help restore andcement social harmony

in its post-conflictdevelopment efforts

State of the Economy 2011

2

The sources of economic growth areobviously important, but there has neverbeen clear agreement on what drives growth.Indeed development thought is littered withchanging beliefs about what the best policiesare to ensure rapid growth. During the 1980s,there was a seismic shift to focus on markets,prices, and incentives. These called forraising investment as high as possible,especially into industry; reducing fiscalimbalances through 'structural adjustment';and 'getting prices right' in the process. Inthe 1990s, the policy prescriptions becamemore arduous, asking countries to go beyonda mere 'strengthening of the market'. Theyrequired countries to strengthen publicinstitutions by reducing corruption andimproving the rule of law; to introduceincentives and actions for private sectordevelopment to 'cut costs of doing business';to improve education and skills of its labourforce; to upgrade technology, etc.

Whatever the merits of changing agendas,economic theory does suggest that a sustainedincrease in investment raises the economy'sgrowth rate - albeit temporarily - while moresophisticated models suggest that bringingimprovements in productivity, notably dueto innovation and to investments in humancapital, allows growth to be enhanced in amore sustainable fashion. In this respect, SriLanka's public investment drive that isheavily tilted towards improving physicalinfrastructure capital in the country will nodoubt provide a useful initial boost togrowth. But, the longer term sustainabilityof that growth momentum can only beensured with appropriate investment intechnology, knowledge transfer, etc. Here,private sector investment, and FDIespecially, has a particularly important roleto play.

Private sector credit growth was relativelyslow to take-off despite the new resilienceand faster growth in the Sri Lankan economy

from mid-2009. Credit growth picked up onlytowards the second half of 2010 to recordan overall healthy growth of 25 per cent byyear end - albeit on the back of a growth of7 per cent in 2008 and contraction of 5.8per cent in 2009. The reasons for the slowrecovery in credit growth to the private sectorin the Sri Lankan context are not entirelyclear, although a similar global phenomenonis easier to understand. In a recessionaryeconomic environment that follows from afinancial crisis - such as the global economicdownturn of 2008/09 - weak credit growthis to be expected as households and firmsreduce their debt burdens. Whilst Sri Lankawas not unduly affected by the globalfinancial crisis, the economy went throughits own financial turmoil amidst anenvironment of excessive credit growthduring 2005-07. It saw not only theunravelling of some important financialorganizations and illegal 'ponzi schemes',but over-leveraging of households and firms.The average gross non-performing lending(NPL) ratio of the banking sector, for instance,jumped as a result from 5 per cent in 2007to 8.5 per cent in 2009. It could also havebeen that the corporate sector had retainedprofits for re-investment purposes.

Overall, Sri Lanka's experience suggests thatboth supply and demand factors played arole in muting private sector investmentappetite. Despite the signs of an earlyeconomic recovery, over-leveragedhouseholds and firms were less willing toborrow while banks too were less willing tolend. Indeed, the economic downturnspurred increased savings by the privatesector. Under the circumstances, the CentralBank of Sri Lanka (CBSL) acted aggressivelyto cut policy interest rates and used othermeans to convince banks to lower theirlending rates, including setting mandatorymeasures. On the whole, these had onlylimited impacts. Therefore, it is notsurprising that as households and firms pay

Policy Perspectives

3

back debts, cheaper credit was likely toprovide less of a stimulus than at othertimes.

For private investors, other avenues to makeshort term financial gains were clearlyavailable, not least through a boomingdomestic stock market. Sri Lanka's boursegained by over 95 per cent in 2010, tobecome the second best performer on aglobal scale for a second consecutive year.While renewed investor confidence in thelong term prospects of the economy nodoubt played a part, the gains were alsodriven to a large extent by speculative tradingthat compelled the regulators to step in. Therelatively low returns from fixed incomeassets also played a role in channelling fundsto the share market. For banks, thegovernment debt securities continued toprovide a healthy return at zero risk, negatingany urgent need to seek out riskier corporateand household borrowers.

To an extent, the subdued private sectorappetite to expand factories and invest innew machinery through credit from thebanking system was perhaps a mixedblessing. If private sector credit growth hadkicked off at a rapid pace, the government'sown fiscal excesses - albeit a much improvedoutcome relative to that of the previous year- could not have been accommodatedwithout igniting destabilizing consequences.Sri Lanka's fiscal deficit of 7.9 per cent ofGDP in 2010 was financed through domesticborrowing of 3.6 per cent of GDP. Giventhat the private sector was in effect notcompeting for funds, the government wasable to successfully retain a low inflationand interest rate regime despite fiscalpressures and a rapid recovery in economicactivities.

However, the government's stance on deficitfinancing - i.e., limiting reliance on domesticsources of finance - in its attempt to retain a

relaxed monetary policy stance to spur growthcan prove to be double-edged. It necessarilyraises Sri Lanka's reliance on foreign financingto meet the country's growing publicinvestment needs. The repeated calls forfiscal consolidation efforts stem from arecognition of the potential medium to longterm risks that arise from rising exposure toexternal debt.

The dominant source of deficit financing inrecent years has been foreign currencydenominated borrowing. In 2009, foreignfinancing stood at 4.8 per cent of GDP anddeclined only marginally to 4.4 per cent in2010. The greater country risk exposure thatis associated with foreign currency debt -sensitivities to sovereign ratings in the eventof debt roll-over, exchange rate risks, etc. -are well known. Sri Lanka's external debt-to-GDP ratio, however, has remainedunchanged for the most part; in fact, itdeclined from 36.5 per cent in 2009 to 36.1per cent in 2010. Movements in the exchangerate have a clear bearing on external debtindicators. An appreciating currency, as wasthe experience of the rupee in 2010, helpsto improve fiscal indicators by lowering theexternal debt-to-GDP ratio.

Notwithstanding the overall figures, thecomposition of the debt matters. Here, SriLanka has seen a rapid change in its externaldebt structure with non-concessional andcommercial sources raising their share from7.3 per cent in 2006 to 37.5 per cent in2010. These are costlier sources of foreignfinance, and not surprisingly, the country'soverall external debt service ratio has creptup over the period from an annual averageof 12 per cent during 2002-04 to 16.4 percent over 2008-10. To make certain thatfuture external debt service payments canbe met comfortably and limit the country'sexposure to unanticipated external shocks,Sri Lanka must ensure that its foreignexchange earnings remain strong. As a first


4

step, a prudent course is to limit foreigncurrency borrowing to projects that will,either directly or indirectly, enhance theforeign exchange needed to service futurepayments.

Ongoing developments in the industrializedeconomies offer a salutary lesson and anecessary reminder of the choices availableto governments. Economic growth can begiven a short term boost by fiscal and/ormonetary policy stimulus, but at the risk ofworsening long term debt problems.Alternatively, a more cautious approach onfiscal austerity can damage growth in theshort term, and indeed incur electoralunpopularity along the way. For Sri Lanka,the current Stand-by Arrangement (SBA) withthe International Monetary Fund (IMF) hasprovided an external anchor, underscoringthe government's fiscal and monetaryframework. As the IMF programme ends in2012, Sri Lanka will have not only a healthiereconomy and stronger public finances, butalso the necessary 'political space' toconsolidate public finances in the absenceof major electoral imperatives.

In view of the above concerns, it isencouraging that the overall fiscal outcomesin 2010 are positive. The deficit was reducedfrom 9.9 per cent of GDP in 2009 to 7.9 percent in 2010 and looks set to be reducedfurther to under 7 per cent in 2011. This is,of course, not to imply that low fiscal targetsper se are always desirable or appropriate.Arguably, Sri Lanka's expansionary fiscalpolicy stance of 2009 in the midst of a sharpeconomic downturn and domestic socio-political imperatives stemming fromimmediate rehabilitation needs of a warweary population could be justified.Without such a fiscal stimulus to theeconomy, the private sector's reluctance toundertake investment would have depressedeconomic activity even further than the 3.5per cent growth recorded in 2009. Rather

than adopt a dogmatic approach to fiscaltargets, what is needed is a clearunderstanding that sound public financesallows a country the necessary leeway torespond appropriately to emerging domesticand/or external shocks. In the circumstances,what Sri Lanka needs to do first of all is tolower its deficit to a manageable level thatwill, over time, reduce the country's debtoverhang; that in turn will release 'fiscalspace' to respond appropriately to context-specific needs of the country through fiscaland/or monetary policy measures.

In this context, Sri Lanka's near term fiscalconsolidation plans appear to be reasonable.In 2010, expenditure as a percentage of GDPwas lowered to 22.9 per cent of GDP,primarily through rationalization of currentexpenditures. Encouragingly, capitalexpenditures remained more or less in linewith budget forecasts. There is ampleevidence to suggest that fiscal consolidationefforts via spending cuts rather than taxincreases are more likely to support mediumterm growth prospects. This, the governmenthas attempted to do through cuts in currentexpenditure, while supporting a higher rateof capital expenditure. Moreover,expenditure rationalization is beingaccompanied by fresh efforts to generateadditional revenues by way of tax reformson the basis of the recommendations of aPresidential Commission on Taxation. Taxreforms appear to be aimed at raising taxeson consumption and property rather than onincome or savings. Taxing the former is lessharmful to growth than taxing the latter.

Fiscal policy has clear implications not onlyfor sustained high growth, but also in relationto the distributional impacts of such growth.For instance, Sri Lanka's current focus onpublic infrastructure is found to beconcentrated heavily on the construction ofroads, ports, airports, etc. By contrast, capitalinvestment in education and health which

Policy Perspectives

5

stood at 1.1 per cent of GDP in 2006 haddeclined to 0.6 per cent by 2010. The tightfiscal constraints within which thegovernment is attempting to achieve a hostof complex objectives are clear. Perhaps,most importantly it also serves to underlinethe necessity for placing Sri Lanka's publicfinances on a sounder footing as animmediate priority.

The consolidation of public finances willalso help in setting monetary and exchangerate policy that will support long term growthobjectives. Indeed, any adverse impact offiscal tightening on output growth can beoffset to an extent by monetary easing. Thisis what Sri Lanka did in 2010, although withlimited results in stimulating private sectorcredit growth. However, despite a largelybenevolent inflationary environment in 2010,there can be emerging threats to pricestability. Thus, monetary policy should notsow the seeds of raising inflationexpectations even as fiscal consolidationefforts bear results. Sri Lanka's potentialgrowth rate without a risk of overheating canonly be guessed at, but stability has its ownrewards by providing a stable, predictablemacroeconomic environment in whichbusinesses could flourish. The costs ofhigher, and possibly more volatile, inflationwould outweigh any output gains fromexcessive monetary easing. It is also the poorwho ultimately suffer the most from priceinflation, negating efforts to ensure equitablebenefits of growth; the poor, unlike workersin formal employment, have limited optionsto defend themselves against inflation.

Sri Lanka's rate of inflation has been risingincrementally from the last quarter of 2010,primarily on account of rising food pricesfollowing inclement weather conditions.Political turmoil in some key oil exportingcountries has also mounted rising pressureson international oil prices. Such supply-sideprice shocks will have inevitable one-off

impacts on inflation. Standard monetarypolicy responses to contain supply-sideinduced inflation are not effectiveand alternative interventions throughadministered price controls and tax measureswere adopted. There is, however, the threatthat food and fuel price increases will beabsorbed into the general inflationarypressures via wage increases, even as arecovery in credit growth to the private sectoris anticipated to quicken and add toinflationary pressure on the demand-side.

Thus, the CBSL has to be extra vigilant toidentify emerging channels of inflationarypressure and respond appropriately. Excessrupee liquidity in the market - estimated atRs. 120-130 billion even by early 2011 -has been a potential source of inflationarypressure for most of 2010. A sharp increasein short term foreign investment inflows tothe government debt securities market, andperhaps more critically, high volumes ofgovernment foreign currency denominatedborrowing injected significant foreigncurrency surpluses into the country. Theseinflows have been supplemented by better-than-average inflows of worker remittancesand tourism receipts in the post-2009 setting.With the CBSL stepping in to mop up capitalinflows and prevent the currency fromappreciating unduly, a contributory outcomehas been the expansion of the domesticmonetary base. Rather than work through apricing mechanism - raising policy rates -the CBSL opted to work through a quantitymechanism - employing regulatory measuressuch as an increase in the Statutory ReserveRequirement (SRR) of commercial banksfrom 7 per cent to 8 per cent in April 2011.This is a crude, but often effectivemechanism to absorb excess liquidity ifpursued with sufficient vigour. Itseffectiveness in curtailing inflationarypressure will depend on levels of excessliquidity and demand for credit.


6

While excess rupee liquidity had droppedto under Rs. 70 billion by the end of thefirst quarter of 2011, with annual inflationat 7 per cent by June 2011, the inflationaryconsequences of an expanding monetary basecannot be ignored. There are few signs tosuggest that capital inflows will ease in thenear term. Sri Lanka issued a secondSovereign bond for US$ 1 billion in July2011, following the issue of the first US$ 1billion Sovereign bond in October 2010.Large volumes of foreign capital inflows maybe viewed as a sign of the country's renewedeconomic prospects and as evidence of goodinvestment opportunities, but there are alsoother, less palatable implications for theeconomy. The manner in which currentaccount deficits are funded matter; the bulkof capital inflows have come not fromcurrent demand for Sri Lanka's goods andservices, but rather as a result of capitalaccount transactions that are tilted heavilytowards government foreign currencydenominated borrowing. Such developmentshave both short and long term implicationsregarding the health of a country's externalpayments position.

Large net capital inflows also haveimmediate short term impacts. Theyinevitably exert upward pressure on acountry's exchange rate. The Sri Lankan rupeeappreciated by 3 per cent against the US$ innominal terms in spite of heavy interventionby the CBSL in the foreign exchange market.An appreciation of the real exchange rate,as has been occurring vis-à-vis a basket oftrading partner currencies, makes Sri Lankanexports less competitive in internationalmarkets. There will, of course, be heavilyimport dependent export products that willgain a price advantage through cheaperimported inputs. A stronger rupee will alsohelp to curb inflation, especially in the faceof rising international commodity prices.

However, in the midst of a significant dropin the ratio of exports to GDP in recent years- from 28 per cent in 2004 to 16.7 per centin 2010 - Sri Lanka cannot be complacentabout the need to push for higher foreignexchange earnings in the midst of a heavierexposure to external debt repayments in thelong term. The drop in the exports-to-GDPratio despite an increase in absolute dollarterms suggests that the higher growthmomentum Sri Lanka has been seeing morerecently is driven less by an export-push andmore by other factors, such as the higherpublic investment drive in infrastructure, etc.However, given the very limited domesticmarket, sustained high growth can only beachieved if Sri Lanka raises foreign demandfor the country's goods and services.

Thus, the details of macroeconomic policymanagement as outlined above matter forlong term growth. They also matter if growthis to be accompanied by social progress inthe country. For instance, sustained growthcan help poverty alleviation by not onlypulling the poor up into gainfulemployment, but also by providing largervolumes of revenue to finance targeted socialprogrammes. On the face of it, Sri Lankaappears to have made significant strides intackling overall poverty in the country andreducing emerging gaps between sectors ofthe economy. The Household and IncomeExpenditure Survey (HIES) carried out by theDepartment of Census and Statistics (DCS)appears to suggest that the poverty headcountindex has dropped from 15.2 per cent in2006/07 to around 8.9 per cent by 2009/10.The most promising is the suggestion thatthe gap between urban, rural and estatesectors have narrowed in the interim. Theresults on overall poverty reduction effortsare surprising in view of high price instabilitythat was experienced in the interim yearsand the economic downturn experienced in2009. However, the narrowing of inequitybetween sectors may not be so surprising

Policy Perspectives

7

given the emphasis placed on bridging urban-rural gaps in the government's developmentthrust since 2005, primarily in infrastructurespending and support to the agrarian sector.Despite the overall narrowing of imbalances,inequities in access to gainful economicopportunities - across different dimensionssuch as gender, geographic location, sector,ethnicity, etc. - continue to persist. Policiesto address these become all the moreimportant in the context of post-conflictreconciliation efforts.

As recently experienced across the world,an inequitable distribution of wealth createsa higher degree of economic insecurity thatcan often spill over into social unrest duringtimes of acute crisis. Indeed, the globaleconomic turmoil and rising food prices haveseen many countries grappling with renewedsocio-political tensions. Thus, even as theglobal economy recovers from a debilitatingeconomic contraction and swelling numbersof unemployed in developed countries,renewed attention is being paid to the issueof inequality. While the gap in wealthbetween developed and developingcountries is narrowing - a result of the lattergroup growing faster on average than theformer - concerns about the chasm betweenthe rich and poor within countries remain.

As Sri Lanka prepares for a spell of rapidgrowth in the coming years, this mayinevitably bring social problems to contendwith as well, unless issues of equity areaddressed at the outset. The push for highergrowth is often accompanied bytechnological progress. This can raise therelative demand for skilled workers. Whenthe supply of skilled workers fails to keeppace with demand, which is often the case,it can lead to a widening wage gap betweenskilled and unskilled workers. If, asanticipated, Sri Lanka's economic growthbecomes increasingly driven by a higherskilled services sector in the coming years,

widening wage gaps can emerge.Additionally, as more and more employmentis created in the contractual/informal sectors- where limited incentives are present foremployers or the self-employed to invest intraining - the lack of skills development canexacerbate structural rigidities in the labourmarket. Often the most vulnerable segmentswill be unskilled, female labour.

While there is broad consensus thateconomic growth is vital for development,it is also recognized that growth alone isnot the be-all and end-all of development.In this context, the notion of economicgrowth that is both sustainable and inclusivebecomes an important policy imperative forgovernments. While these are oftenfashionable lexicons in policy documents,country-specific contexts demand that theyare not ignored. For Sri Lanka, emerging froma costly era of a long drawn conflict, risingsocio-economic aspirations must be met tohelp restore and cement social harmony inits post-conflict development efforts. Thatcalls for economic policies that will not onlydeliver broad-based rapid growth, butpolicies that are also sensitive to issues ofequity in the distribution of, and access to,resources.

This year's State of the Economy report takesas its central theme the notion of 'Post-conflict Growth: Making it Inclusive' tounderstand the myriad channels throughwhich growth is accompanied by reductionin inequalities. Besides the desirability ofinclusive growth from a purely ethicalstandpoint, from a more practical perspective,inclusiveness is needed for sustainingeconomic growth, as exclusion leads tounderemployment of productive resourcesthat restricts growth.

Access to productive employment is a criticalelement to drive inclusive growth. It requiresimproving employability of workers on the


8

one hand and improving access to productiveemployment opportunities, on the other. Onthe supply side, improving employabilityinvolves access to good quality health,education and other productive assets. Onthe demand side, improving access toemployment requires opening upopportunities in various sectors of theeconomy in different geographic regionsand for diverse types of workers. Initialconditions in an economy - such as levels

of poverty and inequality, as well as otherexogenous factors such as geography,demography, climate, governance, politics,social considerations and the policyenvironment - will also play an importantrole in determining the subsequent growthoutcomes. In this context, the rest of thisreport examines the imperatives for inclusivegrowth in Sri Lanka across a spectrum ofpolicy areas through a series of chapters andpolicy discussions.

i

m%;sm;a;suh oDIaÀfldaK

f.da,Sh wd¾Ólh m%lD¾;su;a ùu i|yd ÿIalr

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ixj¾Okh i|yd tlai;a rdcOdksfha l%fudamdh

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f,d alfha m%;sm;a;s iïmdolhskaf.a m%Odk

m%;sIaGdj ù we;af;a zzÈhqKqjhsZZ hs' fuys§ Y%S

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wkqmd;hla w;alrf.k ;sfí' we;a; jYfhkau"

th Y%S ,xldj 2010 § idlaId;a lr.;af;a oeäf,i

j¾Okh jk id¾j wd¾Ól mßirhla ;=<

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h' 2010 § Y%S ,xldfõ ks, ixÑ;" jd¾;d.; f,i

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ms<sn|j meyeÈ,s tlÕ;djhla fkdue;' 1980

oYlh ;=< fj<|fmd, ñ,.Kka yd Èß.ekaùï

wjOdrKh flfrñka úYd, f,i ú;ekaùï

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;djld,sl jYfhka by, kexfjk w;r jvd;a u

ÈhqKq wdo¾Yhkaf.ka fhdackd flfrkafka"


ii

M,odh s;dj iïnkaOfhka úfY aIfhkau

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úiska ;u ,dN m%;s wdfhdack ld¾hhka i|yd

r|jd .ekSu ksid úh yels'

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,eìks' ixia:duh yd .Dy Kh .ekSï jvd;a

wjodkï jQfhka Tjqka .ek wfmaCId ;eîula isÿ

fkdjqks'

Policy Perspectives

iii

tla;rd m%udKhlg nexl= moaO;sh yryd

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;=vqfkdfok fia bl=;a j¾Ihg idfmaCIlj rchg

uQ,H w;sßla;hka we;s fkdjkakg ;sìks' 2010 Y%S

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o, foaYSh ksIamdÈ;fha wkqmd;hg Y%S ,xldfõ

úfoaYSh Kh .eKqï fndfyda ld,hla ;=<

fkdfjkiaj mej;=ks' we;a; jYfhkau 2009 §

36'5] la j mej;s th 2010 § 36'1] olajd my;

jegqks' úKsuh wkqmd;lhkays ixp,kh úfoaYSh

Kh o¾Yl flfrys meyeÈ,s n,mEula we;slrhs'

w.h jeäjk jHjydr uqo,lska 2010 § ,enQ

remshf,a w;aoelSï wkqj o, foaYSh ksIamdÈ;hg

wkqj úfoaY Kh wvqù uq<H o¾Yl jeäÈhqKq ùug

uÕ mEfoa' fuys§ Y%S ,xldj wkq.%yYs,SS fkdjk

iy jdKsc m%Njhkaf.ka ndysr jYfhka ,nd.;a

Kh jHqyh" isÿjQ fõ.j;a fjkialï w;aoel we;s

w;r 2006 j¾Ifha tlS Kh m%udKfha fldgi 7'3]

la jYfhka o 2010 j¾Ifha § th 37'5] jYfhka

o by, f.dia we;' úfoaYSh uQ,H iïmdok

úIfhys § fïjd wêl msßjehla oeÍug isÿjk

uq,dY%hkah' ;jo fï wkqj i,ld ne,Sfï§

úfoaYSh Kh wdmiq f.ùfï wkqmd;h 2002-04

ld,h ;=< 12] l jd¾Isl idudkHhl isg 2008-

10 ld,h ;=< 16'4] l idudkHhla olajd jeäùu

mqÿuhg lreKla fkdfõ' bÈßfha § úfoaYSh Kh

wdmiq f.ùï lsÍu wiSrejlska f;drùug fukau

wkfmaCIs; ndysr lïmkhkag f.dÿreùu iSud

lsÍug kï Y%S ,xldfõ úfoaY úksuh bmhSï Rcqj

fyda jl%j jeä ùug ;=vqfok wdldrfhka jHdmD;s

i|yd úfoaY Kh ,nd.ekSu iSudlsÍu i|yd

nqoaêf.dapr l%shdud¾.hla .ekSu wjYH fõ'

ld¾ñlrKh jQ wd¾Ólhka ys i sÿjkakdjQ

ixj¾Okhka ;=<ska óg lÈu mdvula iy rchkag

f;dard.ekSug we;s foa ms<sn|j isysle|jQula o

iemfha' uQ,H iy$fyda uqo,a m%;sm;a;suh

W;af; ackhla u. sk a wd¾Ól ixj¾Okh

fláld,Skj by, kexúh yelsh' tfy;a thska

È.=ld,Sk Kh ms<sn| .eg¿ jvd;a krl w;g

mßj¾;kh ùfï wjodkula t a; =< mj;S'

úl,amuh jYfhka, uQ,H úksuh iïnkaOfhka

jvd;a m%fõiï iys; m%fõIhlska fláld,Sk

jYfhka j¾Okhg ydks úh yels w;r we;a;

jYfhkau foaYmd,kuh jYfhka ck wm%sh;djhla

we;sfõ' Y% S ,xldj iïnkaOfhka .;al, Y%S

,xldfõ rdcH uQ,H yd uqo,a l%shdrduqj ms<sn|

ie,ls,su;a fjñka cd;Hka;r uQ,H wruqo, iu.

oekg mj;ajdf.k hkq ,nk iómia: úêúOdk

u.ska ndysr wdOdrlhka i,ikq ,en ;sfí'

cd;Hka;r uQ,H wruqof,a jevigyk 2012 §

wjika jk wjia:dj jkúg Y%S ,xldjg hym;a

wd¾Ólhla" Yla;su;a rdcH uqo,a ixÑ; muKla

fkdj rdcH uqo,a ixÑ; Yla;su;a lr.ekSu i|yd

ue;sjrK wjYH;djhkaf.ka f;dr foaYmd,k

wjldIhla Y%S ,xldjg ysñjkq we;'


iv

by; i|ykafldg we;s lreKq wkqj i,ld

ne§fï§ 2010 j¾Ifha iuia; uQ,H m%;sM,h

Y=Njd§ ùu Èß.kajk iq¿ lreKla fõ' 2009

j¾Ifha§ o, foaYSh ksIamdos;fhka 9'9] la jQ

whjeh ysÕh 2010 j¾Ifha§ 7'9] olajd wvqjQ

w;r 2011 jkúg ;jÿrg;a wvqjk njla fmkS

hhs' wvq uQ,H b,lal iEu úgu ksi¾.fhka WÑ;

fyd a fhd a.H tajd nj fuhska fkdlshefõ'

;¾ldkQl+,j kï" ;shqKq wd¾Ól miqnEula uOHfha

iy hqoaOfhka fyïn;ajQ ck;dj fjkqfjka

mqkre;a:dmk lghq;= foaYSh jYfhka isÿlsÍug

;=vqÿka iudc foaYmd,k jd;djrKhla ;=< jQ

2009 j¾Ifha Y% S ,xldfõ jHdma;suh uQ,H

m%;sm;a;s ia:djrh idOdrKSlrKh l< yelsh'

wd¾Ólhg tjeks uQ,H W;af;ackhla fkdue;s

;kays§ wdfhdackh iïnkaOfhka fm!oa.,sl

wxYh ;=< we;sjk wlue;a; ;=<ska wd¾Ól

l%shdldrlï iïnkaOfhka 2009 § jd¾;d jQ 3'5]

l j¾Okh ;jÿrg;a wvqjkakg ;snqks' uQ,H

b,lalhka i|yd wdm a;jd§ m %fõIhla

fhdod.ekSug jvd ke.Stk foaYSh iy$fyda

úfoaYSh lïmkhkag ksis whqßka m%;spdr oelaùug

;sridr rdcH ixÑ; j,ska m%ia:dj ie,fik nj

f;areï .ekSu wjYH fõ'

fï wkqj n,k l, Y%S ,xldfõ uQ,H ia:djr;ajhla

we;slr .ekSu i|yd jQ ie,iqï idOdrK fõ' 2010

j¾Ifha§ o, foAYSh ksIamdÈ;fha m%;sY;hla

jYfhka úhou m%Odk jYfhkau j¾;k úhoï

iqúOdkh lsÍu u.ska o, foaYSh ksIamdokfhka

22'9] la jk fia my; fy,k ,§' fuys§ is;a

ffO¾hu;a lrk iq¿ lreKla kï uq¿ukskau

mdfya whjeh mqfrdal:khkag wkqj m%d.aOk úhoï

oeÍuh' nÿ jeä lsÍug fkdf.dia jeh wvq lsÍu

yryd we;sjk uQ,H ia:djr;ajhlska uOH ld,Sk

ixj¾Ok yelshd Yla;Skag iydhla fndfydaúg

ie,fia'

m%d.aOk úhoï i|yd jeä uqo,a m%udKhla

iïmdokh lsÍug bv ,efnk whqßka j¾;k

úhoï lmdyeÍï ;=<ska fuh isÿlsÍug W;aidy

ord ;sfí' ;jo" úhoï iqúOdkh lsrSu iy

nÿlrKh ms<sn| ckdêm;s fldñIfï ks¾foaY

u; nÿ m%;sixialrK yryd w;sf¾l wdodhu

W;amdokh lsÍug kj m%h;ak orKq ,nñka ;sfí'

nÿ m%;sixialrK fhduqj we;af;a wdodhu fyda

b;sßlsÍï u; fkdj mßfNdackh yd foafmd, u;

nÿ whlsÍu iïnkaOfhks' fojekqj i|yka l<

úIhka u; nÿ whlsÍug jvd th wvqfjka

ydksodhl fõ'

;sridr by, j¾Okhla idlaId;a lr .ekSfï §

muKla fkdj tlS j¾Okfhys jHdma;suh n,mEï

iïnkaOfhka o meyeÈ,s uQ,H m%;sm;a;suh

ixl+,;d o ;sfí' WodyrKhla jYfhka olajkafka

kï fmdÿ há;, myiqlï iïnkaOfhka oeka jeä

wjOdkhla fhduqj we;af;a uxudj;a" jrdh" .=jka

f;dgqm, wdÈh flfrys h' wfkla w;g 2006

j¾Ifha § o, foaYSh ksIamdÈ;fhka 1'1 la jYfhka

wOHdmkh yd fi!LH fiajd fjkqfjka ork ,o

m%d.aOk úhoï 2010 j¾Ifha § 0'6] olajd my;

jeà ;snqks' ixlS¾K wruqKq rdYshla idlaId;a

lr.ekSu Wfoid rch úiska m%h;ak orñka isák

wjia:dfõ Bg uqyqK §ug ;sfnk oeä uQ,H

ÿIalr;d fudkjdoehs hkak meyeÈ,sh' w;eïúg

thska b;d jeo.;a f,i thska wjOdrKh flfrk

fohla kï Y%S ,xldfõ rdcH uQ,H ixÑ; jvd;a

iaÓridr mokula u; msysgd ;sìh hq;=ùu

w;HjYH m%uqL;djhla úh hq;= njh'

rdcH uqo,a ixÑ; Yla;su;a lsÍu ;=<skaa" È.= ld,Sk

ixj¾Ok wruqKq uqÿka muqKqjd.ekSug ;=vqfok

uqo,a yd úksuh wkqmd;sl m%;sm;a;sh ilid

.ekSug msgqjy,la ,efí' we;a; jYfhkau rdcH

uQ,Huh iSud ldrl ;=<ska ksIamdok j¾Okh

flfrys we;sjkakd jQ lsishï wys;lr n,mEula

fjf;d;a th uQ,Huh ,sys,alrKhka ;=<ska ;rula

ÿrg iukh l< yelsh¡ fm!oa.,sl wxYfha Kh

j¾Okh W;af;ackh lsÍfuka iSñ; m%;sM, ,oafoa

ù kuq;a 2010 § o Y%S ,xldj isÿlf<a fujeks

fohls¡

flfia kuq;a 2010 § jvd;a ys;ldñ WoaOukSh

jd;djrKhla mej;s kuqÿ ñ< ia:dhS;dj flfrys

wys;lr n,mEï mek ke.sh yelsh¡ fï wkqj

n,k l, uQ,H ;;ajh Yla;su;a lsÍfï m%%h;ak

;=<ska m%;sM, w;ajkafka ù kuqÿ WoaOukSh

wfmaCIdjkag ;=vqfok oE uqo,a m%;sm;a;shg

we;=<;a fkdl< hq;=h¡ WoaOukh wêl f,i by<

wjodkulska f;drj Y%S ,xldfõ YlHudk j¾Ok

wkqmd;h ms<sn|j wkqudk l<yels kuqÿ jHdmdr

id¾:l lr.ekSu msKsi Yla;su;a mqfrdal:kh

Policy Perspectives

v

l< yels id¾j wd¾Ól mßirhla i<id§fï

m%;sM, ia:djr;ajh ;=<skau w;alr.; yelsfõ¡

w;Hdêlj flfrk uQ,H ,sys,alrKh ;=<ska

w;ajkakd jQ ksuehqï m%;s,dN by< iy jvd;a

fjkiajk iq¿ WoaOukh ;=,ska hgm;a jkq we;¡

wjidk ú.%yfha § ñ< by<hdu ;=<ska mSvdjg

m;ajkafka ÿmam;a ck;dj jk w;r thska

ixj¾Okfha m%;s,dN iudkj fn§hdu m%;slafIam

ùulafia fmkS hhs¡ úêu;a /lshdjkays kshq;=

whj¨qka fuka fkdj WoaOukhg Tfrd;a;= §ug

È<sÿ ck;djg we;af;a iSñ; úl,amhkah¡

2010 wjidk ld¾;=fõ isg Y%S ,xldfõ WoaOuk

wkqqmd;h j¾Okd;aulj by, hñka ;sfí¡ Bg

m%Odk jYfhkau fya;=ù we;af;a whym;a

ld<.=Kh fya;=fldgf.k wdydr ñ< .Kka

by<hdu ksidh¡1 f;,a wmkhkh lrk m%Odk

rgj,a j, mj;sk foaYmd,k úhjq,a fya;=fldg

f.k cd;Hka;r f;,a ñ< .Kka by<hdfï

m%jK;djhla we;sj ;sfí¡ iemhqï wxYh fj;ska

we;sjk tn÷ ñ< lïmk j,ska WoaOukh fj;

wys;lr n,mEï we;sjkafka tla wjia:djl§h¡

iemhqï wxYfhka we;sjk WoaOukh md,kh lsÍu

Wfoid jk uqo,a m%;sm;a;suh m%;spdrhka M,odhS

fkdjk fyhska ñ< md,k yd nÿ ls%hdud¾. yryd

úl,amuh ueÈy;aùï fhdod .eKsk¡ flfia kuq;a

fm!oa.,sl wxYfha Kh j¾aOkh m%lD;sùula f,i

úoHdudk úh yels jegqma jeälsÍï yryd fmdÿfõ

mj;akd WoaOukldÍ mSvkhka ;=,g wdydr ñ<

yd f;,a ñ< jeäùï wjfYdaIKh ùfï ;¾ckhla

we;sù ta ksid b,a u iïnkaOfhka mSvkh blaukska

jeäjkq we;ehs wfmaCId lrkq ,efí¡

fï wkqj WoaOukldÍ mSvk m%Njhka y÷kd.ekSu

msKsi Y% S ,xld uy nexl=j úiska jeämqr

wjOdkhla fhduql< hq;=fõ¡ 2010 j¾Ifha jeä

ld<hla ;=, fj<|fmdf,a w;sßla; remsh,a

øjYS,;dj 2011 uq,a Nd.fha§ re¡ ì,shk 120 -

130 la f,i weia;fïka;= l< mßÈ WoaOukldÍ

mSvkfha YlHudk m%Njhla fjñka ;sfí¡ rcfha

Kh iq/l=ïm;a fj<|fmd, fj; ,enqKq

fláld,Sk úfoaYSh wdfhdack .,dtaï ;shqK f,i

j¾Okh ùula iy we;eïúg b;d ;SrKd;aul

whqßka úfoaYSh jHjydr uqo,ska w;súYd, f,i

Kh ,nd.ekSï j,ska Y%S ,xldfõ lemS fmfkk

f,i úfoaYSh jHjydr uqo,a j, w;sßla; we;s

úh¡ fulS úfoaYSh jHjydr uqo,a furgg .,dtaug

w;sf¾l jYfhka tf;r Y% S ,dxlsl /lshd

kshqla;slhka úiska idudkHh blaujñka furgg

fm% aIKh lrk ,o u qo, a o 2009 k a mi q

jd;djrKh ;=< ixpdrl jHdmdrfhka ,o wdodhï

o úh¡ jHjydr uqof,a w.h wkjYH f,i

by,hdu je,elaùu msKsi m%%d.aOk .,khka

fjkqfjka WÑ; ls%hdud¾. j,g wj;s¾K ùu

;=,ska foaYSh uqo,a moku mq¿,a ùug odhl;ajhla

iemhqks¡ ñ< kshu lsÍfï hdka;%Khla yryd tkï

m%;sm;a;suh jYfhka wkqmd; by< kexùug

lghq;= lsÍug jvd 2011 § jdKsc nexl= j,

jHjia:dms; ixÑ; wjYH;djhka 7] isg 8] olajd

jeälsÍu jeks kshduk mshjr fhdod.ksñka

m%%udKd;aul hdka;%Khla yryd lghq;= lsÍug

Y%S ,xld uy nexl=j leue;a;la oelaúh¡ m%udKj;a

f,i ilS%hj fuh ls%hd;aul lrkafka kï fuh

r¿ fyj;a M,odhS hdka;%Khls¡ w;sßla; øjYS,;d

uÜgu yd Kh i|yd jQ b,aü u; WoaOukldÍ

msvkh wvqlsÍfï id¾:l;ajh r|d mj;S¡

2011 m<uq ld¾;=j wjidk jk úg w;sßla;

remsh,a øjYS,;dj 2011 jk úg mej;s jd¾Isl

WoaOuk wkqmd;hka iu. remsh,a ì,shk 70 jvd

my; jegq qkq úg mq¿,a jk uqo,a mokul

WoaOukldÍ m%;sM, fkdi,ld yeßh fkdyel¡

kqÿf¾§u m%d.aOkh myiqfjka .,d tafï i,l=Kq

we;af;a u| jYfhks¡ 2010 Tlaf;dan¾ ui m<uq

ksl=;a lsÍfuka blaì;sj 2011 j¾Ifha§ t¡c¡ fvd,¾

ì,shk 1 la i|yd jQ neÿïlrhla ksl=;a lsÍu

ioyd Y%S ,xldj oekgu;a iQodkï ù isà¡

úfoaYSh wdfhdack úYd, jYfhka furgg .,dtau"

rfÜ w¿;a jQ wd¾Ól wfmaCIdjka fukau hym;a

wfhdack m%ia:djka ;sfnk njg idCIshla jk

kuq;a wd¾Ólh flfrys t;rï hym;a fkdjk

n,mEïo tys wka;¾.;j we;¡ j¾;k .sKqï j,

;sfnk ysÕhka i|yd uQ,H iïmdokh lrkafka

flfi aoeh s hk ak jeo.;a fõ¡ m % d. aOk

.,khkaf.ka fndfydauhla NdKav yd fiajd

1 2011 cqks udifha§ 2002 mokï j¾Ih f,i .ksñka mokï ld,h jYfhka oEjqreÿ idudkHhla 2006$2007& .ekSu i|yd 2006$2007.DydY%s; wdodhu yd úhoï mokï lrf.k CCP1 .Kkh lrk ,§'


vi

fjkqfjka Y%S ,xldfõ j;auka b,a qfuka we;sjQ tajd

fkdjk w;r th we;sù ;sfnkafka úfoaY jHjydr

uqo,ska Y%S ,xld rch úiska ,ndf.k we;s Kh

iïnkaOfhka jk m%d.aOk .sKqï .Kqfokq j,

m%;sM,hla jYfhks¡ tn÷ m%jK;d ;=,ska rgl

ndysr f.jqï ;;ajh uekúka mj;ajd .ekSu

flfrys Woa.;jk fláld,Sk yd È.=ld,sk

n,mEï we;sfõ¡

úYd, Y=oaO m%d.aOk .,k iïnkaOfhkao CIKsl

fláld,Sk n,mEï o we;sfõ¡ tajdhska furg úfoaY

úksuh flfrys j¾Okdjk; whqßka mSvk we;s

fõ¡ úfoaYSh úksuh fj<ofmd, i|yd Y%S ,xld

uy nexl=j úiska isÿflrekq nrm;, ueÈy;aùï

uOHfha jqjo Y%S ,xld remsh, t¡c¡ fvd,rhg

idfmaCIlj kdñlj 3] lska by< .sfhah¡ fj<o

yjq,alre jHjydr uqo,a iïnkaOfhka isÿfjñka

mj;sk whqßka uQ Q¾; úksuh wkqmd;slhka

by<hdula ;=<ska cd;Hka;r fj<ofmd,j,a j,

Y%S ,xldfõ wmkhk" wvq ;r.ldÍ;ajhlg

fhduqlrkq ,nhs¡ tneúka we;a; jYfhkau jvd;a

,dNodhS NdKav wmkhk yryd ñ< jdishla

,efnk mßÈ wdkhkh wdkhk mrdh;a; wmkhk

ksIamdok ioyd keUqrejla we;súh yelsh¡

úfYaIfhkau by< hk cd;Hka;r fj<| øjH ñ<

.Kka uOHfha Yla;su;a remsh,lska WoaOukh

uevmeje;aùug iydhla ,efí¡

flfia kuq;a uE; wjreÿ j, o< foaY Sh

ksIamdos;hg idfmaCIj wmkhk wkqmd;h lemS

fmfkk f,i my; jeàfï jd;djrKhla ;=,

^tkï 2004 § 28] la jQ wmkhk wkqmd;h 2010 §

16'7] olajd my; jegqks&' úfoaY rgj,ska

,nd.kakd ,o úYd, Kh È.=ld,skj wdmiq

f.ùfï miqìula wìhi jeä jeäfhka úfoaY

úksuh bmhSfï wjYH;djfhka f;drùula

ms<sn|j Y%S ,xldjg is;sh fkdyelsh¡

fvd,rfha ksrfmaCI jákdlu jeäùula ;sìh§;a

o, foaYSh ksIamdÈ;hg idfmaCIj wmkhkhkaf.a

my; jeàu ;=<ska fmkakqï flfrkafka b;du;a

uE;§ Y%S ,xldj w;aolsñka ;sfnk by, j¾Ok

fõ.h jQl,S wmkhk ksid muKla we;sjQ m%.;shla

muKla fkdj há;, myiqlï i|yd jeäfhka

wdfhdackh lsÍï wd§ m%h;akhka ;=,ska w;am;a

lr.;a tlla njh¡ flfia kuq;a b;d iSudiys;

foaYSh fj<ofmd, .ek i<ld n,k l, ;sridr

f,i by, ixj¾Okhla idlaId;a lr.; yelafla

furg NdKav yd fiajd ioyd úfoaYSh b,a u by,

kxjd .kafka kï muKls¡

fï wkqj by;ska úia;r lrkq ,en we;s mßÈ id¾j

wd¾Ól m%;sm;a;s l<ukdlrKh È.=ld,Sk

ixj¾Okh ioyd jeo.;a fõ¡ ixj¾Okh iudc

m%.;sh iu. ls%hd;aul ùfï§ tajd jeo.;a fõ¡

WodyrKhla jYfhka È<sÿ ckhd jegqma ,nk

/lshdjka fj; fhduq lsÍfuka muKla ;sridr

ixj¾Okh ;=,ska È<sÿ nj ;=rkalsÍu isÿ fkdl,

yels w;r th l, hq;af;a uQ,H b,lal iys;

iudchSh jevigyka i|yd wdodhñka úYd,

fldgila iemhSu u.sks¡ fï wkqj i,ld n,k

l, rfÜ iuia: oßø;djh ms<sno .eg¿j

úi§fuys,d fukau wd¾Ólfha tla tla wxYhka

w;r ks¾udKh fjñka ;sfnk ysoeia wvqlsÍu msKsi

rch úiska lemS fmfkk mshjr /f.k we;s neõ

fmkS hhs¡

ck yd ixLHd f,aLk fomd¾;=fïka;=j úiska mjq,a

yd wdodhï jeh ms<sno isÿlrk ,o ióCIKhg

wkqj 2006-07 j¾Ifha ck.yKfhka 15¡2] muK

jQ È<sÿ ck ixLHdj 2009-10 jk úg 8¡9] muK

m%;sY;hla olajd my; jeà ;sfí¡ fuys jvd;a

is;a.kakd iq¿ foh kï fï w;r;=r ld<fha§

kd.ßl .%dóh yd j;= wxYfha mr;rh wvqùuhs¡2

tls w;r;=r wjqreÿ j,§ oeäf,i we;sjQ ñ<

wiaa:djr;djh iy 2009 § uqyqKmEug isÿjQ

wd¾Ól wjmd;h .ek i<ld n,k l< È<sÿlu

my; fy,Sfï iuia: m%h;akhkays m%;sM, mqÿu

M,jk iq¿h¡ flfia kuq;a tla tla wxYhka w;r

mj;sk wiudk;dj wvqlsÍu t;rï mqÿuhla

fkdjkafka uQ,sl jYfhkau há;, myiqlï i|yd

uqo,a fhoùfï§ yd lDIsld¾ñl fCIa;%h ioyd

iyk ie<iSfï§ 2005 j¾Ifha isgu kd.ßl

.%dóh mr;rh wju lsÍu msKsi rcfha ixj¾Ok

m%h;akhkays§ ie,ls,a, fhduqlrk ,o fyhska

iuia:hla jYfhka .;al, wiu;=,s;;djfha

2 i¾j.%dyS ÈhqKqj w;HjYH fuj,ula jYfhka iudc wdrCIKh hk uefhka fuu jd¾;dfõ 5 jeks fþofhys oelafjk idlÉcdjn,kak'

Policy Perspectives

vii

mr;rh wvqùula isÿj we;s kuqÿ iudcfha tla

tla me;slv iïnkaOfhka i<ld n,k l, tkï

ia;%S mqreI iudcNdjh, N+f.da,Sh msysàu" tla tla

wxY yd ckjd¾.slNdjh wkqj ,dNodhS wd¾Ól

m%ia:djkag m%fõYùfï úIu;d ;jÿrg;a mj;S¡

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miqìu ;=, fulS .eg¿ ms<sn|j fidhdne,Su b;d

jeo.;a lreKls¡

f,dalh úiska uE;§ w;aoel we;s mßÈ iïm;a

wiudkj fn§hdu ;=,ska w;sYh w¾nqoldÍ

;;ajhka ;=, iudchSh fukau fndfydaúg

wiykhkag ;=vqfok wkaofï ;shqKq wd¾Ól

wkdrCIs;Ndjhla o ks¾udKh fõ¡ we;a;

jYfhkau f.da,Sh wd¾Ól w¾nqoh iy wdydr øjH

ñ< by<hdfï fya;=fjka fndfyda rgj,a j,g kj

iudc wd¾Ól wd;;Ska iu. fmdrne§ug isÿj

;sfí¡ tla tla rgj, wjdisodhl wd¾Ól

ixfldapkh yd /lshd úrys; ixLHdfõ m%idrKh

uOHfha f,dalfha wd¾Ólh m%lD;su;a fjñka

;sfnk wjia:djl wiu;=,s;;djh ms<sn|

m%Yak.; lreKq iïnkaOfhka kj wjOdkhla

fhduqfjñka mj;S¡ ixj¾ê; yd ixj¾Okh fjñka

mj;sk rgj, ;;ajh tkï fmdfydi;a yd ÿmam;a

ck;dj w;r mj;akd mr;rh jeäfjñka mj;sk

iajNdjhla ;ju;a mj;S¡

bÈß j¾I ;=,§ Y%S ,xldj fõ.j;a ixj¾Okhla

lrd hdug iqodkï fjñka isák fyhska idudk;ajh

ms<sn| m%Yak.; lreKq wdrïNl wjia:dfõ§u

úi£ug mshjr fkd.kafka kï fuhska b÷rdu

we;sjk iudc .eg¿ j,g o wmg uqyqK§ug

isÿfõ¡ by, uÜgfï ixj¾Okhla we;sjkafka

ksr;=reju ;dCIKsl m%.;sho Bg yjq,a jQ úgh¡

fuhska mqqyqK Y%ñlhka i|yd we;sjk idfmaCIl

b,a¨qu by< kexfõ¡ b,aüg iß,k mßÈ mqqyqKq

Y%ñlhka iemhsh fkdyelsjk wjia:djkays§

mqyqKq yd kqmqyqKq Y%ñlhka w;r jegqma mr;rh

mq¿,a ùug ux mEfoa¡

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wd¾Ól j¾Okh jeä jeäfhka by< mqyqKq fiajd

wxYhla yryd idlaId;a lr.ekSug hkafka kï

jegqma mr;rh mq¿,aùfï .eg¿jla u;=úh yelsh¡

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/lshd kshqla;slhka mqyqKqlsÍu fjkqfjka

wdfhd ackh lsr Su Wfoid iïm;a iSñ; ù

.súiqï.;$wúêu;a wxYhkays jeäjeäfhka /

lshd ks¾udKh jk wjia:djkays§ ksmqK;d

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jHqyd;aul oDv;djhka W;aikak úh yelsh¡

fuys§ fndfydaúg mSvdjg m;ajkafka kqmqyqKq yd

ldka;d Y%ñlhkah¡

ÈhqKqj Wfoid wd¾Ól ixj¾Okh w;HdjYH nj

nyqu;h jk w;r ÈhqKqj muKlau ixj¾Okhg

wod< ish,a,u fkdjkakdla fuka wjidk foho

fkdfõ¡ fuu miqqìu hgf;a ;sridr yd i¾j.%dyS

ÈhqKqj kue;s ixl,amh rchkag wjYHjkakdjQ

jeo.;a m%;sm;a;shla njg m;afõ¡

fïjd m%;sm;a;suh ,smsf,aLk j, úÑ;%j Ndú;d

flfrk jd.aud,dj jk kuqÿ furgg úfYaI jQ

;;ajhka ;=,ska m%ldY jkafka tajd fkdi,ld

yeÍu fkdl, hq;= njhs¡ Y%S ,xldj .ek i,ld

n,k l, lgql mßÉfþohlska blaì;sj wd¾Ól

jYfhka ysi Tijk miqìula ;=, ls%hd;aul fjñka

mj;sk ixj¾Ok m%h;akh yryd rfÜ iu.sh yd

tald.%;dj kej;;a we;slsÍu Wfoid ke.S tk

iudcuh wd¾Ól wNs,dYhka imqrd,sh hq;=h¡

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flfrk wd¾Ól m%;sm;a;s iïmdokh lsÍu muKla

fkdj iïm;a fnodyeÍu iy tajdg m%fõYùu

iudk wdldrfhka isÿùu ms<sn| .eg¿ j,g

ixfõ§;djla olajk m%;sm;a;so iïmdokh lsÍu

wjYH fõ¡

fuu jif¾ zzwd¾Ól ;;ajhZZ kue;s jd¾;dfõ

m%Odk f;audj jQl,S wiudk;djhka wvqlsÍu u.ska

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oDIaÀfldaKhlska n,k l, ;sridr ÈhqKqj i|yd

i¾j.%dys;ajh wjYH idOlhls¡ ukaoh;a" neyer

lsÍu M,odhS iïm;a wvqfjka Ndú;d lsÍug iy

ÈhqKqj iSud lsÍug o u.mdok neúks¡

M,odhS /lshd kshqla;sh i¾j.%dyS ÈhqKqfõ

;SrKd;aul .dul idOlhhs¡ lïlrejkaf.a

/lshd kshqla;sh jeäÈhqKq lsÍu tla w;lskao


viii

wfkla w;ska M,odhS /lshd wjia:djka i|yd

m%fõYh jeäÈhqKq lsÍuo Bg wjYH fõ¡

iemhqï me;af;ka /lshd kshqla;sNdjh jeäÈhqKq

lsÍug we;=<;aúh hq;=foa kï .=Kd;aul ;;ajfhka

hqla; fi!LHh myiqlï wOHdmkh yd fjk;a

M,odhS j;alïh¡ b,a u iïnkaOfhka i<ld n,k

l, /lshd m%fõYh jeäÈhqKq lsÍu i|yd úúO

N+f.da,Sh l,dm iy úúO .Kfha lïlrejka

fjkqfjka wd¾Ólfha úúO wxY ;=< wjia:d újD;

lsÍu wjYH fõ¡ wd¾Ólhl oßø;djfha yd

wiudk;djfha uÜgï fukau N+f.da,Sh" ck.yk"

foaY.=Ksl" md,kd;aul" foaYmd,k iudchSh

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ndysr idOl jeks ;;ajhka" ÈhqKqfõ m%;sM,

;SrKh lsÍfuys,d jeo.;a ld¾hNdrhla bgq lrhs¡

fulS miqìu ;=, mßÉfþo .Kkdjla yd

m%;sm;a;suh úia;r lsÍï iys;j m%;sm;a;suh

fCIA;% .Kkdjla ;=,ska Y%S ,xldj i|yd i¾j.%dyS

ÈhqKqjla idlaId;a lr.ekSug wjYH foa fuu

jd¾;dfõ b;sß fldgi u.ska úu¾Ykhg ,la

flf¾¡

i

nfhs;ifj; Njhw;wq;fs;

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tsu ;r ; r pf ;fhd mbf ; fw ;fs pd ; I.eh .

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mikg;ghsu;fSf;F “tsu;r;rpNa” %isf;

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Kd;Ndwp tUk; Nguz;lg; nghUshjhur;

#oYf;F kj;jpapy; = yq;fh 2010 y; xU

gykhd nghUshjhu kPz;nlOjYld; ,jid

mile;jJ. Vw;Wf; nfhs;s Kbahj mstpy;

cau;e;j gztPf;fj;JlDk; Fiwe;J tUk;

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,Ue;j ,uz;Nl tUlq;fSf;F Kd;G ,Ue;j

epiyf;F NeNu tpj;jpahrkhdJ. 2010 y; =

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,Ug;GfisAk; xU kpjkhd 5.9 E}w;W tPj

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gyk; kpf;f murhq;fj;jpd; nfhs;ifapdhYk;

kw;Wk; murpay; ];jpuj; jd;;ikapdhYk;> gyg;

gLj;jg; gl;l ehl;bd; ePz;lfhy nghUshjhu

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ek;gpf;iff;Fg;; ngUkstpw; flikg; gl;Ls;sJ.

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mk;rq;fs;; gw;wpr; rpy ftiyfSk; cs;sd.

mj;jifa mk;rq ;fspy ; ehl ;bd; Gjpa

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nfhs;sf; $ba jdpahu; Jiw %yjdj;jpd;

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tUk; Neub ntspehl;L %yjdj;jpd; (vt;.B.I.)

cs; tUifiag; NghyNt Ntfq; Fiwe;J

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tsu;r;rpahdJ 2010 d; ngUk; gFjpapy; ke;jkhf

,Ue;J tUlj;jpd; ,Wjp khjq;fspy; khj;jpuk;

mgptpUj;jpaile;jNjhL vt; B I cs;tuTfs;

rr;ruTfs; epiwe;j 2009 Mk; tUlj;jpd; 385

kpy;ypad; I.eh.nlhyu;fSf;F vjpuhf 435

kpy;ypad; I.eh. nlhyu; tiu xU rhjhuz

kPl;rp fz;lJ. fle;j tUlj;jpw; Nghd;W ehL

xU 8 E}w;W tPj tsu;r;rpia mila mur

Kjy P Nl = yq ; f ht pd ; tsu ; r ; r p

Kf;fpaj;Jtj;jpid Kd; nfhz;L nrd;wJ.

ng hUshjh u tsu ; r ; r p a pd ; %yq ; fs ;

Kf;fpakhdit vd;w NghjpYk; tsu;r;rpia

Kd; nfhz;L nry;tJ vJ vd;gjpy; njspthd

cld;ghL vd;WNk ,Uf;ftpy;iy. cz;ikapy;

mg pt pUj ; j p f ; fw ; gidahdJ Ju pj

mgptpUj;jpia cWjpg; gLj;Jtjw;fhd mjp

rpwe;j nfhs;iffs; vit vd;gjpy; khWgl;l

ek;gpf;iffSld; rpjWz;L fplf;fpd;wd. 1980

Mk; tUlq;fspy; re;ijfs;> tpiyfs; kw;Wk;

Cf ;Ft p g ; Gfs py ; g h u ;itia xU

Kfg;gLj;Jifapy; xU mjpu;r;rpA+l;Lk; efu;T

fhzg;gl;lJ. ,it> ,e;j eilKiwapy;

;“fl;likg;igr; rupg;gLj;Jjy;” tpiyfisr;

rupahfg; ngWjy; Mfpatw;wpD}lhf epjpr; rk

epiyapd ;ikiaf; Fiwj;J Fwpg ;ghff ;

ifj;njhopy; %yjdq;fisf; $ba tiu

cau;j;Jjiy Ntz;b epw;fpwJ. 1990 fspy;

ehLfSf;Fr; “re;ijg; gLj;Jjiy” kl;Lk; $wpf;nfhs;if topelj;jy;fis toq;Fjy; NkYk;

fbdkhf ,Ue ; jJ . jd pa h u ; j ; Jiw

mg pt pUj ;j pf ; f hf Cf ;Ft pg ; GfisAk ;

eltbf ;iffisAk ; mw pKfg ; gLj ; j

Nkhrbfisf; Fiwj;Jk; rl;l Ml;rpia

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nrytpdq;fisf; Fiwj;Jk;>” njhopy; El;gk;Mfpatw;wpd; juKau;j;jYf;fhf fy;tp kw;Wk;

mjd; Ntiy mzpfspd ; j pwikfis


ii

Kd;Ndw;;w mur epWtdq;fisg; gyg;gLj;Jk;gb

mit ehLfis Ntz;Lfpd;wd.

epfo;r;rp epuy;fs; khw;wj;jpdhyhFk; eyd;fs;

vJthf ,Ug;gpDk; %yjdj;jpd; xU epiyahd

mjpfupg;G nghUshjhuj;jpd; tsu;r;rp tpfpjj;ij

jw ; f hy pfk hNtDk ; cau ; j ;Jf p wnjd

nghUshjhur; rpj;jhe;jk; Fwpg;gpLifapy;

cw;gj;jpj; jpwDf;F Nkk;ghLfisf; nfhz;L

tUjy; Fwpg;ghf kdpj %yjdj;jpy; GJik

kw;Wk; KjyPLfspd; fhuzkhf NkYk; epiyahd

Kiwa py ; tsu ; r ; r p ngUFjiy

mDkjpf ;fpwnjd NkYk; fyg;GfSs;s

Kiwfs; Fwpg;gpLfpd;wd. ,e;jj; Jiwapy;

ehl;bd; ngsjpf cl;fl;likg;G %yjdj;ij

Kd;Ndw;WjYf;Fg; ngupJk; rhu;ghTs;s =

yq;fhtpd; mur %yjd Kd;ndLg;G tsu;rpf;F

xU gpuNahrdkhd Muk;g Cf;Ftpg;igr;

re;Njfkpd;wp toq;fyhk;. Mdhy; me;j tsu;r;rp

Kf ;f paj ;Jtj;jpd ; e Pz;l fhyk; epiy

nfhs;Sjy; njhopy; El;gk; kw;Wk; mwpTg;

gupkhw;wk;; Mfpatw;wpw; nghUj;jkhd Kiwapy;

%yjdkpLjiyf; nfhz;Nl cWjpg;gLj;jyhk;.

,q;Nf jdpahu;j;Jiw %yjdk; kw;Wk; tpNr\khf

vt; B I Mfpait xU Fwpg;ghd Kf;fpa

ghfj;ij Vw;f Ntz;bAs;sJ.

jdpahu;j; Jiw fld; tsu;r;rpahdJ 2009 d;

kj ; j pa gFj pa py pUe ;J = yq ; f hg ;

nghUshjhuj;jpy; Vw;gl;l Gjpa kPs;gha;r;ry;

kw;Wk; $ba Ntfj;jpyhd tsu;r;rpapd; NghJk;

xg;gpLifapy;. Fjpj;njOjy; ke;j Ntfj;jpNyNa

,Ue;jJ. fld; tsu;r;rpahdJ> 2008 y; xU 8

E}w;W tPj tsu;r;rpf;Fg; gpd; GwkhfTk;> 2009

d; 5.8 E}w;W tPjr; RUq;fypd; NghJk; 2010 d;

,uz;lhk; miug; gFjpapy; kl;Lk; tUl ,Wjpapy;

25 E}w;W tPjj;jpdhyhd xU MNuhf;fpakhd

tsu;r ;rpiag; gjpT nra;Ak; msTf;Fj;

njhlu;e;jJ. = yq;fh mikg;gpy; ,Nj Nghd;w

xU Nguz;l mjpraj;ijg; Gupe;J nfhs;tJ

kpf ,yFthf ,Ue;Jk; jdpahu ; Jiw

tsu;r;rpapd; ke;jkhd kPl;rpf;fhd fhuzk;

Kw;wpYk; njspthf ,y;iy. 2008/09 fspd;

Nguz;lg; nghUshjhuf; fPo; Nehf;ifg; Nghd;w

xU epjpr ; rpf;fy; epiyiaj; njhlUk;

,ilf ;f hyg ; nghUshjhur ; #oy pNy

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fld; Rikfisf; Fiwg;gjdhy; vjpu;ghu;f;ff;

$bajhifahy; ke;jkhd fld; tsu;r;rp

vjpu;ghu;f;ff; $bajhfTs;sJ. cyfha epjpr;

rpf;fy; epiyapdhy; = yq;fh Njitaw;w

Kiwapw; ghjpf;fg; glhJ ,Ue;J 2005 – 07fspd; kpjkpQ;rpa fld; tsu;r;rpr; #oYf;F

kj;jpapy; mjw;Nj cupj;jhd epjpf; Fog;g

epiyapD}Nl nrd;W nfhz;L ,Ue;jJ. mJ

rpy Kf;fpakhd epjp epWtdq;fSk; rl;l

tpNuhjkhd “nghd;rp jpl;lq;fs;” mtpo;tij

kl;Lkd;wp FbapUg;Gfs; kw;Wk; epWtdq;fisf;;

$Ljyhf Mjpf;fQ; nrYj;JtijAk; fz;lJ.

cjhuzkhf ,jd; tpisthf tq;fpj; Jiwapd;

ruhrup ,af;fkw;w fld; toq;fy; (vd; gP vy;)

tpfpjhrhuk; 2007 d; 5 E}w;W tPjj;jpypUe;E

2009 y; 8.5 E}w;W tPjj;Jf;Fj; Js;spaJ. mJ

kPs;- %yjd Nehf;fq;fSf;fhf fk;gdpj;

Jiwa pdu ; ,yhgq ; fis e pWj ; j p

itj;jpUg;gjhfTk; ,Uf;fyhk;.

xl;L nkhj;jkhf> jdpahu; Jiw %yjdg;

grpiaf; Fiwg;gjpy; Nfs;tp kw;Wk; toq;fy;

mk;rq;fs; ,uz;Lk; xU ghfj;ij Vw;Ws;sd

vd;gij = yq;fhtpd; mDgtk; Rl;bf;

fhl;LfpwJ. xU Jupj nghUshjhu kPl;rpapd;

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epWtdq;fSk; fld; ngWtjpy; tpUg;gf;

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toq;Fjypy; tpUg;gf; FiwthfNt ,Ue;jd.

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e pWtdq ;fSk ; fld ;fisj ; j pUg ; gr ;

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Mr;rupaky;y.

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cs;s+u; %y epjpr; re;ijapypUe;Jk; Fiwthf

my;y. = yq;fhtpd; “Nghu;];” MdJ> njhlu;e;J

cyfstpy; ,uz;L tUlq;fshf ,uz;lhtJ

mjp rpwe;j ,aw;Wduhf Mtjw;F 2010 y; 95

E}w;W tPjj;Jf;Fk; $Ljyhf ,yhgk; <l;baJ.

Policy Perspectives

iii

nghUshjhuj;jpd; ePz;l fhy tha;g;Gfspy;

GJg; gLj;jg; gl;l ek;gpf;if re;Njfkpd;wp

xU ghfj;ij Vw;W ,Uf;ifapy; newpg;

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n r hj ;Jf ; fs py pUe ;J tUk ; Fiwe ; j

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thq ;Fgtu ;fisNah ehLk ; mtrukhd

Njitfis ,y;yhkyhf;Fk; mghak; mwNt

,y;yhj MNuhf;fpakhd tUthia murhq;ff;

fld; gpizaq;fs; njhlu;e;J toq;Ffpd;wd.

XusTf;F njhopw;rhiyfis tq;fp Kiwapd;

fldpD}lhf tprhykhf;fp Gjpa ,ae;jpuq;fspy;

KjyPL nra;tjw;fhd jdpahuj; Jiwapdupd;

jho;j;jg; gl;Ls;s grpahdJ rpy rkak; xU

fyg;ghd MrPu;thjkhFk;. jdpahuj; Jiwf;

fld; tsu;r;rp xU Jupj mbapy; NkNyhq;fp

,Ue;jjhy; murhq;fj;Jf;Fr; nrhe;jkhd epjp

%yjdq;fs;> fle;j tUlj;Jld; njhlu;gpy;

kpf Kd;Ndw;wkhd gpujpgyd; ,Ue;j NghjpYk;

mirTWk; tpisTfisf; nfhOj;jp tplhJ

,lkspf;f KbahjpUe;jpUf;Fk;. = yq;fhtpd;

2010 d; [P.B.gP apd; 7.9 E}w;W tPjf; Fiwia

[P.B.gP apd; 3.6 E}w;W tPj cs;ehl;Lf; fld;

thq;fypD}lhf epjpaplg ; gl;lJ. ,jd;

mbg;gilapy; jdpahu;j; Jiw epjpf;fhfg Nghl;b

Nghlhj epiyapy;> epjp mOj;jq;fs; kw;Wk;

nghUshjhu kPl;rpf;fhd Jupj eltbf;iffs;

,Ue;j NghjpYk; xU Fiwe;j gztPf;fj;ijAk;

tl;b tpfpjj;ijAk; nfhz;l xU fhyg;

gFjpia ntw;wpfukhf epiyf;fr; nra;a

murhq;fj;Jf;F Kbe;jJ.

vt;thwpUe;j NghjpYk; Fiwf;F epjpaply;

njhlu;ghd murhq;fj;jpd; epiyg;ghlhdJ –cjhuzkhf cs;ehl;L epjpaPl;L %yq;fis

ek;gpapUj;jiy tiuaWj;jy; - tsu;r;rpiaf;

$l;Ltjw;F jsu;j;jg; gl;l epjpf; nfhs;if

epiyg;ghl;il epiyf;f itf;Fk; mjd;

Kaw;rpahdJ ,ul;il efu;Tfshf ,Uf;ff;

$Lk;. mJ mtrpakhfNt ehl;bd; mur

KjyPl;Lj; Njitfis vjpu; Nehf;f ntspehl;L

e pj pa pliy = yq ;fh ek ;g pa pUj ;jiy

cau;j;JfpwJ. cau;e;J tUk; ntspehl;Lf;

flDf;Fj; jpwtyhf ,Uj;jyhy; eLj;juk;

njhl;L ePz;l fhy mghaq;fs; Vw;glf; $ba

tha;ig mq;fPfupj;jiy mbf;fb tpLf;fg;

gLk; epjp gyg; gLj;Jk; Kaw;rpfisf;

fl;Lg;gLj;Jk;.

rkPg fhyj;jpy; Mjpf;fj;jpy; ,Ue;J te;Js;s

Fiw epug;G epjpaPl;L %ykhdJ ntspehl;Lg;

ngaupl;l ehzaf; fld; thq;fyhFk;. 2009 y;

ntspehl;L epjpaPL [P B gP apd; 4.8 E}w;W

tPjkhf ,Ue;J 2010 y; 4.4 E}w;W tPjj;Jf;F

kl;Lk; rw;W tPo;r;rp mile;jJ. ntspehl;L

ehzaj;Jld; njhlu;ghf ehL mghaj;Jf;F

ngUksT jpwtyhf ,Uj;jy; - fld; ePbf;Fk;

re;ju;g;gq;fspy; rtnua;d; tpfpjq;fSf;Fg;

ghjpg;G tha;g;G> ehza khw;W mghaq;fs;

Mjpad – ed;F njupe;jNj. vt;thwpUe;j

NghjpYk ;= yq;fhtpd; ntspehl;L fld;;fspd;

[P B gP tpfpjk; fhyj;jpd; ngUk; gFjpfspy;

khw;wk; milahNj ,Ue;Js;sNjhL cz;ikapy;

mJ 2009 d; 36.5 E}w;W tPjj;jpypUe;J 2010 y;

36.1 E}w;W tPjkhff; Fiwe;Js;sJ. ehza

khw;W efu;Tfs; ntspehl;Lf; fld; Rl;bf;

fhl;bfspy; njspthd ghjpg;igf; fhl;Lfpd;wd.

2010 y; &gha; ,Ue;jJ Nghd;w mDgtj;jpdhy;

xU fpuhf;fp kpf;f ehzak; [P.B.gP apw;F

ntspehl;Lf; fld; tpfpjhrhuj;ijf; Fiwg;gjd;

%yk; epjpr; Rl;bf; fhl;bfis Nkk;gLj;j

cjTfpwJ.

KO nkhj;j vz;fisj; jtpu;f;fhJ fld;

tplaq;fis mikj;jy;. ,q;F = yq;fh

rYiffs; ,y;yhj kw;Wk; tzpf %y

fhuzq;fSlDkhd ntspehl ;Lf ; fld;

fl;likg;gpy; mtw;wpd; gqFfis 2006 d; 7.3

E}w;W tPjj;jpypUe;J 2010 d; 37.5 E}w;W

tPjj;Jf;F cau;j;jp xU Jupj khw;wj;ijf;

fz;lJ. ,it tpiyAau;e;j ntspehl;L epjp

%yq;fshtNjhL Mr;rupaNkJk; ,d;wp ehl;bd;

KO nkhj;jf; fld; Nrit tpfpjk; fhyg;

gFjpapy; 2002-04 d; 12 E}w;W tPj tUl

ruhrupapypUe;J 2008-10 d; 16.4 E}w;W tPjj;jpw;F

CLWtpr; nrd;wJ. vjpu;fhyj;jpy; ntspehl;Lf;

fld; Nritr; nrYj;jy;fis nrsfupakhf

vjpu; nfhs;s KbAk; vd;gijAk>; vjpu;ghuhj

ntspehl;L mjpu;TfSf;F ehl;bd; jpwtiy

tiuaWg;gijAk epr;rapj;Jf; nfhs;tjw;Fk;

= yq;fh mjd; md;dpa nryhtdp ciog;Gfs

gykhf ,Uf;fpd;wd vd;gij epr;rapj;Jf;

nfhs;s Ntz;Lk;. xU Kjw; gbahf xU

Gj;jpahd top vJntdpy; vjpu; fhyr; nrYj;jw;

NjitfSf;Fj ; mtrpakhd mz;zp pa


iv

nryhtzpia NeubahfNth my ;yJ

kiwKfkhfNth mjpfupf ;Fk ; tifapy;

jpl;lq;fSf;F ntspehl;L ehzaf; fld;

ngWtij tiuaWg;gjhFk;.

ifj ; nj ho py ; kakhf ; fg ; gl ; l

nghUshjhuq;fspd; eilKiwapy; cs;s

mgptpUj;jpfs; murhq;fq;fSf;Fg; ngwf; $ba

Nju;Tfs; gw;wpa xU ,yhgfukhd ghlj;ijAk;

xU Njitahd Qhgf%l;liyAk; toq;FfpwJ.

nghUshjhu tsu;r;rpf;F tupg; gz kw;Wk; /

my;yJ epjpf ; nfhs;if FWfpa fhy

Cf;Ftpg;ig toq;f KbAkhapDk; ;ePz;l fhy

fld; gpur;rpid NkhrkilAk; mghaj;JldhFk;.

khwhf tupg; gzr; rkhspg;gpd; kPJ xU NkYk;

mtjhdkhd mZF KiwahdJ FWfpa fhy

tsu;r;rpia gOjhf;FtNjhL cz;ikapy;

mt;topapy; Nju ;jw; fsj;jpy; kf;fspd;

ntWg;igAk; Vw;gLj;Jk;. = yq;fhtpw;F

eilKiwapy; cs;s ru;tNjr ehza epjpaj;

fldhd (I.vk;.vt;) cldhd Mjhu Vw;ghL

(v]; gP V) murhq;fj;jpd; tupg;gz kw;Wk;

ehzaf; fl;likg;Gf;F Kf;fpaj;Jtk; mspj;J

xU ntspthup eq;$uj;ij ,l;Ls;sJ. I.vk;.vt;

jpl;lk; 2012 y; KbtiltJld; = yq;fh xU

MNuhf;fpakhd nghUshjhuj;ijAk; gykhd

nghJ epjpfisf; iff;nfhs;tJ kl;Lkd;wp

gpujhd Nju;jw; fz;bg;Gfs; ,y;yhj epiyapy;

nghJ e pj pfis xd;W jpul ;Ltjw ;Fj ;

Njitahd murpay; mtfhrj;ijAk; ngWk;.

Nkw;$wg;gl;l rpuj;ijfspd; fhuzkhf 2010 d;

tupg; gz tpisTfs; rhjfkhf cs;sd vd;gJ

cl;rhf%l;Ltjhf cs;sJ. FiwghLfs; 2009

d; [P B gP apd; 9.9. E}w;W tPjj;jpypUe;J 2010

y; 7.9 E}w;W tPjkhff; Fiwf;fg; gl;Ls;sNjhL

2011 NkYk; 7 E}w;W tPjj;Jf;Fk; fPo;f; Fiwf;f

Kide;Js;sJ. ,J vt;thwhapDk; Fiwe;j

tupg; gz ,yf;Ffs; ve;NeuKk; tpUk;gj;

jf;fNjh my;yJ nghUj;jkhdNjh vdf;

fUJtjw;fy;y. tpthjpf;ff; $ba tpjkhf =

yq;fhtpd; 2009 d; tpupT gLj;jy; Nehf;fpyhd

tupg; gzf; nfhs;ifahdJ> xU $u;e;j

nghUshjhu fPo; Nehf;F kw;Wk; Aj;jj;jpdhy;

jsu;r;rpAw;w kf;fis kPs;FbNaw;w Ntz;ba

cldbj; Njitfspdhw; fl;Lz;Ls;s epiyapy

cs;s+u; r%f murpay; fl;lhaq;fSf;Fk;

kj;jpapy; epahakhdjhfNt ,Uf;fyhk; .

nghUshjhuj;Jf;F mj;jifa xU Cf;Ftpg;G

,d;wp jdpahu;j; Jiwapdupd; KjyPl;il

Nkw;nfhs;tjw;fhd gpd;thq;fy; 2009 w; gjpthd

3.5 E}w;W tPj nghUshjhu eltbf;ifia

NkYk; fPo;j; js;spapUf;Fk;. tupg; gz

,yf;Ffis mZf xU cWjpahd mZF

Kiwia mKyhf;Ftij tpl cs;s+u; kw;Wk;

/ my ;yJ ntspA + u ; mj p u ;TfSf ;Fg ;

nghUj;jkhd Kiwapy; gjpyspg;gjw;F Ntz;ba

tisT nfhLj;jiy mDkjpf;f mtrpakhtJ

MNuhf;fpakhd mur epjpfs; vd;gijj;

njspthfg; Gupe;J nfhs;tjhFk;. ,e;jr;

#oypNy vy;yhtw;wpw;Fk; Kjd;ikahf = yq;fh

nra;a Ntz;baJ vd;dntd;why; ehl;bd; fld;

nghWg;igf; fhyg; Nghf;fpy; Fiwg;gjw;F> mjd;

Fiwghl;il Kfhikj;Jtk; nra;J nfhs;sf;

$ba kl;lj;Jf;F jho;j;JtNjhL mJ kW

Gwkhf “tupg; gz mtfhrj;ij” tupg;gz

kw ;Wk ; / my ;yJ e pj p f ; nf hs ;if

eltbf;iffspd; Clhf re;ju;g;gj;Jf;Fg;

nghUj;jkhd Kiwapw; gjpyspg;gjw;F ehl;bd;

Fwpg;gpl;l Njitfis tpLtpf;Fk;.

,e;j mbg;gilapy; = yq;fhtpd; rkPg fhy

tu p g ; gz xd ; w pizg ; G j p l ; lq ; fs ;

epahakhditNa vdj; Njhd;WfpwJ. 2010 y;

nrytpdq;fs; xU [P B gP apd; E}w;W tPjkhf

[P B gP apd; 22.9 E}w;W tPjkhfj; jw;Nghija

nrytpdq;fis epahag; gLj;Jtjd; Clhff;

Fiwf;fg; gl;lJ. Cf;fkspf;ff; $ba tpjj;jpy;

%yjdr; nrytpdq;fs; tuT nryTj; jpl;l

vjpu;T $wy;fSf;F Vwj; jhor; rkhe;jukhf

epiyj;jpUe ;jd. ,ilf; fhy tsu ;r ;r p

tha;g;GfSf;F tup mjpfupg;Gfis tpl nryT

ntl;Lfspd; Clhd tupg; gz xd;wpizg;G

Kaw;rpfNs NkYk; $Ljyhf Mjutspf;Fk;

vd;gijr; Rl;bf; fhl;lj; jhuhskhfr; rhd;W

cs;sJ. NkYk; cau;thd KjyPl;Lr; nrytpd

tpfpjj;Jf;F Mjutspg;gNjhL eilKiwr;

nrytpdq;fspd; ntl;Lfspd; Clhf ,ijr;

nra;a murhq;fk; Kaw;rpf;fpwJ. NkYk;

nryt pd e pa hag ; gLj ; jyhdJ tu p

mwt Pl ; bw ; f hd [dhj p gj pf ; fk p \d pd ;

r p g h u p Rfs pd ; mbg ; gila py ; tu p r ;

rPu;jpUj;jq;fspd; topahf Nkyjpf ,iwtup

tUkhdj;ij cw;gj;jpahf;Ftjw;fhd GJ

Kaw;rpfs; ,ize;Js;sd.tupr; rPu;jpUj;jq;fs;

tUkhdj;jpw;Nfh my;yJ Nrkpg;GfSf;Nfh

my;yhJ Efu;Tg; nghUs; kw;Wk; nrhj;Jf;fs;

kPjhd tupfis cau;j;JtijNa ,yf;fhff;

nfhz;Lsjhfj; Njhw;WfpwJ. Ke;jpait kPjhd

tup mwtPL gpe;jpait kPjhd tup mwtPl;il

tpl tsu;r;rpf;Fg; ghjfk; Fiwthdjhf

,Uf;Fk;.

Policy Perspectives

v

,iwtupf; nfhs;iff;F epiyahd cau;

tsu;r;rpAld; kl;Lkd;wp mj;jifa tsu;r;rpapd;

gq ; f P l ; L t pisTfSlDk ; njs pthd

rk ; g e ; jq ; fs ; cs ;sd . cjh uzkhf

eilKiwapy; Ftptplkhf cs;s nghJ

cl;fl;likg;gpy; ghijfs;> JiwKfq;fs;

tpkhd epiyaq;fs; epu;khdpg;gjpy; ngupJk;

xU Kfg;gLj;jg; gl;Ls;sjhfj; njupfpwJ.

khwhf fy;tp kwWk; Rfhjhuj; JiwfSf;fhd

%yjd KjyPL 2006 y; [P B gP apd; 1.1 E}w;W

tPjkhf ,Ue;J 2010 y; 0.6 E}w;W tPjkhfj;

jho ;e ;Js;sJ. ,Wf;fkhd tupg ; gzf;

fl ;Lg ;ghLfspdhy ; murhq ;fk ; mila

Kaw;rpf;Fk; gw;gy rpf;fyhd ,yf;Ffs;

njspthf cs;sd. rpy rkak; kpf Kf;fpakhf

xU cldb Kd;Dupikahf = yq;fhtpd;

mur epjpfs; xU MNuhf;fpakhd epiyapy;

,lk; ngWtjpd; mtrpaj;Jf;F cldb

Kf;fpaj;Jtk; mspg;gjw;Fk; mJ cjTfpwJ.

mur epjpfis xd;W Nru;j;jy; ePz;l fhy

tsu;r;rp ,yf;FfSf;F Mjutspf;ff; $ba

ehza kw;Wk; gupkhw;w tpfpjf; nfhs;ifia

mikg;gjw;Fk; cz;ikapy; cw;gj;jp tsu;r;rpf;F

epjp ,Wf;fj;jpdhy; Nkhrkhd ghjfNkJk;

Vw;gLkhapd; ehza ,yF gLjiyf; nfhz;L

<L nra;a KbAk;. jdpahu; Jiwf; fld;

tsu ; r ; r p f ;F xU tiuaWf ; fg ; gl ; l

ngWNgWfSldhapDk; 2010 y; = yq;fh

,ijNa nra;jJ. vt;thW ,Ug;gpDk; 2010 y;

ngUksT jahskhd gztPf;fr; #o; epiyapd;

NghJk; tpiy ];jpuj;Jtj;jpw;F vof; $ba

mr;RWj;jy;fs; cz;L. ,t;thwhf epjp

xd;w pizg;G Kaw;r pfs ; ngWNgWfis

mspf;fpd;w NghjpYk; ehzaf; nfhs;if

gzt Pf ;f vj p u ; g h u ; g ; Gfisj ; J}z ;Lk ;

tpijfisj; J}tf; $lhJ. = yq;fhtpd;

rhj;jpakhd Nkyjpf #L gpbf;fhj tsu;r;rp

tpfpjj;ijf; fw;gid nra;a khj;jpuNk

KbAkhapDk; tpahghuq;fs; tpUj;jpahFk;

epiyahd vjpu;T $wf; $ba Nguz;lg;

nghUshjhur; #oiy toq;Ffpd;w mjw;Nf

cupj;jhd ntFkhdq;fSk; cs;sd. cau;e;j

kw ;Wk ; rhj ;j pakhf mjpf e piyaw ;w

gztPf;fj;jpd; tpiyfs; msTf;fjpfkhd

ehza nesptpdhy; cw;gj;jp tuTfis kpQ;rp

tplyhk;. Kiwahd njhopy;fspy; cs;s

Ntiyahl;fisg; Nghyy;yhJ gztPf;fj;ij

vjpu;j;J jk;ikg; ghJfhj;Jf; nfhs;tjw;F

tiuaWf;fg; gl;l khw;W topfis khj;jpuNk

nfhz ;Ls ;s ViofSf ;F r u p rkk hf

tsu;r;rpapd; gyd;fs; ngWtij cWjpg;

gLj;Jtjw;fhd Kaw;rp kWf;fg; gl;L ,Wjpapy;

tpiy tPf;fj;jpdhy; ViofNs ghjpf;fg;gLtu;.

= yq;fhtpd; gz tPf;f tpfpjk; 2010 d;

,Wjpf; fhyhz;Lg; gFjpapypUe;j mbg;gilapy;

nfhe;jspg;ghd fhy epiyiaj; njhlu;e;j

czT tpiy mjpfu pg ;g pd ; fhuzkhf

ngUf;fkhf cau;e;J te;Js;sJ.1 rpy gpujhd

vz;nza; Vw;Wkjp nra;Ak; ehLfspy; Vw;gl;l

murpay; Fog;g epiy fhuzkhf ru;tNjr

vz;nza; tpiyfis cau;j;Jk; mOj;jq;fis

Vw ;w pd . mj ;jifa tpe pNahfg ; gFj p

mjpu;r;rpfs; gztPf;fj;jpd; kPJ jtpu;f;f Kbahj

ghjpg ;Gfs; ,Uf;Fk; toq;fw ; juj;jhy;

ce;jg;gl;l gztPf;fj;ijf; fl;Lg;gLj;Jtjw;Fj;

jug;gLj;jg;gl;l ehzaf; nfhs;if ,zf;fq;fs;

gadspf;ftpy;iyahjyhy; gupghypf;fg; gl;l

tpiyf; fl;Lg;ghLfs; tup eltbf;iffspd;

Clhd khw;Wj; jiyaPLfs; eilKiwg;

gLj;jg; gl;ld. vt;thwpUe;j NghjpYk; Nfs;tpj;

jug;gpd; kPJs;s gztPf;f mOj;jj;ij tpiuT

gLj;jTk; $l;lTk; jdpahu;j; Jiwf; fld;

tsu;r;rp kPl;rpnahd;W vjpu;ghu;f;fg; gl;l NghjpYk;

Ntjd mjpfupg;GfspD}lhf czTg; nghUs;

kw;Wk; vupnghUs; tpiy mjpfupg;Gfs; nghJg;

gztPf;f mOj;jq;fspDs; cupQ;rpf; nfhs;sg;

gLk; vdw mr;rk; ,Uf;fpwJ.

,t;thwhf ]P gp v]; vy;> vOfpd;w gztPf;f

mOj;jq;fisf; fz;lwptjw;F cgupahf

tpopg;gha; ,Ue;J nghUj;jkhd Kiwapy;

kWnkhop gfu Ntz;Lk;. re;ijapy; Nkyjpf

&gha;g; Gof;fk; - 2011 d; Muk;gg; gFjpapw;

$l &gha; 120 – 130 gpypad;fs; vd kjpg;gplg;gl;Ls;sJ – 2010 d; $Ljyhd gFjpfSf;F

xU rhj;jpakhd gztPf;f mOj;jk; %ykhf

,Ue;Js;sJ. murhq;fj;jpd; fld; gpizaq;fs;

re;ijf;F ntspehl;L %yjd cs;tuTfspd;

$u;e;j mjpfupg;Gk; NkYk; tpku;rdj;Jf;Fupa

tpjkhf ngUksT murhq;f ntspehl;L ehzag;

ngaupYs;s fld; ngWif> rpy rkak;

fd prkhd Nky ; k pQ ; r pa nts pe hl ; L

1 (2002 I mbj;js tUlkhff; nfhz;L) 2006/07 d; tPl;L tUkhdk; kw;Wk; nrytpd Ma;tpd; mbg;gilapy;

fzff;fplg; gl;l (2006/07) ,uz;L tUlr; ruhrupiaf; nfhs;tjw;F 2011 y; ]P ]P gP I jpUj;jg; gl;lJ.


vi

ehzaq;fis ehl;bDw; nrYj;jp ,Uf;fpwJ.

2009 f;Fg; gpe;jpa fhy mikg;gpd; ruhrupia

tplTk; rpwe;j Ntiyahs; gz mDg;Gjy;fspd;

cs;thq;fy;fs; ,e;j cl;nrYj;jy;fis mjpfg;

gLj;jpaJ. %yjd cl;nrYj;jy;fis kl;Lg;

gLj;jp mdhtrpa ehzag; ngWkjp mjpfupg;ig

jLg;gjw;F ]P gp v]; vy; mb itj;jypd;

xU gq;fspg;G gpujpgydhf cs;ehl;L ehza

mbj;js tpupthf;fk; ,Ue;jJ. xU tpiyaPl;L

El;gj;jpD}lhfr; – nfhs;if tpfpjq;is

cau;j;Jjy; - nraw;gLtij tpl 2011 Vg;uypy;

tu ;j ;jf tq;f pfspd ; mur xJf;f Pl ;Lj ;

Njitg;ghLfspy; ,J fbdkhd Mdhy; (v];

v]; Mu;) 7 E}w;W tPjj;jpypUe;J 8 E}w;W

tPjj;Jf;Ff $l;Ljy; Nghd;w ;xU gupkhd

El;gj;jpD}lhfr; nraw;gLtij ]P gp v];

vy ; Nju ;e ;njLj ;jJ. kpjkpQ ;r pa gzg;

Gof;fj;ij <u;j;Jf; nfhs;tjw;F ,ijj;

njhlu;e;jhy; xU fbdkhd Mdhy; gad;

juf ;$ba El ;gkhFk ; . gz tPf ;fj ;j pd ;

mOj;jj;ijf; Fiwg;gjpy; mjd; gad; jUk;

jd;ikahdJ kpjkpQ;rpa gzg; Gof;fk; kw;Wk;

flDf;fhd Njit Mfpatw;wpd; kl;lq;fs;

Mfpatw;wpw; jq;fpAs;sd.

2011 Vg;uy; mstpy; tUlhe;j gztPf;fk; 6.6

E}w;W tPjj;jpypUe;jJld; 2011 Kjw; fhyhz;by;

kpjkpQ;rpa &gha;g ; Gof;fk; &gha; 70

gpy;ypaDf;Fk; fPohf tPo;e;jJld; tpuptilAk;

ehza mbj;jhsj;jpd; gztPf;f tpisTfisj;

jl;bf; fopf;f KbahJ. %yjd cs;tuTfs;

rk P g f hyj ; j py ; RygkhFk ; vdf ;

Fwpg;gpLtjw;fhd milahsq;fs; cs;sd. 2010

xf;Nlhgupy; toq;fpa KjyhtJ gTd; fld;

gj;jpuj;ijj; njhlu;e;J 2011 gpe;jpa gFjpapy;

,uz;lhtJ 1 gpy;ypad; I.eh nlhyu;fSf;fhd

gTd; fld; gj;jpunkhd;w toq;fTk; Vw;fdNt

jahuhfp tUfpwJ.ngUkstpyhd ntspehl;L

%yjd cs;tuTfs; ehl;bd; GJg;gLj;jg; gl;l

nghUshjhu tha;g;Gfspd; mwpFwpnadTk; ey;y

KjyPl;L tha;g;Gfspd; rhl;rpfshFnkdTk;

fUjf ; $bajhf ,Uf ;f pd ; wjha pDk ;

nghUshjhuj ;Jf;Ff; Fiwe;j UrpAs;s

rpf;fy;fSk; cs;sd.eilKiwf; fzf;Ff;

FiwghLfSf;F epjpapLk; tpjk; = yq;fhtpd;

nghUl;fSf;Fk; NritfSf;Fk; jw;NghJ

epTfpd;w Njitfspd; %ykhd %yjd

cl;nrYj;jy;fspd; ngUk; gFjpapdhy

te;Js;sdty;yhJ murhq;fj;jpd; ntspehl;L

ehzag; ngauplg;gl;l fld; thq;fy;fspdhw;

rupe;Js;s %yjd cl;nrYj;jw; fzf;Ff;

nfhLf;fy; thq;fy;fspd; tpisthfNt vd;gJ

Kf;fpakhdJ. ,j;jifa mgptpUj;jpfs; xU

ehl ;bd ; ntspthu pf ; fld ; nrYj ;jy ;

epiyikapd; kPJ FWfpa fhy kw;Wk; ePz;l

fhyg; ghjpg;Gfisf; nfhz;Ls;sd.

ghupa epfu %yjd cl;nrYj;jy;fspdhYk;

cldb FWfpa fhyg; ghjpg;Gfs; cs;sd.

mit jtpu;f;f Kbahj tpjj;jpy; xU ehl;bd;

ehza khw;W tpfpjj;ij cau; Nehf;fpj;

js;Stjw;F mOj;jk; nfhLf;fpwJ. ]P gp

v]; vy; ypd; ntspehl;L ehza khw;Wr;

re;ijapw; gyj;j FWf;fPLfs; ,Ue;j NghjpYk;

ngaustpy; I eh nlhyu;fSf;Fr; rkhe;jukhf

= yq;fh &gha; 3 E}w;W tPjj;jpdhy;

kjpg;NgwpaJ. tpahghu gq;fhsu; ehzaj;

njhiffSf;F vjpnujpuhf ,lk; ngw;Ws;sd

Nghd;w cz;ikahd ehza khw;W tpfpjj;jpy;

xU kj pg ; Ngw ; wkhdJ> = yq ;fht pd ;

Vw ;Wkj pfis ru ;tNjrr ; re ;ija py ;

rfhakw;wjhfr nra;fpwJ.; kypthd ,wf;Fkjp

cs;tuTfspD}lf tpiy tha;g;igg; ngwf;

$ba > ,wf;Fkjpiag; ngUkstpy; ek;gpAs;s

Vw;Wkjpg; nghUl;fs; ,Uf;fyhk;. Fwpg;ghfr;

ru;tNjr Efu;Tg; nghUs; tpiy mjpfupg;Gfspd;

kj;jpapy; xU gyk; tha;e;j &ghahdJ

gztPf;fj;ij fl;Lg;gLj;j cjtpahf ,Uf;Fk;.

vt ;t hw pUg ; g pDk ; > rk P g f hyj ; j pd ;

Vw;WkjpfSf;F [P B gP apd; tpfpjhrhuj;jpy;

xU fdprkhd tPo;r;rpapd; kj;jpapYk; - 2004 y;

28 E}w;W tPjj;jpypUe;J 2010 y; 16.7 E}w;W

TPjk; - ePz;l fhyj;jpy; ntspehl;Lf; fld;

kPsr; nrYj;jy;fSf;Fj; jpwtyhf cs;s

epiyapd; kj;jpapy; ntspehl;L ehzakhw;W

ciog;gpd; Njit gw;wp = yq;fh jpUg;jpapy;

,Uf;f KbahJ. G+uz nlhyu; mbg;gilapyhd

mjpfupg;gpd; NghJk; Vw;WkjpfSf;F [P B gP

apd; tpfpjhrhu tPo;r;rp rkPg fhyj;jpy; =

yq;fh fz;L tUk; cau; tsu;r;rp Kf;fpa

e piyahdJ Vw ;Wkj pj ; js ;Sjypdhw ;

FiwthfTk; cl;fl;likg;G Mfpad Nghd;w

mur %yjd Cf;Ftpg;gpdhw; $ba mstpYk;

cs;sd vd;gijr ; Rl ;bf ; fhl ;LfpwJ.

vt;thwpUe;j NghjpYk; kpf tiuaWf;fg; gl;l

cs;ehl;Lr; re;ij ,Uf;ifapy; ;ehl;bd;

nghUl;fs; kw;Wk; NritfSf;fhd ntspehl;Lf;

fpuhf;fpia cau;j;Jtjd; %yk; khj;jpuNk

epiyahd cau; tsu;r;rpia mila KbAk;.

Policy Perspectives

vii

,t;thwhf NkNy tptupf;fg; gl;l Nguz;lg;

nghUshjhuf ; nfhs ;if Kfhikj ;Jt

tptuq;fs; ePz;l fhy tsu;r;rpf;Ff; fhuzpfshf

mikAk ; . tsu ;r ;r pAld ; ehl ;bd ; r%f

Kz;Ndw;wj;ijAk; ,izg;gjhapd; mitAk;

fhuzpahf mikAk;. cjhuzkhf> tUtha;

k pf ;fj ; njho py ;fSf ;F tw patu ;fis

,Oj;jypd; %yk; kl;Lkd;wp ,yf;F itj;j

r%fj; jpl;lq;fSf;F epjpapLtjw;fhf NBYk;

ngupa msT tupg; gzj;ij toq;Ftjd;

%yKk; epiyahd tsu;r;rp tWik xopg;Gf;F

cjt KbAk;. me;j tifapy; ehl;bd; KO

nkhj ;j tWikia vjpu ;nfhs ;tj pYk ; >

nghUshjhuj;jpd; JiwfSf;fpilapy; vOe;J

tUk; ,ilntspfisf; Fiwg;gjpYk; = yq;fh

fdprkhd mbfis Kd; itj;Js;sjhfj;

Njhd ;WfpwJ. Ml ;fzf;nfLg ;G kw ;Wk ;

Gs;sptptuj; jpizf;fsj;jpdhy; elj;jg; gl;l

tPl;L kw;Wk; tUtha;r; nrytpd Ma;T (vr;

I < v];) tWikj; jiyf; fzf;nfLg;Gr;

#rfk; 2006/2007 d; 15.2 E}w;W tPjj;jpypUe;J2 0 0 9 /2 0 1 0 y ; 8 . 9 E }w ;W t P jk hff ;

tPo;r;rpaile;Js;sJ. kpf ek;gpf;ifA+l;Lk;

fUj;jhtJ ,ilf; fhyg; gFjpapy;;;;2 efu fpuhk

kw;Wk; Njhl;lj; JiwfSf;Fkpilapyhd

,ilntspfs; FWfpAs;sd vd;gjhFk;. ,ilf;

fhy tUlq;fspy; mDgtpj;j cau; tpiy

];jpukw;w epiyikiaAk;> 2009 y; mDgtpj;j

nghUshjhuf; fPo;Nehf;ifAk; fUj;jpw; nfhz;L

KO nkhj;j tWikf; Fiwg;G Kaw;rpfspd;

ngWNgWfs; tpaf;fj; jf;fdthAs;sd.

vt;thwpUe;j NghjpYk; 2005 njhlf;fk;

murhq;fj;jpd; mgptpUj;jpj; js;Sjypy;>

mbg;gilapy; fkj; njhopw; JiwapdUf;F

cl;fl;likg;G kw;Wk; Mjhuj;Jf;fhf nrytpl;L

efu fpuhkg; Gw ,ilntspfSf;F ghyk;

mikg;gjpy ; toq;fpAs;s mOj;jj ;j pd ;

fhuzkhf JiwfSf;fpilNa tpj;jpahrj;ijr;

RUq;f itj;jy; mt;tsT tpaf;fj; jf;fjhf

,Uf;fhJ. KO nkhj;jr; rkj;Jtkpd;ik

xLq;fptpl ;l NghjpYk; tUtha; kpf ;fg ;

nghUshjhu mtfhrq;fis mZFtjpy; cs;s

NtWghLfs; Nghy;> Gtpapay; mikg;G Jiw>

kjf;nfhs;if Mfpad Nghd;w – njhlu;e;J,Uf;fr; nra;fpwJ. Aj;jj;Jf;Fg; gpd;dhd

rkur Kaw;rpfspd; mbg;gilapy; ,tw;iw vjpu;

nf hs ;tjw ; f hd nfhs ;iffs ; k p f

Kf;fpakhfpAs;sd.

cynfq;Fk; rkPg fhyj;jpy; mDgtpj;jjd;

gpufhuk; xU rkkw;w nry;tg; gq;fPL> fLikahd

fytu epiyikapd; NghJ epjKk; r%ff;

Fog;g epiy tope;J nry;yf; $ba cau;

kl;lj;jpyhd nghUshjhu ];jpukw;w epiyia

cUthf;Fk;. cz;ikapy; cyfg; nghUshjhuf;

nfhe ;js pg ; Gk ; > czTg ; nghUs ;fspd ;

tpiyNaw;wKk;> gy ehLfs; GJg;gpf;fg; gl;l

r%f murpay; mjpu;r;rpfSld; NghupLtijf;

fz;Ls;sd. ,t;thwhf xU gytPdkhd

nghUshjh ur ; RUq ; fs py pUe ;Jk ;

mg pt pUj ;j paile ;J tUk ; e hLfs pd ;

Ntiyaw ; Nw h u ; vz ;z pf ;if ngUf p

tUtjpypUe;Jk; cyfg; nghUshjhuk; kPl;rp

ngw ;W tUifapYk ; rkj ;Jtk pdikg ;

gpur ;rpidf;F GJg;gLj;jg; gl;l ftdk;

nrYj;jg; gl;L tUfpwJ. mgptpUj;jpaile;j

kw ;Wk ; mg pt pUj ; j paile ;J tUk ;

ehLfSf;fpilapy; cs;s> nry;tj;jpd; ,il

ntspfs; xLq;fp tUifapy; - ruhrupahf

gpd;ida FOtpdu; Kd;idatu;fis tplf;

$ba Ntfj;jpy; tsu;r;rpaile;J tUtjd;

gpujpgydhf – ehLfspDs;Ns nry;te;ju; kw;Wk;

twpNahu;fSf;fpilapyhd Mokhd gpsT

gw;wpa ftiy ,Ue;J tUfpwJ.

tUfpd;w tUlq;fspNy = yq;fh xU Jupj

tsu ; r ; r p f hyj ;Jf ; f hfj ; jah u hf p f ;

nfhz;bUf;ifapy; Muk;gj;jpNy rkcupikg;

gpur;rpidiaj; jPu;j;jhyd;wp ,J jtpu;f;f

Kbahj tpjkhf r%fg; gpur;rpidfisAk;

j pUg ;j pg ; gLj ;j Ntz;b tUk ; . cau ;

tsu;r;rpf;fhd js;Sjy; vg;NghJk; njhopy;

El;g Kd;Nww;wj;Jld; Nru;e;Nj tUk;. ,J

rk ; ge ; jg ; gl ; l ga p w ; r p ; ngw ; w

Ntiyahl;fSf;fhd fpuhf;fpia cau;j;;jf;

$Lk;. vg;NghJk; cs;sJ Nghy Njitf;Nfw;w

tpjkhf gapw;rp ngw;w Ntiyahl;fis toq;fj;

jtWk ; NghJ ga pw ; r p ngw ; w kw ;Wk ;

gapw ;r papy ;yhj Ntiyahl;fspd; rk;gs

,ilntsp mfykhtjw;F top tFf;Fk;.

vjpghu;j;j gb = yq;fhtpd; tsu;r;rp tUfpd;w

tUlq;fspy; cau; gapw;rp ngw;w Nritfs;

Jiwapduhy; mjpfkhfr; nrYj;jg; gl;L

tUkhapd; mfykhFk; rk;gs ,ilntsp vof;

$Lk;. NkYk; xg;ge;j / rk;gpujhag;gb ,y;yhj

Jiwfspy; nkd; NkYk; njhopy;fs; cUthf;fg;

gl;L tUifapy; - njhopy; toq;Fzu;fSf;F

1 ,e;j mwpf;ifapy; 5 MtJ mj;jpahaj;jpy; “cs;slf;fpa tsu;r;rp” vd;w jiyg;gpd; kPjhd ciuahliyg;

ghUq;fs;.: jl;bf; fopf;f Kbahj xU cgfuzkhf r%fg; ghJfhg;G.


viii

my ;yJ Rakhfj ; njho py py ;

<Lgl;Ls;stu;fSf;F gapw;rpf;fhf KjyPL

nra;tjw;F tiuaWf;fg; gl;l Cf;Ftpg;Gfs;

khj;jpuNkAs;s – gapw;rp mgptpUj;jpfs;

,y;yhik njhopw; re;ijapNy fl;likg;Gf;

fl;lha Ntz;Ljy;fis Nkhrkhf;f KbAk;.

epjKk; ,jdhy; kpfTk; ghjpf;fg; glf; $ba

gpuptpdu; gapw;rpapy;yhj ngz; Ntiyahl;fNs.

mg pt pUj ;j pf ;F nghUshjhu tsu ; r ; r p

Kf;fpakhdJ vd;gjpy; tpupthd cld;ghL

,Uf;ifapy; mgptpUj;jpf;F tsu;r;rp kl;LNk

vy;yhky;y vd;gijAk; mq;fPfupf;fg; gl;Ls;sJ.

,jd ; mbg ; gila py ; e piyahdJk ;

cs;slf;fpaJkhfpa nghUshjhu tsu;r;rp vd;w

fUj;J murhq;fq;fSf;F xU fz;bg;ghd

nfhs ;ifahf p wJ . ,it nfhs ;if

Mtzq;fspy; xU ehfuPfkhd mfuhjpr;

nry;yhf ,Uf;ifapy; Fwpg ;gpl ;l ehl;L

mbg;gilapy; mit Gwf;fzpf;fg; glhJ vd

Ntz;lg; gLfpd;wd. ePz;l fhykhf ,Ogl;L

te;j nryT kpFe;j Aj;jj;jpypUe;J kPz;L

tUfpd;w = yq;fhTf;F mjd; Aj;jj;jpd;

gpd;dhd mgptpUj;jp Kaw;rpfspy; r%f

xw;Wikia kPl;b vLj;J ];jpug; gLj;j

cjTtjw;fhf vOe;J tUk; r%fg; nghUshjhu

Mty;fs; epiwNtw;wg; gl Ntz;Lk;. gue;j

mbg;gilapyhd Jupj tsu;r;rpia toq;FtJ

kl;Lky;yhky; tsq;fisg; gq;fPL nra;tjpYk;

mZFtjpYk; c;s;s ghjfNkw;glf; $ba

gpur;rpidfSf;F gjpyspf;ff; $bajhd

nghUshjhuf; nfhs;iffis mJ Ntz;LfpwJ.

,e;j tUlj;jpd; nghUshjhu epiyikapd;

mwpf;ifahdJ Aj;jj;jpd; gpd;dhd tsu;r;rp

vdw fUj;ij mjd; kj;jpa fUg; nghUshf

vLf;fpwJ rkj;Jtkpy;thikiaf; Fiwf;Fk;

:vz;zpylq;fhj topfisj; njhlUfpd;w

tsu;r;rpiag; Gupe;J nfhs;tjw;fhd fz;bg;ghd

cs;slf;fy;fs; mj;NjhL tpUk;gj; jf;fjhd

Rj;jkhf xU ju;k rh];jpu epiyg; ghl;bypUe;Jk;

NkYk; nraw;gLj;jf; $ba Nehf;fpYk;

cs;slf;fpa tsu;r;rp > mtw;iw cl;gLj;jhik

tsu;r;rpiaf; fl;Lg; gLj;Jk; cw;gj;jpahf;ff

$ba tsq;fisf; Fiwthfg; gpuNahfpg;gjw;F

top tFg;gjhy; nghUshjhu tsu;r;rpia ]jpug;

gLj;j cl;gLj;jg; gl;lit Njitg;gLfpwJ.

cl;gLj;jg; gl;l tsu;r;rpiar; nrYj;Jtjw;F

cw;gj;jpahf;Fk; njhopy;fis mZFjy; xU

Kf;;fpa mbg;gilahFk;. mJ xU Gwkhf

Ntiyahl;fis Ntiyapy; <LgLj;jf; $ba

jd;ikia Kd;Ndw;WjiyAk; kW Gwkhf

cw;gj;jpahf;ff; $ba njhopy; tha;g;Gfis

mDFtij Kd;Ndw;WjiyAk;; Ntz;LfpwJ.

toq;fw; Gwj;jpy; njhopypy; <LgLj;jf; $ba

jd;ikia Kd;Ndw;Wjypy; ey;y jukhd

Rfhjhuk;> fy;tp> kw;Wk; Vida cw;gj;jpr;

nrhj;Jfs; cs;slq;Ffpd;wd. Nfs;tpfspd;

Gwkhf gy;NTW nghUshjhuj; Jiwfspy;

tpjtpjkhd Gtpapaw; gpuNjrq;fspYk; gy;NtW

tiffspyhd Ntiyahl;fis Ntiyapy;

mku;j;Jk; tha;g;Gfis mZFjypy; Kd;Ndw;wk;

Njitg; gLfpwJ. xU nghUshjhuj;jpd; Muk;g

epiyikfs; - tWik kw;Wk; rkj;Jtkpd;ikapd;

kl;lq;fs;> mt;thwhfNt Gtpapay;> kf;fl;

njhifapay;> fhyepiy> murhl;rp> murpay;>

r%fg; ngWkjpfs;> nfhs;ifr; #oy; Nghd;wit

– gpd; njhlUfpd;w tsu;r;rp tpisTfis

epu;zapg;gjpy; xU Kf;fpa ghfj;ij Vw;fyhk;.

,e;j mbg;gilapy; ,e;j mwpf;ifapd; vQ;rpa

ghfk; xU mj;jpaha kw;Wk; nfhs;ifr; RUf;fj;

nj hl u pD }l hf nfhs ;if gFj pfs pd ;

tuzkhiyfSf;Ff; FWf;Nf = yq;fhtpd;

midj;Jk; cw;gl;l tsu;rpf;fhd jilfisg;

guprPypf;Fk;.

2. Economic Performance: Post-conflict Growth

2.1 Introduction

As anticipated, the Sri Lankan economy made a rapidrecovery to post a GDP growth of 8 per cent in 2010amidst a stable and benevolent macroeconomic envi-ronment characterized by a low inflation and inter-est rate regime. While the growth spurt in partreflected a recovery from a low base following theeconomic downturn of 2009, Sri Lanka's economicperformance in 2010 holds up well in the light ofglobal comparisons. The recovery in output and othermacroeconomic fundamentals are comparable evento the better performing countries of the Asianregion.

The country's renewed economic vigour owes muchto the perception of peace and stability in the after-math of decades of socio-political conflict. Sri Lankais also witnessing political stability in the presenceof a strong incumbent government and a popularExecutive. The combination of factors hold out a realopportunity for the country to embark on a sustaineddevelopment drive that will deliver better standardsof living and help cement social cohesion in thecountry.

A doubling of per capita GDP over the next few yearsis being envisaged. However, irrespective of whetherSri Lanka attains this goal or not, the details underly-ing such a growth momentum need to be giventhought. Per capita income on its own can hide socio-economic disparities across and/or within regions,sectors and households. For instance, if the agrariansector fails to keep pace with other more dynamicareas of economic activity in industries and services- or where surplus rural labour is unable to find alter-native sources of gainful employment - aggregategrowth alone will not deliver the promise of develop-ment to the country as a whole.

Sri Lanka's medium term development agenda as speltout in the Mahinda Chinthana: Ediri Dakma (Vision

9

‘‘

Ensuring that SriLanka has the necessarymacroeconomic policy

space to respondappropriately to

emerging risks togrowth and stability is

critical


10

for the Future) has taken cognizance of theneed to achieve 'balanced growth', be itthrough rapid infrastructure development ofrural and conflict-affected parts of the coun-try or in promoting small and mediumenterprises (SMEs) as a key source of liveli-hoods generation. The task before the gov-ernment is to effectively implement its de-velopment programmes while keeping awatchful eye on the emerging economicshocks that can have a dampening effect onits programmes. In this respect, a keyword is'stability' on the macroeconomic front - tobe attained and retained, in order to allowthe authorities the necessary leeway to re-spond appropriately to changing circum-stances. As noted recently, rising food andoil prices in the world market once againpose a threat to the nascent global economicrecovery. These developments will have in-evitable consequences on Sri Lanka's owneconomic prospects in the near term. Thus,ensuring that the country has the necessarymacroeconomic policy space to respond ap-propriately to emerging risks to growth andstability, is critical. Sri Lanka has madesignificant strides in this direction during2009/10, but the risks must be recognizedand appropriate policy adjustments madeaccordingly.

2.2 Output and EmploymentSri Lanka's economic recovery in 2010 wassupported by broad-based output growthacross all three sectors of economic activity.This is a positive outcome as skewed growthwill have adverse outcomes in terms ofbroader socio-economic objectives, such asrapid delivery of income opportunities to theless well off. Higher growth was accompa-nied by a recovery in employment creationthat saw Sri Lanka's rate of unemploymentdecline to 4.9 per cent by end 2010.

2.2.1 Output GrowthEven though the agriculture sector, forinstance, accounts for less than 12 per centof GDP, it continues to provide employmentto nearly 33 per cent of the workforce.According to the HIES 2009/10 compiled bythe DCS, the headcount poverty index is high-est in the Eastern, Uva, and SabaragamuwaProvinces.1 Agriculture's share of GDP inthese provinces at nearly 25 per cent is muchhigher than at the national level. A strongand sustained performance in the agriculturesector will, therefore, do much to ensure thatthe benefits of growth are more evenlydistributed.

1 The HIES 2009/10 did not cover Mannar, Mullaitivu and Kilinochchi districts in the Northern Province.

Figure 2.1GDP and Sectoral Growth

Source: DCS and CBSL, Annual Report, various issues.

0

1

2

3

4

5

6

7

8

9

2005 2006 2007 2008 2009 2010

%

Agriculture Industry Services GDP

Economic Performance: Post-conflict Growth

11

The strong recovery in agricultural output in2010 is likely to face some disruption in2011 with the adverse consequences ofinclement weather conditions faced in late2010/early 2011. In particular, paddyproduction is estimated to suffer losses as aresult of not only destroyed crops, but alsoowing to the destruction of seeds. However,rising international commodity prices areexpected to benefit Sri Lanka's plantationexport crops. The overall net impact,however, is likely to ensure that agriculturesector performance will be less buoyant in2011.

The industrial sector - accounting for 24.2per cent of employment - recorded a strongrebound of 8.4 per cent growth in 2010,supported by manufacturing sector growth of7.3 per cent and robust growth in construc-tion of 9.3 per cent. Increased export demandas well as a recovery in domestic consump-tion helped industrial sector activity toresume after the modest output growth in2009. The expansion in construction activi-ties is set to continue with the heavy govern-ment expenditures on infrastructure relatedinvestments as well as the anticipated

recovery in the housing and real estatesector.

The services sector has been the mainstay ofSri Lanka's economic growth over the lastdecade, accounting for nearly 60 per cent ofGDP and 43 per cent of employment. Keyservice sector activities - in trade, leisure,communication and financial sectors - whichsuffered a downturn in 2009 saw an expan-sion of activities with the revival of demandin 2010. As Sri Lanka gears to promote itselfas a hub for many services-related activities,it will require not only a supportive regula-tory environment and infrastructure, but askilled workforce that is able to meet thedemands of an increasingly 'knowledge-driven' economy.

2.2.2 Consumption, Investment andSavingsConsumption expenditure as a percentage ofGDP continued to remain relatively subdued,although private consumption had indicateda marginal recovery. The modest recovery isnot surprising in view of the lagged effectsof the financial sector volatility and economicdownturn of 2008/09. Under such circum-

Share of GDP Growth (%) (%)

2010 2007 2008 2009 2010Agriculture 11.9 3.4 7.5 3.2 7.0

Tea 1.1 -1.8 4.2 -8.4 13.1Paddy 1.8 -6.2 23.1 -5.1 17.5

Industry 28.7 7.6 5.9 4.2 8.4Manufacturing 17.3 6.4 4.9 3.3 7.3Construction 6.7 9.0 7.8 5.6 9.3

Services 59.3 7.1 5.6 3.3 8.0Wholesale and retail trade 23.2 6.1 4.7 -0.2 7.5Hotels and restaurants 0.5 -2.3 -5.0 13.3 39.8Transport and communication 13.9 10.5 8.1 6.3 11.9Banking, insurance & real estate 8.9 8.7 6.6 5.7 7.5

Table 2.1Sectoral Performance

Source: CBSL, Annual Report, various issues.


12

stances, firms and households are likely tosave more and spend less. Indeed, Sri Lanka'sdomestic savings ratio has crept up from alow of 13.9 per cent in 2008 when the countrywitnessed a credit boom, to a ratio of 18.7per cent in 2010.

With domestic savings of 18.7 per cent ofGDP, Sri Lanka continued to grapple with asavings-investment gap of over 9 per cent ofGDP. While private transfers helped to bridgethe gap partially, the need to push for highervolumes of FDI - from a current level of 0.9per cent of GDP in 2010 - is clear.

Much of Sri Lanka's growth momentum inrecent years has been coming from increasedvolumes of public investment. Clearly, intimes of a dip in private investment, publicinvestment plays an important role in keep-ing the economy buoyant. However, asprivate investment picks up, the challengesto ensure macroeconomic stability will befelt more keenly. Indeed, the weak privatesector investment response in part explainswhy Sri Lanka was able to maintain arelatively modest inflationary environmentin 2010 despite high growth and a fiscal defi-cit of 7.9 per cent of GDP.

2.2.3 Labour Force and EmploymentSri Lanka's labour market seems to have donewell over the years, recording a persistentreduction in the rate of unemployment.

2007 2008 2009 2010Consumption 82.4 86.1 82.1 81.3 Private 67.2 70.0 64.4 65.8 Government 15.3 16.2 17.6 15.6Investment 28.0 27.6 24.4 27.8 Private 22.6 21.1 17.9 21.6 Government 5.4 6.5 6.6 6.2Domestic savings 17.6 13.9 18.0 18.7National savings 23.3 17.8 23.7 24.7

Table 2.2Consumption, Investment and Savings


According to the Labour Force Survey (LFS)data compiled by the DCS, this decrease isreflected across both males and females. Itis also encouraging that the decline is sharperfor youth in the 20-24 age group, and forfemales with more than an Advance-Leveleducation - two groups that have hadhistorically high unemployment rates.2 Partof the improvement in the unemploymentrate in Sri Lanka can be attributed to foreignemployment, others being demographicchanges and higher participation ineducation.3 Following a slight reversal inthe unemployment rate in 2009 in the wakeof the economic downturn, the unemploy-ment rate has once again come down to 4.9per cent in 2010.

The unemployment rate alone does notprovide a full picture of the labour marketconditions of an economy. This is becausethe unemployment rate might hide the factthat workers are underemployed or doingunproductive work. Hence, usually alongwith unemployment rates, other indicatorsare examined to assess labour market perfor-mance. The employment-to-populationratio for Sri Lanka has remained around 45from 2003 onwards, indicating that theability of the economy to create jobs hasstagnated over the years. The proportion ofworkers participating in the labour market -the labour force participation rate - also hadremained just below 50 per cent over the


13

same period. According to the LFS data, over60 per cent of the employed were workingin the informal sector. These included 83per cent of those in the agricultural sector,and around a half (49 per cent) of those inthe non-agriculture sector.4

A large proportion of Sri Lanka's workforcebeing in informal sector employment alsomeans that they are subject to a higherdegree of income insecurity, are likely toreceive limited opportunities for skills train-ing and are also exposed to other forms ofvulnerability. Indeed, informal sectorworkers are less likely to be covered bysocial safety nets which raise their vulner-ability in times of acute crises.

2.3 Fiscal Policy DevelopmentsSri Lanka has seen an improvement in its fiscalpolicy stance in 2010. The fiscal deficit wasreduced to a more manageable 7.9 per cent

2 Arunatilake, N., and P. Jayawardena, 2010, "Labour Market Trends and Outcomes in Sri Lanka" in R. Gunatilaka, M. Mayer and M. Vodopivec(eds.), The Challenges of Youth Employment in Sri Lanka, World Bank, Washington, D. C.

3 Ibid.

Table 2.3Demographic and Labour Force Trendsa

2007 2008 2009 2010

Population (‘000 persons) 20,010 20,217 20,450 20,653Labour force (‘000 persons) 7,489 8,082 8,074 8,108LFPRb (%) 49.8 50.2 49.2 48.6 Male 67.8 67.9 66.7 67.3 Female 33.4 34.3 33.7 32.1Unemployment rate (%) 6.0 5.2 5.7 4.9By gender Male 4.3 3.6 4.3 3.5 Female 9.0 8.0 8.2 7.5By age group 15-19 21.6 20.6 21.2 21.1 20-29 15.0 13.2 15.1 13.7By education level GCE (O/L) 8.2 7.4 8.1 6.9 GCE (A/L) 11.8 9.9 10.8 11.3

Note: a: Date excludes Northern and Eastern Provinces; b: LFPR=Labour Force Participation Rate.


of GDP in 2010 as opposed to the 9.9 percent recorded in 2009. The deficit wasreduced primarily by a cut in expenditures,predominantly through a cut in currentexpenditures. This is the preferred course asopposed to a cut in budgeted capitalexpenditure given its adverse implications tosupport Sri Lanka's long term growth objec-tives. Fiscal consolidation efforts have alsobeen encouraging in view of the efforts be-ing made to address weaknesses in revenuegeneration as well. The key focus is to raisegovernment revenues through tax reformsbased on the recommendations of the Presi-dential Commission on Taxation. The ben-efits of tax reforms in raising revenue are ex-pected to be seen more sharply in 2011.

Despite the overall positive fiscal outcomesin 2010, Sri Lanka has still to be watchful onfiscal policy trends, particularly in relationto the financing of deficits and implicationsfor public debt management. Essentially, the

4 Weerakoon, D., and N. Arunatilake, 2011, a report on "Macroeconomic Policy for Full and Productive Employment and Decent Work forAll: Sri Lanka Country Study", International Labour Organization, Geneva.


14

country has been resorting to borrowings tofinance higher volumes of infrastructureinvestments. In principle, governments canjustify such borrowing on the grounds thatinfrastructure investment holds the potentialto raise a country's medium to long termgrowth prospects, enabling higher volumesof revenue to be generated that will allowdebt obligations to be met comfortably. Thekey to such a strategy of course is that in-vestment decisions are taken after a carefulassessment of the returns on such investments- i.e., to use debt financing only for projectsthat generate returns higher than the inter-est to be paid on related debt.

In recent years, foreign sources haveappeared as the dominant means of deficitfinancing. In 2010, foreign financing of thefiscal deficit amounted to 4.4 per cent ofGDP, of which 3.5 consisted of loans andanother 0.9 per cent of GDP consisted offoreign capital inflows into governmentTreasury bills and bonds. The government'spreference to limit its recourse to domesticborrowing is aimed to encourage privatesector investment in the economy. Undernormal economic conditions, heavy domes-tic borrowing for fiscal financing purposescan crowd out private investment and putupward pressure on interest rates. Higher

Table 2.4Government Revenue and Expenditure

% of GDP 2007 2008 2009 2010 2011a

Fiscal deficit -7.7 -7.0 -9.9 -7.9 -6.8Revenue and grants 15.8 15.6 15.0 14.9 15.6 Tax revenue 14.2 13.3 12.8 13.0 13.6Expenditure and net lending 23.5 22.6 24.9 22.9 22.4 Recurrent 17.4 16.9 18.2 16.7 16.1 Public investment 6.4 6.0 6.8 6.4 6.5

Deficit financing (domestic) 3.6 7.1 5.1 3.6 4.6Deficit financing (foreign) 3.7 -0.1 4.8 4.4 2.3

Government debt 85.0 81.4 86.2 81.9 80.0Note: a: Estimates.Source: CBSL, Annual Report, various issues.

interest rates in turn would stifle GDP growthprospects.

Foreign currency denominated debt carrieswell-known additional risks, especially inrelation to the exchange rate. In thepresence of a growing foreign currency de-nominated debt portfolio, a depreciating cur-rency leads to a growing public debt-to-GDPratio. Conversely, an appreciating currencycan lead to a lowering of the ratio, as SriLanka has witnessed to some extent in re-cent years. However, a real appreciation ofthe exchange rate can lead to a deteriorationin the current account, whereby any gainson fiscal indicators becomes a temporaryphenomenon. That is, in order to restore ex-ternal sustainability, a country may have toundertake a real devaluation that once againleads to a sudden jump in the public debt-to-GDP ratio. Indeed, the trade-off betweenfiscal conditions (debt) and exchange ratemanagement can constrict a country's mac-roeconomic policy space considerably.

The desirability or otherwise of external debtaccumulation also depends critically on itscomposition. Here, Sri Lanka's increasingreliance on costlier non-concessional formsof foreign borrowing in recent years is veryclear. Although the country's overall foreigndebt-to-GDP ratio has not changed much as


15

Figure 2.2Emerging External Debt Profile

previously observed, the composition offoreign debt has changed sharply. Forinstance, the share of non-concessional andcommercial borrowing in Sri Lanka's totaloutstanding foreign debt has increasednotably from 7.3 per cent in 2006 to 37.5per cent in 2010.

The growing reliance on costlier sources offoreign finance has important implicationsfor Sri Lanka's foreign debt servicing obliga-tions. As evident from Figure 2.3, thecountry's overall foreign debt service ratio -i.e., the ratio of interest and amortizationon foreign debt to earnings from the exportof goods and services - has been risingsteadily in recent years. In 2009, the ratiorose sharply to 19 per cent as a result of theshrinking of earnings from exports, but hasrecovered to an extent in 2010 to stand at15.2 per cent.

As previously noted, the return on invest-ments financed by debt matters. Much ofSri Lanka's public investment is being chan-nelled to infrastructure such as roads, ports,airports, etc., where such investments maynot generate the necessary foreign earningsflows to service the debt in the short tomedium term. The most prudent course of

course is to ensure that foreign currency de-nominated debt is confined as much as pos-sible to projects that can, either directly orindirectly, generate the foreign exchangeneeded to service the debt. This becomes allthe more imperative given the fact that de-spite Sri Lanka witnessing an increase in earn-ings from the export of goods and services inabsolute terms, the ratio of such earnings toGDP has been on the decline (Figure 2.3). Itsuggests that the higher GDP growth momen-tum that Sri Lanka has observed in recent yearsis not being driven by an export-push, butrather by other factors such as higher volumesof government infrastructure investment, etc.which can have considerable multiplier ef-fects on economic activity.

The increased recourse to foreign financingof the fiscal deficit clearly has other spill-over effects on macroeconomic management,not least its impact on monetary policy man-agement and exchange rate performance.

2.4 Monetary Policy DevelopmentsThe relatively slow recovery in privateinvestment in 2010 was reflected in weak de-mand for credit by the private sector for muchof the year, despite the improvements to the


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country's medium term economic outlooksince the end of the conflict in May 2009.Private sector credit growth remained slug-gish, despite attempts to ease monetary policyfrom early 2009 through downward adjust-ments to policy rates as well as other direc-tives to commercial banks. Credit growth tothe private sector picked up in the latter partof 2010 to record a growth of 25 per cent byyear end as compared to a contraction of 5.8per cent in 2009.

The initial weak recovery in demand for creditby the private sector is perhaps best explained

Figure 2.3External Debt Dynamics


by the over-leveraging of households andfirms preceding the economic downturn. SriLanka witnessed a credit boom during 2006-07 that was abruptly curtailed with a sharptightening of monetary policy as the rate ofannual inflation peaked at over 22 per centin 2008. Consequently, the gross non-per-forming loan (NPL) ratio of the bankingsector rose from 5.2 per cent in 2007 to 8.5per cent in 2009. Thus, Sri Lanka's experi-ence of hesitant private sector investmentgrowth suggests that both supply and demandfactors played a role. Despite the signs of anearly economic recovery, over-leveraged

Figure 2.4Demand for Credit

Note: AWPR=Average Weighted Prime Lending Rate.

Source: CBSL, Monthly Economic Indicators, various issues.

0

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households and firms may have been lesswilling to borrow, while banks too may havebeen less willing to revert to a lending spree.Thus, despite high volumes of excess liquid-ity in the market - as high as Rs. 120-130billion by the beginning of 2011 - there wasmuted inflationary pressures as demand forcredit remained low, while the exchange ratemovements minimized import-related pricepressures. Indeed, Sri Lanka saw a moderateinflationary environment for much of 2010,with inflation beginning to rise only towardsthe last quarter of 2010, largely as a result ofrising food prices in the country (Figure 2.5).A standard monetary policy response to suchshort term supply shocks is ineffective. Otheroptions such as the removal of taxes and tar-iffs on food commodities were used to keepprices down, notwithstanding possibleadverse impacts on fiscal operations via lostrevenues. There is, however, a risk that ifdemands for wage increases on the back ofrising food and fuel prices are accommo-dated, supply-side induced inflationarypressures can be absorbed into general priceincreases.

The threat of rising inflationary pressures inthe Sri Lankan economy is growing. In April2011, the Central Bank of Sri Lanka (CBSL)opted to raise the Statutory Reserve Require-ment (SRR) on commercial banks by 1percentage point rather than raise interest ratesand set back the recovery in credit growth tothe private sector. The SRR works throughquantity rather than price and can be effec-tive if there is no significant variation in lev-

els of liquidity between institutions - i.e.,forcing credit rationing in those institutionsoperating at the margins. However, with thegovernment anticipating further inflows offoreign capital in 2011, the risks of igniting'demand-pull' inflation in the economy con-tinues to remain high.

2.5 External Sector DevelopmentsSri Lanka saw a significant recovery inearnings from exports of merchandise goods,remittances and tourist receipts in 2010 onthe back of a much improved globaleconomic environment. Earnings frommerchandise exports grew by 17 per cent,remittances by 24 per cent, and tourismearnings by 65 per cent. Thus, despiteimport expenditure growing at a much fasterpace of 32 per cent relative to exportearnings, the country was able to maintain amanageable current account deficit of 2.9per cent of GDP in 2010.

Notwithstanding the improved earnings viacurrent account flows, the bulk of foreigncurrency inflows were generated through thecapital account of the balance of payments(BOP). Here, the recovery of FDI inflowsremained muted while non-equity flowsremained high. This included the issue of aUS$ 1 billion Sovereign bond in October2010.

Foreign capital inflows cause upwardpressure to be applied on the exchange rate.An appreciation of the real exchange rate in

% change 2007 2008 2009 2010Reserve money 10.2 1.5 13.1 18.8Broad money (M2b) 16.6 8.5 18.6 15.8Credit to private sector 19.3 7.0 -5.8 25.1Gross NPL ratio of banking sector 5.2 6.3 8.5 5.3Rate of inflation 15.8 22.6 3.4 5.9

Table 2.5Select Monetary and Financial Indicators



18

turn, hurts the competitiveness of domesticexports in international markets. To preventthe currency from appreciating too much,monetary authorities can intervene in foreignexchange markets and mop up foreigncapital inflows. This, however, also has theeffect of raising the monetary base in thecountry which can hold inflationary conse-quences. In 2010, despite intervention by theCBSL, the rupee appreciated by 3 per cent in

Figure 2.5Inflation Trends


nominal terms against the US dollar. Ofgreater concern was the sharper realappreciation of the exchange rate by 5.3 percent over the same period. As Sri Lankaprepares to float another Sovereign bond ofUS$ 1 billion in 2011, the continued inflowsof foreign capital will require prudentmanagement of monetary policy to ensurethat excess rupee liquidity does not spill-overinto rising inflationary pressures. Any hesi-

Figure 2.6Exports, Remittances and Tourism


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19

tance to raise interest rates for fear of squeez-ing growth will generate macroeconomic in-stability. In the circumstances, the trade-offbetween stability and growth needs to be care-fully assessed. Sustainable high growth in thelong term can only come with a stable mac-roeconomic environment.

There are emerging threats to the Sri Lankaneconomy arising from external shocks, pri-marily in the form of rising food and fuelprices from the latter part of 2010. However,Sri Lanka appears comfortably positioned todeal with external exigencies in the near termwith healthy official reserves of US$ 6.6 bil-lion at end 2010, sufficient for 5.9 monthsof imports. Sri Lanka's accumulation of re-serves, however, is not the result of surplusesin the current account of its BOP, but ratherthe result largely of foreign investments inTreasury bills and bonds, government for-eign borrowing, etc. Thus, the country's me-dium term exposure to external shocks can-not be discounted. Indeed, a weakening ofmacroeconomic fundamentals could lead to

a swift outflow of funds in government debtinstruments. Additionally, Sri Lanka re-mains sensitive to any adverse changes inits sovereign rating that will stymie effortsto raise funds from international capitalmarkets at competitive rates of interest.

2.6 ConclusionSri Lanka has experienced a sharp and broadbased recovery in economic growth in 2010,accompanied by a stable macroeconomicenvironment. The country has thus set itselfa strong foundation from which to build onwhat has already been achieved in a rela-tively short time span of two years follow-ing the end of a three decade long debilitat-ing armed conflict. While the near termoutlook promises higher growth to achievethe government's development objectives,there are also areas of concern with regardsto the evolving macroeconomic environ-ment that cannot be ignored.

Critical amongst these is the growing reli-ance on costlier forms of foreign borrowing

Figure 2.7Trends in Nominal and Real Exchange Rate Movements


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to finance government capital spending. IfSri Lanka is to continue down this path, aprudent course is to ensure that suchborrowings will over time generate foreigncurrency earnings - directly or indirectly - tomeet debt service obligations. The most sat-isfactory outcome would for Sri Lanka tobridge its savings-investment gap via non-debtsources of finance such as FDI. Here, SriLanka's performance has been desultory, withFDI inflows stagnating at 0.9 per cent of GDPin 2010 despite the rather more impressiverecovery recorded in all other sectors - viz.,export earnings, tourism receipts, remittanceinflows, etc.

The failure to generate more dynamism inattracting FDI inflows has been blamed vari-ously on prevailing institutional and regula-tory weaknesses. Sri Lanka is attempting toattract FDI in a highly competitive environ-ment, particularly in the neighbouring Asian

region. In 2011, the country is likely to seea much better outcome, owing largely to an-ticipated inflows into the country's real es-tate and leisure sectors. But it is FDI in-flows into skilled manufacturing and servicesectors activities that are most likely to boostproductivity in the country. Transfers ofknowledge and skills that often accompanysuch FDI inflows are as important as the ac-tual financial flows. Sri Lanka has made thefirst important breakthrough to attract suchinvestments in future by bringing to an endthe unattractive political and security envi-ronment for foreign investors that dogged thecountry through its decades of conflict. Itremains for the country to take the next im-portant steps of ensuring predictability andconsistency in policy, and strengthening thepolicies, regulations and institutions that willencourage investors to act on the opportuni-ties available.

21

3. Accelerating Inclusive Growth in Sri Lanka: The Role of the ExternalSector

3.1 IntroductionSri Lanka's growth cannot be examined in isolation.This is because its economy is intricately interwovento its neighbours and other countries throughcommercial, political and cultural links. Thesustainability of any growth strategy adopted by thecountry will depend on the stability of differentpartnerships and the ability of the country to beresilient to adverse shocks. Given this, any strategythat looks at improving equitable growth will need totake stock of the international environment withinwhich the Sri Lankan economy is functioning.

As a small open economy, Sri Lanka is dependent onexternal demand for its goods and services to sustaindomestic growth as well as to earn foreign exchangefor its import expenditures. The downturn of the glo-bal economy in 2008-09 had its inevitable drag onthe country's export earnings, contributing to a loweroverall domestic output expansion. However, the glo-bal economic recovery in 2010 - with world outputgrowing at 5 per cent compared to a contraction of0.5 per cent in the previous year, helped by a strongrecovery in global trade and investment flows - pro-vided a much more conducive environment for SriLanka's own economic expansion. As the country gearsup to further strengthen its growth objectives in themedium term, enhanced earnings from the exportof goods and services is expected to play an impor-tant role in contributing to growth as well as towardsa stable external payments position in the medium tolonger term.

In this context, the recent decline in Sri Lanka'sexports-to-GDP ratio - from 28 per cent in 2004 to16.7 per cent in 2010 - is a cause for some concern. Itsuggests that despite the rising earnings from exportsin absolute terms, Sri Lanka's higher GDP growthmomentum has been coming from sources other thanthe export sector. Unlike economies with a largedomestic market, the extent to which aggregate

21

‘‘

Achieving rapid andequitable growth will

hinge on the ability of SriLanka's export sector to

contribute to GDPgrowth, as well as ensure

a healthy earnings offoreign exchange


22

demand can be stimulated from catering todomestic demand alone remains limited inthe case of Sri Lanka. Thus, a renewed effortto encourage faster growth in the export sec-tor is important.

The policy challenges are many. As devel-oped economies - which remain the primaryexport markets for most developing coun-tries - struggle to recover from the globalfinancial crisis, competition amongst devel-oping country exporters will heighten. Manycountries are opting for preferential marketaccess via trading arrangements of one sortor another. Any trade policy reform - be itunilateral, bilateral/regional, or multilateral- will have eventual 'beneficiaries' and 'los-ers'. Often, adjustment costs for theeconomy overall are borne in the short term.However, it could well be that long termcosts prevail for particular industries or sec-tors. Thus, the distributional impacts of tradepolicy cannot be ignored, particularly whenSri Lanka is attempting to achieve not onlyrapid growth, but a growth process that isboth equitable and inclusive to meet its longterm post-conflict development objectives.In this context, the Chapter looks at SriLanka's recent export performance and fu-ture prospects, with a special focus on key

export earning sectors in goods and services -viz., garments, tea, and migrant workers.

3.2 Earnings from Exports of Goods andServices: An OverviewMerchandise goods exports saw a strongrecovery in 2010 following the downturn in2009, with overall export earnings growingby 17.3 per cent to record peak earnings ofUS$ 8,307 million. Industrial exportsaccounted for nearly 75 per cent of Sri Lanka'stotal merchandise exports in 2010, with earn-ings from the textiles and garments sub-sector accounting for more than 42 per cent.Earnings from the latter grew by 7 per centdespite the loss of tariff benefits from theGeneralized System of Preferences (GSP-plus)market access to the European Union (EU) inAugust 2010. In view of the impending with-drawal of the GSP-plus benefits, industrysources suggest that many manufacturersimproved the quality of their products,focusing on higher levels of value addition,and branded products that cater to high-endcustomers. Sri Lanka's exports of agriculturecontinue to be dominated by plantationexport crops, with tea alone accounting for16 per cent of total agricultural exports in2010. The increase in earnings from agricul-tural exports, led by tea, was mainly due to

Table 3.1Growth in Goods and Services Exports

Annual Average Growth Sharea

2005-09 2010 2010Agriculture 12.9 18.9 24.6 Tea 13.1 14.1 16.6Industrial 6.3 14.3 74.3 Food, beverages 26.1 21.8 6.1 Textiles and garments 5.9 5.1 42.2Services 4.6 30.4 Transportation 7.4 33.6 46.8 IT 30.0 8.2 10.7

Note: a: Values as a percentage of total goods exports, transportation and IT as a percentage of totalservices exports.


Accelerating Inclusive Growth in Sri Lanka: The Role of the External Sector

23

the high prices that prevailed in the interna-tional markets throughout the year.

Higher earnings from merchandize goodshave been complemented by a rapid growthin services exports, albeit from a lower base.Net earnings from services exports increasedby over 78 per cent in 2010 to US$ 698million, with key sectors such as transporta-tion (accounting for 47 per cent of totalservices exports) and information technology(IT) showing a rapid recovery. Transportationservices growth was attributed to the increasein the number of passengers travelling to SriLanka, increase in freight charges collectedand improvement in port and airport relatedother business services. Computer and infor-mation services sub-sector also saw grossinflows on account of a pick-up in exportsof software, business process outsourcing(BPO) and other IT enabled services (ITES).

Sri Lanka has also benefitted historically fromearnings from migrant worker remittances.Unlike other inflows, worker remittancesremained relatively healthy during the down-turn of 2009 and posted a strong growth of23.6 per cent. The record inflow of US 4.1

billion in 2010 was in part due to anincrease by 8 per cent in the numbers ofmigrant workers leaving for employmentoverseas in 2010, compared to a contractionof 1.4 per cent of total placements in theprevious year.

However, despite the absolute increase inexport earnings, it is of some concern thatSri Lanka's export earnings as a percentage ofGDP - a measure of how much export-led aneconomy is - has been falling continuouslyin more recent years (Figure 3.2). Theexports-to-GDP ratio which stood at 30 percent in 2000 had declined to 16.7 per centby 2010. Indeed, Sri Lanka's export penetra-tion - i.e., its share of global merchandiseexports - has mirrored this decline, fallingfrom 0.09 per cent in 2000 to 0.05 per centin 2008.1 Sri Lanka's export performancevis-à-vis competitors in the Asian region havenot been impressive. For instance, in 1990,exports from both Vietnam and Sri Lankaamounted to US$ 2 billion, but by 2008,exports of Vietnam amounted to US$ 61billion while Sri Lankan exports amountedto approximately US$ 8 billion.2

Figure 3.1Trends in Export Earnings

Source: Compiled using data from the CBSL, Annual Report 2010.

1 IMF, Direction of Trade Statistics 2009.2 Kelegama, S., 2011, “WTO Trade Policy Review - Sri Lanka 2010", Economic Review, Vol. 36, Nos. 11 & 12, People's Bank.

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Being a trade dependent country withlimited scope to expand aggregate demandthrough domestic demand alone, Sri Lankaneeds to pay careful attention to policies thatwill over time, raise productivity and thusthe competitiveness of the country's exportsin international markets. A related issueremains the undiversified nature of both itsexports and export markets. If Sri Lanka is toraise its exports and increase its global share,new products as well as new productsmarkets have to be explored and penetrated.

Sources: CBSL, Annual Report 2010, and IMF, Direction of Trade Statistics 2009.

3.3 Emerging Global Economic Environ-ment and Prospects for ExportsThe recent global financial crisis and theresultant global economic downturn in 2008/09 is changing the dynamics of the globaleconomy. It has had a debilitating impacton the strength and dynamism of theWestern economies. The balance ofeconomic power is shifting decidedly fromWest to East, with China, India, and EastAsian 'Tiger' economies leading the globaleconomic recovery. Global production hubsare shifting to China and India, not only

Table 3.2Projected World Output (2011-12)

Projections2008 2009 2010 2011 2012

World output 3.0 -0.5 5.0 4.4 4.5Advanced economies 0.5 -3.4 3.0 2.4 2.6US 0.4 -2.6 2.8 2.8 2.9UK 0.5 -4.9 1.3 1.7 2.3Euro Area 0.6 -4.1 1.7 1.6 1.8Japan -1.2 -6.3 3.9 1.4 2.1Canada 0.4 -2.5 3.1 2.8 2.6Emerging & developing economies 6.1 2.7 7.3 6.5 6.5India 7.3 6.8 10.4 8.2 7.8China 9.6 9.2 10.3 9.6 9.5Russia 5.6 -7.8 4.0 4.8 4.5Brazil 5.1 -0.6 7.5 4.5 4.1Middle East & North Africa 5.3 1.8 3.8 4.1 4.2ASEAN-5a 4.7 1.7 6.9 5.4 5.7

Note: a: Indonesia, Malaysia, Philippines, Thailand and Vietnam.

Source: IMF, World Economic Outlook, April 2011.

Figure 3.2Sri Lanka's Export Share (2000-2010)

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25

because of lower costs, but also increasinglybecause it is being complemented byimproved industrial and technologicalcapabilities.

Growth in global economic output isexpected to fall from 5 per cent in 2010 to4.4 per cent in 2011, with both advancedand emerging developing economies expectedto see slower growth. The most recent avail-able forecasts suggest that the outlook for2012 remains unchanged from that of 2011.

The global economic recovery in 2010 wasassisted by rising consumption expendituresthat was in part helped by stimulus mea-sures that were undertaken by advancedeconomies. However, despite the growth inconsumption expenditures, many advancedeconomies are grappling with high levels ofunemployment. In the US, for instance, therate of unemployment remained at 9.6 percent in 2010. For much of the EU, similarrates of unemployment prevailed in 2010.

In many of the advanced countries, outputremains far below potential with highunemployment levels and deterioratingfiscal positions plaguing the recovery

process. Debt ratios in most advanced coun-tries have been rising with the averagegeneral government gross debt-to-GDP ratioprojected to breach the 100 per cent thresh-old for the first time since the aftermath ofWorld War II.3 On the other hand, in emerg-ing markets where fiscal and financialpositions were much stronger at the outsetof the crisis, exports have largely recovered.However, the better economic prospects andrelatively high interest rates are seeingincreasing volumes of foreign capital flow-ing to these economies. Growing inflation-ary pressures - amidst rising oil prices at arecord two-year high, spurred by social andpolitical turmoil in the Middle Eastern andNorth African regions - pose challenges toemerging and developing countries. Thethreats to economic stability in these coun-tries are exacerbated by rising food priceswhere food consumption makes for arelatively larger share of household consump-tion. Tighter monetary policies to rein inthreats of inflationary build-up are expectedto slow down growth in 2011.

The slow recovery in the US and EU istroubling for Sri Lanka. They continue to bethe largest importers of Sri Lankan products,

Figure 3.3EU and US: GDP, Consumption and Unemployment Rates

3 IMF, Fiscal Monitor 2011.

Note: Figures for unemployment are end of period values.

Sources: Euro stat/US Department of Commerce/US Department of Labour.

-4-202468

1012

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2008 2009 2010 2011

%

EU

GDP Consumption Unemployment rate

-8-6-4-202468

1012

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2008 2009 2010 2011

%

US

GDP Consumption

Unemployment rate


26

attracting 56 per cent of the country's totalexports in 2010. Nevertheless, Sri Lanka'sshare of exports to the US declined from 31per cent in 2005 to 21 per cent in 2010,while its exports share to the EU has seen amore marginal decline. The increase in shareof exports to other Asian economies has beenslow, while exports to the Middle East grewfaster - rising from 5 per cent in 2005 to 12per cent in 2010.

It is clear that 2011 is likely to see a lethar-gic recovery in both US and EU markets andit is something Sri Lankan exporters need tobe vigilant of. The country is yet to effec-tively 'plug in' to the dynamic growthcentres that are emerging in its vicinity - In-dia, East and South East Asia, and China. SriLanka needs to look at developing strongerlinkages with these healthier economies ofAsia, explore new trading opportunities, andmove away from the excessive dependenceon the US and EU. To this end, it is notablethat India regained its position in 2010 asthe third largest single market for Sri Lankanproducts, a position it held last in 2007. Stron-ger links with the other Asian giant, China,would also help. Although Sri Lanka has seena marginal increase in its exports to China -

Figure 3.4Sri Lanka's Share of Exports to US, EU, ASEAN and SAARC

Source: CBSL, Annual Report, various issues; and IMF, Direction of Trade Statistics, various issues.

rising from 0.4 per cent in 2006 to 0.9 percent by 2010 - much more needs to be doneto strengthen export penetration to thisrapidly growing market.

Sri Lanka needs to be acutely aware of thetectonic shifts in the centre of gravity ofglobal economic power that are graduallytaking place. Although earlier touted as thenew platform for international economicco-operation, the G20 - the grouping of therichest Western economies and the most com-mercially important emerging economies setup as a joint initiative to tackle the globaleconomic crisis - does not appear to havemuch longevity beyond the crisis responseefforts it originally mandated itself to do.Rather, what is now emerging as a key powerbloc is the BRIC (Brazil, Russia, India, andChina) group. The BRIC countries, whichshowed strong resilience during the globaleconomic crisis, account for 45 per cent ofthe world's population, 25 per cent ofglobal GDP, and an estimated 60 per cent ofthe world's foreign currency reserves. In itsmost recent summit in April 2011, SouthAfrica was invited to join the grouping (andexpanding the 'BRIC' to 'BRICS'), furthersolidifying the grouping as a powerful player

0

5

10

15

20

25

30

35

40

45

2000 2002 2004 2006 2008 2010

US EU

%

ASEAN SAARC


27

on the global stage. BRICS have agreed tolend to each other in their own currencies,rather than dollars, and have managed tosuccessfully lobby for greater representationin supranational bodies like the IMF andWorld Bank.

This gradual emergence of the BRIC could,eventually, provide an effective platform fordeveloping countries as a whole to rallyaround, link up productively through its own,albeit relatively weak, G-15 group, and thusfind a stronger voice in the global economicarena. This has direct implications for smallerdeveloping economies like Sri Lanka. Despitebeing unassociated with the initial financialmarkets crisis, developing countries like SriLanka were badly hit by the global downturnthat followed, and therefore has a strongdesire to see the developing world gain astronger voice in reforming the worldeconomic order. By finding ways to strategi-cally link up to this type of new, stronger'South-South' cooperative voice, Sri Lankacould create more avenues to seek supportfor its economic goals internationally.

3.4 Inclusive Growth: The Distribu-tional Impacts of TradeSri Lanka's trade policy continues to be aimedat achieving greater integration into theglobal economy through multilateral,regional and bilateral trade arrangements,through an incentive regime consisting ofrationalization of tariffs geared to encourag-ing exports and attracting foreign directinvestments, and a number of developmentprogrammes to improve infrastructure, withthe twin objectives of enhancing competi-tiveness and market access.

In the more recent past, Sri Lanka has seenits tariff regime become more opaque withan increase in the number of tariff bands as

well as the introduction of para-tariffmeasures on an increasing number ofimported products.4 In June 2010, and there-after through the 2011 Budget announced inNovember 2011, the government relaxed theimport tariff regime to a limited extent bylowering some import tariff rates, restructur-ing tariff bands, and removing some indirecttaxes. Nonetheless, the import tariff regimecontinues to be riddled with para-tariffs. Inaddition to unilateral tariff reforms, SriLanka's commitments under its bilateral andregional free trade agreements have requiredthe adjustment of import tariffs for relatedtrade partners.

Trade reforms create distributional impacts,depending on how different sectors in theeconomy are affected. Some sectors will ben-efit from improved competitiveness andgreater market access - i.e., by reducing dis-tortions in relative prices, and allowing thoseactivities with a comparative advantage toexpand. However, there will be othersectors that will be adversely affected byinternational competition - the removal oftrade barriers leads to a decline in the valueof assets of protected industries and the lossof jobs in those industries. Trade policieswill create 'winners' and 'losers' - benefit-ting some, while in the short term adverselyaffecting others, with attendant adjustmentcosts and distributional effects.

The primary focus of literature that exam-ines the distributional aspects of trade hasbeen on identifying the means by which tradeand poverty are linked through economicgrowth. Trade can affect poverty and distri-butional outcomes through multiple chan-nels including economic growth, prices ofgoods and services consumed by households,livelihoods of the poor and income earningability, vulnerability to shocks and effectson government revenue.

4 Pursell, Garry and F.M. Ziaul Ahsen, 2011, "Sri Lanka's Trade Policies: Back to Protectionism", ASARC Working Paper 2011/03.


28

During the past five decades, developingcountries have experienced importantchanges in their trade policies, providing auseful source of empirical evidence on thenexus between trade, growth and poverty.5

Some evidence suggests that trade opennesstriggers growth, and that growth is a centraldriver of poverty reduction. But there is alsoevidence that suggests that economicintegration into the world economy can bethe result of successful and inclusive growthand development, rather than a prerequisitefor it - i.e., that inclusive growth processescan lead to trade openness and economicintegration into global markets.6

There is little doubt that changes in tradeflows, directly or indirectly, affect the wel-fare of households. The impact of tradereform on poverty and distributional out-comes appears to depend on a combinationof pre-existing conditions - such as geogra-phy, market size, and institutional capacity -and complementary policies (education,infrastructure, financial and macroeconomicpolicies) designed to help the poor partici-pate in the positive opportunities that emergewhile protecting them from the most harm-ful consequences.

For Sri Lanka, greater trade openness has hadmany positive impacts, including thegeneration of significant employment andincome earning opportunities. The benefitsin aggregate in sectors such as garments areclear. It provided useful foreign exchangeearnings and opened new channels ofemployment opportunities to young,

unskilled female labour. Similarly, 73 percent of outgoing migrant workers in Sri Lankais estimated to be from outside the WesternProvince, while 67 per cent were eitherunskilled workers or housemaids.7 The ex-periences of both the garments sector andmigrants suggest that a large proportion ofworkers from rural or poor backgrounds ben-efitted. Indeed, the presence of a family mem-ber abroad is estimated to have a significantmarginal effect in reducing the likelihood ofa household being poor.8 Remittances arealso found to have helped increase expendi-ture and investment in health and educationof beneficiary households and have providedsecurity from external shocks.9

However, outcomes in other export sectorsare less clear. Whilst tea exports have his-torically provided much needed foreignexchange earnings, the estate sector popula-tion has remained mired in poor socio-economic conditions. Additionally, thosesectors most open to trade and investmentopportunities - centred in urbanized settings- have also led to widening output gaps andrelated poverty indicators across sectors andprovinces of the country. Thus, complemen-tary policies to address the distributionalimplications of external trade promotionshould not be ignored.

3.4.1 Pro-Poor Growth: Manufactur-ing or Services Sector?Growth that is driven by expansion of out-put in manufacturing is often considered tohave beneficial impacts on addressingpoverty and inequity given its potential to

5 See Dollar, D., and A. Kraay, 2004, "Trade, Growth and Poverty", The Economic Journal, 144(493), pp. 22-49; Ravallion, M., 2005,"Looking Beyond Averages in the Trade and Poverty Debate", Policy Research Working Paper 3461, World Bank, Washington, D.C.

6 Chang, H.J., 2007, Bad Samaritans, London: Random House Business Books; Rodriguez, F. and D. Rodrik, 1999, “Trade Policy andEconomic Growth: A Skeptic’s Guide to the Cross-Country Evidence”, Discussion Paper Series 2143, CEPR, London.

7 Sri Lanka Bureau of Foreign Employment, Annual Statistical Report 2009.8 World Bank, 2007, Sri Lanka Poverty Assessment, World Bank, Washington, D.C.9 Arunatilake, N., P. Jayawardena and D. Weerakoon, 2011, “Sri Lanka” in Kelegama, S., (ed.), Migration, Remittances and Development

in South Asia, Sage Publications, New Delhi.


29

generate employment for unskilled labour -an abundant factor of production in manydeveloping economies where a sizeableproportion of such workers are considered torepresent low-income segments of thepopulation.

Overall, employment growth in Sri Lanka'sindustrial sector has been better than that ofthe services sector in recent years.10

However, productivity in the former haslagged behind that of the latter, which isclearly a concern in terms of the ability ofthe industrial sector to generate productiveemployment opportunities. Nonetheless, theexport-oriented manufacturing sector hasbeen an important source of job creation.Indeed, the industry is estimated to provideover 300,000 in direct employment as wellas another 1 million in indirect employment.The industry expects to create job opportu-nities for a further 20-30,000 over the nextfive years in the face of an anticipatedexpansion of factories. A further positiveapproach is the stated intention of the JointApparel Association Forum (JAAF) toemploy rural youth in regional factories. Inturn, this is likely to address long recognizedproblems associated not only with ruralemployment, but also living conditions forfactory workers who are often forced to movein search of employment and make such jobopportunities more attractive.

The government's focus on promoting smalland medium enterprises (SMEs), if effective,will also help in generating manufacturingoutput and employment. SMEs have gainedwide recognition as a critical source ofemployment, especially for the poor. In SriLanka, SMEs make up more than 80 per centof all businesses, account for about 35 per

cent of employment and about 20 per centof total industrial value added.11 Whilst theymay not always be direct exporters - in thegarments industry, for instance, around 80per cent of factories are categorized as SMEsaccording to the value of exports, but theyaccount for less than 30 per cent of totalexport earnings - SMEs are an importantsource of inputs for many export industries.However, nearly 80 per cent of SMEs areestimated to be located in the WesternProvince inhibiting its contribution topromote a more regionally balanced devel-opment process.12

Besides the industrial sector, the servicessector has also been a significant contributorto economic growth in Sri Lanka in therecent past. Unlike manufacturing, however,the services sector tends to generate employ-ment for higher skilled workers, which mayin part account for the greater productivitygains in the services sector at the aggregatelevel. The most rapidly expanding servicessector has been in telecommunication, bank-ing, IT, finance, etc. As Sri Lanka turns in-creasingly to promote services-oriented ex-port activities - including efforts to developthe country as a hub for select services - theemployment opportunities that will be gen-erated will most likely require a higher skillsprofile that could have broader distributionaland equity issues in the country.

3.4.2 Trade and Gender LinkagesTrade openness can create economic oppor-tunities, but because of different endow-ments, control over resources, access tolabour markets and varying roles within thehousehold, there can be significant genderdifferences in any accruing benefits.13 Sri

10 See Chapter 4 of this report on “Imperatives of Inclusive Growth”.11 World Bank, 2005, International Finance Corporation (IFC) Survey 2005.12 Munisada, K.L.D.H, 2008, Best Practices on SME Development and Management in Sri Lanka, Asian Development Bank

Institute,Tokyo.13 Maurizio, Busoolo and E. De Hoyos Rafael, 2009, Gender Aspects of the Trade Poverty Nexus: A Micro-Macro Approach, World

Bank, Washington D.C.


30

Lanka is an interesting case study of genderdimensions of trade and poverty, given thefact that women from rural areas and deprivedcommunities dominate the labour force ofthe significant export earning activities -garments, migration and tea. At present,women account for over 70 per cent of thelabour force in the export garments sectorand over a half of the labour migrants arewomen. There is clear indication that greateremployment opportunities for women havehad a significant impact on patterns ofemployment in Sri Lanka. The female labourforce participation rate increased substantiallyfrom 25.8 per cent in 1980 to 39.5 per centby 1990 and stood at 32.1 per cent in 2010.

However, a majority of these women are tobe found in low skilled categories wherewages are relatively low. Furthermore, eventhough significant employment opportuni-ties for females are present, opportunities forupward mobilization of labour is extremelylimited or almost non-existent. In thegarments industry, for instance, it has beenfound that female career development hasbeen trapped at low level employmentcategories, whereas male workers have moreopportunities for upward mobility and

Table 3.3Informal Private Tea Sector Daily Wages by Gender

Year Annual Average (Rs.) Percentage Change Nominal Reala

Male Female Male Female Male Female2006 333 234 10.9 7.9 -2.8 -5.82007 375 263 13.8 11.5 -3.7 -6.02008 440 305 17.4 16.1 -4.2 -5.22009 488 356 10.9 16.5 7.2 12.62010 543 391 11.3 9.9 5.0 3.7

access to upper or middle level employmentcategories.14

Males continue to dominate in senior andmiddle manager categories accounting for 85and 69 per cent of employment, respec-tively.15 Thus, the garment sector provides agood example of a case where men andwomen appear unable to take equal advan-tage of trade opportunities. The same is trueof the estate tea export sector as well. Eventhough it generates significant employmentfor female workers, it is mostly very low-skilled employment that yields low incomes.Gender wise informal private sector dailywages in the tea sector show that not onlydo males earn higher wages than females,but that males tend to also enjoy a higherpercentage increase in both nominal and realwages compared to females (Table 3.3).However, trade policy alone is not to blame.The structure of the industry, as well as theincentives and contracts that govern relationsbetween employees and employers, matter.The nature of 'resident labour' in the estatesector as opposed to tea smallholders - wheresocio-economic outcomes are much better -lends support to this argument.

Note: a: Real wage changes are based on CCPI (2002=100).


14 Jayaweera, S., 2005, “Continuity and Change: Women Workers in Garment and Textile Industries in Sri Lanka”, [http://reseau.crdi.ca/en/ev-58039-201-1-DO_TOPIC.html]

15 Chandrasiri, S., 2009, Promoting Employment-Intensive Growth in Sri Lanka: Policy Analysis of the Manufacturing and Service Sectors,International Labour Organization, Geneva.


31

Trends in foreign employment in Sri Lankaalso demonstrate notable differences betweenmales and females. In 2009, while almost ahalf (46.8 per cent) of migrant males wereskilled workers, the corresponding figure forfemales was a mere 4.2 per cent. Housemaidswere the dominant source of female migra-tion, accounting for 89 per cent of the total.This gives an indication of the higher earn-ing potential as well as the better workingand living conditions of male migrantscompared to females.

3.5 Trade and Inclusive Growth in SriLanka: Tea, Garments and RemittancesAs Sri Lanka looks to raise its long term GDPgrowth rate to 8 per cent and above, thecountry's export sector will be expected toplay a critical role. Three of the country'smain foreign exchange earners through theexport of goods and services - garments, teaand remittances - will also hold significantdistributional implications for the economyas a whole. The rest of the section willanalyze the emerging global environment foreach of the sectors and Sri Lanka's potentialto further raise export earnings in thecoming years.

Figure 3.5Departures for Foreign Employment by Sex and Manpower Levels: 2009

Source: SLBFE, Annual Statistical Report 2009.

3.5.1 Garment SectorAs previously noted, the textile and garments(T&G) sector accounts for 42 per cent of SriLanka's total exports. The garments sectoralone is estimated to provide employmentto 351,762 workers, making up 41 per centof total industrial employment in thecountry.16 However, 74 per cent of garmentindustry firms and 73 per cent of employ-ment in such firms is to be found within theWestern Province.17

Despite the withdrawal of GSP-plus conces-sions by the EU in August 2010, earningsfrom T&G exports increased by 7 per cent toUS$ 3,504 million in 2010. The EU attractedalmost 51 per cent of Sri Lanka's totalgarment exports in 2010 while the US at-tracted 41 per cent. The increase in garmentexport earnings despite a decline in thevolume exported, suggests the export of highvalue products to niche markets. This seemsto support suggestions that the industry isaiming to improve the quality of productsand productivity in order to face stiffercompetition, especially in view of the lossof GSP-plus concessions in the lucrative EUmarket. Other measures include attempts to

16 DCS, Annual Survey of Industries 2009.17 Ibid.

2% 5%5%

49%

39%

Male Departures

Professional

Middle Level

Clerical and Related

Skilled

Unskilled

0%

1% 1%

4%5%

89%

Female Departures

Professional

Middle Level

Clerical and RelatedSkilled

Unskilled

Housemaid


32

cater to high end customers and focus onbranded products.

Nonetheless, the steady inroads that SriLankan garments exporters had been makinginto the EU market may see a slowdown withthe withdrawal of the tariff concessions. In-deed, the increase in export earnings overthe years has been due largely to a shift inSri Lankan garments exports from the US tothe EU. In contrast to Sri Lanka's success inpenetrating the EU market, Sri Lanka has beenseeing a steady decline in its market share

Figure 3.6Sri Lanka's Export Share in the US and EU T&G Markets: 2005-09

in the US, from 1.8 per cent in 2005 to 1.5per cent in 2009. For the longer term inter-ests of the industry, it is imperative thatmarket diversification takes place. In this re-spect, Sri Lanka has made rapid inroads intonew markets such as Turkey and Slovakia(Table 3.4).

For Sri Lanka, of immediate concern is theslow recovery in key markets of the US andEU. After having declined by over 5 per centin 2009, the US apparel market regainedmomentum with a 2 per cent increase for

Table 3.4Top Ten Destinations of Sri Lanka's Garment Exports

Rank 2005 2009Country Value (US$ mn.) Country Value (US$ mn.)

1 US 1633 US 12852 UK 603 UK 8443 Italy 139 Italy 3494 Germany 85 Germany 1785 Belgium 58 Belgium 696 France 44 Netherlands 597 Canada 40 France 578 Netherlands 28 Canada 429 Spain 19 Turkey 29

10 Japan 12 Slovakia 20

Source: Export Development Board, 2010, Export Performance Indicators 2000-2009.

Source: International Textiles and Clothing Bureau.

0.0

0.5

1.0

1.5

2.0

2.5

2005 2006 2007 2008 2009

%

SL's share in the US market SL's share in the EU market


33

2010.18 In the year ending June 2010, EUclothing imports is estimated to have fallenin value to their lowest level since 2006 (andto the lowest in volume terms since 2005).19

Also, the average import price fell afterrising a year earlier. Sri Lanka will face stifferprice competition in these markets, even asapparel exporters to the EU from Bulgaria,Kosovo, Macedonia and other Balkan coun-tries enjoy a number of competitive advan-tages, including quicker transportation time,lower transportation costs and zero duty onentry to the EU.

For Sri Lanka, infrastructure investment thatis currently under way is expected over timeto improve road and rail linkages, make avail-able cost-effective and reliable supply of en-ergy, etc. Such efforts will be critical to en-hance the price competitiveness of thecountry's exports in the medium to longerterm. Indeed, the critical need to invest inefforts to improve trade facilitation is wellrecognized. Recent studies, for instance, havesuggested that a 10 per cent reduction in de-

lays in exports by a country can see itsexports rising by as much as 4 per cent.20

The benefits or otherwise of other forms ofsupport offered by the government - invest-ment incentives and a number of establishedand fully serviced industrial zones, estatesand parks - are yet to be fully determined.The industry too is attempting to do its sharewith the undertaking of several campaignssuch as 'Garments without Guilt' (for goodlabour conditions) and the introduction of'Green Garments' to exploit Sri Lanka's othercomparative advantages vis-à-vis itscompetitors.

3.5.2 TeaThe tea sector recorded its highest everannual production of 329 million kgs in2010, surpasing the previous all time highof 319 million kgs in 2008. Correspondingly,Sri Lanka earned a record US$ 1,375million. Despite Kenya exporting a highervolume of tea than Sri Lanka, higher pricesfor 'Ceylon tea', and value addition helped

Table 3.5Main Export Markets for Sri Lankan Tea

Country 2010 2005 Export Share (%)(‘000 kg.) (‘000 kg.) 2010 2005

Russia 50,172 57,648 16 19

UAE 30,201 38,180 10 12

Iran 28,675 24,948 9 8

Syria 27,186 27,670 9 9

CIS countriesa 26,259 13,430 8 4

Turkey 19,032 17,241 6 6

Jordan 17,620 12,057 6 4

Iraq 13,899 10,784 4 3

Kuwait 11,470 3,012 4 1

Japan 10,855 8544 3 3

Note: a: CIS countries excluding Russia.


18 International Trade Administration, Office of Textiles and Apparel.19 Ibid.20 Djankov et al., 2008, “Trading on Time”, available at http:espanol.doingbusiness.org/Documents/ TradingOnTime_APR08.pdf.


34

Sri Lanka obtain higher export earnings.Encouragingly, a higher percentage of exportsof nearly 65 per cent consisted of value addedteas, while the rest were in bulk form. In theglobal tea market, Sri Lanka retained itsposition as the third largest exporter involume terms after Kenya and China.

Middle Eastern countries, Russia and theother Commonwealth of Independent States(CIS) are the main tea export markets for SriLanka (Table 3.5). Globally, Russia, UK, US,UAE and Egypt are the largest buyers of tea.However, Sri Lanka's market share for tea insome of the key export markets has shownan indifferent performance. In the case ofRussia, while Sri Lanka remains the primarysupplier, the market share has declined from41.9 per cent in 2006 to 29.9 per cent in2010 (Figure 3.7). Similarly, Sri Lanka'smarket shares in UAE and in Iran have alsogradually decreased. However, while SriLanka is losing its market share in its largerexport markets, it may be gaining in rela-tively smaller markets. For example, in thecase of Turkey, the market share has increasedfrom 58.7 per cent in 2005 to 62.6 per centin 2009. While seeking new markets, SriLanka must also ensure that it is not losingground in major tea consuming countries.

Sri Lanka's tea industry should also takecognizance of emerging trends in consumerpreferences. In the EU, for instance, the trendtowards convenience and smaller portionshas led to an increasing demand for prod-ucts like instant tea pods, tea-for-one bags,and iced tea. Increasing environmental andsocial awareness has directed more consumerattention to 'sustainable' tea. Healthconcerns have also seen the growth oforganic products, along with market demandfor organic certification.

Additionally, European consumers are call-ing for more variety and specialties, includ-ing a rise in demand for green tea. While SriLanka's green tea production has risen inrecent years - from 2.2 million kg in 2006 to3.3 million kg to 2010 - it is still ofmarginal importance. Herbal tea consump-tion is also on the rise. Other trends includea growing demand for tea packs containingvarious flavours, particularly in markets suchas the EU.

3.5.3 RemittancesInward worker remittances continued its po-sition as the prime foreign exchange earnerin 2010, recording inflows of US$ 4.1billion - an increase of 23.6 per cent

Figure 3.7Sri Lanka's Market Share in Major Tea Markets: 2005-2010

Source: ITC Trade Map data.

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008 2009 2010

%

Russia

UAE

Turkey

Japan

Syria

Iraq


35

compared to the previous year. The numberof outbound migrant workers increased by 8per cent compared to the 1.4 per centdecline of total placements in the previousyear. On a global scale, remittance flows todeveloping countries are estimated to havefully recovered to the pre-crisis level of US$325 billion in 2010.21 In line with a recov-ering but still fragile global economy, remit-tance flows to developing countries are ex-pected to increase in 2011-13, but at lowerrates compared to the pre-global crisisperiod.

With the government promoting skilledlabour migration, there is a notable growthin the number of migrants in the categoriesof professionals, middle level, clerical andskilled workers (Table 3.6).22 Correspond-ingly, Sri Lanka has seen a decrease in theshare of housemaids leaving for foreignemployment over time; in turn, this has alsohad the impact of changing the gendercomposition of the migrant labour force awayfrom women and towards more malemigrants. Typically, females make up only avery small share of the more skilled catego-ries of migrant workers. The change in theskills profile of migrant workers is expectedto lead to higher remittance inflows in thecoming years.

Middle Eastern countries continue to attracta majority of workers, accounting for 90 percent of total departures in 2010 and 60 percent of workers' remittances (Figure 3.8). TheMaldives, Cyprus, South Korea, Singaporeand Malaysia are the other emerging hostcountries, particularly for semi-skilledworkers.

Despite the current political and socialunrest in the Middle East, it is not expectedto have a notable impact on remittances asthe major destination countries of Sri Lankanworkers in the Middle Eastern region remainstable. An escalation of oil prices that raisesthe living standards of oil producingcountries in the Middle East may also helpincrease remittance inflows via enhanced em-ployment opportunities, especially in skilledand professional labour, as well as the pros-pect of higher wages. In addition to externalfactors, Sri Lanka has also taken measures toimprove working conditions for its migrantpopulation by entering into collective agree-ments with employers. The post-conflictdevelopment of financial services in the Northand East of the country is also expected toyield significant benefits in terms of addingto remittance flows in the coming years.

Table 3.6Departures for Foreign Employment by Manpower Levels and Sex: 2005 & 2009

2005 2009Male Female Male Female

Professional 1,324 97 2,689 133Middle level 7,150 892 5,407 985Clerical and related 6,988 754 5,869 837Skilled labour 39,882 6,806 55,846 5,384Unskilled labour 38,552 3,352 43,791 6,367Housemaid 125,493 113,777

Source: SLBFE, Annual Statistical Report of Foreign Employment 2009.

21 World Bank, 2010, Migration and Remittances Factbook 2011.22 It should be noted that this is likely to be an underestimate. It is mainly unskilled workers and housemaids that register with the SLBFE,

while workers migrating independently do not necessarily register themselves.


36

Whilst the policy approach to send higherskilled workers is appropriate, Sri Lanka alsoneeds to ensure that domestic labour marketconditions are taken into consideration. Forinstance, it is estimated that Sri Lanka hasthe highest expatriation rate of doctors andthe third highest expatriation rate of nursesto the OECD.23 This is in spite of recognizedskills shortages in the country in certain healthcare services. Therefore, while recognizingthe potential for trained labour to earn higherremittances, it is also important to considerthe downside impact on equitable access toservices domestically.

3.6 ConclusionThe success or otherwise of achieving SriLanka's long term post-conflict developmentobjectives - rapid and equitable growth - willhinge in no small measure on the ability ofthe country's export sector to contribute toGDP growth, as well as ensure a healthyearnings of foreign exchange for the country.In this respect, the strong recovery in keyexport earning sectors in 2010 - in merchan-

dise goods, services, tourism, and migrantremittances - is a positive development.However, it is also noteworthy that Sri Lanka'srecent export performance overall is of someconcern. Rising export earnings in absoluteterms has not been commensurately matchedby an increase in the country's exports-to-GDP ratio. It suggests that despite higherGDP growth in the interim, growth has notbeen led by exports which can be problem-atic for a small open economy that clearlyhas a very limited domestic market tosupport a sustained expansion of aggregatedemand. Notably, Sri Lanka has also beenlosing ground in penetrating export marketsvis-à-vis its competitor countries, seeing agradual lowering of its share of global tradein recent years.

The policy challenges to provide a condu-cive environment to promote an export-pushare many. A key area of concern in thisregard is ensuring that export competitive-ness is not adversely affected by an appreci-ating real exchange rate. Sri Lanka's nominal

Figure 3.8Top Destinations of Labour Migrants from Sri Lanka by Country

Source: SLBFE, Annual Statistical Report of Foreign Employment 2009.

23 Dumont, J.C. and P. Zurn, 2007, Immigrant Health Workers in OECD Countries in the Broader Context of Highly Skilled Migration,International Migration Outlook, Paris.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2005

2009


37

exchange rate movements in the recent pasthave been dominated by capital accounttransactions that have little bearing onaggregate demand for the country's goods andservices overseas. Additionally, while theongoing accelerated infrastructure develop-ment in the country will certainly ease someof the constraints - in energy, transport,telecommunications, etc., - more needs tobe done to provide a supportive regulatoryenvironment, be it in developing a dynamicSME sector or attracting export and knowl-edge-enhancing inflows of FDI. Efforts to

ensure that investors find the necessary poolof skilled labour, flexible and efficient labourmarket conditions, transparent governancestructures, etc., will prove as critical as astable policy and political environment toencourage the export sector. Higher earningsfrom the country's historical channels of for-eign exchange and emerging new areas holdthe potential to not only support growth, butalso to meet the government's efforts toensure that the benefits of that growth areequitably distributed.

4. Imperatives of Inclusive Growth

4.1 IntroductionFollowing the ending of Sri Lanka's long drawn sepa-ratist conflict in May 2009, the growth prospects forthe country in the medium term look promising.However, sustaining growth and ensuring peace willlargely depend on reducing disparities and improvingopportunities for participation in development. Thereis general agreement that growth is a necessary condi-tion for poverty reduction. Most countries that haveexperienced high levels of growth have experiencedreductions in the number of people in poverty, atleast in absolute terms.1 But, there is an increasingrealization that poverty alleviation depends not onlyon growth, but also on the distribution of incomes.For example, at Brazil's level of inequality, 1 per centgrowth is estimated to reduce poverty by less than 1per cent, while in India and China - countries withgreater equality - 1 per cent growth is estimated toreduce poverty by more than 3 per cent.2 Expressedin another way, with a 3 per cent growth rate and atthe present levels of inequality, Brazil will take 30years to halve its current levels of poverty, but if thesame rate of growth is accompanied by a 5 per centreduction in inequality, poverty can be halved in onlyten years.3

Recent debates on development have focused on theneed for 'inclusive growth' to achieve sustained growthoutcomes. The inclusiveness approach is concernedwith addressing disparities in population groups acrossa variety of dimensions including, gender, geographiclocation, sector, ethnicity, etc. According to recentliterature, the need for inclusiveness across thesedifferent dimensions comes from several sources. Firstand foremost, inclusiveness is desired from an ethicalstandpoint. In addition, inclusiveness is needed forsustaining economic growth, as exclusion leads to

Continued disparitiesacross regions could

increase vulnerability ofthe country to future

conflicts … it isessential to understandthe causes of inequality

and redress them

‘‘

1 Rodrik, D., 2000 , “Growth Versus Poverty Reduction: A Hollow Debate”, Finance and Development, Vol. 37, No. 4, InternationalMonetary Fund.

2 Thomas, V., 2007, “The Difference Inclusive Growth Makes”, Latin America Emerging Markets Forum 2007.3 Ibid.

38

39

Imperatives of Inclusive Growth

underemployment of productive resourcesthat could restrict growth. Exclusion couldalso lead to social tensions and conflict,which could undermine the growth process.Inclusiveness is, therefore, especially impor-tant in a post-conflict setting. Inclusivegrowth strategies have become increasinglypopular among developing Asian economieswhich have faced rapid growth and risinginequalities in the recent past; indeed, it hasbeen identified as the first key developmentagenda in the Asian Development Bank's(ADB) 'Strategy 2020'.

The term 'inclusive growth' is sometimesconfused with 'pro-poor growth'. But the twoterms have related, but different meaningsunder most definitions. In this discussion,growth that accompanies reductions inabsolute levels of poverty is termed 'pro-poor',while growth that is accompanied by a

Box 4.1Differing Views on Growth, Poverty Reduction and Human Development

In a recent lecture to the Indian Parliament on “Reforms Yesterday and Today”, Prof.Jagdish Bhagwati argued for further strengthening India’s ‘conventional reforms’ (whichhe calls Stage 1 reforms) – that include liberalization and diversification of trade,liberalizing retail trade, and labour market reforms.4 He points out that these reformshave produced the growth that India is experiencing now, which in turn has improvedthe lives of all segments of society including those of the poor. He argues that policymakers should focus on growth because growth actively helps to reduce poverty, andnot only through the trickle-down effect as sometimes argued. According to him,social sector reforms (which he calls Stage 2 reforms) must follow Stage 1 reformsaimed at growth. He refutes arguments made for replacing Stage 1 reforms with Stage2 reforms, as without revenue generated through growth, it is not possible to undertakesocial expenditure.

Prof. Amartya Sen also agrees that growth is necessary for poverty alleviation, but doesnot believe that growth is synonymous with development. According to him, growthis important but only as an instrument for achieving human development, and not asan ultimate goal. He also points out that although growth can provide greater accessto economic and social opportunities for many, some may need special assistance tocome out of poverty.5

decrease in inequality is termed 'inclusive'.Growth that is pro-poor may not necessarilybe inclusive. This is because growth canincrease the average income of a populationwhile also increasing inequality. If the growtheffect of income is more than the inequalityeffect, poverty can reduce, making growthpro-poor but not necessarily inclusive. Onthe other hand, if growth is inclusive (i.e.,cuts across all segments of population),poverty will also fall. Hence, inclusivegrowth is also pro-poor.

4.1.1 Inclusive Growth: A Frameworkfor AnalysisInclusive growth starts with the assumptionthat sustained growth over a long period is anecessary condition for rapid and long termpoverty reduction. For growth to be sustain-able in the long run, 'it should be broad-based across sectors and inclusive of the large

4 Bhagwati, J., 2011, “Indian Reforms Yesterday and Today”, prepared statement on the Prof. Hiren Mukherjee Memorial Annual ParliamentLecture, http://www.cfr.org/india/indian-reforms-yesterday-today/p23607 [accessed June 7th, 2011].

5 Sen, A., 2011, “Growth and Other Concerns”, The Hindu, New Delhi, India [February 14, 2011].


40

part of the country's labour force'.6 Whilstthere are different frameworks for analyzinginclusiveness of growth, many are concernedwith improving the utilization of productiveresources and identifying constraints togrowth.

The Hausmann, Rodrik and Velasco (HRV)framework looks at inclusive growth fromthe perspective of the individual.7 It assumesthat access to productive employment pro-vides the main means of inclusive growthand poverty reduction. To achieve this, first,there should be employment growth -whether self-employment or wage employ-ment. Second, there should be productivitygrowth so that wages increase and there arehigher returns from self-employment.

According to the described framework, aninclusive growth analytics should start witha background analysis which provides anoverview of the country's growth patterns andpoverty trends. This should be followed byan examination of the involvement of differ-ent economic population groups in thegrowth process. Lastly, the analytics shouldevaluate the constraints to inclusive growth.This step involves examining growth poten-tial for different sectors of the economy, theability of individuals to participate in thesesectors in the short term, generating employ-ment and improving productivity. In someinstances, when some sectors are lagging, itcould also involve re-orienting training andother aspects of human resource developmentfor restructuring the economy.

Figure 4.1Framework for Inclusive Growth Analysis

6 Ianchovichina, E. and S. Lundstrom, 2009, “Inclusive Growth Analytics – Framework and Application”, Policy Research Working Paper4851, World Bank, Washington, D.C., pp. 2.

7 Ibid.

Economicgrowth

Income increase through

productive employment

Self-employment Wage employment

Business environmentanalysis

Employability analysis

Source: Hausemann, Rodrik and Velasco (2005) as shown in Ianchovichina and Lundstrom(2009) “Inclusive Growth Analytics -- Framework and Application”, Policy ResearchWorking Paper 4851, The World Bank.

Povertyreduction

41


01020304050607080

Sri Lanka

Western

Central

Southern

Northern

Eastern

Eastern

NorthCentral

Uva

Sabaragamuwa

Services -2009 Services -2006 Services -2003

Whilst it is beyond the scope of this discus-sion to conduct a full scale inclusive growthanalysis, taking a cue from the policy stanceof the government in balancing provincialgrowth and making use of regional growthtrends, this Chapter focuses on the follow-ing. Section 4.2 sets the stage by discussingpatterns of growth experienced in Sri Lankaacross various population groups, and exam-ines whether past experience with growth hasbeen inclusive. Section 4.3 briefly discussesthe employability and access to infrastruc-ture. Section 4.4 describes key areas of policyfocus essential to foster an inclusive growthstrategy. The discussion looks at the impor-tance of raising productivity in the primarysector,8 given the large numbers of poor who

are economically engaged in this sector. Thediscussion also takes stock of opportunitiesand strategies for Sri Lanka in a changing worldeconomy, as well as the implications ofefforts currently under way to improveconnectivity within the country as well aswith the outside world. Section 4.5 exam-ines the institutional environment for inclu-sive growth that can better encourage effec-tive use of underutilized resources andinvestments. Section 4.6 concludes.

4.2 Patterns of Growth and theirInclusiveness9

On average, the Sri Lankan economy main-tained a growth rate of 5.9 per cent during

Figure 4.2Contribution to GDP by Industrial Sector and Province

Source: Compiled using data from CBSL, Annual Report, various issues.

8 The primary sector is defined as consisting of industries – such as agriculture, fisheries, mining and quarrying – that produce goodsusing natural resources.

9 All poverty statistics in this section are officially published statistics by the DCS, available at http://www.statistics.gov.lk/poverty [accessed30th April, 2011].

01020304050607080Sri Lanka

Agriculture - 2009 Agriculture - 2006

Agriculture - 2003

Southern

Northern

Eastern

NorthWestern

NorthCentral

Uva

Sabaragamuwa Western

Central

01020304050607080Sri Lanka

Western

Central

Southern

Northern

Eastern

North Western

North Central

Uva

Industry-2009 Industry-2006 Industry-2003

Sabaragamuwa


42

2003-09.10,11 The contribution to overallgrowth was mixed across provinces.Economic activities remained highly concen-trated in the Western Province, whichcontributed a little over 45 per cent of GDPin 2009, a slightly lower share compared toits 50 per cent contribution in 2003. Theprovincial shares of GDP also declined inthe Central, Northern, and North CentralProvinces, indicating lower than averagegrowth in these provinces (Figure 4.2). Thisdecline was sharper in the Northern andNorth Central Provinces and marginal in theCentral Province. The contribution tooverall GDP improved in all other provinces,with the Southern, North Western andSabaragamuwa Provinces showing thelargest improvements.

The number of people living under theofficial poverty line declined from 4.3 mil-lion in 2002 to 1.8 million in 2009/10 (areduction of close to 58 per cent), and percapita GDP at current market prices (US$)increased by more than 141 per cent overthe period 2003-10 to reach US$ 2,368,

indicating a general improvement in livingstandards.12 The proportion of populationliving below the official poverty line -referred to as the poverty headcount ratio(PHCR) - dropped from 22.7 per cent to 8.9per cent over the 2002 to 2009/10 period.For provinces for which data is available, thisdecline was more than the national average,except in the Western Province.

In the overall economy, growth was drivenmainly by the industry and services sectors.The agriculture sector also grew at above 4per cent during 2003-09, although its growthwas lower than the overall growth levels inthe country. The contribution of the agricul-tural sector to the overall economy declinedby 6.3 percentage points to 12.7 per centover 2003-09, while the contributions ofindustry and services sectors increased overthe same period by 3.3 and 3.1 percentagepoints to reach 29.7 per cent and 57.6 percent, respectively. In all provinces, exceptthe Western Province, the shares of industryand services sectors gained, while the shareof agricultural sector declined (Figure 4.3).

Figure 4.3 Changes in GDP, Poverty and Sectoral Shares of GDP across Provinces

Source: Compiled using data from CBSL, Annual Report, various issues.

10 From 2003 to 2010, the average growth rate was 6.2 per cent. As province-wise disaggregated GDP estimates are not available for 2010,the rest of the analysis uses 2009 estimates.

11 The DCS took over the function of calculating GDP estimates from 2003. As data prior to that use a different methodology for estimatingGDP, the Chapter conducts comparisons from 2003 to ensure consistency in the series.

12 CBSL, Annual Report, various issues.

(a) Changes in GDP and poverty acrossprovinces

Change in share in overall GDP 2003 to 2009 Change in poverty HCI 2002 to 2009/10

-30.0

-20.0

-10.0

0.0

10.0

(b) Changes in industrial shares of GDP2003 to 2009

-30.0

-20.0

-10.0

0.0

10.0

20.0

Agriculture Industry Services

43


In the Western Province, the shares of boththe agriculture and services sectors declined,albeit marginally. However, the patterns ofchange in sectoral shares were not uniformacross provinces. The decline in agricultureshare of GDP was more pronounced (morethan 15 per cent over 2003-09) in the South-ern, North Central and Uva Provinces. In theSouthern, Northern, Eastern, Uva andSabaragamuwa Provinces, the share of theservices sector increased markedly (by 10 ormore percentage points), while there was amoderate increase in the services sector inthe North Western Province. In the Central,North Central and Uva Provinces, the shareof the industrial sector increased markedly(by more than 10 percentage points), whileit increased moderately in the SouthernProvince.

These differences in the patterns of growthmay have had a role in contributing topoverty reduction. A cursory glance at avail-able statistics implies that the productivityimprovements in the services sector, ratherthan improvements in employment levels,played a key role in alleviating poverty (Table

Table 4.1 Labour Productivity by Major Economic Sector

2002 2003 2004 2005 2006 2007 2008b 2009b 2010b,c

Labour productivity by major economic sector (Rs. ‘000 per person)a

Total 132.0 132.6 134.0 286.0 294.2 317.0 309.3 322.2 343.3Agriculture 73.6 74.0 70.8 117.5 112.4 120.7 114.8 119.2 125.3Industry 168.0 161.2 161.3 305.5 312.3 339.0 335.6 367.1 407.2Services 161.0 163.7 169.1 392.3 424.6 449.0 446.1 451.8 472.8

Index of labour productivity (2002=100)Total 100.0 100.8 101.9 217.5 223.7 241.1 235.2 245.0 261.1Agriculture 100.0 100.5 96.2 159.6 152.7 164.0 156.0 162.0 170.2Industry 100.0 95.7 95.8 181.4 185.5 201.3 199.3 218.0 241.8

Services 100.0 101.8 105.2 244.0 264.1 279.2 277.4 281.0 294.0

Note: a: Employment data excludes Northern and Eastern Provinces, unless otherwise specified;b: Employment data excludes Northern Province; c: Provisional.


4.1). Improvements in employment levels inthe industrial sector, which also experienceda moderate increase in productivity, may havealso helped. Productivity in the totaleconomy was mainly driven by productivityimprovements in the services sector.

During 2002-09, total employment in theeconomy grew at 1.4 per cent on average perannum. This increase in employment ismainly explained by employment generationin the industrial sector, which grew at 3.6per cent on average over the period. Thecomparative growth in employment in theagriculture and services sectors (at 0.5 and0.9 per cent, respectively) was marginal.13

Across provinces, the contribution of the ser-vices sector to total employment remainedlargely constant, except for an improvementin the Uva Province and a reduction in theNorth Western and the Sabaragamuwa Prov-inces (Table 4.2). The contribution of theindustrial sector to total employmentincreased in the Southern, Eastern and theSabarabamuwa Provinces. The reductions inpoverty levels were greatest in the provincesthat experienced high growth (more than 5

13 Calculated based on DCS, Labour Force Survey.


44

per cent) in the services sector (see Figure4.3). The poverty data also indicate that thepoverty levels are higher in the agriculturesector, when measured by the sector ofemployment of the head of the household(see Table 4.3).

The above analysis indicates that generallyeconomic growth has been beneficial acrossprovinces, with less deprived provinces (i.e.,those outside the Western Province) show-ing greater reductions in poverty and improve-ments in growth, perhaps with the excep-tion of the Central and North Central Prov-inces. Due to lack of data, the analysis didnot fully examine the growth patterns in theN&E, but available data looks promising. Theyindicate that the contribution to GDP is shift-ing from agriculture to the services sector in

Table 4.3 HCI by Major Industrial Group of Head of the Household and by Sector: 2006/07

Sri Lanka Urban Rural Estate

Agriculture 21.6 8.3 20.8 29.4Industry 15.1 8.3 16.0 29.2Services 11.3 6.5 12.1 26.4Total 15.4 7.1 16.0 28.8

Note: Poverty data are not yet available by sector for 2009/10.

Source: DCS, Poverty in Sri Lanka.

the Northern Province, and to the servicesand industry sectors in the Eastern Province.

Growth was less inclusive across sectors,where the decline in the proportion of thepopulation below the poverty line was sharperin the rural sector, marginal in the urbansector, and increased in the estate sector.Limited available data on poverty rates for2009/10 indicate that the poverty levels havecome down sharply in the estate sector since2006/07.

An analysis of the distribution of occupa-tions across provinces from 2002 to 2009indicate that there has been a marginalincrease in the share of white collar occupa-tions nationally and across provinces (notshown), and a larger decline in the shares of

Table 4.2 Contribution to Total Employment by Industrial Sector and Province

Agriculture Industry Services

2004 2007 2009 2004 2007 2009 2004 2007 2009

Western 8.3 7.9 9.0 34.2 34.5 33.5 57.5 57.6 57.5Central 45.4 42.4 43.2 16.9 20.8 18.1 37.7 36.8 38.7Southern 40.0 36.2 36.9 22.9 27.2 26.6 37.1 36.6 36.5Northerna 37.7 n.a n.a 17.8 n.a n.a 44.5 n.a n.aEastern 37.5 n.a 34.0 16.8 n.a 18.9 45.7 n.a 47.1North Western 29.7 31.2 34.4 28.8 29.1 27.9 41.5 39.7 37.7North Central 54.9 56.9 55.8 14.0 13.0 13.2 31.1 30.1 31.0Uva 67.7 62.7 62.8 11.3 11.8 10.9 21.0 25.5 26.3Sabaragamuwa 40.7 38.2 40.1 23.2 27.3 26.5 36.1 34.5 33.4

Note: a: 2004 data excludes Killinochchi and Mullaitivu districts.


45


skilled agriculture and fishery workers, as wellas in the share of elementary occupations(Table 4.4). There has also been a relativelyhigher increase in the shares of plant andmachine operators and craft and relatedworkers. Without more in-depth analysis, itis not possible to conclude whether growthhas benefitted individuals with different skilllevels. But, available data suggests a generalmovement away from elementary and skilledagriculture and fishery workers and a move-ment towards craft and related workers, andplant and machine operators and assemblers.In addition, in the Southern and North West-ern Provinces there is a large increase inprofessionals, sales and service workers.

Examining unemployment rates by educationlevels indicate that although unemploymentlevels have declined steadily over the lastdecade, unemployment rates are still highfor more educated workers outside the West-ern Province. In 2009, the unemploymentrate in the country was 5.8 per cent overall,but it was twice that (11.2 per cent) for thosewho have passed A-Levels. However, theunemployment rate for those with A-Levelsin the Western Province (at 5.9 per cent) was

closer to the general unemployment rate. Incontrast, in all other provinces, the unem-ployment rate was more than 10 per cent forindividuals with A-Level qualifications. Theserates were also much higher for females withA-Levels, than for males. An examination ofunemployment rates alone cannot determinewhether the high unemployment rates arecaused by lack of jobs for more skilled work-ers or by the lack of relevant skills amongstthe more educated workers. Available litera-ture indicates that there is a need for bothcreating better jobs as well as for improvingskills.

4.3 Improving EmployabilityThe usual measures of human developmenthave a role in explaining poverty. The PHCRis found to be higher when the head of thehousehold has low levels of education. Fur-ther, the more educated have a better chanceof making use of opportunities opening inthe more productive services sector. To reapbetter returns from education and to gainbetter access, other dimensions of humandevelopment such as health, housing, accessto clean water and sanitation, roads, finan-cial services, etc., are important.

Table 4.4 Percentage Distribution of Employed Population by Occupation, Selected Years

Annual Average Change (2002-09)

2009 2002 Sri Lanka

Senior officials and managers 1.6 1.3 0.3Professionals 6.0 5.4 0.6Technical and associate professionals 5.2 4.9 0.3Clerks 4.1 4.4 -0.3Proprietors and managers of enterprises 6.7 6.2 0.5Sale and service workers 8.0 7.8 0.2Skilled agricultural and fishery workers 22.4 24.2 -1.8Craft and related workers 15.5 14.3 1.2Plant and machine operators and assemblers 7.0 5.7 1.3Elementary occupations 22.6 24.7 -2.1

Source: Compiled using data from DCS, Labour Force Survey.


46

Overall, Sri Lanka's indicators of humandevelopment have shown progress over time.The percentage of underweight childrendeclined from 29.4 to 26.9 between 2000and 2006/07, and enrolment in primaryschool increased (from 95.7 per cent to 97.4per cent between 1996 and 2006/07).14

Figure 4.4Change in Access to Education, by Class (Selected Indicators)

Note: Data for 1996/97 and 2003/04 are from Consumer Finance Survey of CBSL. Data for 2006/07 arefrom Household Income and Expenditure Survey of DCS. Given that the data for 2006/07 is froma different source, the data from this year are not comparable to those in the previous two years.

Source: Arunatilake, N., and P. Jayawardena, 2010, “Equitability in Education and Health Services in SriLanka”, Asian Development Bank, Manila.

Comparison of some of these improvementsover time across different income groupsindicates that the improvements are notalways inclusive across different dimensions.For example, improvements in access tocompulsory education were inclusive, withthe poor benefitting more than the rich; but,

Figure 4.5Change in Access to Health, by Class (Selected Indicators)

Note: Compiled based on data from DCS, Demographic and Health Survey (2000 and 2006). Nutritionallevels are based on recommendations by the World Health Organization.

Source: Arunatilake, N., and P. Jayawardena, 2010, “Equitability in Education and Health Services in SriLanka”, Asian Development Bank, Manila.

14 IPS/UNDP, 2010, Millennium Development Goals Country Report – 2008/09.

9192939495969798

1 2 3 4 5 6 7 8 9 10

Income decile

Change in access to compulsory level education, by class (%)

1996/97 2003/04 2006/07

01020304050607080

1 2 3 4 5 6 7 8 9 10

Income decile

Change in access to collegiate level education,by class (%)

1996/97 2003/04 2006/07

0

20

40

60

80

100

1 2 3 4 5 6 7 8 9 10

Asset decile

Under five children with at least minimum weight-for-age (%)

2000 2006

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10

Asset decile

Mothers with adequate nutrition (%)

2000 2006

47


the inclusiveness of improvements toadequate levels of nutrition is not clear(Figures 4.4 and 4.5).

Access to infrastructure plays a key role inimproving returns to self-employment activi-ties by reducing transaction costs. Availableinformation on access to infrastructuresuggests that there are wide disparities acrosssectors and provinces. Some examples ofthese are given in Table 4.5. Making improve-ments in access to infrastructure will beimperative in opening up opportunities toparticipate more meaningfully in economicactivities across different segments of thepopulation.15

4.4 An inclusive Growth Strategy forSri LankaDespite improvements in the services andthe industry sectors, about a third of theemployed rely on the primary sector foremployment. Further, the household heads

Table 4.5Access to Infrastructure by Sector and Province: 2006/07 (%)

Access to Safe Access to Electricity TelephoneDrinking Water for Lighting (Mobile or Fixed)

Poor Non-poor Poor Non-poor Poor Non-poor

Sri Lanka 70.3 86.9 55.1 83.6 9.2 51.9SectorUrban 90.9 98.1 74.1 96.0 16.7 69.6Rural 72.7 86.9 54.1 82.2 8.9 50.3Estate 40.9 48.1 53.1 65.5 7.9 20.6

ProvinceWestern 85.5 95.0 71.2 94.3 12.4 66.5Central 51.5 74.9 62.6 81.7 9.1 47.6Southern 74.9 85.6 66.3 86.6 6.1 51.5Eastern 26.4 72.1 7.9 35.0North Western 86.3 91.1 46.2 74.1 12.2 48.0North Central 81.9 87.0 40.2 73 9.6 44.2Uva 76.7 82.9 46.7 76.2 6.1 36.3Sabaragamuwa 51.6 71.2 48.8 76.9 8.7 38.9

Source: DCS, Poverty in Sri Lanka.

who are employed in this sector, particularlyin agriculture, are more likely to be poor.Given this, it is important to improve theproductivity in the primary sector whileexploring avenues for expanding and improv-ing the industry and services sectors.

4.4.1 Improving Productivity andSustainability in the Primary SectorThe proportion of those engaged in agricul-ture varies widely across provinces, but canbe quite large. For example, in the Central,North Central, Uva and Sabaragamuwa Prov-inces more than 40 per cent of employed areengaged in agricultural activities. It is notpossible to vastly increase the employmentlevels in the more productive industrial andservices sectors in the short term. Also, avail-able newer employment opportunities in theservices sector require better skilled workers.Given this, in the short to medium term, itis imperative to improve the productivitylevels of the primary sector and provide those

15 See discussion on “Driving Infrastructure Developments for Inclusive Growth” elsewhere in this report.


48

in this sector means of coping with differentvulnerabilities through effective socialprotection mechanisms.16

Opportunities to access productive assets,develop capabilities and resources, includ-ing natural resources, are key ingredients ininclusive growth. Among natural resourcesof the categories of mineral, petroleum,hydropower, and other resources of commer-cial importance, minerals play a major rolein Sri Lanka. The country is endowed withindustrial mineral resources, including lime-stone, graphite, mineral sands, gems, phos-phates, clay, etc. However, the share of natu-ral resources in Sri Lanka's exports is verylimited compared to other countries in theregion. Exports are dominated by garments,tea, rubber, etc. From natural resources, onlygems, graphite and mineral sands have anysignificant share.

On top of the contribution to the economythrough exports, there is a range of other non-exportable natural resources which arenationally important and contribute to theeconomy through activities related to tour-ism, fisheries, and other livelihood relatedactivities. Hydropower is a major naturalresource endowment. The natural ecosystemis another such, but most of them are con-fined spatially to specific geographic areas.Sri Lanka is considered as one of the world'sbiodiversity hotspots and has the highestbiodiversity per unit area of land amongAsian countries in terms of vertebrate groups,except birds. The biodiversity rich ecosys-tems like the rainforests and coastal habitatsare on the top of the list. The coastline whichis about 1770 km. long hosts a number ofinterrelated coastal ecosystems, with habitatof mangroves and coastal reefs.

Centred to the industries related to naturalresources, inequities exist across differenttypes of actors. For example, a recent studyfinds that small scale fishers are poor andextremely vulnerable compared to the largescale/ export oriented fishers.17 The relativelyisolated small scale fisher communities thatlocate their work places on the beach frontare predisposed to natural disasters. Entitle-ment constraints that such small scalefishers face can also raise their vulnerability.The majority of coastal communities are func-tionally or absolutely landless. There areinequities depending on asset ownership. Forinstance, there is evidence to suggest thatgrowth in fish trade was significant for multi-day boat owners and exporters who areanyway better-off.18 By contrast, non-skilledworkers in the supply chain were found notto have benefitted much from trade opportu-nities. Even amongst workers, the highestfamily income was earned by a multi-daycrew and the lowest was reported by crewmembers of traditional craft.19

If an economy is backed by the presence ofnatural resources, a major challenge wouldbe to ensure equal distribution of access tothe natural resource wealth across differentdimensions: whether it is shared fairly byspatially, by income groups, by gender, byethnic groups, etc.

4.4.2 Improving Connectivity andMaking Use of Emerging OpportunitiesImproving access to better quality jobs is anessential component of an inclusive growthstrategy. As such, while improving produc-tivity of the sectors where the poor areengaged in the short term, there is a need toopen avenues for creating better employment

16 This will be addressed in more detail in the discussion in Chapter 5 on “Social Protection as an Indispensable Instrument”.17 IPS, 2010, “Trade Poverty Nexus in the Sri Lankan Fisheries Sector”, a report prepared for the United Nations Industrial Development

Organization (UNIDO).18 Ibid.19 See discussion in Chapter 8 on “Inclusive Growth and the Fishery Sector”.

49


opportunities in all sectors over the long term.In this regard, it is important to improve thephysical connectivity of the country bothwithin and with the outside world. Thegovernment has initiated several programmesto improve opportunities for creating jobs inthe country.

External connectivity - Sri Lanka's historicallegacy and post-conflict resurgence: Forcenturies, Sri Lanka enjoyed a strongposition in international commerce owingto its strategic location in the Indian Ocean,at the crossroads of East and West. Thecountry's ports were once a critical link inthe ocean 'Silk Route' from China to theMiddle East and West. During its time as acolony, particularly under the British, SriLanka continued to enjoy strong externaleconomic relations, particularly as a keyAsian trading outpost of the British Empire.The Colombo port, the only external accesspoint at that time, was the hub for thecountry's exports of commodities like tea,rubber, coconut, and spices to the West.However, in the post-colonization era, SriLanka was unable to leverage on this 'first-mover' advantage that it gained, and transi-tion into a modern regional and/or interna-tional hub. This was due to, among otherreasons, the political instability that resultedfrom the rise of an armed separatist conflict.20

Since the end of the conflict, Sri Lanka hasbeen making renewed efforts to become ahub by improving infrastructure of its pointsof external connectivity. A five-hub conceptis envisioned for the country, with two ofthese hubs being for external connectivity -aviation and maritime. A key component ofthis policy thrust has been to rapidly developthe existing external connectivity infrastruc-ture in the country, by improving existingaccess points, as well as building new ones.

External connectivity - improving airports andseaports: Sri Lanka's sole international air-port - the Bandaranaike International Airport(BIA) - is being expanded to cater to 12million passengers per annum by 2016 fromthe current 6 million, along with a new do-mestic terminal, elevated access roads andmonorail connectivity, and widened runwayor a parallel runway to ease congestion aswell as to accommodate new generation'wide-bodied' aircraft. Additionally, severaldomestic airports are being 'de-militarized'to cater to increased tourism as well asbusiness travel. The Ratmalana airport is tobe developed into a 'city airport' by 2011,to cater to both leisure travellers as well ascorporate jet traffic. The Koggala airport(which has immense tourism value), theAmpara airport and the Jaffna airport are alsoslated for development. Sri Lanka is alsoconstructing a new international airport inMattala, Hambantota, touted as an impor-tant complement to the new Hambantotaseaport in advancing the region as a new hubfor commercial and manufacturing activity.

Sri Lanka is already an embryonic aviationhub for the southern Indian continentalregion and the Maldives, but has been over-taken by other regional locations likeSingapore, Dubai, and recently South India(Hyderabad and Bangalore) in establishing atrue aviation hub. Moreover, it is contendedthat although the country is strategicallylocated for marine transport, it is much lessso for aviation as Sri Lanka is well away fromestablished air routes connecting Asia, theMiddle East, Far East and the West. New sea-ports are being developed in five areas,including the largest in Hambantota and theaddition to the existing Colombo port by wayof the Colombo South Port.

20 In fact, the only external air connectivity point, the international airport at Katunayake, was a direct target in 2001, that in turn raised thewar-risk insurance premiums on both airport and seaport services, impacting on the international competitiveness of the country’s exports.


50

External connectivity - bridging regionaldisparities: It is clear that the dominance ofthe Western Province in the country'seconomic activity is attributable to themonopoly that it enjoys over externalconnectivity, being host to the country's onlyinternational airport and seaport. Enterpriseshave concentrated their operations around theColombo metropolitan area, taking advan-tage of proximity to these internationalgateways, resulting in the clear emergenceof the region as the country's only veritableindustrial and commercial agglomeration.Colombo and its surrounding districts in theWestern Province account for 70 per cent ofindustrial value added, and is home to 37,000industrial production units, employing540,000 people.21 It employs over 60 percent of the country's estimated 350,000textiles and garment workers.

With the new Hambantota seaport, a newindustrial and commercial agglomeration islikely to emerge in the district. With betterroad connectivity from neighbouring districtsinto these facilities, poverty-stricken, laggingareas like those in the Uva Province wouldgain better access to, and be 'included' in,the new economic opportunities generatedby this.

The development of the new ports andairports throughout the country not onlyfacilitates greater access for non-Sri Lankansinto Sri Lanka, but also directly improves theconnectivity of Sri Lankans to the world,particularly to global markets. Betterspatially-spread external connectivity pointscan catapult a producer or service-providerfrom the confines of his/her town, district orprovince, to lucrative regional and globalvalue chains. This is particularly true ofperishable goods exports. The time between'catch' to 'table' or 'farm gate' to 'consumer

plate' determines the value of perishablecargo. Considering that agriculture andfisheries still form an important part oflivelihoods in lagging regions, and the ongo-ing policy push is towards greater valueaddition in these, better external connectiv-ity (particularly via air cargo across thecountry) has the potential to be truly trans-formational. A co-operative of yellow-fintuna fishermen from Trincomalee could plug-in directly to a supply chain exporting toJapan, via the Jaffna airport, which hasconnecting flights to Colombo. A processedfood manufacturer in Moneragala would beable to export goods more cost-effectivelydirectly from Hambantota instead of havingto bring it all the way to Colombo.22

4.5 Improving the InstitutionalEnvironment4.5.1 Institutional Effectiveness andInclusivenessThe inclusiveness in the future growth strat-egies for Sri Lanka for a large part will bedetermined by the legal, political and insti-tutional environment which govern theeconomic activities in the country. In orderto facilitate growth and improve inclusive-ness, it is essential to critically examine theexisting policy environment to identifysources of exclusion and to improve inclu-siveness so as to free resources and improveefficiency in the economy.

Security was a main constraint that held backinvestments and restricted economic activi-ties, not only in the N&E of the country, butalso in other parts. It is clear that the secu-rity situation in the country at present is verydifferent from that which existed during theconflict. Businesses are now thriving in townswhere fighting and bombing once preventedcommerce from flourishing. Fishing activity

21 World Bank, 2009, Sri Lanka: Reshaping Economic Geography, World Bank, Washington, D.C.22 Recently, a local joint-venture firm has begun advertising a small ‘Cessna’ cargo aircraft which could operate flights with fish catch from

Dondra, Point Pedro, or Batticaloa to BIA, and remarks that this would transform the prosperity of fishermen by enabling better access tomarkets and getting them higher prices for their catch.

51


has increased in the Northern Province fol-lowing the lifting of restrictions imposedduring the conflict years. Agricultural out-put in the N&E of the country has grownfollowing the restoration of peace in regionsseverely affected by fighting. The return ofsecurity in many areas across the country hashelped thousands return to a normal life andfacilitate investments.

However, existing constraints in the systemare holding back progress on several fronts.For example, despite good access, adequatecredit is still not available easily across thecountry (Box 4.2). The legal environmentwith regard to gender equality is another areawhich needs to be examined. There still existclear disparities in national legislation ongender. These disparities in part may havealso influenced the low participation offemales in the labour force. The labour forceparticipation of prime age (25 years or older)

females at just below 40 per cent is half thatof prime age males. A recent UNDP reporthighlighted these differences.23 Notableexamples include the absence of lawsentitling maternal leave for women in acomprehensive range of industries (particu-larly for those in the informal sector), a lackof equal rights for women when administer-ing property. Although Sri Lanka has faredwell in gender equality compared to othercomparative countries, there is still room forimprovement.

The observed disparities and inefficienciesin institutions stem from a variety of factors,including archaic and obsolete laws, lack ofawareness among policy makers on the needto improve inclusiveness and issues inintroducing changes. To improve inclusive-ness, more attention needs to be paid to iden-tify the specific causes of disparities andinefficiencies and to recommend remedies.

23 Cheema, Hasna, 2010, Benchmarking National Legislation for Gender Equality: Findings from Five Asian Countries, UNDP HumanDevelopment Report Unit, UNDP.

Box 4.2Improving Access to Credit

Easy and affordable access to credit is important for developing livelihoods. The followingdiscussion looks at inclusiveness in the financial infrastructure in the country.

Expanding financial infrastructure - post-conflict 'bank branch boom': Following the endof the conflict, and the overall take-off in the Sri Lankan economy since then, nearly all ofthe country's commercial banks have rapidly expanded their operations. In just the secondhalf of 2009, 49 new bank branches opened island-wide, and in 2010, a total of 121 newbank branches and related service centres opened up in the N&E alone, according to theCBSL. While in newly liberated areas in the N&E much of the initial activity was dominatedby deposit-taking and pawn-broking, the overall picture is one of faster credit growth thandeposit growth.

Discussions with regional entrepreneurs, particularly in the North, North-Central, Eastern,and Uva Provinces note that bank branches in their regions appear to be extremely riskaverse, often despite borrowers being able to provide the requisite collateral. Manyentrepreneurs noted that even when loans are approved, they are often as low as Rs.100,000 - grossly insufficient for local businesses wishing to expand or undertake newventures; even, for instance, a small-scale rice farmer looking to invest in agro-machinerylike combine harvesters and mechanized threshing equipment.

Expanding access to finance - improving financial literacy: Aside from supply-side issues,there are demand-side issues as well, particularly stemming from weak financial literacyof small business owners. It is observed that they are often unable to wade through thecomplicated formulas and calculations for loan products, find it difficult to understand


52

the nuanced 'small print', and are not sufficiently 'bank-savvy' in order to get a gooddeal. Many record their frustration at the 'lack of transparency' of the banks' lendingpractices, insisting that more awareness needs to be created, and rules need to be simplified.

The financial literacy issue extends also to the limited capacity of business owners toproduce book-keeping records and accounting requirements of a standard acceptable tomanagers of local bank branches. Additionally, many businesses looking to venture intonew projects or expand existing ones find it challenging to produce business plans toconvince bank managers of their borrowing needs. Solving this problem can be addressedin several ways: 1) improving the capacity of local business owners to produce credibleand attractive business plans; 2) expanding the provision of business development services(BDS) to assist local entrepreneurs in this exercise; and 3) educating local branch managerson evaluating SME business plans in conflict-affected areas with a different mindset toregular loan applications.

Microfinance in financial inclusion: Despite the extensive financial infrastructure, a vastsection of society still remains financially excluded and continue to remain outside theformal system. This limits their access to savings, credit and insurance. Microfinancehas the capacity to further the agenda of financial inclusion as it seeks to reach out to thefinancially excluded category of the population.

The poor should be able to take advantage of the opportunities presented by highergrowth in the economy. Microfinance can be a critical step towards that. The basicconcept of microfinance is to provide financial services for the poor who are left behindby the formal banking systems. Fundamentally, microfinance products and services aredesigned with flexible features to meet the financial needs of the poor. Flexible credit isessential in initiating, rebuilding or expanding businesses, while deposits are oftenimportant for the poor to cope with shocks. Particularly its role in social and politicaldevelopment within conflict affected environments is indispensable. The asset base ofmost conflict-affected households has been partially or fully destroyed. Many suchhouseholds will not qualify for credit under standard conditions. Flexible credit canprovide the necessary capital to kick-start economic activities.

Access to microfinance services in Sri Lanka is quite high. Provision of microfinance inthe N&E of Sri Lanka is a challenging task for the microfinance institutions (MFIs). Theinfrastructure and human resource limitations in the N&E are high. Sending resourcesfrom other regions increases operational costs. Many conflict affected households arerestarting their livelihoods, rebuilding their asset bases and building social networks. Insuch a setting, obtaining collateral or pay back guarantees are difficult - increasing therisks of credit.

Lesser formalities to access microfinance and the non-requirement of collateral favourthe poor. The poor would compensate the cost aspect of borrowing with the convenienceof borrowing, which they would not have enjoyed with formal banking systems. However,loan amounts are still perceived to be too small, while product characteristics areconsidered to be more supply driven and therefore limited. MFIs are quite sluggish inproviding for non-productive credit needs such as emergencies, life-cycle services, etc. Inaddition to credit and savings, MFIs have to build on improving non-financial services tothe poor such as vocational training, marketing assistance and other business developmentservices to achieve sustained poverty reduction. MFIs should facilitate graduation ofentrepreneurial businesses, by linking them with different kinds of service providers. Atthe same time, strengthening the microfinance regulatory environment will enable theMFIs to mobilize savings, which matters in institutional sustainability and sustainableservice provision.

Table 4.2 contd.../

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4.6 ConclusionThere is general agreement among policymakers across Asia about the need forinclusive growth, to improve the rate ofpoverty alleviation and to sustain growth overthe long term. The growth dynamics of theSri Lankan economy since 2003 indicate thatgrowth has generally been inclusive acrossprovinces, with the exception of perhaps theCentral, Northern and North CentralProvinces. Economic activities have movedaway from the Western Province to theregions, and the shares of services andindustrial sectors have increased relative tothe agriculture sector across provinces,outside the Western Province. There has alsobeen a marginal improvement in the shareof more skilled occupation categories acrossprovinces, and a reduction in elementary andskilled agriculture and fishery relatedoccupations. However, unemployment ratesamongst the more educated individualsremain high in the country, and these ratesare higher for those outside the WesternProvince, especially females. Thesedevelopments indicate that although thereis progress in the right direction, the changeneeds to accelerate and employmentgeneration in better skilled occupationcategories needs to increase.

Education and health indicators for thecountry have generally improved over time.But, the improvements have not always beeninclusive. The disparities in access to cleanwater, sanitation and other infrastructure arestill large. To improve living conditions toall and give them a better chance at engagingin the economic process more effectively andefficiently, it is necessary to improve accessto services across the country.

Despite recent developments in the industryand services sectors, a large proportion ofthe poor are dependent on the primary sector

for their livelihoods. Given this, along withdeveloping new growth areas, it is importantto improve the productivity of the primarysector and provide those engaged in thissector with the necessary safeguards to enablethem to be independent and to improve thesustainability of their livelihoods. Thepresent policy stance focuses on improvingthe connectivity of regions across the country,and the connectivity of the country to therest of the world. The developments aretaking place across provinces, and as such,they are likely to benefit individuals acrossthe country as well. However, the exactimpacts of these developments onindividuals from different socio-economicbackgrounds are difficult to estimate atpresent. It is important to examine theinclusive nature of these developments toensure sustained growth and more effectivepoverty alleviation.

Sri Lanka has emerged from a thirty year longseparatist conflict which has improved thesecurity situation and boosted the investmentclimate of the country. However, evidenceshows that the engagement of differentinstitutions can be made more inclusive tofree unutilized and underutilized resourcesto maximize growth, while reducingdisparities. Countries that emerge fromviolent conflicts remain vulnerable torecurrence of violence, unless underlyingcauses of violence are examined andeliminated. There is general agreement thatcontinued disparities across regions couldincrease vulnerability of the country to futureconflicts. Given this, it is essential tounderstand the causes of inequality andredress them. The analysis in this discussionshows that patterns of growth are becomingmore balanced across provinces, but moreneeds to be done to improve inclusion ofdifferent types of actors in the Sri Lankaneconomy.

54

5. Social Protection as an Indispensable Instrument5.1 IntroductionEquitable access to productive employment opportu-nities - ensuring a broader participation of society - isa key cornerstone of an inclusive approach to growthand development. In Sri Lanka, as in many compara-tive developing countries, predominant trends inoccupation groups - on spatial distribution, types ofvulnerabilities, etc. -are to be observed. These couldbe the result of location, resource endowments, socio-cultural dynamics, political importance, etc. They aredirectly linked to the availability of economicopportunities as well.

The poor are often unable to participate fully in thegrowth process, because of multiple depravations andadverse shocks which prevent them from investing inhuman and physical capital. Low investments resultin low returns and continued poverty. In Sri Lanka,for instance, the poor are to be found in certainoccupational groups such as agriculture and fishery,and the distribution of such households suggestdisparities in access to economic opportunities acrossthe country. Different types of workers are also proneto different vulnerabilities. Certain vulnerabilitiessuch as old age are common across groups, whileothers such as natural disasters are occupationspecific.

In this context, the role of social protection inproviding a trajectory out of poverty is critical. Overtime, broader definitions of social protection havegone beyond merely provision aspects in the event ofa shock (a residual or compensatory response) toencompassing a transformative role with a 'spring-board' effect. Thus, even as Sri Lanka makes signifi-cant strides in reducing overall poverty rates and bridg-ing sectoral gaps, different types of vulnerabilitiesamongst different occupational groups havecontinued to limit equitable access to growingeconomic opportunities across the country. This Chap-ter tries to identify poor socio-economic groups, their

Social protectionpolicies going beyondthe provision aspect to

envelop production anddistribution with a

springboard effect forsocio-economicallyvulnerable groups,promote inclusive

growth

‘‘

54

Social Protection as an Indispensable Instrument

55

vulnerabilities and regional spreads as ameans of highlighting groups/regions thatneed particular attention in social protection- in both provision and promotive aspects ofsocial protection for inclusive growth.

5.2 Poverty and Inequality in Sri LankaThe national poverty headcount - thepercentage of the population below the pov-erty line - computed by the DCS declinedfrom 15.2 per cent in 2006/07 to 8.9 percent in 2009/10.1 During the three yearperiod, the PHCR decreased by 41 per cent,the highest drop ever witnessed in Sri Lankanhistory. Sectoral data is also indicating a dras-tic decline in poverty - especially, a declinein poverty in the rural sector similar to thedrop in poverty at the national level (nearly40 per cent decline from 15.7 in 2006/07 to9.4 in 2009/10) as this sector is the maincontributor to poverty. In the urban sector,the PHCR shows a 21 per cent decline (from6.7 per cent in 2006/07 to 5.3 per cent in2009/10) while in the estate sector, povertyis estimated to have declined by nearly two-

thirds (from 32 per cent in 2006/07 to 11.4per cent in 2009/10) during this period.

However, intra-province variations inpoverty levels are still found to be large in2009/10. In the two poorest provinces, East-ern and Uva, the incidence of poverty is 14.8per cent and 13.7 per cent, respectively.However, poverty levels in these poorestprovinces in 2009/10 are significantly low,compared to poverty levels of the poorestprovinces in 2006/07 (the two poorestprovinces in 2006/07 were Uva andSabaragamuwa where poverty levels were 27per cent and 24 per cent, respectively).

There are also substantial variations inpoverty between districts. Poverty levels rangefrom 20.3 per cent in Batticaloa to a mere3.6 per cent in the Colombo district (Figure5.1). Ampara and Batticaloa are the onlydistricts to have witnessed an increase inpoverty during the last three year period.2 TheNuwara Eliya district shows a drasticreduction in poverty levels (from 33.8 per

Figure 5.1Poverty Headcount Ratio by Districts (2006/07 and 2009/10)

Source: DCS, HIES (2006/07 and 2009/10).

1 It should be noted that the HIES conducted by the DCS did not cover Mannar, Mullaitivu and Kilinochchi districts in the Northern Province.2 HIES 2006/07 survey has not been conducted in the Trincomalee and other districts in the Northern Province.

0

5

10

15

20

25

30

35

40

Pove

rty

head

coun

t rat

io (

%)

2006/07 2009/10


56

cent in 2006/07 to just 7.6 per cent in 2009/10). With more than 50 per cent of the popu-lation in the Nuwara Eliya district to be foundin the estate sector, it is conceivable that theremarkable outcome is partly related to a 40per cent wage increase to estate workers inSeptember 2009. Monaragala, and Ratnapuradistricts which were the poorest districts in2006/07 next to Nuwara Eliya, are also show-ing more than a 50 per cent reduction inpoverty during this short period of 3 years.However, the Monaragala district is still thesecond poorest district (with headcountratio of 14.5 per cent), next to Batticaloadistrict. Although the Badulla district alsoshows a reduction in poverty of 44 per cent,

it is still fourth amongst the poorest districtsof Sri Lanka.

It is interesting to note that income inequal-ity measured by the Gini co-efficient as wellas by quintile ratio has declined during thethree year survey period. The Gini co-effi-cient shows a reduction from 0.40 to 0.36for Sri Lanka, while the highest drop isrecorded in the North Central Province (from0.40 in 2006/07 to 0.33 in 2009/10). Thelowest income inequality is shown in theNorthern Province while the highest incomeinequality (0.38) is observed in the WesternProvince.

Table 5.1Types of Social Protection Measures

Provision Measures

Provide relief fromdeprivation, securebasic consumption.

Social assistancesuch as targetedresource transfers-food/cash transfers,disability benefits ,single-parent grants,publicly financedsocial pensions.

Social services forthose who needspecial care –orphanages, feewaivers/abolition ofeducation and healthcharges to extendaccess to basicservices to thevery poor.

Preventive MeasuresPoverty alleviationprogrammes, andprogrammes thatreduce fluctuations inconsumption andavert asset reduction.

Social insurancedesigned for‘economicallyvulnerable groups’ –people who are pooror might fall intopoverty, and mayneed support to helpthem manage theirlivelihood shocks.

E.g.: pension schemes,insurance, maternitybenefits,unemploymentbenefits, savings,strategies of riskdiversification – suchas crop or incomediversification,disaster preventionpractices, etc.

Promotive MeasuresEnhance incomes andcapabilities.

Livelihoodimprovement andlivelihood protectionprogrammes targetedat households andindividuals.

E.g.: microfinance,public worksprogrammes ,education, health andnutrition.

Transformative MeasuresAddress concerns of economic,political, social justice.

E.g.: exclusion, exploitation ofworkers, discrimination againstdifferent dimensions likegender, ethnicity, religion.

Examples of interventionsinclude collective action,changes to the regulatoryframework to protect ‘sociallyvulnerable groups’ (antidiscrimination legislation),people with disabilities, victimsof domestic violence, securerights/entitlements, advocacy toenhance social equity,strengthening ability of citizensto claim rights.

Source: Adapted from Ruel, M., 2008, “Social Protection for Inclusive Growth”, a presentation available atInternational Food Policy Research Institute (IFPRI), available at http://www.slideshare.net/ifpri;and Sabates-Wheeler, R. and S. Devereux, 2007, "Social Protection for Transformation", IDSBulletin, Vol. 38, No. 3, Institute of Development Studies (IDS), Sussex.


57

5.3 Social Protection LayoutThe many definitions of social protection havebroadened to include policies that wouldprovide a trajectory out of poverty, rather thanbeing confined only to provision aspects inthe event of a shock. The ADB defines socialprotection as a set of policies andprogrammes designed to reduce chronicpoverty and vulnerability by promotingefficient labour markets, diminishingpeople's exposure to risks, and enhancingtheir capacity to protect themselves againsthazards and interruptions in employment orloss of income.3 The World Bank (WB)definition of social protection is even broader,and considers social protection not only as asafety net for all, but as a spring-board forthe poor.4 The suggestion, therefore, is thatsocial protection should treat not only thesymptoms of poverty, but also its causes. Inother words, to treat social protection as aninvestment in human capital formation -focused on avoiding social exclusion - ratherthan as a cost.

In yet another definition, the role of socialprotection policies in providing opportuni-ties - centred on social risk management - isidentified as public interventions to:(i) assist individuals, households, andcommunities better manage risk, and (ii) pro-vide support to the critically poor.5 Thisbroader definition includes labour marketinterventions, social insurance programmes,social safety nets, public provision of riskmanagement instruments, and public actionsto improve market based and non-marketbased (informal) instruments of risk manage-ment.

The extent to which social protection poli-cies go beyond the 'provision' aspect to ad-dress issues related to production and dis-

tribution - to preventive, promotional andtransformational roles - provides a link withinclusive growth. Table 5.1 identifies thetype of social protection programmes fallingunder each type of measure.

Conventional social protection measures fallinto the provision measures. The narrowlytargeted safety nets, social assistance andsocial services also can be recognized as pro-vision measures. The preventive, promotionaland transformative measures are more pro-active measures. Preventive measures areaimed at preventing deprivations. Povertyalleviation initiatives and social insuranceprogrammes which are meant for economi-cally vulnerable groups can be identifiedunder this.

The inclusion of promotional and transfor-mative aspects is subject to criticism that itmakes the concept of social protection toodistant from its original conception. How-ever, these two aspects have been incorpo-rated in most of the working definitions usedby funding agencies, including the ADB andthe WB. Promotional social protection mea-sures are designed to improve incomesand capabilities. Among developmentprogrammes, livelihood improvement andlivelihood protection programmes which tar-get income stabilization come under this.Transformative measures address concerns ofeconomic, political and social justice. Poli-cies falling under the latter three measuresare 'spring-boards' and serve as a trajectoryout of poverty.

However, these measures are not mutuallyexclusive. Preventive measures could havepromotive effects too. For example, aperson might diversify income earnings as ameans of being prepared for a disaster, which

3 Ortiz, I., (ed.), 2001, Social Protection in Asia and the Pacific, ADB, Manila.4 Holzmann, R. and S. Jorgensen, 2000, “Social Risk Management: A New Conceptual Framework for Social Protection and Beyond”,

Social Protection Discussion Paper No. 0006, World Bank, Washington, D.C.5 Ibid.


58

has a promotive effect. At the same time,the person might not have taken advantageof those opportunities otherwise. The diver-sification of income thus improves incomeearning capacity and the overall well-beingof the individual concerned. Further, indesigning social protection policy, thedifferent forms in which risks arise - andwhich makes households vulnerable - haveto be recognized. They can be idiosyncraticor covariate risks. Table 5.2 identifies themajor causes of risks and examples for each.

Measures identified in social protectionpolicy designing are related to vulnerabili-ties arising at different stages of the life cycle.

Table 5.2Causes of Risks

Social

Economic

Political

Health relatedLife cycle related

Natural/environmental

Domestic disturbance including domestic violence, functions,social commitments, commitments to extended families, crime,terrorism, civil strife, etc.Unemployment, loss of employment, livelihood shocks, loss ofcrops, business failures, financial crises, etc.Discriminatory laws, discriminatory policies, riots, politicaldefault of programmes.Illnesses, injuries, disabilities, epidemics, etc.Birth, marriage, death.Natural disasters like floods, rain, landslides, earthquakes,tsunami, droughts, environmental pollution, deforestation, etc.

Source: Adapted from Jimenez, E., 2008, “Social Protection and the Welfare of Children and Youth at theWorld Bank”, a presentation available at www.unicef.org from http://www.anekadownload.com/download/dl/child-welfare-program-in-bangladesh-.ppt.

Table 5.3Examples of Social Protection Interventions by Life Cycle Stage

Life Cycle StageElderlyAdults

Youth

Maternal stagePrenatal/ infantsPre-schoolSchool age

Examples of Social Protection InterventionsPensions/food and cash transferPublic works/income generation/employment related/food and cashtransferPublic works/income generation/vocational training/skill development/educationHealth/nutritionHealth/nutrition/food and cash transferEarly childhood care and development (ECCD)/food and cash transfer

Education/cash, food, vouchers, fee waivers, transport

Source: Ruel, M., 2008, “Social Protection for Inclusive Growth”, a presentation available at InternationalFood Policy Research Institute (IFPRI), available at http://www.slideshare.net/ifpri.

Table 5.3 identifies a few types of socialprotection interventions by life cycle stage.It suggests the need for comprehensiveapproaches towards social protection that tiesup the intervention stages, life cycle and dif-ferent forms of vulnerabilities. This high-lights the importance of broad based socialpolicies. When policies are narrowlytargeted, they are highly unlikely to bring inthe development linkage. Moreover, wheninterventions are narrowly designed toaddress specific risks, they tend to neglectthe underlying nature of vulnerability thatexposed the households to such risks.


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5.4 Social Protection in InclusiveGrowth in Sri Lanka: Who Needsthe 'Push'?There are predominant trends observed indifferent socio-economic groups, such astrends on spatial distribution, types ofvulnerabilities, etc. These could be theresult of natural location, resource endow-ments, socio-cultural dynamisms and politi-cal importance. They are directly linked tothe availability of economic opportunitiesas well. Households headed by skilledagricultural and fishery workers are found tobe the predominant socio-economic groupin all provinces of Sri Lanka, with the excep-tion of the Western Province (Figure 5.2).6

This group accounts for around 30 per centof households in the North Central and UvaProvinces, followed by Sabaragamuwa (18.6per cent) and Southern (18.2 per cent)

Figure 5.2Percentage of Households by Socio-Economic Group in Each Province

Source: Calculated using data from DCS, HIES 2006/07.

Provinces.7 It hints at disparities in accessto economic opportunities across regions inSri Lanka.

The other dominant socio-economic groupsare households headed by craft related work-ers and labourers in all the sectors. In mostdeprived provinces, such as Uva,Sabaragamuwa as well as Central and NorthWestern Provinces, more than 20 per cent ofthe households are headed by labourers indifferent fields (agriculture, mining, manu-facturing, transport and cleaning). It is alsoevident that there is a high percentage ofhouseholds headed by economically inactivepeople in all provinces. Whilst all provinceshave a relatively higher percentage of house-holds headed by technicians and in associ-ated professions, the distribution is skewedtowards the Western Province.

6 The socio-economic group here is based on the occupation of the head of the household.7 Occupational groups and their percentages may have changed from 2006/07 to 2009/10.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Wes

tern

Cen

tral

Sout

her

n

East

ern

Nor

th W

este

rn

Nor

th c

entra

l

Uva

Saba

raga

muw

a

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Prov

ince

s

%

Province

Unemployed/economically inactive/other

Armed forces

Labourers in cleaning, mining, manufacturing & transport

Agricultural & fishery labourers

Plant and machine operators & assemblers

Craft and related workers

Skilled agricultural and fishery workers

Service workers/sales workers/elementary workers

Technicians & associate professionals/ clerks

Legislators, senior officials & managers/ professionals

100

90

80

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60

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40

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20

10

0


60

When occupations of the heads of house-holds are minor or unskilled in nature, or ifthey are of a less productive sector, theincome generated often does not provide anadequate means for living. For instance, nearly40 per cent of households headed by agri-cultural and fishery labourers are found tobe poor (Figure 5.3). More than 70 per centof households in this group are within thefirst four household expenditure deciles. Itis also noteworthy that as much as one-fourthof households headed by even skilled agri-cultural and fishery workers are among thepoor - with nearly 60 per cent households inthis group found to be within the first fourdeciles. Households headed by labourers ofall types, which include labourers in min-ing, construction, manufacturing, transport,cleaning, etc., are among the poorest socio-economic groups. They occupy the highestpercentage of poor households, highestpercentage of households lying in the lowestfour household expenditure deciles, and have

lowest per capita household expenditures(Figure 5.3). The importance of prioritizingsocial protection policies towards suchgroups who are disadvantaged compared tothe others is, therefore, critical.

Agriculture and fisheries are the main sourcesof livelihood in the N&E of Sri Lanka,8 with24.8 per cent of households in agriculture.Apart from agriculture and fisheries sectors,unskilled daily labour is a prominent sourceof primary employment for 20.9 per cent ofsurveyed households. However, 5 per centof households are estimated not to have anyincome earner and a further 63.4 per cent ofhouseholds with only one income earner.This indicates high vulnerability to risks anddifficulties such households can face in post-conflict recovery efforts. Although livelihoodconstraints are found to have eased with theend of the conflict, increased competitionand resource limitations have led many toabandon their traditional occupations for

Figure 5.3Percentage of Poor Households by Socio-Economic Groups

8 UNDP, 2011, ‘Socio- Economic Baseline Analysis: For Eleven Conflict-affected Districts in Sri Lanka’.

Note: D1 to D4 consists of first four household expenditure deciles.


0 10 20 30 40 50 60 70 80

Legislators, senior officials and managers

Professionals

Technical and associated professional

Clerks

Service workers and shop & market sales workers

Skilled agricultural and fishery workers

Craft and related workers

Plant and machinery operators & assemblers

Sales and Services Elementary Workers

Garbage collectors, sweepers & similar labourers

Agricultural & fishery labourers

Labourers in mining, construction, manufacturing & transport

Armed forces

Unemployed

Economically inactive

Other

All groups

%

Soci

o-ec

onom

ic g

roup

% of households in D1 to D4*% of poor households (if poverty line is increased by 10%)% of poor households


61

daily wage labour.9 Gender disparities withregard to engagement in income generation/livelihood activities are also found to remainhigh in the N&E, with only 38.6 per cent offemales engaged in employment comparedto 90.2 per cent of men. A relatively highnumber of widowed women are reported inmost districts in the N&E, pointing towardsthe realities surrounding gender dimensionsof socio-economic vulnerabilities.

Not only are many households poor incertain occupational categories, but the non-poor may also be highly vulnerable to fallinto poverty. For example, if the poverty lineis increased by 10 per cent, a substantialproportion of households fall into poverty,indicating that they are very close to thepoverty line (Figure 5.3). All types of house-holds with the head of household as alabourer appear to be sensitive: for the house-holds headed by agriculture and fishery

labourers, the percentage of poor householdincreases by almost 10 percentage points(from 38.5 to 48.3 per cent); for otherlabourer categories, the percentage increasesby more than 8 percentage points. Thisclearly indicates that they are vulnerable toeconomic shocks and therefore, could slipback to poverty easily. The other socio-economic groups which are at a higher riskof slipping back to poverty are those headedby skilled agricultural and fishery workers,craft and related workers, and sales andservice elementary workers.

In terms of geographic disparities, Uva,Sabaragamuwa and Central Provinces remainthe lagging regions in the country.10 Amongthem, Uva and Sabaragamuwa are the poor-est with more than 60 per cent of the house-holds in the first four household expendi-ture deciles (Figure 5.4). If the poverty lineis increased by 10 per cent,11 nearly 7 per

9 Ibid.10 As per 2009/10 HIES data, Eastern, Uva and Northern Provinces are the poorest.11 Estimated by using district official poverty lines.

Figure 5.4Poor Households and Households in First Four Household Expenditure

Deciles by Province

Note: D1 to D4 consists of first four household expenditure deciles.


0 10 20 30 40 50 60 70

Western

Central

Southern

Eastern

North Western

North Central

Uva

Sabaragamuwa

All provinces

%

Prov

ince

% of households in D1 to D4*

% of poor households (if the poverty line is increased by 10%)

% of poor households


62

0102030405060708090

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cent of the non-poor households in Uva,Sabaragamuwa and Central Provinces couldslip into poverty, indicating that there aresignificant numbers of households just abovethe poverty line. The average per capita house-hold expenditure is also relatively low inthese three provinces. Vulnerable occupa-

tional groups in these regions need specialattention on social protection, and specifi-cally on promotive and transformativesocial protection measures.

Employment activities in the informal sectorhave been expanding over the years in Sri

Figure 5.5Informal Sector Employment by Major Industry

Source: Compiled using data from DCS, Labour Force Survey, and Annual Report 2009.

Figure 5.6Formal/Informal Sector Employment by Occupational Group


14.2

4756

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63

Lanka to account for 61.9 per cent of theemployed. As evident from Figure 5.5, theagriculture sector has more than four-fifth oflabour in the informal sector (85.6 per cent)which has to be taken into serious consider-ation in social protection policy designing.Further, almost all skilled agricultural andfishery workers (97 per cent) are also to befound in the informal sector (Figure 5.6).

However, it should be noted that the domi-nance of informal sector employment is notlimited to agriculture. Overall, the contribu-tion of the informal sector in non-agricul-tural employments is just above 50 per centin some districts, while the contribution isover 40 per cent in all districts (Figure 5.7).

5.5 Social Protection Challenges andGaps in Sri LankaExtensive social protection programmes inSri Lanka include all types of social protec-tion measures, including provision to trans-

Figure 5.7Informal Sector Employment in Non-agricultural Sector by District


formative policies. The Social ProtectionIndex compiled by the ADB in 2007indicates that Sri Lanka performed well, witha rank of 9 out of 31 Asian and Pacificcountries. The index captures a broaddefinition of social protection and shows thatthe country had fared well in all aspects ofsocial protection expenditure, coverage,distribution and impact.

Social protection in Sri Lanka coverscomponents of social insurance, socialassistance and labour market programmes.In 2010, the government spent 3.5 per centof GDP on current transfers and subsidyprogrammes - a key component of socialprotection (Table 5.4). Current transfers tohouseholds increased in 2010 owing mainlyto higher pension payments (which accountsfor more than 50 per cent of transfers to house-holds), as a result of a higher cost-of-livingallowance and an increase in the number ofpensioners.

0 10 20 30 40 50 60 70

TotalColombo

kalutara

Matale

Galle

Hambantota

Ampara

Kurunegala

Anuradhpura

Badulla

Ratnapura

Gampaha

Kandy

Nuwara Eliya

Matara

Batticaloa

Trincomalee

Puttalam

Polonnaruwa

Monaragala

Kegalle

Dist

rict

% of informal sector employment in non-agriculture sector


64

Table 5.4Current Transfer Payments to Households and Other Sectors (2010)

Item Expenditure As % of Total As % of GDP(Rs. mn.) Expenditure

Current transfers and subsidies 196,216 15.3 3.5To households and other sectors 156,194 12.2 2.8Samurdhi 9,241 0.7 0.2Pension 90,995 7.1 1.6Fertilizer subsidy 26,028 2.0 0.5Other 29,931 2.3 0.5

Source: CBSL, Annual Report 2010.

The expenditure breakdown provides anoverall picture of social protection provisionand priorities of the government. Lookingbeyond, what is important to assess iswhether social protection policies in SriLanka are designed to ‘push’ the vulnerableinto the economic growth process, whileproviding a safety net of sorts. Socialprotection is also not the sole responsibilityof governments, but of all the stakeholders,including the private sector, NGOs, etc.Hence, the following section highlightswhere policy focus is needed, the extent towhich that has materialized and the wayforward.

5.5.1 Securing the Needs of the MostVulnerable: Revisiting the Social SafetyNet ProgrammeSafety nets cater to the needs of deprivedgroups in order to enhance their capabilities.In Sri Lanka, for instance, deterioratingnutrition levels is one of the major challengesfaced, where income support in the form ofsafety nets has a role to play. The mainincome support programme at present isSamurdhi. However, it has been criticizedfor poor targeting. Further, the cash grant isdeemed insufficient to meet the basic needsof a household and allow minimum energyintake levels. At present, while the nationalpoverty level is estimated at Rs. 3,028,Samurdhi does not support householdsearning an income above Rs. 1,500. Thus,

there can be many households earning anincome, but are yet poor. Hence, animportant consideration should be inclusionof the vulnerable occupational categoriesunder Samurdhi. Being in the programme isimportant for households as it is multi-pronged, with additional empowermentcomponents.

5.5.2 Social Protection to CombatMultiple VulnerabilitiesDifferent forms of vulnerabilities in the formof economic, social, political, and naturaland environment related shocks limithouseholds - particularly economicallyvulnerable groups - from participating inlivelihood activities. Households invulnerable occupational groups are anywaypoor and lack measures to mitigate ormanage risks. The informal sector workersalso lack social protection policies to helpthem withstand shocks. Hence, these groupsare more vulnerable to unforeseen risks.Therefore, it is important to design socialprotection policies with particular attentionon identified occupational categories.

On the one hand, the natural environmentoffers a range of livelihood opportunities tohouseholds, but at the same time exposesthem to a range of potential disasters. Somelivelihoods are often hazardous and someare more at risk from natural disasters, as aresult of which certain occupational


65

categories are more vulnerable. For example,the agricultural sector is considered as a highrisk sector as it is weather dependent andexposed to natural disasters, wherebyagriculture dependent households are morelikely to be worse off in the absence ofproper risk coping methods. Many of the riskcoping methods of vulnerable occupationalgroups are harmful and often affectlivelihoods, income, future income, health,education, etc., catching and retaining themin the poverty trap as a result.

Social protection plays a complementary rolein natural disaster management. The mostcommon forms are immediate reliefprogrammes, food transfer programmes,food-for-work programmes, cash transfersservices, fee waiving, etc. which are ex-postmeasures or provision measures. A differencecan be made by other social protectionmeasures such as microfinance (which is aprovision and a promotive measure),insurance, income diversification,community disaster management plans (asboth prevention and promotion measures).

Natural disaster related social protectionmeasures in Sri Lanka include insuranceprogrammes. Apart from the farmers' andfishermen's insurance, Agriculture andAgrarian Insurance Board (AAIB) is offeringcrop and livestock insurance for naturaldisasters. The insurance covers agricultureequipment too. However, the lack of humanand physical capacity for evaluation of risksis one of the major barriers constraining theprogramme. After the 2004 tsunami, SriLanka developed a National DisasterManagement Plan and Emergency OperationPlan with the aim of preparing for timelyand effective response, equitable reliefdistribution, speedy recovery, timelyrehabilitation and reconstruction at

provincial, district and Grama Niladhari(GN) level. The Early Warning DisseminationDivision maintains and operates EarlyWarning Towers and other early warningdissemination equipment. It has initiatedawareness programmes on activities relatedto early warning, disseminates early warningmessages, including to remote vulnerablevillagers. Such measures act as preventivemeasures to mitigate the adverse effects of adisaster.

Besides natural and environmental relatedrisks, households are exposed to multiplerisks, ranging from family related shocks,banditry and crime, economic shocks, andnegative political, social or legal events.Studies suggest that shocks experienced bymost households are family related, such asdeaths, illnesses, disablements, disputes,divorces and other life cycle events such asmarriage and childbirth followed by theweather and environment related shocks.12

These types of shocks have a bearing on theproductivity of labour and output. Aspreviously discussed, skilled agricultural andfishery workers, labourers, and sales andservice workers are the occupational groupsmost at risk.

The low income households find it difficultto afford traditional formal insuranceschemes as they are costly and formalitiesare high. On the other hand, microinsurancecan be used as an effective tool in managingrisks. The penetration of microinsurance inSri Lanka is very low and only a handful ofinstitutions are involved. Further,microinsurance services/products availablefor agriculture related and natural disasterrelated risks are minimal. Policy interventionon social security is required in this regardto improve the microinsurance sector.

12 Galappattige, A., R. Jayaweera and G. Tilakaratna, 2011, “Microinsurance in Sri Lanka: Combating Multiple and OverlappingVulnerabilities”, IPS.


66

5.5.3 Social Protection ChallengesEmerging from DemographicTransitionA key challenge for social protection is thedemographic transition that Sri Lanka isundergoing. The changing demography willexert considerable demand for socialprotection, requiring that policies be in placebefore publicly financed social securityschemes - where a shrinking working agepopulation contributes towards elderly care- becomes unsustainable.

Economic and social behaviour of retirees isdifferent from the working population interms of time/expenditure on leisureactivities, expenses on health, and incomeat retirement age. The share of health in totalexpenditure will rise due to greater demandfrom the elderly. Whilst a number of socialsecurity insurance programmes covering theformal and informal sectors are operating inSri Lanka - and the government and formalprivate sector have a fairly wide coverage ofschemes - the informal sector lacks sufficientcoverage. Although the government providescoverage even to elementary permanentworkers, a major criticism of the public sectorpension scheme (PSPS) is the inadequacy ofthe replacement income due to non-indexation. Further, the non-contributorynature of the PSPS raises issues ofsustainability, especially with the rising oldage population. The formal sector has fairlygood social security schemes - Employees'Provident Fund (EPF) and Employee TrustFund (ETF) - which are contributory.However, some of the employers evade therequirements which leave out many of thedeserving elementary level workers. Further,both these schemes are criticized for thelump sum nature of benefits received atretirement, as well as on the managementand investment issue of the funds.

Whilst the Budget for 2011 proposed apension scheme for formal sector workerswho are outside the PSPS, the initialproposals ran into considerable oppositionand it is currently under revision. There wascriticism on the way the pension schemewas formulated, with much of the criticismbased on the terms and conditions,operational issues and lack of awareness. Asthe proposed scheme requires 10 years ofcontribution, it was not clear to some peoplehow this would address social securityconcerns of certain types of workers - mainlybecause some might not be working for suchlonger periods, but would be contributinguntil they leave the job and would thereafterbe unable to reclaim their contributions. Forexample, in the case of garment sectorworkers - where there is a high turnover rate- most female workers leave employmentafter 5-7 years of work, making themineligible for pension benefits despite havingcontributed. Another concern with the initialproposals was that its design suggested thatonce the money in a member's account runsout, he/she will not be eligible for a pensionthereafter. Given the longevity of life andshort term of contributions, how theproposed scheme would benefit pensionersin the old age was not clear. Besides, theadequacy of the retirement scheme as areplacement income was also subject tocriticism.

Unlike many South Asian countries, Sri Lankahas initiated pension schemes for theinformal sector too. There are schemes forfarmers, fishermen and for the self-employed.However, studies highlight that the effectivecoverage of the eligible for such schemesare found to be very low at below 40 percent.13 Also, all these schemes face the sameproblem of losing value in real terms as aresult of inflation. This is mainly because

13 Gaminiratne, N., 2007, “Population Ageing, Policy Responses and Options to Extend Retirement Coverage: Case Study of Sri Lanka”,Demographic Transition and Pension Series No.7, IPS.


67

the payments are not index-linked to inflationand hence, does not act as a replacementincome. These contributory pension schemesare not compulsory as well, as there is nosufficient incentive for voluntary enrolment.The awareness about the programmes is alsopoor among those engaged in relevantoccupations. On top of all the above, thereis much criticism on the management andinvestment deficiencies in the schemes.Thus, the programmes are considered to beinsufficient as safety nets.

The absence of a universal or means testedpension has left a large segment of theinformal sector population in Sri Lankawithout a formal security cover in old age.However, the government had proposed inthe Budget for 2011 the introduction of onepension scheme for all self-employed, andanother for foreign employed persons. Theseare still under discussion. In addition,provision of livelihood support to the elderlywho are economically active in the informalsector should be considered. This wouldlessen the pressure on social protection to acertain extent.

5.5.4 Improving Employability/Skills asa Social Protection MeasureImproving skills of the population - andtherefore access to economic opportunities- is one way of promoting employability.Poor people often remain unemployed ortrapped in low productive employments asthey do not posses skills to move into highproductive occupations. Acquiring the skillsmight not be financially affordable, whichmakes them forgo the opportunities. Policyintervention on skills development of thepoor, therefore, can increase social andeconomic inclusion, particularly given thesignificant numbers of households trappedin occupations of less productive sectors,

especially in the lagging regions, as discussedpreviously.

Support on improvement of skills andemployability is mainly linked to trainingprogrammes. A number of Active LabourMarket Programmes (ALMPs) are carried outby the government, private institutions andNGOs with the purpose of supportingemployment creation and improvement ofskills and employability. NationalApprentice and Industrial Training Authority,Ministry of Labour Relations and Manpower,JobsNet and NGOs such as SEEDS andArthacharya Foundation also play significantroles in providing different training facilities.The positive effects of ALMPs are constrainedby some financial and institutionallimitations such as lack of human resources,lack of training equipment, and some donorconditions. The overlaps and lack ofcoordination of the programmes have alsohindered intended benefits. As a result, thereis a regional imbalance of availability oftraining programmes.14 It is important toidentify occupations in more productivesectors and target and emphasize trainingand skill development specific to thoseoccupations, whilst not neglecting the skilldevelopment of lagging sectors.

5.5.5 Livelihood Support as SocialProtectionLivelihood support is a promotive aspect ofsocial protection. Support on employmentcreation can be either for self-employmentand small businesses or to migrant workers.There are numerous government, NGO, andprivate sector initiatives on livelihoodsupport. For example, the SamurdhiAuthority provides several livelihood supportprogrammes all over the island, includingthe provision of microfinance facilities.

14 IPS, 2010, “A Review of Active Labour Market Programmes in Sri Lanka”, report prepared for the World Bank.


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While in the longer term, investing forpeople to move into high productive sectorsis important, in the short and medium term,existing sectors have to be provided withsupport. Various efforts are being made toimprove agriculture and the SME sector byproviding opportunities, filling in resourcegaps, connecting with markets and improvingaccess to facilities. One such example is theVidatha programme, one objective of whichis to help rural people uplift their economicconditions by improving access totechnology. It also tries to ensure that qualityproducts and services from the rural sectorreach the market as a means of stabilizingincomes. This holds positive implicationsfor improving local economies and onexpanding economic opportunities for thosewho are trapped in low productiveoccupations.

Apart from technology, financial and marketaccess are two other major hindrances. MFIsare playing an important role in the financialsector in Sri Lanka. Research suggests thatover 60 per cent of households that haveutilized financial services, have accessedinstitutions such as Samurdhi, RegionalDevelopment Banks (RDBs), Co-operativeRural Banks (CRBs), Sanasa DevelopmentBank, NGOs and Community BasedOrganizations (CBOs), underlining theimportant role of MFIs.15 Further, access tocredit was found to have helped nearly 30per cent of households to better cope withvarious risks and vulnerabilities. Between30-40 per cent of households indicated thatemployment opportunities and their businessknowledge improved as a result of accessingfinancial services.

The sustainability of self-employmentactivities is important for ensuring a steadyincome. 'Credit Plus' services which referto non-financial services such as vocationaltraining, marketing assistance and otherbusiness development services (BDS) areimportant in this context. While theSamurdhi bank is estimated to be the largestprovider of Credit Plus services, less than 5per cent of the surveyed households werefound to have received such services fromthe financial institutions they deal with.16

The main types of training received werevocational training which include self-employment training, technical assistanceand services such as training on business andfinancial management, accounts, and bookkeeping. Business development services isalso found to be an important componentin microfinance, with governmentmicrofinance programmes and developmentbanks found to be the main providers.17

5.6 ConclusionSri Lanka has comprehensive socialprotection policies, as evident from the highranking received amongst other Asiancountries. The policies fall under provision,through to transformative measures of socialprotection. As such, social protection hasbecome an indispensable instrument inachieving inclusive growth objectives.

As discussed, the concentration ofoccupations around the low-skilled (inagriculture, industry, and manufacturing)and concentration around agriculture andfishery, whether skilled or unskilled, foundprimarily in lagging regions is a cause ofconcern in the context of productive

15 IPS, 2008, “Outreach of Financial Services in Sri Lanka: A Look at the Demand-side from a Microfinance Perspective”, report preparedfor the GTZ. The study was based on a household survey which covered around 3,000 households from all districts in the country exceptKilinochchi, Mannar and Mullaitivu.

16 Ibid.17 Tilakaratne, G., A.Galappattige and R.Perera, 2009, "Promoting Empowerment through Microfinance in Sri Lanka" in “Economic and

Political Empowerment of the Poor: Sri Lanka”, CPD-SACEPS Monograph Series 3, Centre for Policy Dialogue (CPD) and South AsiaCentre for Policy Studies (SACEPS), Dhaka.


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employment and issues of equity. Thetransient nature of poverty of these groupsand concentration of the workforce in theinformal sector serves only to exacerbateexisting vulnerabilities.

Overall, existing social protection policiesare deemed insufficient to cover most of thevulnerabilities. A few social protectionprogrammes extend to informal sectorworkers and vulnerable occupational groupsoverall (with some targeted at specific groupsand/or some types of vulnerabilities).However, there is no extensive targeted socialprotection programmes for vulnerableoccupation groups in Sri Lanka at present.Except for old age income securityprogrammes for a few types of occupationcategories, the informal sector workers donot have social protection on illnesses,unemployment, etc.

Social protection policies can play a majorrole at both ends from provision totransformation of vulnerable occupationalgroups. Social protection measures can targetvulnerable occupational groups through theprovision of safety nets, while addressingthe poor overall. Insurance, in the form ofmicroinsurance and savings, has the potentialto act as preventive measures in the face ofmultiple vulnerabilities that are encountered.These kinds of social protection measureswill prevent households from using harmfulmethods of risk management which oftenaffects their livelihoods, income, futureincome, health, education and keep themin the poverty trap. Skill development andlivelihood support programmes, includingmicrofinance, have a major role to play inproviding social protection to fosterinclusive growth.

6. Education and Health Services for Sustainable Growth

6.1 IntroductionTo achieve inclusive growth and spatial equity, it isessential to improve economic as well as socialdevelopment of a country. In this respect, educationand health services are crucial for enhancing humandevelopment, promoting equity and contributing toeconomic prosperity. Human capital formation andaccumulation through education encourages innova-tion and productivity, and helps sustain long termeconomic development. Similarly, the 'health of anation' is of central importance. Indeed, health andeducation are inter-linked, as the former is consid-ered the basis for job productivity, the capacity tolearn in school, and the capability to grow intellectu-ally, physically, and emotionally.1

The distribution of education and health outcomescan be regarded as a key indicator of the inclusive-ness of economic development in a country. Educa-tion is a universal right and an agent of upward socio-economic mobility that opens many social, economic,and political doors and increases access to incomeand employment opportunities. The levels and distri-bution in health outcomes can serve as proxies forconcerns a government has regarding the health of itspeople.2 While Sri Lanka has long been recognizedfor its achievements in human development, it facesnew challenges in providing quality services andimproved service delivery that will cater to the changingdemands of a rapidly growing economy.

Although human capital is recognized as vitallyimportant in leveraging Sri Lanka's vision to developas a knowledge-based, middle income country, thequality of human capital, in general, has not keptpace with job market requirements. Most of the school

There are widedisparities in both

education and healthservices in terms of

accessibility as well asresource availabilityacross the country

‘‘

1 WHO, 2001, “Macroeconomics and Health: Investing in Health for Economic Development”, report of the Commission on Macroeconomicsand Health, WHO, Geneva.

2 Tandon A., Zhuang, J., 2007, “Inclusiveness of Economic Growth in the People’s Republic of China: What Do Population HealthOutcomes Tell Us?” Asian Development Bank, Manila.

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Education and Health Services for Sustainable Growth

leavers are ill-prepared, with lack of cogni-tive dimensions to fit into the world of work.Increasing the equity of access to quality edu-cation with required facilities is also a majorchallenge. As regards the country's healthsector, there are wide ranging disparities inaccessing health care services, facilities,resources, as well as health outcomes. Thisis particularly so with regard to maintainingand upgrading existing social services, whilerestoring services in previously conflict-af-fected areas.

This Chapter seeks to examine the gaps ineducation and health service delivery in thecountry and their recent trends, with a viewto identifying inequities and making policyrecommendations on improving access tobetter quality services in health and educa-tion. First, attention is paid to the presentstatus of the country's education and healthsector and its growth objectives. Thereafter,equity in education and health is discussedalong the dimensions of access, outcomes anddistribution of resources. Emerging needs andcurrent policies of the two sectors are assessedin order to identify policy gaps, with key find-ings and policy recommendations suggestedin the final section.

6.2 Education6.2.1 Current Status and ObjectivesSri Lanka has long considered education ascrucial for enhancing human developmentand contributing to economic growth. Theeducation ordinances of 1939 and freeeducation introduced in 1945 were amongthe earliest policies in achieving economicand social equity through universal and equalaccess to education at all levels. Sri Lanka iscommitted to supporting "Education for All",adhering to ethics and standards as pro-

claimed by provisions in internationalconventions.3 Successive governmentsadopted strategic measures such as introduc-ing free textbooks, scholarships for disad-vantaged students, free uniforms, and subsi-dized transport facilities to encourage school-ing amongst children.

Thus, Sri Lanka has often been cited ashaving high education achievements andlearning when compared to counterparts inSouth Asia. This reputation has been largelybuilt on the high literacy levels and the highlevels of primary enrolment, as well as thegender parity in education access andachievements. Moreover, Sri Lanka is an earlyachiever of the Millennium DevelopmentGoals (MDGs) of universal primary educa-tion, and gender equity in education. In2006, it attained a primary enrolment rate97.5 per cent, gender parity index forprimary education of 99 per cent, and 95.8per cent literacy rate in the age group15-24.4

While there is an encouraging improvementin literacy rates (92.7 per cent in 1996 to95.8 per cent in 2006) and universalprimary education in numerical terms,several gaps exist in the sector. Existingdisparities in the provision of educationservices - regional discrepancies (geographi-cal, economic and social), disparities in thequality of education imparted, unequaldistribution of resources, exclusion inaccess and participation, etc., - can widenuneven economic development unlessaddressed. For instance, more than a half ofthe schools in the country are small schoolswith less than 200 students, with scienceeducation in grades 12-13 confined to only7 per cent of schools with these grades.5

3 Regulations for compulsory education of 5-14 age group were approved by Parliament in 1997 and came into force in January 1998.4 IPS/UNDP, 2010, Millennium Development Goals: Sri Lanka Country Report 2008/2009.5 Ministry of Education, 2008, School Census 2008: Preliminary Report.


72

Information technology (IT) is still in the earlystages of development in schools. Many chil-dren faced disruptions to education - throughdisplacement, loss of family members,psychological impact, loss of school materi-als as well as the destruction of school build-ings and infrastructure - through the conflictyears. In these circumstances, simplyproviding basic service delivery of educationis often a major challenge.6

6.2.2 Equity IssueIncreasing the equity of access to qualityeducation with required facilities is a majorchallenge. Equity in education can be

considered along the dimensions of access,outcomes and resources.

With regard to equity in access, primaryeducation is almost universalized. However,disparities in access to education are higherbeyond the primary education cycle(Table 6.1). According to the estimates of arecent study that assessed the equitability ineducation and health services in Sri Lanka,net enrolment rates in the upper secondaryand collegiate levels were found to be onlyabout 54 per cent and 19 per cent,respectively.7 Moreover, disparities inaccess to education are higher across

Table 6.1Net Enrolment Rates in Major Education Cycles by Economic Groups: 2006/07 (%)

Primary Junior Secondary Upper Secondary Collegiate(Grades 1–5) (Grades 6–9) (Grades 10–11) (Grades 12-13)

Economic groupsPoorest quintile 95.7 82.6 47.6 11.02nd quintile 95.9 85.7 50.2 18.53rd quintile 96.5 89.5 50.0 15.74th quintile 96.8 89.8 59.1 23.4Richest quintile 97.9 94.0 62.9 27.7

GenderMale 96.3 88.1 50.1 19.1Female 96.6 87.9 57.2 19.6

SectorEstate 91.1 71.1 27.4 4.3Rural 97.0 89.6 56.0 20.4Urban 97.5 90.5 57.2 21.5

ProvinceWestern 96.2 88.6 52.5 19.9Central 96.4 88.9 56.7 15.0Southern 97.2 88.9 59.2 23.5Northern n.a n.a n.a n.aEastern 96.7 85.9 44.8 13.7North Western 97.6 87.4 44.1 17.0North Central 97.3 94.1 62.0 19.3Uva 95.9 85.1 58.4 20.5Sabaragamuwa 94.0 84.3 48.8 19.6

Sri Lanka 96.5 88.2 53.6 19.3

Note: n.a. = not available.

Source: Arunatilake, N., N. Attanayake and P. Jayawardena, 2010, “Equitability in Education and HealthServices in Sri Lanka”, IPS, mimeo.

6 IPS, 2010, “Protecting the Education Rights of Conflict-affected Children” in Sri Lanka: State of the Economy 2010.7 Arunatilake, N,, N. Attanayake and P. Jayawardena, 2010, “Equitability in Education and Health Services in Sri Lanka”, IPS, mimeo.

73


economic groups, sectors, and provinces asthe level of education advances.

Quality of education - learning-teaching pro-cess in the classroom - is reflected in comple-tion rates in major education cycles as wellas success rates at national public examina-tions. It is found that one-fifth of childrenwho are in official age of completing grade5, and 30 per cent of children who are inofficial age of completing grade 9 do not

complete the education cycle appropriate fortheir age.8 Further, wide disparities in schoolcompletion rates as well as public exam suc-cess rates across economic groups, gender,sector, and province were also to be found.The completion rates were lower for higherschool cycles, and their disparities wider withthe advancement of education level. Similarpatterns were reflected in the O-Levels andA-Levels success rates.

Table 6.2Completion Rates in Major Education Cycles and Exam Success Rates: 2006/07

Completion Ratesa % Exams Success Ratesb %Grade 5 Grade 9 Grade 11 O-Levels A-Levels

Income GroupPoorest quintile 73.4 61.2 22.6 31 172nd quintile 81.3 69.2 35.4 44 173rd quintile 85.0 71.7 32.8 46 204th quintile 82.2 76.6 47.3 57 27Richest quintile 87.4 75.4 60.6 68 44

GenderMale 81.9 67.7 35.3 45 22Female 80.8 73.3 42.9 53 29

SectorEstate 64.2 46.1 7.9 14 8Rural 83.3 74.5 42.7 51 26Urban 84.9 72.0 42.3 56 31

ProvinceWestern 80.7 69.2 41.8 54 33Central 79.4 75.3 33.1 45 25Southern 86.3 74.8 45.5 54 24Northern n.a. n.a. n.a.Eastern n.a. n.a. n.a. 41 23North Western 82.8 69.9 28.8 44 25North Central 89.9 78.4 37.4 48 24Uva 71.0 55.8 28.4 38 18Sabaragamuwa 79.3 67.2 45.1 51 21

Sri Lanka 81.4 70.5 39.1 49 26

8 Ibid.

Note: n.a. = not available; a: Completion rate is defined as percentage of children in the official agegroup completing the education cycle; b: Exam success rates are defined as percentage of children(in the official age of sitting the exam) who have passed the relevant exam. The sample for O-Levelscomprises 17 and 18 year olds and the sample for A-Levels comprises 20 and 21 year olds at thetime of the survey. Calculations consider all children in an age cohort, not only those who have satfor an exam.

Source: Arunatilake, N., N. Attanayake and P. Jayawardena, 2010, “Equitability in Education and HealthServices in Sri Lanka”, IPS, mimeo.


74

With regard to the distribution of resources,resource constraints have led to a decline inthe quality of education provided by schools.Many schools in the country experiencedisparities in the availability of libraries,science labs and computer labs acrossprovinces. Only 7 per cent of state schoolsare found to have facilities to teach sciencesubjects (Type AB) in GCE (A/L). Further,schools offering science subjects in GCE (A/L) are not rationally located, with a majorityto be found in urban areas, with almost one-fourth of the Type AB schools located in theWestern Province. This shows that only alimited number of students are privileged tofollow the science streams up to GCE (A/L).

Rural children from poor families withfinancial constraints have no options otherthan to choose a resource-poor secondaryschool that offers only arts or arts/commercestreams located mainly in economically dis-advantaged areas. For example, 56 schoolsin Vavuniya, 9 schools in Ratnapura, while8 schools in each Mannar and Mulaittivu dis-tricts had one teacher per school. Thesefigures, bad as they are, do not show the truepicture of educational problems, which inreality is even more disturbing. These aggre-gates do not show the internal disparitieswithin a district. Also, it is often the casethat there may be an excess of teachers forcertain subjects while there is a deficit ofteachers for more demanding subjects suchas English, science and IT.

6.2.3 Key Sector Challenges and IssuesDeveloping competencies to meet emergingneeds: As Sri Lanka aims to move towards aknowledge-based economy, new configura-tion of skills, abilities and competencies toface the emerging needs of accelerating

global competition will be required. Theinformation and communication technolo-gies (ICT) workforce is expected to increasefrom the current 50,000 to 186,000 by 2016.9

Further, about 50,000-70,000 skilled peopleare needed annually with the planned largescale development activities in the naval,aviation, commercial, energy, road and trans-port, urban development, irrigation andknowledge sectors.10 Information and knowl-edge-based economic development willrequire that learning-teaching methodsbecome more competency-based and caterto skills demand. This means Sri Lanka mustovercome prevailing constraints in access toICT, proficiency in English language, andscience and technical education, etc.

Addressing the mismatch between the skillsacquired through the education system andthe requirements of the labour market hasbeen a key concern of current educationpolicy.11 Of more than 100,000 deservingstudents, only around 15 per cent who gainthe necessary A/L qualification are able toenter into university due to the limitednumber of placements.12 External degreeprogrammes are generally marked by theabsence of an accreditation system, poorquality, and weak administration. There isalso a lack of a systematic Technical Educa-tion and Vocational Training (TEVT) link withsecondary education, leaving a majority ofschool leavers with no access to skills devel-opment programmes. Overlooking theimportance of TEVT is also partly respon-sible for the shortage of skilled manpower tomatch the dynamic needs of the labourmarket.

Protecting education rights of conflict-affected children: Improving access to edu-

9 DNP, 2010, Sri Lanka – The Emerging Wonder of Asia, Ministry of Finance and Planning.10 Ibid.11 National Education Commission, 2003, Proposal for a National Policy Framework on General Education in Sri Lanka.12 Ministry of Education, 2005, Education for Development and Prosperity.

75


cation in the conflict-affected areas remainsa major challenge. According to availableestimates, approximately 100,000 internallydisplaced persons (IDPs) and returnee schoolaged children, and 347 schools requiredrehabilitation in the Northern Province.13

According to criterion-based learning assess-ment conducted by the Northern Provinceeducation authorities, there is an urgent needto implement remedial educationprogrammes to improve learner competen-cies and ensure student retention. Further,an estimated 20,000 children and youth out-side of the formal system were identified asrequiring non- formal education programmesto develop their skills for income generatingopportunities.14

Budgetary constraints and public investmentsin education sector: The public educationsystem remains the predominant service

provider while budgetary constraints havelimited government investment in the edu-cation sector. Government expenditure oneducation as a percentage of GDP in-creased from 2 per cent in 2001 to 2.7 in2006 but decreased gradually to 1.9 per centin 2010 - constituting about 8 per cent oftotal government expenditure.15 This figureis far behind that of South East Asian coun-tries such as Malaysia (17.2 per cent) andthe Philippines (16.9 per cent), as well asneighbouring South Asian countries such asNepal (19 per cent) and Bangladesh (14 percent).16 The proportion of education expen-diture devoted to recurrent expenditure is inthe range of 80 per cent, with the majorportion (75 per cent) devoted for teachers'salaries. The limited public capital expendi-ture in the education sector has resulted inresource poor schools and increased out-of-pocket expenditure.

Figure 6.1Distribution of Out-of-Pocket Expenditure on Education

Source: Arunatilake, N., N. Attanayake and P. Jayawardena, 2010, “Equitability inEducation and Health Services in Sri Lanka”, IPS, mimeo.

13 GOSL/UN, “Joint Plan for Assistance for the Northern Province – 2011”, February 2011, http://ochaonline.un.org/humanitarianappeal/webpage.asp?Page=1942.

14 Ibid.15 Central Bank of Sri Lanka, Annual Report 2010.16 Respective year of international estimates is 2008. Available at http://stats.uis.unesco.org/unesco/tableviewer/document.aspx?ReportId=143.

Stationeries23%

School fees (Private)

6%

Transport21%

Tuition/boarding fees 45%

School fees(govt)2%

Uniforms2%

Text books1%

Other5%


76

As revealed in a recent study, 2.6 per cent oftotal household income is spent on educa-tion related expenses.17 This proportion ismore or less the same across households fromdifferent income deciles. Further, the majorportion (45 per cent) is found to be spent ontuition or boarding fees (Figure 6.1).

Strengthening management of the educationsector services delivery: Management ofeducation sector service delivery has beenidentified as a key challenge in relation toeducation service delivery.18 Lack of propersupervision, administration and monitoringbadly affects the growth objectives of theeducation sector service delivery. Further,inadequate management capabilities atlocal level have constrained decentralizedmanagement. Studies have revealed the ne-cessity of improving capacity at all levels ofthe education sector to make decentralizedplanning and management more effective andefficient.19

6.2.4 Current Policies and ProgrammesThe Education Sector Development Frame-work and Programme (ESDFP) 2006-2010formulated by the Ministry of Education withthe support of the World Bank is being imple-mented currently. The major policy themesof the ESDFP are: (i) increasing equitableaccess to basic and secondary education,(ii) improving the quality of basic andsecondary education, (iii) enhancingeconomic efficiency and equity of resourceallocation, and (iv) strengthening the educa-tional governance and service delivery, andmonitoring and evaluation. The ESDFP isdeveloped on a sector-wide approach,

considered the most appropriate instrumentto address system-wide needs. This strategycould pave the way to sustain developmentplans of the sector by mainstreaming andimproving coordination of external donorinvestments with government budgetingacross the central, provincial and school lev-els. The ESDFP has been incorporated intothe planning process whereby targets havebeen set to raise the current GCE (O/L) passrate from 52 per cent to 65 per cent, andGCE (A/L) pass rate from 60 per cent to 75per cent by 2020.20

With regard to rehabilitation of educationservices in the previously conflict-affectedareas, education facilities are estimated tohave been restored to nearly all affectedchildren in the Northern Province. The needsof 98 schools and 20 pre-schools in theresettlement areas have been fully met, whileanother 150 schools are targeted to berepaired in 2011. As a response to the crite-rion based assessment findings, teacher booksfor alternative learning programmes forprimary and secondary grades for keysubjects have also been developed.21

6.3 Health6.3.1 Current Status and ObjectivesDespite the fact that Sri Lanka is a low-spender on health, the country is regarded asa success story in achieving most of the vitalhealth indicators much earlier than itsregional counterparts. Most of the key healthindicators for Sri Lanka are almost at the samelevel as that of developed economies(Table 6.3).

17 Arunatilake, N., N. Attanayake and P. Jayawardena, 2010, “Equitability in Education and Health Services in Sri Lanka”, IPS, mimeo.18 DNP, 2008, Public Investment 2008–2011, Ministry of Finance and Planning.19 Arunatilake, N., and P. Jayawardena, 2010, “Formula Funding and Decentralized Management of Schools – Has it Improved Resource

Allocation in Schools in Sri Lanka?”, International Journal of Educational Development. Vol. 30, No. 1.20 DNP, 2010, Sri Lanka – The Emerging Wonder of Asia, Ministry of Finance and Planning.21 GOSL/UN, “Joint Plan for Assistance for the Northern Province – 2011”, February 2011, http://ochaonline.un.org/humanitarian

appeal/webpage.asp?Page=1942.

77


Table 6.3Comparison of Select Key Health Indicators

Indicator Sri Lanka South-East Asia Global Region

Life expectancy at birth (2009) 71 65 68Infant Mortality Rate (IMR)a (2009) 13 45 42Under-five mortality rateb (2009) 16 59 60

Maternal mortality rate (MMR)c (2008) 39 240 260

Notes: a: Probability of dying by age 1 per 1,000 live births; b: Probability of dying by age 5 per 1,000 livebirths; c: Per 100,000 live births.

Source: WHO, World Health Statistics 2011.

As evident from Figure 6.2, total healthexpenditure as a percentage of GDP has beennot more than 4.5 per cent over the years forSri Lanka, whereas the global figure stood at9.7 per cent in 2007.22 General governmentexpenditure on health as a percentage of totalgovernment expenditure is 8.5 per cent, whileper capita health expenditure was US$ 68for Sri Lanka in 2007.23 The global figuresread as 15.4 per cent and US$ 802, respec-tively.

At end 2009, the public sector healthworkforce was estimated at 107,560 (54,917at Line Ministry Institutions and 52,643 atProvincial Institutions).24 As at end 2007,there were 11,023 medical officers (MOs)and 31,466 nurses serving at 615 governmenthospitals with total bed strength of 68,694.25

In 2007, the Ministry of Healthcare andNutrition published a Health Master Plan(HMP) for 2007-2016, with the aim of

% o

f G

DP

Figure 6.2Total Expenditure on Health: 1995-2008

Source: http://www.who.int/nha/country/lka.xls.

22 This includes both public and private expenditure on health.23 WHO, World Health Statistics 2010.24 http://203.94.76.60/nihs/BEDS/Manpowersum-09-12-31.pdf .25 Ministry of Health, Annual Health Bulletin 2007.

.


78

providing the policy and strategic frameworkfor the development of an innovative healthsystem by 2016. The main objective is toimprove the health status of the country andreduce inequalities. This is to be achievedthrough five strategies, namely:

• Ensure the delivery of comprehensivehealth services, which reduce thedisease burden and promote health;

• Empower communities (includinghouseholds) towards more active

participation in maintaining theirhealth;

• To improve the management ofhuman resources for health;

• To improve health financing, resourceallocation and utilization; and

• To strengthen stewardship andmanagement functions of the healthsystem.

The government's overall development frame-work also identifies some major challenges

District Govt. Govt. Govt. Specialists Medical Nurses perMedical Hospital Hospital in Officers per 100,000Institutions Beds Beds per Curative 100,000 Populationwith 1,000 Care PopulationSpecialtiesa Population

2007 2005Colombo 9 12,126 4.9 229 128.2 230.1Gampaha 4 6,078 2.8 75 39.2 73.5Kalutara 4 2,773 2.5 32 40.1 77.1Kandy 4 6,686 4.8 83 90.3 176.2Matale 2 1,661 3.5 26 40.8 82.2Nuwara Eliya 1 1,803 2.4 17 8.8 20.2Galle 3 3,314 3.2 58 68.5 124.0Matara 2 2,286 2.8 24 37.2 84.2Hambantota 4 1,624 2.9 22 29.0 51.1Jaffna 2 2,455 4.1 11 42.1 65.8Kilinochchi 1 378 2.6 0 10.3 14.5Mannar 1 481 4.7 0 33.3 40.4Vavuniya 1 463 2.8 7 45.5 58.6Mullaitivu 0 472 3.3 0 5.0 17.0Batticaloa 3 1,484 2.8 15 26.4 72.5Ampara 5 2,429 1.3 28 41.4 82.5Trincomalee 3 1,185 3.3 12 36.9 48.5Kurunegala 3 4,814 3.2 48 26.9 93.9Puttalam 3 1,489 2.0 30 54.7 64.9Anuradhapura 3 3,198 4.0 28 43.2 88.0Polonnaruwa 2 1,291 3.3 16 51.2 110.6Badulla 3 3,390 4.0 40 25.5 95.3Monaragala 1 1,376 3.2 9 34.7 53.0Ratnapura 4 3,193 2.9 19 32.9 81.0Kegalle 4 2,245 2.8 23 36.8 52.8Sri Lanka 72 68,694 3.4 852 45.6 95.8

Table 6.4Distribution of Health Facilities by District: 2005 and 2007

Note: a: Teaching hospitals, provincial hospitals and base hospitals.

Source: Ministry of Health, Annual Health Bulletin, 2004/2005 and 2007.

79


26 DNP, 2010, Mahinda Chinthana; Vision for the Future, Ministry of Finance and Planning.

in the health sector, namely: (a) respondingto a changing disease and demographicpattern, (b) human resource management,(c) improving responsiveness, and (d) address-ing the needs of vulnerable groups.26

6.3.2 Equity Issues in HealthDisparities in the distribution of healthresources are prevalent despite the fact thatensuring equal opportunities in accessinghealth services across the country is a keycomponent of inclusive growth. There arewide disparities in health resource availabil-ity (physical as well as human) betweendistricts (Table 6.4). Colombo district, therichest district of the country with a PHCI of5.4 per cent,27 is well-served by having 9medical institutions with specialties, nearly20 per cent of total hospital beds and 25 percent of the specialists in curative care. Fur-ther, Colombo district has the highest num-ber of MOs and nurses per 100,000 popula-tion. However, the figures from the poorestdistricts (e.g., Nuwara Eliya, Monaragala and

Table 6.5Sanitary Conditions and Mortality Rates by Sectors

Sector/ Percentage Distribution of Households by Safe Mortality RatesDistrict Access to Drinking Water and Availability of (2003)

Toilets (2006/07)Main Source of Availability of Toilets Under 5 InfantDrinking Water Mortality MortalitySafe Not Exclusive Sharing No Ratea Ratea

(%) Safe for with Toilet(%) Household Household Facilities

(%) (%) (%)Sri Lanka 84.8 15.2 89.1 7.3 3.6 21 15SectorUrban 97.7 2.3 86.5 9.7 3.8 19 10Rural 85.0 15.0 90.9 6.0 3.0 23 19

Estate 46.2 53.8 67.7 20.5 11.8 33 29

Note: a: Per 1,000 live births.

Sources: DCS, HIES 2006/07 and Demographic and Health Survey 2006/07.

Ratnapura with a PHCI of 33.8, 33.2 and26.6 per cent, respectively) and previouslyconflict-affected areas of the N&E indicatewide disparity in health service availabilityrelative to other districts.

Sri Lanka is also seeing disparities in access-ing basic sanitary needs. Here, access to safedrinking water and availability of toilets isconsidered a key indicator. Consideringnational level figures, it may be concludedthat Sri Lanka is at a satisfactory level byachieving 85 per cent of access to safewater, 96 per cent in availability of toilets,and low rates of mortality (Table 6.5).However, the situation differs across sectorswith the estate sector lagging behind othersectors in almost all indicators. More than ahalf of the estate population does not haveaccess to safe water and 12 per cent are leftwithout toilet facilities.

There are also disparities in health andnutritional outcomes to be found. Even though

27 DCS, HIES 2006/07.


80

0

5

10

15

20

25

30

35

40

45

2000 2006/07 2000 2006/07 2000 2006/07 2000 2006/07

Per cent children with low birth weight

(<2.5 kg)

Per cent children stunted (low height

for age)

Per cent children wasted (low weight

for height)

Per cent children under weight (low

weight for age)

%

Urban

Rural

Estate

Sri Lanka has implemented various nutritionalprogrammes, 50.7 per cent of the country'spopulation is estimated to receive below 2030kilocalories (kcal) level of Daily DietaryEnergy Consumption (DDEC).28 Even the non-poor people in the urban and rural sectorconsume less than the required level. Asevident from Figures 6.3 and 6.4 - depicting,respectively, the nutrition status of children

Figure 6.3Child Nutrition and Health Status by Wealth Quintile: 2000 and 2006/07

Source: IPS/UNDP, 2010, Millennium Development Goals Country Report 2008/09.

by wealth quintiles and by sector - it is clearlyobserved that although the nutrition statusof the poorest quintile has improved from2000 to 2006/07, the gap between the poor-est and the richest remains almost at the samelevels for all the indicators. Another notableobservation is that the nutrition status of thechildren from the richest quintile hasdeteriorated slightly over the same period

Figure 6.4Child Nutrition and Health Status by Sector 2000 and 2006/07

Source: IPS/UNDP, 2010, Millennium Development Goals Country Report 2008/09.

28 Ibid.

81


(despite a marginal increase in all theindicators in the richest quintile). Thisindicates the country as a whole is facing anutrition problem regardless of the wealthstatus of individuals.

When child nutrition by sector is considered,the prevalence of being underweight, stuntedand wasted is high among estate children(Figure 6.4). Further, the nutrition status ofestate children has also not improved overthe years in a significant manner. Even in theother sectors, a marked improvement cannotbe observed.

6.3.3 Emerging Needs and CurrentPoliciesRe-establishing health services in previouslyconflict-affected areas is one of the majorchallenges that the health sector faces atpresent, recognized by the Health Master Planof 2007. Damage to health infrastructure, lackof human resources and other supportivefacilities such as medical supplies and equip-ment, a breakdown of preventive andpromotive services, etc., are majorconstraints. The health challenges are alsomore complex in view of conflict-relatedpsycho-social problems that have to be takeninto consideration. Development andallocation of human resources for health havebeing identified as one of the most crucialstrategies for effective reconstruction of healthservice systems in conflict-affected areas ofthe country.29

In addition to specific needs of conflict-affected populations, Sri Lanka is also facingan epidemiological transition, experiencinga change in the pattern of causes for deaths.The number of deaths attributable to mater-

nal and child health and infectious diseaseshave declined over the years, whereas deathsdue to non-communicable diseases (NCDs)- such as ischaemic heart disease, strokes andcancer - have increased greatly. At present,nearly 90 per cent of the country's diseaseburden is attributed to NCDs. In the pasthalf-century alone, the proportion of deathsdue to circulatory disease (such as heartdisease and strokes) has increased from 3 percent to 24 per cent, while that due to infec-tious diseases has decreased from 42 per centto 20 per cent.30 Ischaemic heart diseasewas ranked as the number one leading causefor hospital deaths in 7 districts of the coun-try in 2000, and by 2007, this had becomethe number one leading cause in hospitaldeaths in 15 districts.31

Health hazards due to natural disasters andclimate change is another emerging challengefor the health sector. Apart from the deathsand disabilities caused by natural disasters,health issues related to climate change arereported more frequently than before.Problems in accessing safe drinking water,outbreaks of vector and water borne diseases(dengue, diarrhoea), increased rate ofrespiratory disorders (due to dust and coldwaves), more communicable diseases (skindiseases, typhoid fever), and malnutrition(due to food inaccessibility) are some of theoutcomes. Psychological problems due to theloss of dwellings, habitat and income andloss of family members could also arise.Sanitation issues and other social problemsarise as populations are displaced due toextreme weather events.

Amidst emerging new sources of healthconcerns, Sri Lanka is also facing major

29 Mari Nagai, M., S. Abraham, M. Okamoto, E. Kita and A. Aoyama, 2007, “Reconstruction of Health Service Systems in the Post-conflictNorthern Province in Sri Lanka”, Health Policy, Vol. 83, pp. 84–93.

30 Engelgau M., K. Okamoto, K.V. Navaratne, and S. Gopalan, 2010, “Prevention and Control of Selected Chronic NCDs in Sri Lanka:Policy Options and Action”, Health, Nutrition and Population (HNP) Discussion Paper, World Bank.

31 Ministry of Health, Annual Health Bulletin, 2000 and 2007.


82

demographic transitions that clearly holdimplications for the health sector. Thecountry is undergoing a demographic transi-tion, where the population stabilizes at lowbirth rates and low death rates. If this trendpersists, by year 2041, 25 per cent of SriLanka's population will be in the above 60year age category.32 This means that therewill be more demand for health needs fromthe aged population in the future.

As such, private sector involvement is goingto be very critical in providing effective andefficient health care service. However, in SriLanka, private sector involvement in healthis largely concentrated in the WesternProvince with around 60 per cent of totalprivate hospitals, and 75 per cent of totalprivate hospital beds in 2008.33 Whilst this'urban bias' is understandable from a privatesector perspective, it leaves many other partsof the country without access to privatesector investment to develop health services.

6.3.4 Current Policies and ProgrammesSri Lanka has taken several initiatives toincrease food consumption and ensureadequate nutrition intake among householdsand individuals. The main intervention hasbeen the 'Thriposha' (a pre-cooked cerealbased food) national programme, made avail-able to pregnant and lactating womenduring the first 6 months and infants between6-11 months of age. It is estimated to caterto nearly 580,000 beneficiaries.34 Anothermajor intervention by the government is foodassistance to populations affected by theconflict in the N&E, including displacedpersons. The value of food assistance rangesbetween Rs.336 for families consisting of oneindividual to Rs.1,260 for families of five

persons per month.35 A school-feedingprogramme under which poor children aregiven a hot meal in school, and provision ofa food package for expectant mothers('poshana malle') are some other interven-tions. In addition, a 'National NutritionSurveillance System' was launched in 2008to obtain timely data at provincial andcentral level. The government has alreadylaunched a 'National Nutrition Policy' forthe period 2008-18.

The government has also identified thegravity of NCD-related health challenges andtaken several policy initiatives. A 'NationalPolicy and Strategic Framework for Preven-tion and Control of Chronic Non-communi-cable Diseases' was approved by theCabinet in 2010. In the Budget 2011, anadditional allocation of Rs. 900 million wasmade (approximately 1.5 per cent of totalexpenditure allocated to Ministry of Healthin 2011) for a three year Action Plantargeting the control of NCDs, to beimplemented from 2011 through improve-ments in the primary healthcare system.

6.4 Conclusion and Policy ImplicationsEnsuring equal opportunities in accessingeducation and health services across thecountry is a key component of inclusivegrowth. However, there are wide disparitiesin both the education and health sectors interms of accessibility as well as resourceavailability that results in disparities in out-comes. As discussed in the previous sections,disparities have been identified in theeducation sector in terms of access qualityas well as distribution of resources. Dispari-ties in access to education are higher beyondthe primary level, particularly at the

32 De Silva, W.I., 2007, “Beyond Twenty Million: Projecting the Population of Sri Lanka 2001-2081”, Demographic Transition andPension Series No.6, IPS.

33 IPS, 2011, Census of Private, Co-operative and Estate Hospitals 2010.34 Ministry of Health, Annual Health Bulletin 2007.35 IPS/UNDP, 2010, Millennium Development Goals Country Report 2008/09.

83


secondary and collegiate levels. Despite highaccess, almost a fifth of the children do notcomplete primary education at the appropri-ate age. There are wide disparities in schoolcompletion rates in major education cyclesacross economic groups, gender, sector, andprovinces, while disparities rise for highereducation cycles. The estate sector and malesregister the poorest performance in comple-tion of compulsory and secondary educationcycles. Disparities in completion rates ofhigher education cycles are also reflected inthe GCE (O/L) and GCE (A/L) success rates.Lack of resources and teacher shortages areworst for schools situated in less developeddistricts, particularly schools in previouslyconflict-affected areas and in remoteplantations.

Sri Lanka needs to improve enrolment at thepost-primary levels, particularly at the seniorsecondary level. Particular attention shouldbe given to improving school cycle comple-tion among poorer groups, males, and thosein the estate sector. Private sector participa-tion can bring benefits. For instance, privateinvestment in university education -operated under state regulation and standards- could improve the quality of educationthrough competition, enhanced access touniversity education and resource mobiliza-tion, etc. Sri Lanka also needs to pay greaterattention to broader skills developmentthrough the TEVT sector and tertiaryeducation.

In the health sector, disparities are observedin the distribution of health facilities andresources. Sectoral discrepancies are evidentin accessing safe drinking water and avail-ability of toilets, and in indicators such asIMR and Under 5 mortality rate. Prevalenceof being underweight, stunted and wasted ishigh among poor and estate children.

The development of social infrastructure hasbeen recognized as a key factor needed forsustainable economic growth. As Sri Lankaaims to accelerate growth, it is criticallyimportant that the human capital needed tocompete globally is developed. This requiresthat special attention be paid not only toeducation but also to the country's healthsystem. A rapid demographic transitionresulting in an ageing population, and emerg-ing health risks such as NCDs are major healthsector challenges, amidst efforts to rehabili-tate education and health services in a post-conflict environment. Although Sri Lanka hasa decentralized health system, prevalence ofregional/spatial disparities suggests that it hasnot been used effectively. Lack of resourcesin primary health care units - the dearth ofhealth personnel and other facilities (i.e.,medical equipment and essential drugs) -affects delivery of health care services,especially in rural areas. This suggests thatthe government should place greater empha-sis on strengthening primary health care units,which in turn would avoid creating bottle-necks at the secondary and tertiary health careunits.


84

7. Agriculture Sector and Challenges to Inclusive Growth7.1 IntroductionSince the late 1970s, Sri Lanka's growth and devel-opment objectives have been pursued through a rela-tively liberal, open market policy regime. Whetherthe resulting growth outcomes have helped allsectors of the economy comparably is open todebate. This is particularly pertinent in relation tothe agriculture sector which still employs 33 per centof Sri Lanka's total labour force but continues to havea majority of the poor. However, the framework ofinclusive growth can provide a basis for inquiringwhether this process has helped the agriculture sec-tor to develop on par with the other sectors of theeconomy. This framework refers both to the ‘pace’and ‘pattern’ of growth, which are consideredinterlinked and therefore need to be addressed to-gether for achieving a high, sustainable growth record,as well as poverty reduction. For an economy to haveinclusive growth, both the pace which reflects therate of growth and the pattern that refers to equitablegrowth in all sectors, should be attained together.The analysis also focuses on ways to raise the pace ofgrowth by utilizing more fully, parts of the labourforce trapped in low-productivity activities or com-pletely excluded from the growth process. As such,the inclusive growth framework shows promise as amodel for evaluating growth processes where all sec-tors are not equally benefitted.

Therefore, using the inclusive growth framework, thisChapter attempts to examine whether the liberal andexport-oriented growth strategy adopted by Sri Lankahas benefitted the rural agriculture sector compara-bly with the rest of the economy. Agriculture in SriLanka consists of the export-oriented plantation sec-tor and the rural based food crop production sector.Although both these are considered together in theearly part of the analysis, the food crop sector whichis larger and consists of a greater degree of poverty inabsolute terms, is given priority in the later sections.

The open economyfollowed since 1977 hasnot been inclusive, at

least on the count thatthe rural agriculturalsector has not receivedits fair share from the

growth process

‘‘

Agriculture Sector and Challenges to Inclusive Growth

85

7.2 Economic Growth and AgricultureAs evident from Figure 7.1, the hithertodominant plantation agriculture sector wasprogressively relegated to a much lessimportant position as a contributor to thecountry's GDP over time. The outcome inthe food crop production sector was evenmore drastic. Thus, the benefits of the initialpost-liberalization growth did not permeateinto the rural and plantation sectors where

agriculture is the main economic activity andsource of livelihood. Further, growth inindustry was highly urban-biased and its ben-efits accrued mainly to the urban and peri-urban population. The 'inclusiveness' impli-cations of these developments, in hindsight,do not appear to be very persuasive. A moreconcentrated effort to ensure a greater spreadof industries across the country followingfurther reforms in the early 1990s was a more

Figure 7.2Agriculture Sector Contribution to GDP (1976-2010)

Notes: At constant prices.



Figure 7.1GDP Growth in Sri Lanka (1978-2010)

0

5

10

15

20

25

1976 - 85 1986 - 95 1996 - 2005 2006 - 08 2009 2010

% o

f GD

P

Annual Average %

Agriculture Tea Rubber Coconut Rice

0

50,000

100,000

150,000

200,000

250,000

300,000

1978-1980

1981-1983

1984-1986

1987-1989

1990-1992

1993-1995

1996-1998

1999-2001

2002-2004

2005-2007

2008-2010

Rs.

mill

ion

Annual Average

Agriculture Industries Services GDP


86

positive development from an inclusivegrowth point of view, albeit a fairly modestimprovement.1

Over the years, the relative contribution ofagriculture to GDP continued to decline dueto faster growth in industrial and servicessector (Figure 7.2). But this growth has nothelped the rural or agricultural sectors verymuch due to lack of backward linkages.

Despite efforts to raise productivity and com-petitiveness across economic sectors - e.g.,declaration of 1996 as the 'Productivity Year'and 1996-2006 as the 'Productivity Decade'- there was no notable improvement insectors such as industry due to institutionaland macroeconomic challenges. Agriculturecontinued to record slow growth, drivenprimarily by expansion of cultivated extentdue to the Mahaweli development scheme.

In more recent years, Sri Lanka's servicessector has seen accelerated expansion andits future prospects too are considered to berelatively bright. Nevertheless, how inclu-sive such growth could be is debatable. Abulk of migrant workers leaving Sri Lankafor employment overseas is predominantlyunskilled, and to a lesser degree semi-skilledworkers. The relatively less educated fromthe rural agricultural sector constituted asubstantial portion of the migrants, and con-sequently, the rural sector received tangibleeconomic benefits. At present, however,services sector growth (both exportable andlocal) is concentrated mostly on skilled man-power. Until and unless the agricultural andnon-agricultural rural labour force is providedwith educational and vocational trainingfacilities that enable them to enter thiscategory, services led growth may result ingrowth that is not inclusive. The anticipated

services sector driven growth might berealized in the short run by employingunemployed and underemployed youth fromthe urban and semi-urban sectors. Whilst thepace of growth could be appropriate in theshort run, its pattern - i.e., providing oppor-tunities for the majority of the labour force -may not be appropriate from an inclusive-ness point of view.

As services growth picked up, Sri Lanka'sagriculture sector has almost stagnated inabsolute real terms. Although the relativecontribution of agriculture to GDP declinedsharply with faster growth of other sectors, ithas seen Sri Lanka through a global foodcrisis without plunging the country intosocial and political turmoil. When it comesto food production, it is not the proportionbut the absolute values that matter. Thisclearly suggests that growth of the foodproduction sector has to be maintained at areasonable level in the present context ofgrowing food insecurity in the world. To dothis successfully, the agriculture sector hasto be an integral part of an inclusive growthstrategy. Whether this has been the case inSri Lanka during the last 30 years has to beexamined in detail.

7.3 Employment and Poverty7.3.1 Growth and Distribution ofEmploymentThe major conduit which transmits thebenefits of economic growth to the massesis growth of productive employment.2 SriLanka's rate of unemployment has beendeclining steadily over the years to reach thelowest recorded rate of 4.9 per cent in 2010(Table 7.1). During 2000-10, the labour forcegrew by 17 per cent. However, yearly labourforce growth rates show that the labour force

1 Other significant developments that influenced Sri Lanka’s growth process came via multilateral tariff liberalization commitments underthe WTO and other bilateral FTAs.

2 A somewhat restrictive assumption is made that all recorded employment is of a ‘productive employment’ category.


87

is growing at a declining rate despite anincrease in the working age (15 and over)population.3 A decrease in the labour forceparticipation (since 1990) is mainly respon-sible for this trend.

The share of the agricultural sector in totalemployment has declined from a high of over50 per cent in 1977 to 33 per cent in 2010.There are of course fluctuations from year toyear depending on annual volumes ofagricultural production. Although there wasa tendency to increase labour absorption into'agriculture development' (as opposed to the'agricultural sector'),4 due to large agricul-

tural development projects, particularly theMahaweli project, this was a temporaryphenomenon that ended in the late 1980s.A more sustainable generation or growth ofemployment as a result of such projects wasrelatively lower as the people who wereprovided with irrigation or received landswere those who were already engaged inagriculture and, therefore, listed as employ-ees in the agricultural sector.

The decrease in the agricultural labour forcefrom the late 1970s is usually attributed tolabour absorption into the growing industrysector first, and later into the services

Table 7.1Key Statistics of Labour Force

1971 1981 1990 2000 2002 2004 2006 2008 2009 2010

Labour force (‘000 persons) n. a. 4,500 5,915 6,827 7,145 8,061 7,599 7,650 8,074 8,108

LFPRa (%) 35.4 33.8 50.7 50.3 50.3 48.6 51.2 50.3 48.7 48.1

Male 50.7 49.4 67.2 67.2 67.9 66.7 68.1 67.6 66.6 67.2

Female 19.1 17.6 34.7 33.9 33.6 31.5 35.7 35.0 32.8 30.7Employment statusb (%)

Employees - Public sector 13.4 13.4 13.0 13.4 14.9 15.2 14.3 Private sector 42.9 44.5 46.4 42.1 41.1 42.1 41.2 Employers 3.1 1.7 1.5 2.3 2.8 2.9 3.1 3.0 2.6 2.6 Self-employed 25.4 28.4 29.8 28.4 28.6 28.3 30.8 30.2 29.2 31.5 Unpaid family 5.2 2.6 13.0 13.0 10.7 9.4 10.5 10.8 10.6 10.4 workersComposition by economic activity (% of total)

Agriculture 50.1 45.9 47.7 36.0 34.5 33.5 32.2 32.7 32.6 32.7

Industry 12.8 18.5 20.5 23.6 20.9 22.8 26.6 26.3 25.1 24.2

Services 28.5 35.6 31.8 40.3 44.7 43.7 41.2 41.0 42.3 43

Unemployment rate (%) 14 17.9 16.3 7.6 8.8 8.3 6.5 5.2 5.8 4.9

Male n. a. 13.1 12.5 5.8 6.6 6.0 4.7 3.6 4.3 3.5

Female n. a. 32.0 23.5 11.1 12.9 12.8 9.7 8.0 8.6 7.7

Note: a: Labour Force Participation Rate; b:Includes unspecified employment of 0.8 per cent for 1971.

Sources: DCS and CBSL, Annual Report, various issues.

3 Samaratunga, P.A., 2010, “Impact of Global Economic Crisis and Agriculture Sector in Sri Lanka”, paper presented at a conference on“Global Economic Crisis and its Impact on South Asian Agriculture”, Beijing, 2010.

4 The agriculture sector is defined to consist of resources and employment involved in (annual) agricultural production. A large segment ofpopulation working in expansionary development projects are not considered to be a part of the agricultural sector, but rather as a partof the construction sector. The agricultural development sector above is defined to include those who are engaged in such developmentactivities as well.

66.6 67.2 55.7


88

sectors. In addition, out-migration of SriLankan labour for employment abroadcontributed to this change as well, especiallyfrom the mid-1980s. But, for such labourabsorption to be inclusive in nature, theemployment generated should be of highquality, belonging to the productive employ-ment category. The lack of strong backwardlinkages from the industrial expansion thatfollowed liberalization - particularly in keyexport sectors such as garments - hamperedthe generation of productive employment.The rural and agricultural labour was not readyto benefit from industrial growth as theylacked the skills needed by most industriesexcept the garment industry. The employmentcreated was also largely related to activitieslike import trading which is of a lessproductive nature.

On the other hand, those who are employedin the agricultural sector may not be consid-ered as fully employed because, even in thecurrent state of apparent labour shortages inthe rural sector, the jobs available are largelyseasonal and do not secure year-roundemployment. These characteristics ofemployment generation cast serious doubtson the validity of assuming that all employ-ment growth is in productive employment -a necessary condition for inclusive growth.Even at present, informal sector employmentaccounts for over 60 per cent of totalemployment in Sri Lanka. These develop-ments suggest that Sri Lanka's workforceremains vulnerable to socio-economicstresses in the event of job lay-offs. Thus,the nature of employment that is generatedmatters for inclusive growth, particularlywhere surplus rural agrarian labour needs tobe absorbed by other more dynamic sectorsof the economy.

7.3.2 Land and Rural PovertyPoverty levels in Sri Lanka have been declin-ing over time, with the highest drop recordedbetween 2006/07 and 2009/10. Whilst ruralpoverty too has also been on the decline, atany given time, the percentage of the poor inrural areas appears to be greater than in theurban sector (and less than in the estatesector). In absolute numbers, the rural popu-lation below the poverty line is highercompared to both urban and estate sectors.For example, in 2009/10, out of 1.8 millionpoor people in Sri Lanka, 1.5 million areestimated to be from the rural sector. Theagriculture sector still has the highestabsolute number of poor people in Sri Lanka.

Poverty has its roots in low endowments.Amongst other factors, the rural poor lackland, physical and liquid capital, educationand social standing, etc. In the Sri Lankanrural sector where 60 per cent of the popula-tion depends on agriculture, rural poverty issynonymous with agricultural poverty.Although many factors contribute to povertyin agriculture, scarcity of land can be singledout as the major cause of poverty.

Table 7.2 provides information of landownership by all land holdings as well asthat of rice and highland as well.5 Thelargest proportion of the poor is the land-less. Those with no land in the rice sectorappear to be among the worst of the poor inthis category. This is partly because earningsfrom casual employment from rice are lowas rice is a low-income crop in many partsof the country, and wage rates are also lowerconsequently. In all land holding size classes,contribution to poverty decreases withincreasing size of holdings. The data alsoshows that size of landownership is highlyskewed. The proportion of those who ownlands larger than 4 acres is small. Landless-

5 As land is the major asset of farmers, as well as non-farmer inhabitants in rural Sri Lanka, access to land is used here as a proxy for accessto assets.


89

ness and uneconomical small holdings havebeen an ever worsening problem in the 20thCentury in Sri Lanka due to a continuouslygrowing population. Before 1950, however,this problem was redressed throughdeveloping unutilized land in the dry zoneand settling people from highly populatedareas. But, by the late 1970s, Sri Lanka hadalmost exhausted this potential. Despite theaccelerated Mahaweli developmentprogrammes, extremely limited availabilityof developable land restricted the allotmentsize of new settlers to 2.25 acres, as against8 acres per family in early settlements. Thus,efforts at inclusive growth outcomes wereoften hampered by natural resourceconstraints.

7.4 Agriculture Sector GrowthDespite constraints faced, agriculturecontinues to be an important sector of theSri Lankan economy in terms of its contribu-tion to GDP, employment and income.Whilst the absolute contribution of this sec-tor to GDP has more than doubled over the

Table 7.2Incidence of Poverty by Land Holding Size (1995/96)

Land Size Incidence of Poverty (%) PopulationAll Land Holdingsa Rice Land Holding Highland Holding Share ofIndex Contribution Index Contribution Index Contribution Total Land

Landless 29.3 16.0 27.5 79.4 29.3 16.8 14.7

0 < 1/8 23.4 14.2 24.9 0.4 23.3 14.7 16.31/8 – 1/4 20.8 8.4 24.9 1.2 20.8 8.8 10.81/4 – 1/2 28.4 13.3 24.1 3.3 28.2 14.8 12.6

½ < 1 30.8 17.3 28.7 6.3 29.9 19.3 15.11 -< 2 28.3 14.4 24.1 4.6 28.7 15.3 13.7

2 - < 3 31.0 8.2 24.7 3.5 31.9 7.3 7.13 - < 4 28.5 4.4 18.7 0.7 23.3 1.3 4.14 - < 5 20.4 1.5 10.9 0.1 12.1 0.4 2.0

5 - < 10 15.8 1.5 11.7 0.3 16.1 0.6 2.510 - < 20 16.9 0.4 15.6 0.1 21.2 0.4 0.6

> 20 21.7 0.5 33.5 0.2 17.7 0.3 0.6

Note: a: All holdings of rural and estate sectors.Source: Gunewardena, D., 2000, “Consumption Poverty in Sri Lanka, 1985-1996: A Profile of Poverty

Based on Household Survey Data”, mimeo.

period 1978-2010, its relative contributionhas declined from 23 per cent to 12 per centin 2010 over the same period. The composi-tion of the contribution of different sub-sectors of agriculture shows that rice is thesingle crop that has consistently been respon-sible for the highest share, but at the sametime recording the steepest decline over theyears. This indicates that the food cropsector - amply represented by rice - hasdeclined more severely in its GDP contribu-tion, compared to the plantation crops. Therest of the discussion will, therefore,concentrate on the food crop sector whichappears to have been the least included inSri Lanka's growth process in recent decades.

7.4.1 Food Crop Sector GrowthThe requirement of crop based food items inSri Lanka are met with local production aswell as imports. Currently, more than three-fourths (77 per cent) of food commoditiesare produced domestically, while slightly lessthan one-fourth (24 per cent) is imported(Table 7.3). The amount of food exports from


90

total domestic food production is very insig-nificant at just over 1 per cent. At individualcommodity level, local production of allmajor crop based food items except wheatflour, other cereals, sugar and pulses and nutswhich are imported in bulk quantities,exceeds 75 per cent of total availability.6

Although food imports have been increasingin both volume and value in absolute terms,their share in total imports and total exportshave been declining slightly. Food importsas a percentage of total imports has declinedfrom 9.3 per cent in 1977-80 to 7.3 per centin 2007-10, and food imports as a percent-age of total value of annual food consump-tion has declined from 12 per cent to 10.7per cent for the same period. This showsthat Sri Lanka has brought down its import

Table 7.3Annual Average Food Availability by Major Food Commodity Groups (2000-09)

Commodity Gross Production Exports and Change ImportsGroup Availability in Stock

Qty % Qty. % Qty. %(000 Mt) Availa- (000 Mt) Availa- (000 Mt) Availa-

bility bility bilityCereals 3354.8 3144.9 93.8 292.4 34.6 889.3 26.5Roots, tubers& other starchy 417.2 377.4 90.5 65.0 15.6foodSugar 557.9 49.8 8.9 492.3 88.2Pulses & nuts 147.5 34.0 23.9 113.5 76.9Vegetables 989.7 863.8 87.3 22.1 2.2 64.8 6.5(incl. onions)Fruits 365.3 328.1 89.8 4.2 1.2 41.9 11.4Meat 121.2 119.3 98.4 0.1 0.1 2.0 1.7Eggs 55.4 53.3 96.1Fish 369.2 308.5 83.6 48.6 13.2 76.1 20.6Milk 271.2 213.0 78.5 77.3 28.5 58.2 21.5Oils & fats 986.4 1026.8 104.1 107.5 10.9 16.3 1.6(incl. coconut)Total 7635.9 6518.9 85.4 552.2 0.7 1327.2 17.4

Notes: The availability does not add up to 100 as other elements such as losses, net change in annualstocks, etc. are excluded.

Source: DCS, Food Balance Sheet, various years.

dependence for food over the last 35 yearsand credit for this should go to the domesticfood production sector. However, it is worthexamining under what conditions this growthtook place, and how far it was included inthe overall growth process of the period.

As Table 7.3 indicates, even the politicallycoveted goal of food self-sufficiency has notyet been achieved in Sri Lanka even after de-cades of agricultural development efforts. Butthis is not to say that the food crop produc-tion sector has not expanded and developed.Table 7.4 provides an insight into the do-mestic food production sector as well assome of its problems. The extents cultivatedby major food crops have been constant since2000 but this level is considerably highercompared to the 1970-79 period mainly due

6 Computed based on DCS, Food Balance Sheets, various years.


91

Tabl

e 7.

4Ex

tent

and

Pro

duct

ion

of M

ajor

Foo

d C

rops

(197

0-20

09)

Ave

rage

Ave

rage

Ave

rage

Ave

rage

2001

2002

2003

2004

2005

2006

2007

2008

200

970

-79

80-8

990

-95

96-0

0Ri

ceEx

tent

(ha

)7

72

40

08

53

10

08

46

20

18

19

37

47

98

25

98

52

52

99

82

61

77

78

54

99

37

17

59

10

49

08

16

71

39

25

00

08

42

00

0

Prod

ucti

on1

95

52

33

32

55

52

54

22

69

52

86

03

07

22

60

93

24

63

34

23

13

13

87

53

65

2 (

‘000

Mt)

Yie

ld (

Kg/

ha)

23

01

33

10

34

47

36

58

39

53

38

93

37

61

40

86

39

63

41

37

44

21

41

87

43

36

Mai

zeEx

tent

(ha

)3

03

55

37

90

43

13

99

28

80

62

57

12

23

41

32

70

60

23

42

12

84

01

32

00

03

41

90

51

60

85

08

57

Prod

ucti

on (

Mt)

44

17

04

00

58

32

41

23

09

82

28

75

52

64

17

29

64

53

52

01

41

80

44

75

30

56

44

01

12

30

01

29

80

0

Yie

ld (

Kg/

ha)

97

01

07

51

03

21

07

61

11

81

12

81

09

61

50

31

47

21

48

51

65

12

20

02

60

0

Puls

esEx

tent

(ha

)5

47

55

51

63

55

07

46

40

72

72

88

65

30

76

52

17

43

14

64

11

89

33

29

22

02

90

70

32

12

23

85

32

Prod

ucti

on (

Mt)

31

44

25

01

51

50

39

23

57

88

25

30

42

70

10

32

40

32

38

14

32

08

63

07

50

31

92

04

37

00

46

80

0

Yie

ld (

Kg/

ha)

80

99

24

99

38

79

87

78

78

14

90

16

27

16

95

10

52

10

98

19

00

150

0

Roo

ts/

Exte

nt (

ha)

58

40

35

48

90

53

54

04

29

29

39

40

04

06

87

40

15

73

50

50

35

66

93

55

10

34

42

03

34

82

23

46

5a

Tube

rsPr

oduc

tion

(M

t)5

84

03

65

31

48

94

69

19

2 3

6314

13

39

80

33

61

15

83

44

64

03

41

76

73

43

83

23

46

19

03

46

47

07

48

00

61

70

0

Yie

ld (

Kg/

ha)

12

69

51

29

14

18

76

38

45

98

62

48

87

68

58

29

75

19

64

09

74

91

00

66

15

40

01

49

00

Not

e:a:

Doe

s no

t inc

lude

Pot

atoe

s.

Sour

ce:

CB

SL,

Ann

ual R

epor

t, va

riou

s is

sues

and

DC

S.


92

to new land being brought in under theMahaweli development project.7 The nearconstancy since 2000 is due to the lack ofnew arable land to be brought under agricul-ture.

Presently, 1.2 million hectares of high landand 0.7 million hectares of low land are avail-able for crop production, and about 80 percent of this total arable extent is annuallycultivated. As such, even under mostfavourable economic and natural environmentconditions, only a 20 per cent increase in areacultivated can be expected. Under thecurrent yield levels, therefore, production can-not reach the national requirement evenunder the present levels of per capita foodconsumption. As the population is growingat 1.1 per cent annually and per capitaincome is rising at 15 per cent per year,8 thenational requirement will be rising constantlyin the years to come, and consequently, areaexpansion will not be a solution to thisgrowing food requirement.

Possible solution to this problem from thedomestic production and farm income frontsshould, therefore, come through yieldimprovement. Table 7.4 shows that the yieldlevels of domestically grown food crops havebeen stagnant for nearly 20 years at levels non-impressive even by developing countrystandards, except for rice. This situation hasbeen a result of a severe lack of investmenton agricultural research and extension in SriLanka since the late 1970s.

Figure 7.3 depicts public spending onagricultural research as a percentage ofagricultural GDP in Sri Lanka over the years.The investment in agricultural research had

an upward trend during the green revolu-tion starting around 1970s. It is clear thatthis investment started declining in the late1970s - coinciding with the opening up ofthe Sri Lankan economy - and continued ona negative trend thereafter. This has been aslow as 0.6 per cent of agricultural GDP ofthe country as against the internationallyaccepted standards of around 4 per cent.Figure 7.3 also indicates that the yields ofrice and other important food crops startedstagnating following this turn of events, aftera long period of impressive growth. The yieldstagnation combined with the restriction ofarea expansion to an apparent maximum atthe completion of the accelerated Mahawelidiversion programme brought the growth offood crop production sector to a halt (seeTable 7.3).

The impact of stagnant crop production tech-nology is reflected in declining profitability(Table 7.5). Profitability in nominal termsmay be stagnant or increasing slightly insome cases, but they have been decliningin real terms over recent years. In fact, theseare financial net returns and the effects ofgovernment interventions are not netted out.Consequently, the social net returns wouldbe even lower as the agricultural sector ofSri Lanka is supported by incentive pricesand a fertilizer subsidy. The impacts of thesesubsidies on productivity are questionablebut their income distribution effect is theintended benefit: an unsustainable surrogatefor inclusive development. This leads to theconclusion that agricultural policy duringrecent years, with the exclusion of theirrigation subsidy, has not helped the foodcrop production sector of Sri Lanka to growon par with the rest of the economy.

7 Land and irrigation development programmes have been undertaken since 1930 up to the final stage of the Mahaweli river diversionscheme completed in the early 1990s, marking the end of an era of area expansion in agriculture in Sri Lanka.

8 On the basis of the average percentage change in per capita GDP for the period 2000-07.


93

Figure 7.3Investment in Agricultural Research and Extension and Productivity Growth

Low productivity, combined with small farmsizes averaging at 0.48 ha,9 do not providean adequate income for farmers to meet theirconsumption needs, let alone to invest onfarm improvements and innovations. In fact,as evident from Table 7.5, private net returnsin real terms have not increased over the lasttwo decades. Under these circumstances,agriculture survives due to direct andindirect support measures provided by thegovernment, and partly due to lack of alter-native employment opportunities in the non-farm sector. The economic costs of thesemeasures are a reflection of the unsustain-

able and misdirected measures adopted bygovernments to maintain domestic food cropproduction. This is far from any acceptablenotion of inclusive growth.

Under the liberal, open economic model,the rural agricultural sector could have beencomfortably accommodated by convertingthe less productive traditional food cropsector into a competitive export cropproduction sector through diversification.This called for increased investment in re-search and development (R&D) on diversi-fied agriculture. Unfortunately, reduced in-

9 DCS, Census of Agriculture 2002.

Source: DCS and CBSL, Annual Report, various issues.

010002000300040005000600070008000900010000

0

0.05

0.1

0.15

0.2

0.25

0.3

Ave

rage

yie

ld (

kg/h

a)

Res

earc

h as

a %

of a

gric

ultu

ral

GD

P

Research and Extension paddy cowpea maize greengram

0

50000

100000

150000

200000

250000

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Prod

uctio

n (M

t)

Rice

pro

duct

ion

(Mt)

rice maize cowpea greengram potatoes


94

Table 7.5Profitability of Some Major Food Crops in Sri Lanka: 1990-2007 (Rs/ac)

Paddy Maize Nominal Reala Nominal Reala

NRAIC NRBIC NRAIC NRBIC NRAIC NRBIC NRAIC NRBIC

1990 1364 4412 1364 4412 n.a n.a n.a n.a1993 -422 3556 -304 2558 -1341 2190 -959 15761996 -1894 2560 -981 1326 n.a n.a n.a n.a1999 -845 4839 -342 1959 769 8032 311 17972002 -1250 3558 - 380 1081 6582 14420 2001 42832006 3171 11252 665 2415 8368 22129 1754 46392007 6902 11045 1225 1962 8671 15975 1540 2837

Potato Gingelly Nominal Reala Nominal Reala

NRAIC NRBIC NRAIC NRBIC NRAIC NRBIC NRAIC NRBIC

1990 47555 52632 47555 52632 538 1915 538 19151993 n.a n.a n.a n.a 1479 3244 1064 23341996 18801 42323 9741 21929 5059 8004 2621 41471999 24807 36248 10043 14675 n.a n.a n.a n.a2002 95146 110630 28920 33636 1394 8576 424 26062006 70873 127897 14858 26812 1899 10171 398 21322007 n.a n.a n.a n.a 1919 6058 341 1076

Note: a: Deflated using the food component of the CCPI (1952=100); NRAIC = Net Returns AfterAdding Inputed Costs; NRBIC = Net Returns Before Adding Inputed Costs; n.a. = Not Availalbe.

Source: CBSL and Department of Agriculture, Cost of Cultivation Report, various years.

vestment in any form of agricultural tech-nology generation and a continuation of thetraditional political objective of self-suffi-ciency in food through area expansion alone,proved insufficient. A key opportunity ofincluding agriculture in Sri Lanka's expandedgrowth process was missed due to inconsis-tent policy directions.

7.5 Where things Went WrongThe overall conclusion that can be drawnfrom the preceding discussion is that the ruralagricultural sector has not received its fairshare from the growth process under aliberal market economic framework. Thegrowth process, as was mentioned earlier,could be right in its pace, but wrong inpattern.

The reasons for the wrong pattern were three-fold. The first was the preconception thatthe open economy, export-led growthprocess has no place for rural agriculturewhich was oriented towards domestic foodproduction. High expectations of enhancedforeign exchange earnings from expandingindustrial and services sectors, combinedwith declining food prices in the worldmarket in the 1980s and 1990s could havecontributed towards such reasoning. Whatwas ignored here is that the rural agriculturalsector could be a part of export-led growth ifnecessary product diversification waspromoted. What was unforeseen, on the otherhand, was that the rosy prospects for the worldfood market were short-lived due to growingdemand for food worldwide, and under-investment in agricultural research by national


95

governments as well as the internationaldonor community. A gradual rise in foodprices that started around 2000 gatheredmomentum in 2008, resulting in a renewedinterest in domestic food production inalmost all food importing countries.

A second reason, was the expectation that arapidly growing industry and services sectorswould absorb the surplus rural labour forceso that they would be 'included' in thegrowth process from early on. The abovediscussion assessed why this prospect wasnot realized - i.e., lack of backward linkagesand skills mismatches of the rural populacefor the jobs made available.

A third reason for the non-inclusiveness wasthe adoption of inconsistent policy objec-tives and strategies. While export promotionwas the policy for the industrial sector,import substitution and self-sufficiency wasthe policy for rural agriculture. No attemptwas made to exploit the opportunities openedby liberalization for agricultural exports. Eventhe objective of self-sufficiency was attemptedthrough area expansion with non-viablesmall holdings, while the mandatory tech-nological change process was crippled bysevere under-investment. The result wasstagnation of productivity and income of therural farming community, leading to highincidence of poverty.

7.6 Way ForwardThe way forward is mainly in the correctionof past mistakes - making the pattern rightthrough necessary structural change. The firststep in this direction is to get the right per-spective. As over one-third of the popula-tion is agriculture-dependent, and theemployment opportunities offered by thepresent industrial and services sector growthare not directly accessible to the rural (andmainly agricultural) poor, the present struc-ture of the Sri Lankan economy is not likelyto undergo a drastic change in the near

future. The rural agricultural sector willremain in its present form with only moder-ate changes in the medium run. On the otherhand, even within a non agriculture-ledexport growth process, there is a niche forrural agriculture - firstly, as an export-orientedventure, and secondly, as an undertaking toensure food security.

In this context, Sri Lanka's current develop-ment efforts are likely to offer mixed resultsin terms of its agricultural development ori-entation. On the positive side, the strongpolitical will to lay an overall policy foun-dation encompassing the rural sector in thecountry's growth process is encouraging. Theincreased sensitivity shown by the state, par-ticularly in the light of growing global foodshortages in recent years, towards solving thefood security problem in the country isanother positive sign. Although not a directinput to agriculture, the present drive toimprove rural infrastructure, particularlyrural road networks, also holds significantpotential to promote rural agriculturalgrowth. In spite of these positive attributes,rural agriculture in Sri Lanka is still sufferingfrom some major deficiencies that thwart itsgrowth, in parallel to industrial and servicessectors.

The main drawback is in relation agriculturalinvestment. The role of public investment isof paramount importance in this regard asrural agriculture depends largely on publicgoods. Hitherto ignored research and exten-sion have to be revived with the dual objec-tives of enhancing domestic food productionand developing an export-oriented agricul-ture sector. Neglect of agricultural researchand extension over recent decades was mainlydue to the industry bias in economic policy,and too high expectations of policy makersthat industrial growth would generateemployment and absorb the surplus agricul-tural labour force. Further, it was alsoexpected that private sector investment would


96

substitute for public sector investment, at leastpartially.10 However, despite the importancegiven to developing the rural sector, theseissues continue to remain unaddressed.

Indeed, what Sri Lanka's agricultural sectorneeds at this stage is complementary invest-ment. Physical infrastructure and skilledmanpower needed for developing newagricultural technology is already present ininstitutions such as the Department ofAgriculture and the Department of ExportAgriculture. What is needed is a compara-tively limited additional investment toactivate existing resources to generate newagricultural technology. Significant invest-ment in irrigation and land development hasalready taken place over many decades.Presently, further investments are being madein rural roads and IT facilities. All these canyield optimal returns only if complementarytechnological inputs are in place.

Developing international competitivenessmay not be the aim in the case of domesticfood production, but depreciated agriculturalincomes have to be raised without burden-ing consumers. In the case of export promo-tion, however, research should look intodiversifying uneconomical traditional foodcrop production into high value, labour-intensive products with comparative advan-tage, such as horticultural products. Inaddition to such horizontal diversification,vertical diversification in food processing isanother avenue to utilize surplus labour avail-

able in farm households. The SME sector maybe integrated into this process generating ruralnon-farm employment. The bottom line ofall these, is increasing land and labourproductivity in the rural agricultural sector,and thereby improving rural incomes to alevel comparable with that of the rest of theeconomy. Institutional innovations andinfrastructural developments that reducetransaction costs in agriculture are also vitalin this respect.

In the end, all such efforts to promote therural agricultural sector are not aimed toperpetuate small scale agriculture thatemploys a larger portion of the country'slabour force. In the long run, the inevitableshrinking of the rural sector in terms ofemployment share will take place. But asmentioned earlier, this did not happen in SriLanka because the expansion of other sectorsdid not offer many opportunities that areaccessible to the rural youth who werelagging behind in education and technicalskills. Imbalances in social services andinfrastructure, leading to such hindrances tothe inclusion of the rural labour force in thegrowth process, should be minimized in thelong run to facilitate the final exodus of thesurplus rural agricultural labour force. Onlythis would enable the remaining farmers tohave larger farms, exploit economies of scale,and have income levels comparable to othersectors, completing the inclusive growthprocess.

10 See IPS, 2008, “Does ‘Foodflation’ Call for Agricultural Reforms?’ in Sri Lanka: State of the Economy 2008.

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Inclusive Growth and the Fishery Sector

8. Inclusive Growth and the Fishery Sector

8.1 IntroductionSri Lanka's fishery sector contributed 1.2 per cent toGDP in 2010 and 2 per cent of the country's totalexports. Its contribution to economic well-being,however, is wider; it ensures food security bysupplying 70 per cent of the animal protein require-ment of the country, and provides a source of live-lihood for many poor people who reside in the coastalbelt of the country.1 Available data suggest employ-ment in fisheries to be 6.5 per cent of the country'stotal employment.2 However, employment in thefishery sector is largely informal, and the majorityof jobs involve small scale operations except for afew commercial operators with modern facilities.This makes fishery workers one of the most vulner-able groups in terms of economic, social andgeographical dimensions in Sri Lanka.

The high resource potential in the fishery sector andgrowing demand for its output has clear relevancefor not only supporting Sri Lanka's overall growthobjectives, but also its broader socio-economicdevelopmental vision. Fishery sector developmentshold the potential to improve the welfare of a largemarginalized and vulnerable group in the country.As such, this Chapter aims to provide an overviewof the fishery sector in terms of performance andemployment outcomes, assess the ongoing andplanned development activities within the sector,and examine ways of making the developmentactivities more inclusive with appropriate policysuggestions.

8.2 Sri Lanka's Fishery Sector: An Overview8.2.1 Fish ProductionThe contribution of the fishery sector to Sri Lanka'sGDP has stagnated at around 1.2 per cent, despite a

‘‘

1 DCS, Food Balance Sheet 2009.2 Ministry of Fisheries and Aquatic Resources, Fisheries Statistics 2010.

Expansion of fishexports does not

necessarily provide forinclusive growth in thecontext where benefits

are limited to a fewstakeholders in theupper levels of theexport value chain


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gradual increase in total fish production overthe years (Figure 8.1). A drastic reduction in2005 following the December 2004tsunami disaster was followed by a sharprecovery in 2006. A decline in the rate of

Source: Ministry of Fisheries and Aquatic Resources, Statistical Unit.

growth in fish production thereafter in 2007-09 reversed in 2010, largely as a result ofthe resumption of fishing activities inpreviously conflict-affected N&E of thecountry.

Table 8.1Marine Fish Production by District

Fishery District Marine Fish Production (MT) Percentage 2006 2007 2008 2009 2010 Change in

2010 (%)Colombo 590 510 1,030 830 1,990 139.8Negombo 29,070 5,710 37,820 37,490 28,250 -24.6Kalutara 30,530 9,950 39,580 33,100 43,360 31.0Galle 15,530 7,820 16,800 24,930 21,830 -12.4Matàra 38,480 8,460 47,810 44,180 38,970 -11.8Hambantota 15,590 0,990 20,850 20,990 20,170 -3.9Kalmunai 11,490 2,810 15,050 16,260 16,380 0.7Batticaloa 8,930 1,710 21,850 24,530 39,610 61.5Trincomalee 6,270 8,150 17,980 27,690 36,250 30.9Mulaittivu 850 360 260 - 1,360 Kilinochchi 820 590 360 - 560 Jaffna 11,220 5,130 6,830 13,080 20,890 59.7Mannar 12,990 9,170 7,390 8,130 10,790 32.7Puttalam 14,910 7,130 18,960 20,010 24,830 24.1Chilaw 18,710 4,180 22,060 21,950 27,020 23.1Total 215,980 52,670 274,630 293,170 332,260 13.3


Figure 8.1Total National Fish Production by Sub-sector (1980-2010)

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8.2.2 Fishery Sub-sectorsSri Lanka's fishery sector can be divided intothree sub-sectors based on the diversity ofresource base, spatial differences wherefishing is taking place, and types of craftand methods used for fishing - i.e., coastal,offshore and inland fisheries andAquaculture.

Coastal fishing: Coastal fishing takes placewithin the continental shelf and is largely asmall scale industry, characterized by multi-species and multi-gear fishing. Except multi-day boats and inland oru, all other boats areused in coastal fishing (Table 8.2). Thesub-sector caters mainly to the local market,except where a small proportion of catchreceived by one-day boats (IDAY) go to theexport market. Despite the continueddominance of coastal fishing, its share intotal fish production declined until 2007.

From 2008, coastal fish production beganto rise once again due to the relaxation ofrestrictions on fishing and various fisherydevelopment activities under the N&Edevelopment programmes. In 2010, thesub-sector contributed 52.5 per cent of totalnational fish production.

As evident from Table 8.1, marine fishproduction (both coastal and offshore) hasincreased significantly in the N&E districtsin 2010 - by 62 per cent in Batticaloa, by 60per cent in Jaffna, by 33 per cent in Mannarand by 31 per cent in Trincomalee. Inaddition, Kalutara, Puttalam and Chilaw alsorecorded increases in the range of 20-30 percent. However, significant declines in fishproduction in major fishing areas such asNegombo, Galle, Matara and Hambantotaare also observed, perhaps owing tomigration of fishers back to own areas inthe N&E.

Table 8.2Changes in Total Fishing Fleet

Year Inboard Engines Outboard Engines Traditional Inland Totalincluding Oru Fishing

IMUL IDAY OFRP MTRB NBSB NTRB Craft(Oru/Tubes)

1995 1,639 1,357 8,564 1,060 31,169 14,649 3,9001999 1,419 1,275 8,623 1,274 32,091 14,900 4,6002000 1,430 1,170 8,690 1,205 32,295 15,100 4,7002001 1,572 993 8,744 640 32,349 15,200 5,2002002 1,614 1,112 9,033 776 33,735 15,600 5,6002003 1,530 1,486 11,020 618 35,494 15,040 5,8002004 1,581 1,493 11,559 674 36,567 15,260 6,0002005 1,328 1,164 11,010 1,660 36,101 14,739 6,2002006 2,394 907 13,860 1,842 41,850 16,347 6,5002007 2,460 1,060 15,200 1,680 43,640 16,640 6,6002008 2,809 1,140 15,847 1,959 46,103 17,178 7,1702009 2,934 958 17,193 2,126 49,014 18,243 7,5602010 3,341 1,177 18,770 2,680 53,148 19,190 7,990

Notes: IMUL = In-board multi-day boats, IDAY = In-board one-day boats, ORFP = Out-board enginefibreglass reinforced boats, MTRB = Motorized traditional boats, NTRB = Non-motorizedtraditional boats, NBSB = Beach seine boats.

Source : Ministry of Fisheries and Aquatic Resources, Statistical Unit.


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A few studies prior to the 2004 tsunamifound that coastal resources in Sri Lanka havereached their optimum level of exploitation.3

However, post-tsunami rehabilitation effortsresulted in increasing the country's fishingfleet, making coastal fishing very competi-tive. Rising pressure on coastal fishing hasled to comparatively low fish catches in mostareas. Thus, apart from the Northern Prov-ince where coastal fishing was not verysignificant over the years, further expansionis not possible. However, expansion ofcoastal fishing even in the Northern districtssuch as Jaffna, Kilinochchi, and Mannar hasbecome problematic due to conflicts withIndian fishermen in the Palk Bay. Since SriLanka had not been practising coastal fish-ing in these areas due to the conflict, SouthIndian fishermen have taken undue advan-tage to fish in Sri Lankan waters. The prac-tice of Indian fishermen crossing the bound-ary line and poaching shrimp resources thatare abundant on the Sri Lankan side of theBay with the use of large scale destructivetrawlers, has negative implications not only

Figure 8.2National Fish Production (1980-2010)


on the sustainability of fishery resources, butalso on damages to local fishing vessels andgear.

Offshore fishing: Offshore/deep sea fishing- the most dynamic sub-sector showing asteady growth over the years - is the secondlargest sub-sector, and is mainly focused onexport markets (Figure 8.2). Offshore fish-ing is taking place outside the continentalshelf and beyond, extending to the edge ofthe Exclusive Economic Zone (EEZ) with theuse of multi-day boats (IMUL). Comparedto 2004, the number of multi-day boats hasdoubled by 2010 (see Table 8.2). Thecontribution of the sub-sector to total na-tional fish production was 39 per cent in2010.

Deep sea fishing is the main sub-sector whichcontributes to exports. About 14-19 per centof deep sea fish production and 6-7 per centof marine fish production are exported. Fishexports have experienced a slight declineover the past two years due to the global

3 Dayaratne, P., M. M. Gunaratne and Alwis, 1995, “Fish Resources and Fisheries in a Tropical Lagoon System in Sri Lanka, AMBIO, Vol.24, pp. 402-16; Wijayaratne, B., 2001, “Coastal Fisheries in Sri Lanka: Some Recommendations for Future Management”, Ministry ofFisheries and Aquatic Resources Development, Sri Lanka.

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economic downturn and loss of GSP-plusbenefits to the EU. Despite the potential forfurther expansion of production, heavy ini-tial investment to buy new multi-day boatsand high operational and maintenance costsare deterrents to the average fisher folk.Many of the existing multi-days boats arealso not equipped with modern advancedtechnology to assure high quality of fish andefficient use of fuel. Improved new tech-nology is necessary to increase productivityas well as quality of fish. However, suchimprovisations are not possible with someexisting boats.

Inland fisheries and aquaculture: Inlandfisheries and aquaculture is the smallestsub-sector, contributing around 13-14 per

cent of fish production. It has vast potentialfor expansion owing to availability ofinland water bodies throughout the country.This sub-sector comprises capture fisheriesand culture fisheries. Capture fisheries aremainly carried out in major irrigation,minor irrigation and seasonal tanks spreadacross the country. In 2010, Matara andKalutara districts recorded 33 and 25 per centgrowth, respectively, in inland fish produc-tion while Mannar, Kurunegala, andMoneragala also fared well (Table 8.3).

Ornamental fish is also one of the growingsectors coming under inland fisheries, whichshows significant potential in the export mar-kets where Sri Lanka already holds 3-4 percent of the global market share.

Table 8.3Inland Fish Production by Districts

District Inland Fish Production Percentage 2008 2009 2010 Change in 2010 (%)

Colombo 120 110 120 9Gampaha 210 180 190 6Kalutara 60 80 100 25Kandy 270 290 320 10Matale 520 640 720 13Nuwara Eliya 100 90 90 0Galle 50 50 60 20Matara 20 30 40 33Hambantota 3,270 2,720 3,280 21Jaffna 60 70 80 14Mannar 320 180 220 22Vavuniya 260 420 490 17Mulaittivu n.a. n.a. 10Kilinochchi n.a. n.a. 10Batticaloa 1,750 1,680 1,640 -2Ampara 5,240 5,430 6,140 13Trincomalee 1,650 1,720 1,840 7Kurunegala 4,190 3,590 4,390 22Puttalam 5,290 5,290 5,820 10Anuradhapura 9,680 10,770 11,920 11Polonnaruwa 7,320 7,280 7,950 9Badulla 960 1,140 1,240 9Monaragala 1,910 2,460 2,950 20Ratnapura 1,210 2,320 2,770 19Kegalle 30 20 20 0Total 44,490 46,560 52,410 13



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8.2.3 Fish Exports and ImportsThere had been a gradual increase of totalfish exports from early 2000 to 2005. From2005, fish export earnings increased at ahigher rate due to the GSP-plus schemewhich enabled better access to the EUmarket.4 However, earnings from fish exports

declined slightly in 2009 with a further dropin 2010 (Figure 8.3). This may be due to theloss of GSP-plus benefits to the EU market,as well as the lower demand arising fromthe global economic downturn. A steadygrowth in ornamental fish exports also sawa slight reversal in 2010 (Figure 8.4).

Figure 8.3Fish Exports (2002-2010)


Figure 8.4Ornamental Fish Exports (1999-2010)


4 Tuna is the major contributor to Sri Lankan fish exports, with the EU being the main importer. In 2007, the largest share of Sri Lankan tunawas imported by the UK (41 per cent), followed by France (17 per cent), the Netherlands (9 per cent) and Germany (6 per cent).

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It is also noteworthy that Sri Lanka importsa considerable amount of fish from othercountries such as the Maldives, mainly tofulfill unmet domestic demand. Dried spratand dried fish are the main fish importsfollowed by canned fish (Figure 8.5).

8.2.4 Productivity in the FisherySectorAvailable data suggests that the labourproductivity in the marine fishery sector hasbeen declining over the years (Table 8.4).Labour productivity in inland and aquacul-

ture fisheries is recorded as 1.6 mt. in 2007.5

Sri Lanka's fishery industry lags behindcountries such as Japan and Thailand. Forinstance, productivity per area in Thailandin 2004 (5,600 kg per sq. km.),6 is found tobe several times higher than that of Sri Lanka(472 kg per sq.km.). In addition, labourproductivity in Thailand is seven timeshigher than that of Sri Lanka. Apart fromvery low productivity, per capita fishconsumption is also well below that ofThailand and Japan.

Figure 8.5Fish Imports (2007-2010)


5 Ministry of Fisheries and Aquatic Resources, 2007, Fisheries Statistics.6 Ministry of Fisheries and Aquatic Resources, 2007, Ten Year Development Policy Framework of the Fisheries and Aquatic Resources

Sector (2007-2016).

Table 8.4Labour Productivity in Marine Fisheries

Year Marine Fish Production No. of Active Fishers Productivity/ (Mt) Labour

2004 253,190 151804 1.72008 274,630 167370 1.62010 332,260 222740 1.5


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8.2.5 Employment in the FisherySectorThe fishery sector provides livelihood forpeople living in the coastal belt, and aroundthe irrigation tanks and reservoirs in the DryZone. Active fishers in the marine sectorwere recorded as 222,740 in 2010, whilethe total marine fishing household popula-tion was recorded as 825,200 in 2010.7

Most of fishing activities are carried out byself-employed/own account workers,employing labourers or low skilled workers.Therefore, the workforce is mostly informaland dominated by small scale operators,except for some employees who work forexporters. Fishing activities are mostlyseasonal whereby some fishers, workers andservice related employees do not findemployment throughout the year. Part-timeemployment is also to be found among fish-ers. By contrast, formal employment in thefishery sector is limited mainly to 5,000public sector employees working in six stateinstitutions that provide support services tothe industry under the purview of theMinistry of Fisheries and Aquatic Resources(MFAR), and employees who work forexporters.

8.2.6 Socio-economic Conditions inDifferent Segments of the FisherySector8

Coastal and offshore sub-sectors (collectivelycalled marine fisheries) are inter-linked asboth primarily supply the local market, while6-7 per cent of marine fish production goesto export markets. As offshore fishing is themost dynamic sub-sector that contributesmostly to exports, fish exporters are in theuppermost segment of the marine valuechain. The main actors in the value chain to

export markets are exporters/processors,sub-contractors of fish exporters, multi-dayboat owners and some one-day boat ownersand crew members. Amongst them, signifi-cant disparities in socio-economic levels areto be found.

Exporters and processors: Most of theprocessors are also exporters, and someprocess the products of other exporters whodo not have sufficient capacity. In general,processors have contractual agreements withmulti-day boat owners and sub-contractorsand tend to purchase only their products,provided that quality standards are met. Incertain cases, processors use their own multi-day boats while others have joint ventureswith foreign companies who own largevessels. The expansion of fish exports hasbenefited this group, allowing them to gainownership of productive assets such as newmulti-day boats, good housing, land, etc.

The number of fishery processing and exportestablishments increased from 12 in 2002to 34 in 2009, where three tuna exportersalone account for about 80 per cent of totalexports. The larger exporters are estimatedto earn about US$ 0.5 profit per kg. of fish.Some of the exporters have been able toinvest in new technologies - such as -850cfreezing technology and state-of-the-art fac-tories with temperature controlled rooms -which enhance the quality of fish. In addi-tion, some have been able to diversify theirbusiness portfolio by vertical integration(production of ice, packing materials, feedfor prawns, etc.), invest in improvingworkforce skills by training them in-houseand overseas, etc. Almost all tuna exportershave expanded their production and exportcapacities over the years.

7 Ministry of Fisheries and Aquatic Resources, Statistical Unit.8 This section is based on information collected through stakeholder consultations conducted in different areas of Negombo. See IPS, 2010,

“Trade Poverty Nexus in the Sri Lankan Fisheries Sector”, a report prepared for the United Nations Industrial Development Organization(UNIDO).

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Large exporting companies employ about200-300, while smaller companies employabout 10-30. The managerial, supervisoryand office staff form about 15 per cent ofthe workforce while the rest are mostlyunskilled workers. The need to maintainhygienic conditions in the factory, processwater quality and product quality as per therequired EU standards has enabled manygraduates and diploma holders to gainemployment in these factories with startingremunerations in the range of Rs. 30-40,000per month, while the average salary of anunskilled worker is about Rs. 15,000 permonth. Permanent staff benefit from manywelfare facilities and other forms of finan-cial gain, whereby factory employees in thesector appear to be better off as comparedto other factory employees in the locality.Remuneration and welfare facilities haveenabled workers to secure a reasonable live-lihood. Consequently, it has allowed themto invest in land, businesses or build newhouses.

Sub-contractors: The sub-contractors of fishexporters who buy fish from boats and sellthem to exporters are also a group who earnprofit by providing services such as credit toboat owners and transport facilities forexporters. This group has minimum incomevolatility compared to exporters, as pricefluctuations or any other shocks in theglobal market can be absorbed in the highmargin of Rs. 150-250 per kg. of tuna thatthey maintain. Most of them are wealthyprivate individuals with some even havingownership of multi-day boats and freezertrucks.

Multi-day boat owners: Multi-day boatowners for whom fishing is the main liveli-hood are usually a more educated andwealthier group as compared to other fisher-men. Some boat owners engage in fish tradeand transport as well. They have been in the

business for about 8-10 years or more, andhave access to very good living conditions.

Multi-day boat owners are thus wealthier incomparison to other fishermen who contrib-ute to domestic fish production using out-board engine fiberglass reinforced boats(ORFP) or other small boats and canoeswhich are larger in numbers. In real terms,the total income gained from each trip isabout Rs. 1.5 million. The income gainedcan vary drastically depending on the fishcatch, price fluctuations and increase of fuelcost, bait, etc. Further, the reduction of SriLankan fish exports due to the globaleconomic downturn and removal of GSP-plus has had a greater impact on multi-dayboat owners than on exporters, as the latterpass on the loss margin to boat owners byreducing the purchasing price of fish fromboat owners and sub-contractors. Thus, newmulti-day boat owners find it more difficultto be competitive due to fluctuations of fishcatches and prices, in contrast to multi-dayboat owners who have been in the businessfor many years and who have been able saveand invest in new boats and other assets.

There are some socio-economic constraintsfaced by this category of fishers. The catego-rization as fishermen by profession oftenmeans that obtaining admission to leadingstate schools for their children can be diffi-cult, whereby children are mostly educatedat private schools. By contrast, public andprivate health care services are readily avail-able in these areas and some boat ownerscan afford to make use of private healthcarefacilities.

Multi-day crew members: The multi-day boatowners usually employ 5-6 crew membersper boat to work in the sea. However,income volatility in the multi-day boat crewincome is apparent as the profit gained fromoffshore fishing has been declining over theyears, due to high operational cost (fuel, ice,water, food, bait, fishing equipment, etc.)


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and decrease of fish prices due to competi-tion with foreign vessels and other externalshocks. In most cases, the multi-day boatowners bear the total fixed cost and totaloperational/variable cost of the fishing trip.The profit earned by each trip is sharedamongst the crew members according totheir own informal arrangements. Somemulti-day boat owners typically take 60 percent of the total profit and 10 per cent isprovided to the skipper. The rest is sharedamong the other 5 crew members.

Expansion of the fish trade has led to anincrease in multi-day boats, with an increasein employment of about 18,000 as crewmembers, especially at unskilled levels.However, these are informal job opportuni-ties, limited only for the fishing days/sea-son. Incomes tend to be highly variable dueto fluctuations in fish catches and changesin prices (with payments settled at the endof each trip). This is, therefore, not a regularincome source and only those who havedeveloped saving habits have been able tosecure finances and build houses, invest inboats, educate children and retain savingsto cope with risks such as natural disastersor sicknesses. Some multi-day owners paytheir crew members during the months whenfishing is not undertaken or provide loans tobe deducted during the fishing season.According to boat owners, around 50 percent of their crew members are capable ofmanaging their finances.

Usually, crew members are young or middleaged people who are strong enough toundertake fishing in the offshore/deep seawhich is often a cumbersome and difficultjob. As they grow older, and physicalstrength to undertake such activities deplete,they are exposed to hardships in the absenceof social welfare schemes for fishingcommunities. Most boat owners obtain in-surance cover for crew members due to highrisks involved in multi-day fishing. How-

ever, the compensation payments are com-paratively low since the premium paid bythe owners is also low.

In terms of education for children, crewmembers face similar problems as that ofmulti-day boat owners. However, privateschools are not as readily accessible. Exceptfor membership in some fishery coopera-tives, crew members are not well organizedand are not strong enough to present theirgrievances unlike multi-day boats owners.Nonetheless, multi-day crew earn about six-fold income relative to a traditional crewmember. The total income of a crewmember of an OFRP out-board boat wassimilar to that of in-board one-day boat.

Other boat owners and crew members: Thecoastal fishermen and one-day boat ownersdepend on their daily fish catch as income,which is always variable. The daily fish catchincludes both large and small pelagic fish.The large pelagic types such as tuna caughtwith gillnets often get damaged, leaving fish-ermen at a disadvantage as quality concernsmeans they will not fetch high pricesoffered by processors. Hence, the catch hasto be sold in the domestic market. Further,due to lack of appropriate facilities for stor-age and preservation, losses are incurredthrough spoilage of the fish catch. Crewmembers who work for coastal boats earnvery low incomes compared to those whowork for multi-day boats.

Employees at supporting services: Employ-ment for unskilled workers providingsupport services - such as ice plants, trans-port agents, boat repair, dried fish making,wholesale and retail fish trade and otherancillary services - have also been generated,but are informal in nature and characterizedby low wages. These employees can beconsidered as those who live just abovepoverty, with the risk falling below thepoverty line being very high.

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Thus, the socio-economic impacts of anexpansion in fish trade can vary along thefishery export value chain with economicbenefits, conditions and bargaining powerbeing higher in the upper levels of the valuechain, and less so in the lower levels. Thissuggests that expansion of fish exports cancontribute to rising inequality amongstdifferent stakeholders in the export valuechain. Another noteworthy fact is that theuncertainty and vulnerability to changes inthe global and local enabling environmentis very high for actors at the lowest level ofthe value chain, while it is low for those inthe upper levels.

Employees who work for actors in the upperlevel of the value chain - such as thoseemployed by exporters - are less vulnerableto risks than those employed in the lowerlevels, such as crew members due to theinformal nature of jobs. However, when theentire fishery sector is considered, the socio-economic conditions of the actors in theexport value chain are higher than that ofother coastal and inland fisheries. Therefore,it can be surmised that the expansion of fishtrade has led to an improvement in socio-economic conditions of comparativelywealthy stakeholders in the fishery sector.However, trade expansion is unlikely to havea significant influence in improving thesocio-economic conditions of the poorestand marginal sections of the fishery sector -such as small boat owners and their workers- except the creation of employment ascasual workers in some export factories, andjobs to make dried fish out of factory rejects(offal).

8.3 Recent Development ActivitiesThis section discusses ongoing and planneddevelopment activities in both marine andinland and aquaculture sectors.

8.3.1 Recent Developments in theMarine Fishery SectorDevelopment activities in the marine sectorare mainly focused on improving economicinfrastructure facilities. These include:

• Central Fish Market Complex: Thecomplex, with a capacity to handle500 tonnes of fish per day, has beenconstructed on 3.17 hectares ofreclaimed marshy land along the mainKatunayake airport expressway. Themarket consists of 148 wholesalestalls and 128 retail stalls, a 50 tonneflake ice plant, a vehicle park for 100lorries and 500 motor cars, 3 coldrooms, and a waste water treatmentunit. In addition, the complex hasbanks, a post office, shoppingcomplex, Police post, restaurant anda quality control room.

• Dikowita Fishery Harbour: This isaimed to provide anchorage facilitiesfor (400-500) multi-day boats, andto provide all other required harbourfacilities such as building for clean-ing and auctioning fish, cold storesand freezing facilities, ice plant, build-ing for repairing nets, fresh waterstorage and distribution system, andfuel storage and distribution system.However, most of the boat ownersfind that there is room for furtherimprovements to reduce the numberof days that a boat is lined up to ob-tain fuel, water and other services.

• Restoration and development of fishlanding centres with stakeholderparticipation has been done in someareas. In addition, development andconstruction of harbours will be donein Codbay and Valachchenai toprovide berthing place for multi-dayboats. Three large scale habours are


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to be constructed in Gurunagar inJaffna, Silavathura in Mannar andGandara in Matara district.

Apart from improving physical infrastructure,the Ministry of Fisheries and Aquatic Re-sources (MFAR) has taken steps to improvefinancial infrastructure for the fishery sec-tor. Access to finance has been one of themain problems that most of the fishers andboat owners have been facing over the years.As most of the fish exporters/processors areformally well established and own a portfo-lio of assets, they do not find it difficult toobtain loans from formal banks. However,the situation is different with both coastaland offshore boat owners, as well as crewmembers and individual fishers. Their ac-cess to the formal credit market is very lim-ited due to lack of collateral assets like prop-erty, and are, therefore, dependent on infor-mal credit mechanisms. Apart from the factthat fishery societies in certain areas pro-vide credit facilities for their members, loansare obtained informally by stakeholders inthe fishery value chain. Recently, the MFARintroduced a new loan scheme - mainly tofacilitate high tech improvements in exist-ing multi-day boats - which does not requireguarantees for the fishery sector. The inter-est rate for these loans is 12 per cent, wherethe government pays 4 per cent and the bor-rower 8 per cent.

8.3.2 Developments in InlandFisheries and AquacultureThe National Aquaculture Development Au-thority (NAQDA) is the main provider of arange of services to improve inland fisheriesand aquaculture. The services extend to threedifferent livelihood areas: ornamental fish,prawn farming, and inland fisheries.

The NAQDA provides training facilities tostart ornamental fish rearing or productionof aquatic plants as a business in two fish

breeding centres in Rambadagalle andGinigathhena. These are in-house trainingprogrammes conducted at a nominal fee toprovide practical knowledge and hands-onexperience. In addition, it has establishedan Ornamental Fish Exchange Centre whichprovides information to small scale produc-ers about both local and international buy-ers. The centre also displays samples of or-namental fish of small scale producers, sothat large exporters can collect fish requiredfor exports from small producers. TheNAQDA also produces and sells qualitybreed stock for small scale ornamental fishproducers, and provides technical supportfor large scale producers who themselvesproduce the required breed stock.

Monitoring and regulating shrimp/prawnfarms and providing technical supportthrough extension services are the main ser-vices provided by the NAQDA for the prawnindustry. It maintains close contact withhatcheries and conducts regular checks ofhatchery samples in order to assure the qual-ity of post-larvae as a precautionary measureto minimize possible threat of disease suchas White Spot Disease. In addition, NAQDApromotes best manufacturing procedures(BMP) prawn farms by creating awarenessand providing information on crop calendar(to indicate when to undertake pond prepa-ration, stocking, and harvesting in differentareas).

Most prawn farms are located in the Puttalamarea, whilst there are some initiatives to de-velop prawn farms in Batticaloa. A hatcheryto produce post-larvae has been set up inBatticaloa under a private-public partnership.Initially, the programme intends to developfarms in 50 hectares to benefit 20 families,and will be extended to 70 hectares to ben-efit 27 families. In order to minimize nega-tive environmental and other impacts, clus-ter shrimp farming will be promoted, where

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farms are designed in such a way as to havea common inlet and outlet for the wholesystem.

The NAQDA, in collaboration with MFAR,has also initiated efforts to introduce newaquaculture production systems such as seafarming. Some pilot progammes include cageculture (aquaculture production systemwhere fish are held in floating cages/pens)in Negombo and Trincomalee districts toproduce sea bass and milk fish which havevery high economic value in the export mar-ket. Cage culture is promoted in both brack-ish water as well as fresh water. Pen cultureis promoted in lagoons and tanks in Mannardistrict.

In the context of inland fisheries, theNAQDA has promoted capture fisheries inlarge, medium and small irrigation tanks.Some of the activities that have been carriedout include creating awareness and impor-tance of increasing productivity, implemen-tation of regulations to reduce use of illegalnets, improving existing management prac-tices, issuing licences based on availabilityof resources, introducing new fish breedswith high production, etc. Community basedfishery societies have been establishedamong those undertaking fishing in large/medium and small irrigation tanks to man-age and solve common problems. For ex-ample, societies operating in large and me-dium tanks have created a revolving fund bycontributing Rs.10-20 per kg. of fish sold byeach fisher. This fund has been used to buynew fingerlings after the harvest. In the caseof small irrigation tanks, societies charge Rs.20 per kg. of fish sold for improving man-agement practices and invest on fingerlings.These village based fishery societies are or-ganized into district level societies and haveformed themselves into district federations.Such co-management arrangements havehelped to increase inland fish productionover the last few years.

There are also plans to promote capture fish-eries in the Northern Province, and in newlybuilt reservoirs in Embilipitiya, Moragaha-kanda, Welimada and Weheragala. TheNAQDA has been making several efforts toincrease fish seed production in order to in-crease inland fish production. The aim is toincrease fish seed production in key breed-ing centres such as Dambulla (4.7 million),Uda Walawe (5 milllion), Iginiyagala (5 mil-lion) and Kalawewa (1 million), and pro-mote community based fish seed produc-tion in 30 mini-hatcheries managed by thefisher community, by providing requiredtechnical support and supporting private in-dividuals to maintain hatcheries and pro-duce fish seed.

8.4 Conclusion and Way ForwardOne of the key instruments for inclusivegrowth is the generation of productive em-ployment. While Sri Lanka's fishery sectorhas been able to expand its exports over theyears, it does not necessarily provide for in-clusive growth in the context where the ben-efits are limited to only a few stakeholdersin the upper level of the export value chain.On the other hand, the creation of employ-ment alone will not allow for growth in theabsence of productivity improvements.Labour productivity of fishers in the marinesector - the largest in terms of production aswell as employment generation within thefishery sector - is far below potential. Pro-ductivity in the export-oriented offshore fish-ery sector is also low, due to reasons suchas poor technology use, lack of capital, andpoor post-harvest techniques. The coastalfishery sub-sector is the least productive, withlarge numbers of fishermen who have tocompete with stakeholders in the exportsector for certain support facilities such asice and fuel. The sub-sector which repre-sents mainly small scale self-employed/ownaccount workers and informal employees arein casual employment lacking decent workconditions. By contrast, the smallest sub-


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sector of inland fisheries and aquaculturehas been growing steadily. Its developmentactivities are more supportive of inclusivegrowth, although the sector employs arelatively small number compared to themarine sector.

As previously discussed, within the fisherysector, those employed in certain sub-sectors (and also within sectors) are betteroff than others in terms of income, assetsowned, education access, etc. The main taskis to identify means of increasing productiv-ity of low productive and under-utilized sub-sectors. For example, offshore fishing canbe expanded as there is more potential toincrease fish production. Inland fisheries andaquaculture needs more investment tocreate employment in areas such asornamental fish to meet rising demand. Mostareas in coastal fishery are over-exploited withlarge numbers engaged in the sector livingjust above the poverty line. Therefore,dependence on coastal fishing has to bereduced by introducing skill developmentin alternative livelihood activities. If thefocus is on productive employment, thecoastal sector should receive considerableattention in development priorities. That,however, is not the actual situation atpresent.

The second strategy is to broaden access toeconomic opportunities. The MFAR hasidentified offshore fishing as a sub-sector tobe promoted. There are plans to provide

multi-day boats to fishermen. However, anaverage fisherman will not have equalaccess to such opportunities given issues ofaffordability, and such initiatives are likelyto benefit the better-off. Access to networksplays a significant role in obtaining boats.Thus, a more prudent course would be toprovide multi-day boats to well organizedfishery cooperatives or fishery societies,where groups of actual fishers can own andmaintain such assets collectively.

In this context, changes in fishery manage-ment systems from a 'top down' to a'bottom-up' approach, where fishery stake-holders are also taken into management anddecision making, is important. This isparticularly so in enforcing rules; forexample, the use of illegal fishing methods(use of trawlers in muddy areas, bottom longliners, use of dynamite, etc.) for short termincrease of fish catch has risen withdetrimental consequences on the long termsustainability of fishery resources. Capacitybuilding programmes on the concept of fish-ery management to bring about changes inknowledge, attitude and skills of officials(towards co-management) is important.Empowerment of communities - by identi-fying and classifying available communitybased fishery organizations - in decisionmaking, collective resource management,and conflict solution would help fisheryauthorities to manage fishery resources moresuccessfully.

Small and Medium Enterprises: Key to Inclusive Private Sector Development

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9. Small and Medium Enterprises: Key to Inclusive Private SectorDevelopment

9.1 IntroductionThe nature and dynamics of inclusive growth in thespecific context of private entrepreneurship and SMEsin post-conflict Sri Lanka hinges on two inter-relatedstrands: the process of participatory development andequal opportunity in accessing the benefits of growth.

The analysis in this Chapter pivots on three centralconstructs. First, policy experience in post-conflictsituations around the world suggests that the privatesector is one of the most resilient and adaptable insti-tutions for socio-economic reconstruction and revivalin the face of systemic shocks.1 In Sri Lanka, the rela-tive composition of private and public industries as apercentage of the total industrial sector has been 97and 3, respectively, from 2007-09.2 Second, indus-trial growth still matters for employment generation,competitiveness and inclusive socio-economic devel-opment even in services-oriented emerging economies;international experience suggests that a robust indus-trial policy is in fact essential to realize the full poten-tial of services-led growth.3 These dynamics are par-ticularly relevant to public policy when the patternof intra-country growth points to significant geographi-cal disparities, as is the case in Sri Lanka.

Third, cross-country policy research shows that SMEsplay a vital role in job creation and socio-economicgrowth, particularly in low-income countries.4 Thereis no standard definition of an SME in Sri Lanka, withdifferent organizations using varied measures rangingfrom the number of employees and the magnitude ofcapital investment to the type of business that a firm

‘‘

1 Mac Sweeny, N., 2008, “Private Sector Development in Post-Conflict Countries: A Review of Current Literature and Practice”, TheDonor Committee for Enterprise Development at: http://www.enterprise-development.org/page/current-work.

2 CBSL, Annual Report 2010.3 Sulaman, H., and S. Hassan, 2010, “Services-led Industrial Policy for Inclusive Growth and Competitiveness”, Competitiveness

Review, Vol. 20, No. 2.4 See for instance Ayyagari, M., A. Demirguc-Kunt, and V. Maksimovic, 2011, “Small vs. Young Firms across the World: Contribution to

Employment, Job Creation, and Growth”, Policy Research Working Paper No.5631, World Bank, Washington D.C.

SMEs play aparticularly significantrole in enhancing the

impact of private sectoractivity on broader

socio-economicdevelopment outcomes


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is engaged in. However, a fairly accuratenotion of the scope and contribution of theSME sector to the Sri Lankan economy canbe gauged from the data published by theDCS. The data for 2008 indicate that indus-trial establishments are largely concentratedin the Western Province and that around 91per cent of industries can be classified asSMEs, with these entities accounting foraround 26 per cent of total industrial sectoremployment.5 These estimates re-emphasisethe importance of bridging regional dispari-ties through the geographical expansion ofSMEs and growing SMEs to a level wherethey are competitive in both domestic andinternational markets as a key to inclusiveprivate sector development, particularly inthe context of post-conflict growth in SriLanka.

The rest of this Chapter is organized asfollows. Section 9.2 briefly sets out thestatus quo with respect to the policy objec-tives and initiatives pertaining to industrial-ization and the role of the private sector ingeneral, and the SME sector in particular, inpost-conflict Sri Lanka. Section 9.3 discussespolicy solutions pertaining to identified gaps,addressing key issues including facilitatingan enabling institutional environment forprivate sector participation in post-conflictgrowth, creating the right incentives to bridgeregional disparities in industrialization, andimplementing workable strategies to build acompetitive SME sector. Section 9.4 revisitsthe political economy of the reform process,looking at issues such as participatory deci-sion-making, stakeholder dynamics and sus-tainable policy buy-in. Section 9.5 providesconcluding remarks.

9.2 Private Sector Enabling Environ-ment and SME Development9.2.1 Industrialization and PrivateEntrepreneurship: Policies, Institutionsand TrendsSri Lanka's industrial sector - defined asincluding mining and quarrying, manufac-turing, electricity, gas and water, andconstruction - contributes to around 28 percent of GDP, with the manufacturing sub-sector accounting for around 17 per cent ofthis total.6 The vast growth potential inher-ent in the industrial sector has been dulyrecognized by the government's economicpolicy framework.7 With the implementa-tion of strategies and plans to develop theindustrial sector,8 the aim is to facilitate anaverage annual industrial growth rate ofaround 11 per cent and raise the share of thissector to around 40 per cent of GDP by 2020.Whilst achieving this laudable objective willentail significant challenges, they can be metwith strategic public policy solutions (as willbe discussed later). The spatial pattern ofcurrent industrial development in Sri Lankain terms of the size and geographic spread ofindustrial entities, reinforces the claim thatindustrialization is largely concentrated inthe Western Province (Table 9.1).

Government policy on the role of the privatesector in Sri Lanka's post-conflict growthspells out the need to create a level playingfield, where public infrastructure investmentis expected to play a key role in providing asupportive environment for private sectoreconomic activity.9 The policy thrust on in-dustrial development also emphasises a mixed

5 DCS, Annual Survey of Industries 2008.6 CBSL, Annual Report 2010.7 Department of National Planning, 2006, Mahinda Chinthana: Vision for a New Sri Lanka: A Ten Year Horizon Development Framework

2006-2016, Ministry of Finance and Planning.8 Ministry of Industry and Commerce, 2010, Five Year Plan (2011-2015).9 Ibid.


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approach, combining both domestic enter-prise growth and FDI, underpinned by

"integrating the positive attributes of thefree market economy with domesticaspirations in order to ensure a modernand balanced approach where domesticenterprises can be supported whileencouraging foreign investment".10

The literature on the links between FDI flowsand inclusive and sustainable industrialdevelopment show mixed results.11 FDI asan effective conduit for business knowledgeand technology transfer, enhanced firmcompetitiveness, and access to internationalmarkets and global production networks, isassociated with specific country conditions- including policies, institutions and theenabling business environment; the natureof the industrial sector - interactions betweenlarge and small domestic enterprises; and,

state-market relationships. In short, domes-tic country conditions are significant in shap-ing outcomes; and, whilst cross-country find-ings are useful in developing industrial strat-egies, blind policy transfer may well produceadverse results.

The debate on the role of and strategiesrelating to FDI in post-conflict Sri Lanka isan ongoing one. In a nutshell, the status quopertaining to FDI flows and industrialdevelopment is as follows. First, the recov-ery in FDI flows in post-conflict Sri Lankahas been slow; net inflows stood at US$ 435million in 2010, recording an increase of onlyUS$ 55 million from that of 2009.12 Second,whilst the manufacturing sector accountedfor around 31 per cent of total FDI flows in2010 (with the textile and apparels, leatherproducts, chemical, coal, petroleum, andplastic products sub-sectors accounting for amajority of this investment), the services

Table 9.1Distribution of Industrial Establishments by Size and Provinces

Industry Size Small Industries Medium & Large Total No. of(2003/04)a (%) Industries (%) Establishments

(2003/04)b (%) (2008)c (%)ProvinceWestern 28.1 44.4 29.3 42North Western 18.8 16.2 18.6 20Southern 12.0 8.0 11.7 8Central 10.8 10.8 10.8 12Sabaragamuwa 10.4 8.0 10.2 6North Central 5.8 4.3 5.7 4Eastern 5.8 3.3 5.6 3Uva 4.4 2.6 4.3 3Northern 3.8 2.3 3.7 2

Notes: a: Less than 10 employees as classified in the Census of Industry 2003/04; b: More than 10employees as classified in Census of Industry 2003/04; c: With 5 or more persons employed asclassified in Annual Survey of Industries 2009.

Source: Compiled using data from DCS, Census of Industry 2003/04, and Annual Survey of Industries2009.

10 Ibid. pp. 68.11 See for instance: Wade, R., 2010, “After the Crisis: Industrial Policy and the Developmental State in Low-Income Countries”, Global Policy,

Vol. 20, No. 2.12 CBSL, Annual Report 2010.


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sector - led by the telecommunications sub-sector continued to dominate the inflow ofinvestment.

This leads to a number of key policyquestions including: a) what needs to be doneto increase FDI flows; b) although the broadpolicy vision is to encourage both local andforeign investment, what is required toensure that these investments are inclusive -that both the bigger domestic private firmsand foreign investors/multi-national corpo-rations (MNCs) have an incentive to forgebackward linkages with SMEs; and, c) theextent to which selective intervention in termsof both industrial development and FDI flowsis a feasible and sustainable option in SriLanka.

9.3 SMEs in Sri Lanka: Policy andInstitutional FrameworkThe aftermath of the global financial crisisof 2008/09 witnessed a renewed interest inSMEs as an engine of inclusive growth incountries around the world. As pointed outearlier, cross-country research indicates thatSME development is a key to increasedproduction, job creation and sustainablesocio-economic development. As Sri Lankaemerges from a long conflict that has left inits wake serious issues of socio-economicdisparities and significant gaps in regionaldevelopment, the need for SME developmenthas re-surfaced on the country's reformagenda. Debates amongst key stakeholdersin Sri Lanka highlight the importance ofparticipatory development - providing theopportunity for all citizens to engage in theprocess and outcome of socio-economicgrowth - in terms of post-conflict reconcilia-tion, reconstruction and rehabilitation. Given

the profile of Sri Lanka's industrial sector asset out in Table 9.1, SME development isrecognized by the government as a crucialcomponent of the drive to bridge regionaldisparities and facilitate inclusive growth.

As documented in research on the subject ofSMEs in Sri Lanka,13 successive policy re-gimes have developed various strategies andestablished a number of institutions target-ing the SME sector. Whilst a detailed analy-sis of these initiatives is beyond the scope ofthis discussion, selected policies and insti-tutions that pertain to impediments to SMEdevelopment in Sri Lanka will be discussed.

The overarching policy on SMEs at present,suggests a focus on entrepreneurship devel-opment, improvements to marketing oppor-tunities - through sub-contracting arrange-ments - by promoting backward and forwardlinkages between large scale and foreignenterprises, provision of financial assistance,etc.14 At present, the institutional frameworkfor industrial policy, including SME devel-opment, consists of numerous ministries suchas the Ministry of Industry and Commerce,the Ministry of Traditional Industries andSmall Enterprise Development, the Ministryof Economic Development, the Ministry ofLocal Government and Provincial Councilsand the Ministry of Finance and Planning.Whilst it could be argued that each of theseinstitutions has its own, unique mandate, inpractice, the functions of these entities tendto overlap and send confusing signals toentrepreneurs and investors. Field worksuggests that entrepreneurs perceive theabsence of a coherent and co-ordinated policyframework to be a significant obstacle todoing business.15 The transaction costs of afragmented policy framework - including

13 Based on research carried out by the IPS for the Ministry of Industry and Commerce in preparing a National SME Policy.14 Ministry of Industry and Commerce, 2010, Five Year Plan (2011-2015); Department of National Planning, 2010, Sri Lanka: The Emerging

Wonder of Asia, Ministry of Finance and Planning.15 Findings emerging from Private-Public Dialogues (PPDs) on local enterprise development constraints conducted by the IPS and The Asia

Foundation for a study on ‘Local Economic Governance’. PPDs were held in the second half of 2010, with participants from the Central,North Central, Southern, Sabaragamuwa, Eastern, and Northern Provinces.


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time spent meeting the bureaucratic require-ments of each ministry, and red tape anddelays associated with coordinating businessplans and getting approvals to set up enter-prises with the different ministries - areperceived as high by entrepreneurs.

The powers of the National EnterpriseDevelopment Authority (NEDA), establishedin 2006 and currently functioning under theMinistry of Industry and Commerce, todevelop the SME sector and to serve as a one-stop shop for industrialists to network withpolicy makers appear to be diluted with itsmandate being divided amongst other insti-tutions. Policy responsibility pertaining toindustrialization and to SME development isnow shared amongst the Ministry of Tradi-tional Industries and Small EnterprisesDevelopment (the Industrial DevelopmentBoard and NEDA), the Ministry of EconomicDevelopment (BOI and all regional devel-opment programmes including districtdevelopment programmes), the Ministry ofLocal Government and Provincial Councils(government functions relating to LocalAuthorities and all matters relating toProvincial Councils), and the Ministry ofFinance and Planning (local loans andDevelopment Fund, the co-ordination ofpublic and private sector activities, and thefacilitation of the private sector for economicdevelopment).16

The need for a more robust SME policy isalso highlighted in recent research findingsthat compare the strategies set out in the'National Strategy for SME Sector Develop-ment White Paper' of 2002,17 with those in

the 'Draft SME Policy 2010' developed byNEDA. As illustrated in Figure 9.1, the DraftSME Policy 2010 appears to have both ne-glected critical strategies and re-invented thewheel with respect to a number of strategiesdetailed in the White Paper of 2002.

A closer look at public policy trends in SriLanka indicates that re-inventing the policywheel is not confined to a specific sector orassociated with any particular politicalregime. The volumes of reports spanning awide range of socio-economic issuescombined with path dependence in the gapsbetween policy rhetoric and policy imple-mentation across successive regimes, suggestthat the policy reform is often impeded byback-peddling and the lack of political will.The following discussion addresses somecritical policy constraints to the developmentof private entrepreneurship and SME growthin Sri Lanka.

9.4 Towards Inclusive Private SectorDevelopment and SME Growth: KeyPolicy Challenges9.4.1 Creating an Enabling Environmentfor Inclusive Private Sector GrowthThe international literature on drivers of pri-vate investment in developing economiessuggest that governance measures such asvoice and accountability, regulatory quality,political stability and control of corruption,18

as well as ease of doing business measuressuch as those set out in the 'Doing BusinessIndicators' developed by the World Bank,19

have a significant impact on both FDI and

16 The Gazette of the Democratic Socialist Republic of Sri Lanka Extraordinary, No.1651/20. Friday, April 30, 2010 at: http://www.priu.gov.lk/news_update/Current_Affairs/ca201005/1651_20E.pdf.

17 At: http://www.ips.lk/publications/series/gov_reports/sme_white_paper/sme_white_paper.pdf.18 See Udomkerdmomgkol, M. and O.Morrissey, 2008, “Political Regime, Private Investment, and Foreign Direct Investment in Developing

Countries”, Research Paper No.2008/109, WIDER, United Nations University.19 See http://www.doingbusiness.org.


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on domestic private investment. Indeed, ashighlighted by the CBSL,

"….performance in the stages of Deal-ing with Construction Permits, Regis-tering Property, Paying of Taxes andEnforcing Contracts is particularly weakas it ranks below 100 of the 183 coun-tries considered and therefore, pullsdown the country's overall ranking. Infact, in the areas of Dealing withConstruction Permits and RegisteringProperty, it fares worse than the worstperforming country, Chad. Out of theeconomies considered, Sri Lanka'sperformance falls below 10, namelySingapore, Hong Kong, South Korea,Thailand, Malaysia, Mongolia,Vietnam, China and even the SouthAsian countries like Pakistan and

Maldives. As some of Sri Lanka'scompetitors in trade are included in thisgroup, it is a matter of concern that SriLanka performs worse than them."20

Cross-country research findings also suggestthat there is a positive correlation betweenFDI flows and domestic private investment.21

Facilitating a predictable and credibleenabling environment for private enterprisedevelopment is particularly critical in post-conflict conditions such as those thatprevail in Sri Lanka, where perceptions oncountry risk are bound to prevail for sometime.

Over the last decade, Sri Lanka has seenaverage FDI inflows that amounted to just1.5 per cent of GDP, and whilst post-

Figure 9.1SME Policies in Sri Lanka: Re-inventing the Wheel

White Paper2002

• Finance• Technology• Access to information

and markets• Entrepreneurship and

training (BDS)• Clustering and sub-

contracting• Unfair competition• Legal and regulatory

framework

• Micro-sector issues

20 CBSL, Annual Report 2010, pp. 24-25.21 See Ndikumana, L., and S.Verick, 2008, “The Linkages between FDI and Domestic Investment: Unraveling the Developmental Impact

of Foreign Investment in Sub-Saharan Africa”, IZA Working Paper No.3296.

OverlappingStrategies

Draft SME Policy2010

• Infrastructure• Industrial relations

and labourenvironment

• Cleaner productionand environment


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conflict optimism affords a significantwindow of opportunity to draw in invest-ment, building an enabling environment forsustainable business development remains acritical policy challenge. Opportunities forrent-seeking can be greater in the presence oflarge-scale infrastructure projects. In spite ofthe various methodological limitationsattached to aggregate cross-country rankingssuch as the 'Doing Business Indicators', thesescores do impact on stakeholder perceptions,and more often than not, investment deci-sions are driven by perceptions.

The macro-investment climate pertaining todomestic and foreign investment is relevantto SME development, given the potential forforward and backward linkages betweenSMEs, larger domestic private enterprises andFDI-driven industries. However, thesefactors are necessary but not sufficientconditions for SME growth. Sustainable SMEdevelopment hinges on elements such asestablishing formal ties/sub-contracting withlarger domestic industries in the short tomedium term, and partnering with foreigninvestors either via their larger domestic coun-terparts or on their own in the long term;partnerships that would facilitate technologyand knowledge transfer, business develop-ment skills (BDS), access to competitivedomestic and international markets andopportunities to move towards higher value-added manufacturing processes and outputs.The need to promote linkages between SMEsand larger domestic industrial entities andMNCs, brings in the role of the state in theindustrialization process.

The comparative advantage of the Sri Lankanstate lies in facilitating business rather thanin growing business, as evidenced from policyexperiments over the decades with state-led,private sector-led and mixed private and pub-

lic sector-led development strategies. Therole of the state in the industrializationprocess and in SME development will berevisited later in the discussion in thecontext of selective intervention, access tocredit and collective decision-making forinclusive socio-economic growth. In thespecific context of creating backward andforward linkages between SMEs and largerindustrial entities, however, the initiativestaken by the Malaysian state to incentivizelarger corporates to provide technical train-ing to SMEs in exchange for the purchase ofparts and components, could well be a work-able, strategic solution for Sri Lanka.

The enabling local government environmentis also crucial to regional private enterprisegrowth which, as discussed previously, hingeslargely on SME development. The importanceof local governance factors in efforts to bridgeregional disparities is highlighted in theresearch findings. For instance, a study basedon a set of economic governance indices(EGIs) developed to capture perceptions ofstakeholders in the local government policyspace, finds that in the case of Sri Lanka,

"EGI analysis shows that even thoughstructural conditions, such as quality ofinfrastructure in a locality, tend to domi-nate the business environment, improve-ment in economic governance can sub-stantially alter the business environmentfrom one area to another. Improvementin certain areas of economic governancesuch as reduction of informal charges,transparency, and participation can havean important impact on the overall busi-ness climate in the country."22

Another important insight coming out of thecross-country experience (Indonesia, Cambo-dia, Vietnam, Sri Lanka and Bangladesh) withthe EGI, is that country specific local condi-

22 The Asia Foundation, 2009, “Measuring Economic Governance at the Local Level: The Experience of the Asia Foundation in Indonesia,Vietnam, Cambodia, Sri Lanka, and Bangladesh” at: http://asiafoundation.org/publications/pdf/41 <http://asiafoundation.org/publica-tions/pdf/41.


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tions matter; as emphasized previously,policy transfer needs to be aligned with do-mestic political economy factors in order tosecure stakeholder buy-in and ensure sustain-able reform outcomes.

9.4.2 Revisiting Strategic IndustrialPolicyAs evidenced in the international develop-ment literature, the debate on the nature anddynamics of industrial policy is an ongoingand evolving one.23 The objective of thefollowing discussion is to look at industrialstrategies such as selective intervention ('pick-ing winners') and FDI policies as theypertain to inclusive private sector growth inpost-conflict Sri Lanka. As such, the discus-sion set out below is based on the definitionof industrial policy as,

"a policy aimed at particular industries(and firms as their components) toachieve the outcomes that are perceivedby the state to be efficient for theeconomy as a whole."24

The principal arguments for industrial policyhinge on three much-debated constructs: theinfant industry rationale, the view thatindustries generating positive knowledgespill-overs should be promoted using targetedincentives, and the position that coordina-tion failures are more likely when investmentdecisions are made by a number of indepen-dent agents. The underlying assumptionsassociated with all these positions are thatmarket failures are more recurrent thangovernment failures in developing econo-mies, and that issues of informationalexternalities and the free-rider problem arebest addressed through strategic stateintervention in the industrialization process.

These assumptions, however, run contrary toground realities in countries that lack goodeconomic and regulatory governance prac-tices; countries where public policy is basedon political economy realities, with interestgroup dynamics, populist ideologies andrent-seeking opportunities driving the policyprocess; and countries that lack the space forcollective action, voice and participatorydecision-making. These assumptions alsodisregard the realities of the symbioticrelationship between state and markets; and,the dynamics of state-societal links -embedded autonomy - in shaping the policyprocess.

In terms of facilitating inclusive private sec-tor entrepreneurship in Sri Lanka - given thecountry's political economy realities dis-cussed previously - industrial policy that fo-cuses on 'picking winners' is not a feasibleoption for Sri Lanka. A better approach wouldbe to focus on enhancing the general envi-ronment for doing business; strategies thatwould enable the private sector to discoverareas of comparative advantage. Similarly,industrial policy in Sri Lanka should focuson identifying the constraints to SME devel-opment and facilitate an enabling environ-ment that effectively targets these gaps. Forinstance, as discussed previously, Sri Lankalacks a co-ordinated SME policy, strategiesaimed at developing a culture of entrepre-neurship, innovation and networking througheffective BDS activities, and as will be dis-cussed below, effective strategies to addressaccess to credit issues that are a commonand persistent problem faced by SMEs in SriLanka, as well as in several other developingeconomies.

Strategic industrial policy also includes acountry's approach to FDI flows; as discussed

23 See for example, Lin, J. and H.Chang, 2009, “Should Industrial Policy in Developing Countries Conform to Comparative Advantage orDefy it? A Debate Between Justin Lin and Ha-Joon Chang”, Development Policy Review, Vol. 27, No. 2.

24 Chang, H., 2003, Globalisation, Economic Development and the Role of the State, Zed Books, London, pp. 112.


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earlier, increasing FDI flows is important forsustainable and inclusive growth in post-con-flict Sri Lanka. However, as indicated in theliterature, cross-country case studies point toa positive correlation and complementaritybetween domestic private investment andFDI. Developing a strong industrial base withSMEs as the key to inclusive private sectorgrowth, hinges on the robustness of large-scale domestic private industries, strategicjoint ventures between domestic and foreignentrepreneurs, and workable backward andforward linkages between large domesticcorporates, MNCs and SMEs. As such, FDIpolicies for emerging economies like SriLanka must be based on a level playing fieldin terms of incentives for domestic and for-eign investment, at least in the short to me-dium run. A selective approach to invest-ment should only be adopted once positivespill-overs such as technology transfer andBDS capacity, are embedded to the extentthat an industry can compete in domesticand international markets.

9.4.3 Access to Credit: Unleashing thePotential for SME GrowthLack of adequate and affordable access tofinance is a key impediment to SME growthin Sri Lanka.25 In spite of the various SMEloan schemes developed by successive policyregimes over the years, focus group discus-sions with business persons at the local gov-ernment level and one-on-one interviews withsmall and medium scale entrepreneurs,clearly indicate that the cost and access tofinance remains a huge constraint to thegrowth of the sector.

The access to credit problem has two dimen-sions. On the supply side, traditional finan-cial institutions are reluctant to lend due to

the lack of requisite collateral and to percep-tions that new and small enterprises are morelikely to default on loan repayments thanentities with a proven credit record. On thedemand side, SMEs lack the skills requiredto develop feasible business plans that wouldbe acceptable to lending institutions or toestablish sub-contracting and other linkageswith larger and more established enterprises.Given that most entrepreneurs in the post-conflict areas have been disconnected fromestablished markets for years, with a numberof them still being displaced, issues ofcollateral and BDS capacity are likely to beexacerbated in these regions.

Access to credit constraints is not unique toSri Lanka, with several countries in South andSouth-East Asia facing very similar impedi-ments to SME growth. An analysis of bestpractice solutions adopted by affected coun-tries, points to a number of useful and work-able strategies to tackle the problem. Forexample, both India and Malaysia haveestablished credit registries and credit ratingson SMEs to provide banks, other financialinstitutions and potential business partnerswith the information required to reduce therisk of defaults and to promote linkagesbetween business entities.

As discussed earlier, what Sri Lanka lacks isa comprehensive and informative SME policythat sets out a clear direction, and pragmaticsolutions relating to issues including accessto credit, BDS, the legal and regulatory frame-work, facilitating workable backward andforward linkages, and access to markets. Theend of a prolonged conflict presents Sri Lankawith an enormous opening to grow the SMEsector and move towards inclusive privatesector development. However, the piecemeal

25 ‘Access to Credit: Critical Issue for Conflict-Affected Enterprises’, Talking Economics, 6th October 2010, http://ipslk.blogspot.com/2010/10/access-to-credit-critical-issue-for.html; ‘Private Enterprise Growth in the Regions: What is Slowing it Down?’, Talking Economics, 29th

November 2009, http://ipslk.blogspot.com/2009/11/private-enterprise-growth-in-regions.html.


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policy framework, combined with overlap-ping institutional functions, and a regulatoryregime that is not aligned with the dynamicsof the market, may well close this windowof opportunity.

9.5 ConclusionDevelopment work in post-conflict condi-tions around the world has, to a large extent,revolved around nation-building, relief effortsand security concerns. Post-conflict recon-struction programmes have for the most part,overlooked the crucial fact that economicdeprivation, marginalization and inequalitiesplay a key role in instigating and perpetuat-ing conflicts. Similarly, the developmentcommunity has only recently begun to focuson private sector development as a key pillarin post-conflict recovery efforts. However,private sector activity has proven to be oneof the most resilient forces of developmentin Sri Lanka, even in the face of conflict andeven when social and political institutionshave been weakened. It is in this context thatprivate sector development is seen as crucialin achieving post-conflict inclusive growth.

SMEs play a particularly significant role inenhancing the impact of private sector activ-ity on broader socio-economic developmentoutcomes. The development literature pos-its that SMEs are crucial in terms of jobcreation and socio-economic growth in low-income countries. In the Sri Lankan case, theprevalence of regional disparities resultingfrom a combination of a long conflict-situa-tion and policy gaps in getting to balanceddevelopment, underscores the importance ofSME growth as a key to inclusive socio-economic development. However, growingthe SME sector and positioning it as a vitalcomponent to inclusive private sector devel-opment entail significant policy challenges.In addition to those highlighted in thepreceding discussion, the focus here will beon a few issues relating to the politicaleconomy of reforms and inclusive develop-

ment, defined as both a process and an out-come variable.

Inclusive development as a process requirestransparent and collective decision-making,with equal opportunity accorded to allmembers of the polity to participate in thepublic policy process. However, the politi-cal economy realities of policy making in SriLanka spanning successive political regimes,suggests that policy decisions are for the mostpart, shaped by powerful interest groups,seeking to maximize opportunities for rent.Given that development policy that is notfounded on participatory decision-makingrebuts visions of inclusive growth, there isan imminent need to broaden the space forstakeholder dialogue.

Stakeholder dialogue in the context ofinclusive private sector growth, SME devel-opment, and industrial policy, points to theneed for effective state-business relations,where the state and the market are seen notas substitutes but rather as complementingeach other in moving towards inclusivegrowth. Whilst the need for the state to beopen to dialogue and collective decision-making in the development process has beenemphasized right through the discussion, asimilar onus lies on the private sector. TheSri Lankan private sector - specifically thelarger domestic establishments - tendstowards collusive, as opposed to collabora-tive and participatory, decision-making.Moreover, to a large extent, the culture ofprivate entrepreneurship in Sri Lanka is onethat lacks dynamism and leans on a patriar-chal state, with only a few pro-active mem-bers of the business community engaging inpolicy dialogues. If inclusive private sectorgrowth through SME development is to bemore than policy rhetoric, the private sectorneeds to actively participate not only in theoutcomes but also in the process of publicpolicy.

Towards a Competitive and Inclusive Knowledge Economy

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10. Towards a Competitive and Inclusive Knowledge Economy

10.1 Introduction

Knowledge has always been an integral part of anycountry's development. But with increasing global-ization, shrinking of national borders due tovirtualization, the international fragmentation ofproduction, and heightened global competition, thespeed at which knowledge is created and used hasmade it an even more vital element of rapideconomic development. Knowledge accumulation andapplication have become major factors in economicdevelopment and are increasingly at the core of acountry's competitive advantage in the globaleconomy.1 Comparative advantages among nationscome less and less from abundant natural resourcesor cheap labour and increasingly from technicalinnovations and the competitive use of knowledge -or from a combination of the two - as is illustratedby the success story of Bangalore, the capital of theIndian software industry.

The structure of Sri Lanka's economy is also changingrapidly, from being agriculture-based to services-based.The country possesses a sound base of educated indi-viduals, with the highest literacy rate in the SouthAsian region. Despite the shortcomings of literacyrates as an indication of the quality of education, itdemonstrates that literacy provides a trainableworkforce which can now be geared to a knowledge-based economy. Moreover, the growth of the telecomssector, growing private sector participation in non-degree, non-university tertiary training programmes,and the emergence of a globally-competitiveoffshoring industry can support Sri Lanka's transitionto a knowledge economy.

Yet, currently, much of the knowledge-intensive andknowledge-using production is concentrated in pock-

To ensure coherent effortsin building a knowledge

economy, Sri Lanka shouldimplement strategies thattake a holistic approach.Addressing all elementsconcurrently would beessential, owing to thestrong inter-linkages…

‘‘

1 Porter, M., 1990, The Competitive Advantage of Nations, Free Press, New York.


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ets in Sri Lanka - either regionally or at firm-level. The Western Province, for example,owing to the wider and deeper availabilityof skill development opportunities as wellas better technology diffusion and utiliza-tion, has emerged as a knowledge economyregion within the country. Knowledge-basedenterprises like offshored IT, legal, andaccountancy services as well as nano-tech-nology and garment industry innovationcentres, are based primarily in the WesternProvince. The key is to now ensure that thesedevelopments would become more wide-spread and inclusive to the entire economy.

The ability of rich countries to develop rap-idly hinged on their ability to fully harnessthe power of knowledge-induced growth.2 Asidentified in the Report of the Commissionon Growth and Development,3 this was alsotrue of thirteen late-industrializing countriesthat achieved high sustained growth inrecent decades. A key ingredient was theirability to harness 'knowledge' to speed uptheir growth, but not growth as an end initself, but this knowledge-led growth beingable to create higher and more productiveemployment, better living standards, improveeducation, etc.

As Sri Lanka attempts to 'catch-up', whilstalso ensuring that growth is inclusive andpoverty-reducing, the challenges and oppor-tunities for leveraging the knowledgeeconomy to achieve this, needs to beanalyzed. This is particularly policy-relevantgiven the government's stated goal of trans-forming Sri Lanka into a Knowledge Hub -

one of five hubs articulated in 'MahindaChintana - Idiri Dekma' vision statement. Anessential pre-requisite for the country to movetowards a 'knowledge hub' is the re-orienta-tion of the country towards a 'knowledgeeconomy' (also referred to as a 'knowledge-based economy').

This Chapter aims to provide a better under-standing of the advent and evolution of theconcept of a knowledge economy and itsdefinition and determinants; evaluate the sta-tus and recent performance of Sri Lanka withrespect to key determinants of developing aknowledge economy; highlight the key chal-lenges in making a knowledge-economy thrusttruly inclusive: and discuss the policy op-tions, particularly possible institutional ar-rangements, for driving the knowledgeeconomy agenda forward.

10.2 Advent of the 'KnowledgeEconomy' ConceptIn 1962, in reference to a publication thatappeared to have developed a theory on'knowledge' as a key production factor in aneconomy,4 Time Magazine noted that,

"Economists take infinite pains in diag-nosing the auto, oil or steel industry,but almost no one tackles the industrythat makes the most important productof all. It is knowledge, defined as infor-mation, old or new, which is producedand disseminated by all kinds ofagents".5

The term knowledge is almost as old as theterm development, as entrepreneurship or

2 Conceição, P., D.V. Gibson, M. V. Heitor, and G.Sirilli, 2001, “Knowledge for Inclusive Development: The Challenge of GloballyIntegrated Learning and Implications for Science and Technology Policy”, Technological Forecasting and Social Change, Vol. 66, No. 1.

3 Alternatively called the “Spence Commission on Growth and Development,” or “The Growth Commission”. The Commission is anindependent body chaired by Nobel Laureate Michael Spence, and was created in April 2006. The full report, released in 2008, is availableat www.growthcommission.org.

4 Machlup, F., 1962, The Production and Distribution of Knowledge in the United States, Princeton, New Jersey: Princeton UniversityPress.

5 Time Magazine, ‘Education: The Knowledge Industry’, Time Magazine, 21 December, 1962, http://www.time.com/time/magazine/article/0,9171,940171,00.html.


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entrepreneurial knowledge is the linchpin ofthe organization of production in aneconomy, which in turn, is fundamental fordevelopment. However, the concept of'knowledge economy' is relatively newer,and has evolved over the last few decades.Today, the knowledge economy has becomealmost a 'buzz word' among economists,planners, private sector players and otherprofessionals, and its role in broader devel-opment is increasingly acknowledged.

Whilst the first use of the term knowledgeeconomy can be traced back to 1962, itwould be several decades before the ideawould be mainstreamed, as the worldglobalized, creation and dissemination be-came freer and cheaper, economies becamemore integrated with closer trade in goodsand services, etc. The knowledge economybecame referred to in the context of theingredients of production, competitiveness,international specialization, and thus growthand development.

With increased globalization, integration,and heightened awareness of economies ongaining a 'competitive advantage' (movingaway from the old 'comparative advantage'theory), the need for knowledge-drivengrowth was identified - innovation, R&D,higher-level learning, proficiency in ICTs,etc. For this, advances in higher levelhuman capital was seen at least as, if notmore, important as physical capital.

10.3 What is a Knowledge Economy?:Definitions and DeterminantsThe knowledge economy has been definedin various ways, but can be well captured as'an economy that creates, disseminates, and

inputs or uses knowledge to promote growthand development'.6 This is broadly the ideaof a knowledge economy that will be builton in the Sri Lankan context, in the discus-sion to follow.

While land is the key resource in an agricul-tural economy and natural resources (rawmaterials like coal, iron ore, etc.) and basiclabour is the key resource in an industrialeconomy, knowledge is argued to be the keyresource in a knowledge economy.7 It is main-tained that a knowledge economy refers toan overall economic structure comprising "therise in knowledge intensity of economic ac-tivities, and the increasing globalization ofeconomic affairs...where the principal com-ponent of value creation, productivity andeconomic growth is knowledge". The pri-mary ingredient of a knowledge economy isviewed as a greater reliance on intellectualcapabilities rather than on physical inputs ornatural resources.8 It is the combination ofproduction and services based on knowledge-intensive activities that is argued to contrib-ute to an accelerated pace of technical andscientific advance that can in turn, raise com-petitiveness and accelerate growth.

The OECD defines knowledge economies as"economies which are directly based on theproduction, distribution and use of knowl-edge and information".9 By that definition,however, all economies are knowledgeeconomies. What is different about this con-cept today, however, is that as economiesstrive to grow faster and move into advancedstages of economic activity, the effectivecreation, acquisition, distribution and the useof knowledge becomes increasingly moreimportant, and this is driven, to a great

6 Radwan, I., N. Kuruppu, and A. Wijesinha, 2008, Building Sri Lanka’s Knowledge Economy, World Bank, Washington D.C.7 Houghton, J. and P. Sheehan, 2000, A Primer on the Knowledge Economy, Centre for Strategic Economic Studies, 2000, Victoria,

Australia.8 Powell, W. and K. Snellman, 2004, “The Knowledge Economy”, Annual Review of Sociology, Vol. 30, pp. 199-220.9 OECD, 1996, The Knowledge-based Economy, Organization for Economic Co-operation and Development (OECD), Paris.


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extent, by advances in science and technol-ogy and ICT.

The characteristics of a successful knowledgeeconomy are that there is a close linkagebetween academic science and industrialtechnology, there is greater importance placedon innovation for economic and competi-tiveness, there is increased significance ofeducation and lifelong learning, and there isgreater investment in R&D, software, andeducation.10 Thus, a knowledge-basedeconomy is one that encourages its people,its firms, and its institutions to acquire,create, disseminate and use knowledge moreeffectively for greater economic and socialdevelopment. Required elements for thecreation and strengthening of a knowledgeeconomy are set out in Table 10.1.

The above framework is used to analyze SriLanka's status as a knowledge economy, and

Table 10.1Elements of a Knowledge Economy (KE) and Descriptions

identify gaps which need to be addressed todevelop the sector. For much of the indica-tors to analyze each of the elements, theKnowledge Assessment Methodology (KAM)developed by the World Bank Institute isemployed.11

10.4 Sri Lanka as a KnowledgeEconomy: Status, Comparison,InclusivenessThe elements set out in the above discussioncan be considered the necessary conditionsfor Sri Lanka in moving towards a knowl-edge economy in particular, but also towardsincreasing the efficiency, flexibility, andresilience of the economy and its ability torestructure, respond to changing competitive-ness requirements, and take advantage of newand emerging economic opportunities bothat home and abroad, so that the benefits ofgrowth are broadly shared by all Sri Lankans.

Element of KE

Business environment and economicincentives regime

Education and skills

Information communicationtechnology (ICT) infrastructure

Research and innovation

Description

An economic and institutional regime that providesincentives for the efficient use of existing knowledge,the creation of new knowledge and entrepreneurship

An educated and skilled population that can createand use knowledge

A dynamic information infrastructure that canfacilitate the effective communication, disseminationand processing of information

A system of research centres, university, think tanks,consultants, firms and other organizations that cantap into the growing stock of global knowledge,assimilate and adapt it to local needs, and create newknowledge

Source: Adapted from Dahlman, C. and T. Anderson, 2000, Korea and the Knowledge-basedEconomy: Making the Transition, World Bank, Washington, D.C.; and Radwan, I., N. Kuruppu,and A. Wijesinha, 2008, Building Sri Lanka’s Knowledge Economy, World Bank, Washington D.C.

10 Dahlman, C. and A. Utz, 2005, India and the Knowledge Economy: Leveraging Strengths and Opportunities, World Bank, Washington,D.C.

11 Available at www.worldbank.org/kam.


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The discussion to follow will evaluate SriLanka's standing in each of the elements andidentify key constraints that need to beaddressed in making the thrust towards aknowledge economy both successful andinclusive.

10.4.1 Business Environment andEconomic Incentives RegimeCreating a good business environment, witha robust and market-friendly economicincentive regime and institutional set-up, iscrucial to spur innovation and knowledgecreation and utilization. A conducivecompetitive environment induces individu-als and firms to seek and use knowledge,identify market opportunities, drive entrepre-neurship, and thus create wealth, jobs, andeconomic growth.

A good business environment would meanthat Sri Lanka's laws, policies and institu-tional mechanisms are conducive to foster-ing successful and inclusive commercialactivity. This involves the ease of doing busi-ness by both local and foreign firms, theefficiency with which the rule of law is

administered, the ease of entering andexiting a market, the level of labour marketflexibility, among others.

The World Bank's 'Doing Business in 2011'report ranks Sri Lanka 102 out of 183 coun-tries in the overall ease of doing business.While it is ahead of more economicallydeveloped countries like Greece, Argentina,and Russia, the report indicates that, sincethe previous report in 2010, Sri Lanka hasnot pushed forward with any significantpolicy reforms that could have boosted itsstanding. Indeed, it is suggested that the busi-ness environment in Sri Lanka has becomeless conducive to carrying out commercialtransactions between 2000 and 2009.Despite a rise in the index from 4.96 in 1995to 6.02 in 2000, it experienced a fall back to4.56 in 2009.12

In this and later sections, Sri Lanka’s perfor-mance is benchmarked with India andSingapore. Singapore has emerged as an un-matched leader in developing and harness-ing knowledge for economic growth, havinga formidable force of knowledge workers and

Table 10.2Sri Lanka's Rank in Key 'Doing Business' Indicatorsa

Doing Business Indicator 2008 2010 2011Starting a business 29 40 34

Dealing with licences 160 167 169

Hiring and firing workers 111 - -

Registering property 134 151 155

Getting credit 97 69 72

Protecting investors 64 73 74

Paying taxes 158 165 166

Trading across borders 60 66 72

Enforcing contracts 133 136 137

Closing a business 39 45 43

Note: a: Ranked from a total of 178 in 2008 and 183 countries in 2010 and 2011.Source: World Bank, 'Doing Business' database.

12 Ibid.


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playing host to hundreds of leading knowl-edge enterprises and innovation centres. In-dia has been a new entrant to the knowledgeeconomy sphere, but has been able to makerapid headway on all fronts of knowledgeeconomy development, and gained interna-tional competitiveness in areas like nano-technology and bio-technology as well as hi-tech production and offshore IT services.

When compared to Singapore and India, SriLanka lags behind with respect to certainindicators of business environment infrastruc-ture (Figure 10.1). In particular, Sri Lankascores low in terms of the number of days tostart a business and the difficulty in firingemployees. However, Sri Lanka scores wellabove India with respect to costs associatedwith registering a business, tariff and non-tariff barriers, and costs to enforce acontract, even placing itself above Singaporeon this last point.

These indicators provide an indication of the'national' picture on the state of doing busi-

Source: Compiled using data from World Bank Knowledge Assessment Methodology (KAM)database.

ness in Sri Lanka. At the regional/provinciallevel, the picture is likely to remain largelythe same. However, it is often the case thatin dealing with licences and permits, firmslocated in or around key commercial hubs(e.g., Western Province) may be better ableto access the relevant government institutions,than firms located in lagging regions. Thereare also disparities across provinces, asreported in the Asia Foundation's EconomicGovernance Index (see Box 10.1). Despitethe presence of provincial branches ofrelevant government agencies, discussionswith stakeholders reveal that firms oftenperceive the institutional and regulatoryregime to be more pro-business or moreunderstanding of the private sector's needsin commercial hubs like the WesternProvince which have reached a higher levelof sophistication and dynamism of economicactivity, than those in other areas.13 Thus,such practical issues need to be borne in mindwhen considering the inclusiveness ofpublic agencies in providing a businessenvironment conducive for entrepreneurship.

Figure 10.1Comparison of Business Environment Infrastructure: Sri Lanka, India and Singapore

13 These were revealed during field visits and stakeholder consultations with members of the local private sector during the period January2009 to December 2010 in the Central, Southern, North Central, Eastern and Northern Provinces.

0

2

4

6

8

10

Tariff & nontariff barriers, 2009

Intellectual property protection (1-7), 2008

Cost to register a business as % of GNI

per capita, 2009

Days to start a business, 2009

Cost to enforce a contract (% of debt),

2009Regulatory quality, 2007

Rule of law, 2007

Difficulty of hiring index, 2009

Difficulty of firing index,2009

Firing costs (weeks of wages), 2009

Sri Lanka

India

Singapore


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The Asia Foundation's Economic Governance Index (EGI) evaluates the businessenvironment for private enterprises. It employs ten sub-indices to carry out its evaluation,ranging from ease of obtaining permits and licences to confidence in legal institutions.The EGI report on Sri Lanka highlights the provincial disparities across the country usingsurveys conducted among private enterprises. These surveys capture a sense of the privatesector's perception of the business environment across seven of the nine provinces, withthe Northern and Eastern Provinces excluded due to security concerns at the time of datacollection.

The report finds that economic governance across the provinces differs widely, withcertain provinces ranking high on some sub-indices while scoring low on others. TheWestern Province, for example, scored the highest when it came to businesses obtainingregistration, permits, and licences while scoring the lowest on confidence in legalinstitutions and conflict resolution. Uva Province scored highest in this latter category,indicating stronger support for the province's judiciary and appeals process regardingbusiness activities compared to other provinces. On the other hand, this province rankedthe lowest in terms of tax administration, burden, and services, indicating privateenterprises in this area experienced relatively more tax-related obstacles than any otherprovince. In reference to land access and property rights, the survey revealed that obtainingproperty for commercial purposes was easier in the North Western Province than in theWestern Province, with 55 per cent of businesses in the former province highlightingthe ease of obtaining property compared to 34 per cent in the latter.

Box 10.1Asia Foundation Economic Governance Index

Source: The Asia Foundation, Economic Governance Index 2007: A Measure of the Local EnablingEnvironment for Private Enterprise in Sri Lanka.

10.4.2 Information CommunicationTechnology (ICT) InfrastructureWith ICT usage permeating through allaspects of economic and social activities,ICTs have become a linchpin of a knowl-edge-based economy. As Sri Lanka pushestowards becoming a knowledge economy,ensuring that its ICT infrastructure is afford-able, efficient, and inclusive, will be impor-tant to drive economic growth and produc-tivity across the country.

However, this push forward may not beenough. The World Bank's KAM dataindicate that ICT infrastructure in Sri Lankahas worsened over time. The index thatmeasures ICT development stood at 4.50 in1995 but dipped to 3.64 in 2000, anddropped further still to 2.98 in 2009. Thisseems counterintuitive given the numerous

initiatives undertaken by the Information andCommunication Technology Agency (ICTA)to improve the level of ICT development inthe country, but could be due to the fasteradvances that other countries have made, rela-tive to Sri Lanka.

Furthermore, Sri Lanka scores low on severalindicators with respect to ICT infrastructurewhen compared with Singapore and India(Figure 10.2). In particular, Sri Lanka lagsbehind in terms of the number of internetusers and extent of business internet use. Onthe other hand, Sri Lanka surpasses India ontotal number of telephones and mobilephones per person, prevalence of telephonelines, as well as number of computers avail-able per person and international internetbandwidth. The lack of internet usage, then,could reflect the high connection and


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monthly rental costs, as well as the cost ofcomputers which cannot be afforded by allgroups.

Telecoms, a key determinant of ICT infra-structure, has shown remarkable growth inrecent years in Sri Lanka (growing at around16 per cent annually in the last three years),following liberalization of the sector and thesubsequent influx of FDI into it (Table 10.3).While fixed telephony has saturated overtime, mobile telephony has shown a sharpgrowth, as heightened competition drovedown prices, and mobile service charges

Figure 10.2Comparison of ICT Infrastructure: Sri Lanka, India and Singapore

Source: Compiled using data from World Bank Knowledge Assessment Methodology (KAM) database.

became very affordable to individuals at mostlevels of the income spectrum.

Fixed tele-density remains heavily skewedtowards the Western Province - accountingfor 40 per cent of all fixed line phones(Figure 10.3). However, it must be borne inmind that with the proliferation of afford-able mobile telephony, this gap has beenbridged, with many rural households substi-tuting the lack of a fixed line by a mobiletelephone or at least a portable CDMA (CodeDivision Multiple Access) phone.

Table 10.3Number of Fixed, Mobile, and Broadband Subscribers

Year Fixed Mobile Broadbanda

2006 1,884,076 5,412,496 130,0002007 2,742,059 7,983,489 202,3482008 3,446,411 11,082,454 234,0002009 3,435,958 14,095,346 249,7562010 3,578,463 17,359,312 280,000

Notes: a: Provisional.

Source: Telecom Regulatory Commission, Statistical Overview 2010.

0123456789

10

Total telephones per 1000 people, 2007

Main telephone lines per 1000 people, 2007

Mobile phones per 1000 people, 2007

Computers per 1000 people, 2007

International internet bandwidth (bits per person), 2007

Internet users per 1000 people, 2007

Price basket for internet (US$ per month), 2006

Availability of e-government services (1-7), 2008

Extent of business internet use (1-7), 2006

ICT expenditure as % of GDP, 2007"

Sri Lanka

India

Singapore


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Broadband internet connectivity has also risenover the years (although not as dramaticallyas mobile telephony), doubling between2006 and 2010. However, the lack of fullexpansion of the broadband backbone torural areas makes availability unequalgeographically. An estimated 280,000 broad-band subscribers as at end 2010, compriseda mere 1.4 per cent of the country's totalpopulation. This is compared to over 70 percent of people being connected via mobiletelephony.14

Source: Telecom Regulatory Commission, Statistical Overview 2010.

The high costs of broadband connectivitylimit access to connectivity and affectsinclusiveness in terms of expanding internetliteracy for all. Sri Lanka ranks third highestamong South Asian countries in terms of theannual cost of a broadband connection (Table10.4). Moreover, the quality of broadbandalso remains an issue, with download speedsestimated to be far below the advertisedrates.15 However, since then, correctivemeasures adopted by Telecom RegulatoryCommission (TRC) have led to a 60 per centimprovement by operators.16

Figure 10.3Provincial Distribution of Fixed Phones (as at December 2010)

Table 10.4Broadband Internet Costs in Sri Lanka vis-a-vis South Asia

Country Annual Cost (US$)a

Bangladesh 618Nepal 248Sri Lanka 168Pakistan 114India 143

Notes: Cost of 256kbps broadband business connection.

Source: LIRNEasia, www.lirneasia.net.

14 Dialog Axiata Plc., Annual Report 2009.15 Lanka Business Online (LBO), ‘Sri Lanka broadband speeds below advertised rates: regulator’, 27th December 2010, http://

www.lankabusinessonline.com/fullstory.php?nid=1013747302.16 Ibid.

Northern3%

Eastern4%

North Central6%

Uva7%

Sabaragamuwa8%

North Western

10%

Central11%

Southern11%

Western40%


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The concerted efforts by the ICTA currentlyunderway to completely re-orient Sri Lankatowards better ICT adoption and utilization

by broader society will no doubt boost thecountry's position on the ICT pillar in thecoming years (see Box 10.2).

Box 10.2e-Sri Lanka Programme

Sri Lanka began implementing the e-Sri Lanka Programme in 2003, with the aim to promoteaccess to ICT across the country. According to a report prepared for the ICTA in 2010, a mere5.7 per cent of the population in Sri Lanka has access to the internet.17 The impetus behind theprogramme is that ICT is seen as "an enabler and a tool that can help people to increase theirincome levels in whatever fields of employment they are involved in." The programme'sprimary aims are to provide improved access and use of ICT; access to and use of publicservices on-line by businesses and citizens; and enhanced competitiveness of the privatesector and in particular of the knowledge industry and SMEs. It endeavors to tackle thesechallenges through:

1. Empowering the rural poor, disadvantaged groups, women and youth through increasedand affordable access to information and communication tools

2. Developing leadership and skills in ICT3. Creating employment in the ICT industry and ICT enabled services, and enhancing the

competitiveness of user industries and services

The e-Sri Lanka Programme has adopted six approaches to fulfilling these aims. They includei) ICT Policy, Leadership and Institutional Development; ii) ICT Human Resources Developmentand Industry Promotion; iii) Regional Telecommunications Network; iv) Telecenter (Nenasalas)Development; v) Re-engineering Government; and vi) e-Society Development. Several of thesehave been successful in promoting ICT among government employees, as well as reachingout to the disadvantaged and providing ICT access to youth and women in rural areas.

According to the World Bank, the programme has achieved some critical successes, notingthat it is the "most comprehensive ICT project in the World Bank,".18 It is estimated thatfollowing the programme's implementation, over 50,000 new jobs have opened and over35,000 private sector employees have used the programme's ICT training in their work. Thegovernment online portal has reportedly attracted over 4 million users since it began offeringservices in 2009, and its telecenter project draws over 70,000 people monthly through its600+ Nenasalas (see Box 10.3).

Nonetheless, the e-Sri Lanka Programme has key challenges in implementation, which in turnhave impacted its scaling-up. When implementing certain projects under the programme,there has been difficulty ensuring the quality of ICT services provided consistently meets theexpected standards. Another key issue is that of the language barrier that exists for many SriLankans when operating predominantly English software and on-line applications. Additionally,the ICTA is trying to meet the challenge of promoting export growth of ICT-related services andestablishing an institutional framework that clearly defines the legal boundaries of ICT use inSri Lanka.19

Sources: ICTA, 2010, “Outcome Evaluation Report of Nenasala Project”, a report prepared for theICTA by Skill International Private Limited; http://www.icta.lk/en/programmes.html; interviewwith Monitoring and Evaluation Programme Head, ICTA.

17 ICTA, 2010, “Outcome Evaluation Report of Nenasala Project”, a report prepared for Information and Communication TechnologyAgency of Sri Lanka by Skill International Private Limited. ICTA: October 2010.

18 World Bank, 2011, “Implementation Status and Results: Sri Lanka E-Lanka Development”, World Bank.19 Interview with Monitoring and Evaluation Programme Head, ICTA.


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10.4.3 Research and Innovation SystemThere is no single accepted definition of anational innovation system. Rather, it refersto the network of institutions, rules andprocedures that foster innovation and R&Din a country - the web of interaction as awhole. It includes the degree to which exist-ing technologies from other countries areadopted and developed further to suit thelocal needs, the development of globallycompetitive technologies and productionprocesses, and the nexus between science andresearch institutes and the private sector (i.e.,firms that would use new and/or adaptedtechnologies).

The World Bank's KAM database reports arise in the quality of research and innovationinfrastructure in Sri Lanka recently. Despitea slight decrease in the KAM indicatorbetween 1995 and 2000 from 3.27 to 3.24,

Sri Lanka's score in 2009 rose to 4.13.Despite this rise, Sri Lanka lags behind Indiaand Singapore with respect to certain aspectsof research and innovation infrastructure. Inparticular, Sri Lanka performs relatively poorlyin the areas of royalty payments and receipts,total expenditure for R&D, and high-techgoods as a percentage of manufacturedexports (Figure 10.4).

Sri Lanka is a late-comer to the research andinnovation revolution that has swept theworld in the last decades. Many of thecountry's scientific institutes remain under-funded, with insufficient internationalcollaboration to acquire and adapt globaltechnologies. Sri Lanka's research institutesare also overwhelmingly agriculture-based.Of an estimated total of 5,300 scientistsspread over 13 universities and 19 R&Dinstitutes in 2005, more than 60 per cent of

Figure 10.4Comparison of Research and Innovation Infrastructure: Sri Lanka, India and Singapore


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FDI outflows as % of GDP, 2003-07

FDI inflows as % of GDP, 2003-07

Royalty payments and receipts(US$/pop.) 2007

Science and engineering enrolment ratio (%), 2007

Researchers in R&D /mil. people, 2006

Total expenditure for R&D as % of GDP, 2006

University-company research collaboration

(1-7), 2008

Availability of venture capital (1-7), 2008

Patents granted by USPTO/mil. people, avg

2003-2007

High-tech exports as % of manuf. exports, 2007

Private sector spending on R&D (1-7), 2008

Firm-level technology absorption (1-7), 2008

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the R&D institutes were related to agricul-ture.20 Additionally, the protracted conflict,along with unattractive career potential,meant that a large proportion of science andengineering professionals left the country insearch of better opportunities. However, thisis gradually changing.

An example of the improved nexus betweenacademic scientific research and privatesector initiative would be the telecomcentre in the Moratuwa University (in part-nership with Dialog Axiata telecom) and theground-breaking Sri Lanka Institute ofNanotechnology (SLINTEC), which operatesunder a unique public-private partnership(PPP) model. The SLINTEC has also been ableto attract Sri Lankan diaspora experts to linkup with local scientists for nanotech research.As was the case in much of industrializedEast Asia, Sri Lanka can absorb existing tech-nologies and production systems, and thenleverage on such a base to develop more

innovative industries and create newer, oradapt existing technologies. However, dueto a lack of public funding for R&D enter-prises over the decades, the national scienceand technology environment experiencedlittle growth. Despite the stated governmentgoal in 2006 to allocate 1.5 per cent of GDPto R&D by 2016,21 by 2008 only one-tenthof that had been allocated.22

A key government initiative is currentlyunder way to ensure that innovation capa-bilities and opportunities are not limited tothe urban and highly commercial hubs - e.g.,the 'Vidatha' programme of the Ministry ofTechnology and Research. By end 2009, therewere 254 Vidatha Resource Centres acrossSri Lanka, covering 77 per cent of all Divi-sional Secretariat (DS) divisions in the coun-try,23 involved in 'transfer of technology'programmes under the theme 'GamataThaakshanaya' ('technology to the village').Yet, there is evidence to suggest that the link-

A recent assessment showed that, as at end 2009, Vidatha had provided close to 3,400trainings in 139 technologies, providing services to over 8,400 entrepreneurs. Moreover,roughly 1,400 entrepreneurs had received assistance in obtaining loans at low interestrates for technology development. A key element of the programme is to provide computertraining to local communities, and over 27,200 people have benefited from this feature.However, despite its successes, the programme has encountered certain obstacles. Theprovision of more up-to-date technologies, business management training, and ways forentrepreneurs to access capital (including raw materials and machinery) at concessionaryrates are identified as critical needs. These would need to be implemented both at thelocal Vidatha Resource Centre level and the central level in order to ensure that innovationat the local level can be of a high quality, with the potential for better commercialization.

Box 10.3Performance Review of the Vidatha Programme

Source: Asha Gunawardena, Kanchana Wickramasinghe, and Nethmini Perera, 2010, “Assessment ofVidatha Technology Transfer Programme”, a report prepared by the IPS for the Ministry ofTechnology and Research.

20 Radwan, I., N. Kuruppu, and A. Wijesinha, 2008, Building the Sri Lankan Economy, World Bank, Washington D.C.21 DNP, 2006, Mahinda Chinthana: A Ten Year Horizon Development Framework 2006-2016, Ministry of Finance and Planning.22 Radwan, I., N. Kuruppu, and A. Wijesinha, 2008, Building Sri Lanka’s Knowledge Economy, World Bank, Washington D.C.23 Ministry of Technology and Research, www.most.gov.lk.


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age between the activities of the Vidathacentres and private enterprises in the localarea - i.e., if the innovation capabilitiesdeveloped by these centres are in fact filter-ing in to entrepreneurship and product/service innovations - remains weak, forseveral reasons (Box 10.2). These linkagesneed to be strengthened to ensure that notonly is access to such facilities made morewidespread, and thus inclusive to a largerpart of the population, but that they areeffective conduits for research and innova-tion to be commercialized.

10.4.4 Education and SkillsDeveloping the country's human resourcesis the key second element in developing acompetitive and inclusive knowledgeeconomy. It refers collectively to the educa-tion system and the level of vocational train-ing in the country. Having a relatively high

adult literacy rate of 92 per cent, Sri Lanka isa forerunner among developing nations withregard to universal literacy. However, thequality and relevance of the educationprovided has not kept up with local andglobal changes and labour market require-ments.

Nonetheless, World Bank KAM data showthat the quality of education and skills infra-structure has improved in the recent past.Although the quality in education may havesuffered slightly from 1995 to 2000, as sug-gested by the KAM index's decrease from4.42 in 1995 to 4.31 in 2000, it seems tohave improved over the following years,indicated by a score of 5.00 in 2009. Yet,when looking more closely at various indi-cators and when comparing to India andSingapore, it is evident that Sri Lankaperforms poorly with respect to Internet ac-


Figure 10.5Comparison of Education and Skills Infrastructure: Sri Lanka, India and Singapore

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Adult literacy rate (% age 15 and above), 2007

Average years of schooling, 2000

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Gross tertiary enrollment rate, 2007

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2007

Quality of science and math education (1-7),

2008

Quality of management schools (1-7), 2008

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cess in schools, public spending on educa-tion, and gross tertiary enrolment, as shownin Figure 10.5. However, Sri Lanka excels interms of gross secondary enrolment, surpass-ing both India and Singapore in this area.

Spatial disparities in education access andquality pose a considerable challenge togrowing the knowledge-potential of the SriLankan economy in an inclusive manner.Available evidence suggests significantspatial disparities in access to educationacross districts in Sri Lanka, whereby educa-tional opportunities, in terms of the avail-ability of schools, human resources, andother facilities, are widely imbalanced acrossthe country.24 Physical resources in the North-ern Province are not as widely available asthose in other parts of the country. In par-ticular, the districts of Mullaitivu, Mannar,and Vavuniya suffer a shortage of schoolswith Advanced Level (A/L) programmes. Forinstance, there is only one school with A/Lscience for over 400 sq. km. in Mullaitivuand Vavuniya, while Mannar has one for every200 sq. km. This is in stark contrast to dis-tricts in other provinces. Colombo, whichlies in the Western Province, enjoys a distri-bution of the same type of school for every10 sq. km., while Kandy and Gampaha haveone for approximately every 40 sq. km. and25 sq. km., respectively.

Human resources is another area where spa-tial disparities are evident. The availabilityof qualified teachers (with graduate certifi-cates or other types of training), is consider-ably disproportionate across different districts.Kilinochchi, Mannar, and Polonnaruwa haveparticularly low proportions of graduatetrained teachers in relation to the total num-ber of teachers available in the province,numbering 0.5 per cent, 0.6 per cent, and1.3 per cent, respectively. On the other hand,

districts like Kurunegala, Colombo, andKandy, with 11.2 per cent, 10.5 per cent,and 8.8 per cent respectively, enjoy relativelyhigh proportions of such teachers.

A third area where access to education isdisproportionate is accessibility to facilitieslike libraries, science laboratories, and com-puters. Over three-fourths of the total num-ber of schools in Kilinochchi, Mannar,Mullaitivu, and Vavuniya do not have a li-brary, not even a temporary reading room.However, many schools in Colombo andGampaha enjoy such resources, with only15 per cent and 26 per cent of schools inthese respective districts having no access tolibraries or reading rooms. The availabilityof science laboratories tells a similar story,with over 80 per cent of schools inKilinochchi and Mullaitivu having no sci-ence labs whatsoever, while only 11 per centof schools in Colombo and 20 per cent ofschools in Gampaha suffer the same fate.Similarly, Kilinochchi and Mullaitivu have,on average, fewer than one computer perschool, whereas Colombo has, on average,over six computers per school while Galle,Gampaha, Hambantota, Kalutara, Kandy, andMatara, have between two and three com-puters per school.

Specific education areas like computer lit-eracy are also important indicators of theability to strengthen Sri Lanka's knowledgeeconomy potential. This needs to be devel-oped along with expanding ICT infrastruc-ture, to ensure that ICT development is in-clusive for all to leverage upon. However,there are significant geographical disparitiesin computer literacy across the country. Asurvey conducted by the DCS, reveals thatwhile computer literacy in 2009 was around30 per cent in urban Sri Lanka, it was 19 percent in rural areas and a low 8.5 per cent in

24 Tilakaratna, G., A. Galappattige, R. Jayathilaka, and R. Perera, 2008, “Educational Opportunities for the Poor in Sri Lanka: Assessing SpatialDisparities”, IPS.


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estate areas (Figure 10.6). Across provincestoo, significant disparities are prevalent, withall regions lagging well behind the WesternProvince (Figure 10.7). However, in bothindicators, there is clear evidence of improve-ment between 2006/07 and 2009. The ICT

Agency's Nenasalas programme have gonesomeway in addressing the issue of computerliteracy, by taking computer usage to ruralareas through the network of these 'ruraltelecenters' (see Box 2).

Box 10.4Sri Lanka's Nenasalas

The ICTA established the Nenasala project in order to "empower the population in ruralareas of the country through affordable community access to information andcommunication technologies."25 The term Nenasala roughly translates to 'wisdom outlet'in Sinhala. The project aims to establish 1,000 telecommunications centers in ruralcommunities across the country. These centers are expected to provide:

• availability of affordable basic communication services (voice, fax, email andInternet access), office services (printing, copying, scanning) and communityinformation in rural and disadvantaged areas.

• enhanced access and quality of social services (e.g., public services on-line,distance education).

• access to private sector and banking services on-line.• e-Commerce, information on employment opportunities for improved entrepre-

neurship (e.g., through online technical assistance, and expanded input andoutput market networks).

• mobilization of local knowledge and support to local industry development.• empowerment of target groups through community driven development.

As of October 2010, there were reportedly 629 centers that had been progressivelyestablished across Sri Lanka. An evaluation of the Nenasala commissioned by ICTAsuggests that the majority of users had a positive opinion about the services offered atthese telecenters and perceived them to be useful. Among those surveyed, roughly 60per cent rate the services as 'very good', and on overall satisfaction, close to 40 per centof users reported being 'highly satisfied'. However, an independent review is yet to beundertaken.

The majority of users of the Nenasalaas are found to be young people, with three-fourths aged between 12-25 years. The Nenasala project has also seemingly succeededin bridging the gender gap in the area of ICT, with 63 per cent of all users being female.Nonetheless, the sustained popularity and relevance of these telecenters remains to beseen. The same survey pointed out declining trends in both computer usage and numberof users between May-July 2010, as well as a decreasing trend in total Internet hoursfrom September 2009 to July 2010. Furthermore, the Nenasalas face the challenge of alack of relevant content available to local communities. Much of the information providedis obtained from the internet, which is predominantly in English, and largely globalised.In order to stay relevant, these centers would need to ensure that more locally relevantinformation is also available to the users.

25 ICTA, 2010, “Outcome Evaluation Report of Nenasala Project”, a report prepared for ICTA by Skill International Private Limited.


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Moreover, Sri Lanka spends a disproportion-ate amount (50 per cent) on secondaryeducation from its total education budget.26

This stands in stark contrast to the share ofexpenditure spent on primary, university, andtechnical levels, which were considerably lessat 32, 14, and 3 per cent, respectively. The

need to further develop the country's privatesector university system and expand on therelationship between the tertiary educationsystem and the private sector remains animportant step in developing the nation'sknowledge economy.

Figure 10.6Computer Literacy in Sri Lanka across Urban, Rural and Estate Sectors

Figure 10.7Computer Literacy in Sri Lanka across Provinces

Source: DCS, National Computer Literacy Survey.

26 World Bank, 2005, ‘Treasures of the Education System in Sri Lanka’, World Bank, Colombo.

%%

Source: DCS, National Computer Literacy Survey.

0

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As Sri Lanka is becoming increasinglyintegrated into a globalized society, the needfor English language skills is becoming moreapparent. However, the prevalence of Englishas a medium of study is low in all prov-inces, and markedly so in the Central, North-ern, Eastern, North Central, Uva, andSabaragamuwa Provinces (Figure 10.8). Yet,this might not entirely be an accurateindication of English language ability acrossthe country, owing to the numerous privatelyadministered English language classes seento be available throughout much of thecountry, albeit mainly in urban and semi-urban areas.

10.5: Way Forward - Strong Institu-tional FrameworkThe preceding discussion aimed to demon-strate the key elements that determine thegrowth of a knowledge-based economy. SriLanka needs to take a comprehensive look ateach of these elements and their constitu-ents, to identify which gaps need addressingurgently in order to ensure that a competi-tive and inclusive knowledge economy canbe fostered. To ensure coherent and con-certed efforts in building the knowledgeeconomy and becoming a knowledge hub,Sri Lankan policy makers should implementstrategies that take a holistic approach.

Figure 10.8Students by Medium of Study across Sri Lanka

Source: Ministry of Education, School Census 2006.

Addressing all elements concurrently wouldbe essential, owing to the strong inter-link-ages between the elements highlightedearlier.

Setting up robust institutions to catalyze thiswould indeed be a vital step. For instance,setting up a Knowledge Commission, or aKnowledge Economy Task Force, could helpdrive these efforts at a national, strategiclevel, and ensure the aforementioned holis-tic and coherent approach is adopted. Somelessons could be drawn from a similar effortin India, where a National Knowledge Com-mission has been giving leadership to India'sefforts at developing its knowledge economysince 2005 (Box 10.3). Such a body couldcomprise of representatives from the govern-ment, academia, and private sector, cover-ing fields relevant to each of the elementsthat determine the growth of the knowledgeeconomy. Such a Commission would needto be given leadership at the highest level,and tasked with making policy recommen-dations and developing appropriate strate-gies, as well as advising on driving thenecessary sector-wise initiatives at the lineministry level.

The thrust to develop Sri Lanka as a knowl-edge hub has been clearly articulated in gov-

No.

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ernment policy documents. Thus, it is im-portant for the government to develop andachieve these by setting concrete policypriorities for each of the knowledge economydeterminants by bringing together all gov-ernment and private sector bodies workingon this sector. Such an action plan will pro-

vide necessary guidance to these bodies onwhat specific steps need to be taken, as wellas provide a strong signal to investors will-ing to take up opportunities in investing inthe gamut of knowledge-based enterprises -research and innovation centres, tertiary edu-cation and technical/vocational training

The National Knowledge Commission (NKC) of India is an advisory body tasked withproviding policy analysis and recommendations to help develop India's potential as aknowledge society. It covers areas such as education, science and technology (S&T), andagriculture. Set up in June 2005, it reports to the Prime Minister (PM) and comprises sixmembers. The tasks that the NKC carries out revolve around developing India's researchand knowledge production capabilities. It aims to harness this knowledge to use inother areas of the economy, including agriculture, industry, and health care. The NKCaims to:

• Build excellence in the educational system to meet the knowledge challengesof the 21st century and increase India's competitive advantage in fields ofknowledge.

• Promote creation of knowledge in S&T laboratories.

• Improve the management of institutions engaged in intellectual property rights(IPRs).

• Promote knowledge applications in agriculture and industry.

• Promote the use of knowledge capabilities in making government an effective,transparent and accountable service provider to the citizen and promotewidespread sharing of knowledge to maximize public benefit.

• Expand the education system and use the country's IT infrastructure to improvegovernance and connectivity across the nation.

The NKC first identifies key issues and their relevant stakeholders, followed byconsultations and workshops, discussions within the NKC prior to finalizing theirrecommendations to the PM, and then issuing a formal letter to the PM containingpolicy recommendations and financial impacts. It then seeks to disseminate its workusing its website and its contact with state governments and members of civil society.

It has led many initiatives over a variety of different areas and has made its findingsavailable through reports, presentations, newsletters, and newspaper articles. Its 'Reportto the Nation 2006-2009', a compilation of previously published reports, highlightsmany of the recommendations the NKC has made over its three and a half year term.Covering topics such as IPRs, vocational education and training (VET), andentrepreneurship, the report addresses key areas through which the country can developits knowledge economy.

Box 10.4India's National Knowledge Commission

Source: http://www.knowledgecommission.gov.in/default.asp.


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institutes, IT-enabled service providers, andscience and technology related ventures likenanotechnology, biotechnology, and high-tech manufacturing. A policy mix of aspecialized high-level advisory body, andrecommendations via an expert task forcerepresenting all relevant stakeholders, com-

bined with a comprehensive and specific gov-ernment action plan, as well as buy-in fromkey government ministries and agencies aswell as private sector players, will ensure thatSri Lanka emerges as a competitive and in-clusive knowledge economy in the country'snew era of post-conflict growth.


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11. Driving Infrastructure Developments for Inclusive Growth

11.1 IntroductionAn accelerated infrastructure development thrust liesat the core of Sri Lanka's post-conflict economicprogramme. Whilst infrastructure spending isundoubtedly beneficial in providing the initialmomentum to economic growth, the inclusivenessof the infrastructure development - where differentagents are given equal opportunities to participate indevelopment activities, while allowing the benefitsof such developments to be equitably shared amongvarious social groups - will to an extent, determinethe sustainability of the growth process in the longerterm.

Infrastructure projects currently carried out in Sri Lankaare spread across provinces, with special attentionbeing given to the previously conflict-affected N&E.Provision of adequate infrastructure for lagging regionsis critical not only to tap unutilized resources butalso to bridge existing regional disparities in socio-economic development. International experience alsosuggests the importance of focusing not only on 'howmuch' but also 'where', in addressing infrastructureneeds.1 Inadequate infrastructure is identified as akey factor in the unequal distribution of gains fromeconomic growth, calling for policies that centre oninclusiveness to reach balanced regional develop-ment.2

This discussion attempts to look at the distribution ofinfrastructure developments across regions in SriLanka, and thereby to assess infrastructure policy interms of ensuring inclusivity in economic growth. Itfocuses specifically on rural infrastructure develop-ment initiatives and the status of the developments

1 Estache, A., and Fay, M., 2007, “Current Debates on Infrastructure Policy”, Policy Research Working Paper Series 4410, World Bank,Washington, D.C.

2 Li, W., T. Mengistae and L.C. Xu, 2011, “Diagnosing Development Bottlenecks: China and India”, World Bank Policy Research WorkingPaper Series; Joshi, G.S., 2010, “Infrastructure Development Strategies for Inclusive Growth: India’s Eleventh Plan”, Leadership andManagement in Engineering, Vol. 10, No. 2, American Society of Civil Engineers.

‘‘

Bringing the multiplerural infrastructure

developmentprogrammes under one

arm would ensurebalanced development

across regions

Driving Infrastructure Developments for Inclusive Growth

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of different sub-sectors of infrastructureacross regions in the country.

11.2 Role of Infrastructure in InclusiveGrowth and Poverty ReductionSustainable infrastructure development hasa direct impact on accelerating rural andurban livelihood improvement. This canpropel a country towards an inclusive growthpath where the gains of economic develop-ment trickle down to all layers of the societyas their full potential is utilized in thenational development process. Alongsidestimulating growth in lagging areas, improv-ing integration between lagging and leading

areas - where infrastructure plays an impor-tant role - is vital for economic progress.3

The impact of infrastructure on economicgrowth and poverty reduction takes the formof first-round effects, followed by subsequentimpacts.4 In the first round, both supply anddemand sides of the economy are impactedthrough an enhanced business climate. Roadsand irrigation infrastructure have shown todirectly improve the incomes from agricul-ture and non-farm activities, and living stan-dards of the poor, while electricity has provento create employment through the establish-ment of industries in the areas.5 The social

Figure 11.1Impact of Infrastructure on Economic Growth and Poverty Reduction

Source: Jahan, S. and R. McCleery, 2005, Making Infrastructure Work for the Poor, UNDP.

3 World Bank, World Development Report 2009: Reshaping Economic Geography, World Bank, Washington, D.C.4 Jahan, S. and R. McCleery, 2005, Making Infrastructure Work for the Poor, UNDP.5 Ali, I., and E. M. Pernia, 2003, “Infrastructure and Poverty Reduction - What is the Connection?”, ERD Policy Brief Series, Asian Development

Bank, Manila.

Infrastructure Developments

Increased Additional Budget for Fiscal Revenue Pro-poor Measures

Supply Impacts

Reduced costsBetter Market opportunities

More investment inflows

Higher output

Demand ImpactsEmployment creation

Income generation

Higher demand

EconomicGrowth

PovertyReduction


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dimension of better infrastructure is theincreased access to basic social services thatimprove the living conditions of the poor.The subsequent effect of infrastructuredevelopment arises when growth increasesfiscal revenue, resulting in additionalbudget being generated for programmes thatimprove the living conditions of the poor.

Although infrastructure improvements affectthe overall functioning of the economy, theimpact of some infrastructure sectors on thedomestic output can be specifically identi-fied. Since Sri Lanka's accelerated infrastruc-ture development drive commenced in 2006,the performance of the transport, cargo han-dling and post and telecommunication sub-sectors has been significant (Figure 11.2).During 2006-10, these three sub-sectors haverecorded a growth of 37 per cent, 37 per cent,and 88 per cent, respectively. The transportand cargo handling sectors have grown at anannual average rate of 8.2 per cent and 8.5per cent, respectively, well above the country'soverall rate of GDP growth. In 2010, thesectors recorded a growth of 11.4 per centand 16.8 per cent, reflecting the benefits ofa post-conflict environment as well as the

Figure 11.2Contribution of Transport and Communication to GDP

Source: CBSL, Annual Report 2010.

overall economic recovery from the down-turn of 2009. Clearly, increased output holdsthe potential to create wider employmentopportunities and impact positively onpoverty reduction.

11.3 Infrastructure Development andInclusive Growth in Sri LankaOne of the major thrusts of Sri Lanka's presentdevelopment strategy is to strengthen the'village' as a dynamic and sustainable growthcentre that can effectively contribute to thenational growth process. This is equally high-lighted in the infrastructure developmentmeasures. An assessment of whether theseinfrastructure facilities are adequately distrib-uted across regions without being concen-trated in already economically active districtsis important.

11.3.1 Policy on InfrastructureDevelopmentSri Lanka's current infrastructure policy aimsto accommodate broader regional and ruraldevelopment policies and poverty alleviationefforts. 'Randora' is carried out at thenational level covering development of roads,

Rs.

mn


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electricity, water supply and sanitation, andports and aviation, while the correspondinginfrastructure projects at the regional levelare carried out through the 'Maga Neguma'and 'Gama Neguma' programmes.

As evident from Figure 11.3, thegovernment's priority on infrastructure spend-ing is clear. Public investment as a percent-age of GDP which stood at 6.8 per cent in2009 was maintained at 6.4 per cent in 2010.During 2005-10, public investment has more

Figure 11.3Public Investment

Source: Ministry of Finance and Planning, Annual Report, various issues.

than doubled, at a rate faster than theincrease in total expenditure, and remainsabove one-fourth of the total governmentexpenditure.

Allocations among different sectors of infra-structure also reflect a significant change overtime, with the share spent on roads andbridges, electricity, ports and aviation, andspecifically for rural infrastructure beinghigher in 2009 compared to 2006. However,the share of spending on social infrastruc-

Table 11.1Sector-wise Public Investments (Rs.mn)

Sector 2006 % Share 2009 % ShareRoads and bridges 25,871 14.6 85,146 25.8Electricity 4,484 2.5 32,852 9.9Ports and aviation 5,731 3.2 28,332 8.6 o/w ports 191 0.1 25,425 7.7Irrigation 7,329 4.1 14,207 4.3Agriculture and production 9,474 5.3 14,512 4.4Water supply 17,944 10.1 22,514 6.8Education 17,200 9.7 16,934 5.1Health 13,969 7.9 12,664 3.8Rural infrastructure 16,222 9.1 57,000 17.2Transport (railway/CTB) 7,586 4.3 11,247 3.4Administrative/police/judicial/other 51,470 29.0 8,102 2.5Total 177,443 100.0 330,448 100.0

Source: Ministry of Finance and Planning, Annual Report 2009.

23.0

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ture - e.g., health and education - has de-clined over the same period. Although 'hard'economic infrastructure such as roads andbridges bring about an immediate boost tothe economy, the importance of improvededucation and health in the long run mustnot be forgotten.

11.3.2 National Level InfrastructureDevelopmentNational level infrastructure requirements areidentified, planned and implemented underthe Randora programme encompassing botheconomic and social infrastructure. Promi-nence is given to maintain and rehabilitatethe existing road network under the 'NationalRoad Master Plan' focusing on the construc-tion of expressways and highways, wideningof highways, reduction of traffic congestion,road maintenance and rehabilitation, bridgerehabilitation and reconstruction, landacquisition and resettlement of affectedpeople.

Sectors with potentially high returns such aselectricity, and ports and aviation haveattracted more foreign financing while ruraland social infrastructure seems to havereceived less emphasis (Table 11.2). Focus-ing on these areas will be equally importantto achieve balanced development. Theemphasis on road development is largelyderived from the desire to establish a highquality road network connecting the regionswith the centre, which can trigger regionalinvestments, both domestic and foreign.Transport improvements such as Colombo-Kandy expressway suggests a reduction ofisland-wide transport costs by 20 per cent.6

Rehabilitating railways, restructuring of thestate bus service and addition to train andbus fleet are carried out under transport sectordevelopments. State bus service and railwaysaccount for 23 per cent and 6 per cent,respectively, of passenger transport in thecountry.7 The developments are aimed atmaking the state bus service operationefficient while allowing fair competition

Table 11.2Funding for Infrastructure (Rs.mn)

Sector Domestic ForeignEconomicRoads 118,693 275,685Electricity 33,409 264,656Water supply & sanitation 23,439 56,021Ports and aviation 59,640 144,016Transport 24,795 99,150Rural infrastructure 23,798 11,919Irrigation 18,392 48,730SocialHealth 9,788 13,953Education 16,200 16,170

Source: Randora National Infrastructure Development Programme/MahindaChinthana: Ten Year Horizon Development Framework 2006–2016.

6 World Bank, 2010, Sri Lanka: Reshaping Economic Geography, World Bank, Washington, D.C.7 Ministry of Finance and Planning, 2008, ‘Randora’ National Infrastructure Development Programme.


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between private and state buses in apassenger-friendly manner. The benefits oftransport infrastructure improvement aresignificant for rural communities whose useof private vehicles is limited.

The power sector aims to achieve 100 percent electrification by 2012 through thedevelopment of infrastructure and facilitiesto remote and distant locations by connect-ing to the national grid or other energysources. Presently, 85 per cent of the popu-lation has access to electricity through thenational grid, 3 per cent by alternativeenergy sources (solar and micro hydroprojects), while 12 per cent are left with noaccess to electricity.8 Areas to which theextension of the national grid is unfeasibleare planned to be provided with renewableenergy technologies through the 'GramaShakthi' programme. The N&E and somepoverty stricken districts such as Moneragalaand Badulla continued to record low levels

Figure 11.4Electrification Level in Sri Lanka (%)

Source: Ministry of Power and Energy and Ministry of Finance and Planning, Annual Report,

various issues.

of electrification (Figure 11.4). Promotion ofalternative sources in these areas will bettercater towards livelihood development dueto their affordability, while easing theburden on the economy as a whole byreducing dependence on oil-based powergeneration. 120,000 solar power projects and10,000 village micro-hydro projects havebeen completed across the country underGrama Shakthi.9

Considering Sri Lanka's potential for inter-national trade and tourism due to its uniquestrategic geographic location, port and avia-tion infrastructure development is being car-ried out as a priority. The expansion in portsand airports will undoubtedly create directemployment opportunities that can be ex-ploited by the youth, especially in the lag-ging regions. Trainings for youth, specifi-cally targeting employment related toplanned developments, would maximizeavailable opportunities.

8 Ministry of Power and Energy, http:// www.power.lk/.

9 Ibid.


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11.3.3 Rural Infrastructure Deve-lopmentIn formulating rural development strategiesand allocating resources, priority has beengiven to the Gama Neguma village baseddevelopment programme which focuses onrural infrastructure and livelihood develop-ment. Community participation throughoutthe project cycle is a distinct feature of thisprogramme to ensure the sustainability of thefacilities in improving livelihoods. A posi-tive feature is the priority given to the N&E

Box 11.1Gama Neguma Programme

The allocation to the N&E has been increasing over the years, indicating the priorityafforded to the region after the end of the conflict. By end 2009, the N&E (excludingMullaitivu and Kilinochchi) accounted for around 13.8 per cent of the total allocation.

Gama Neguma Performance District Govt. Beneficiaries District Govt. Beneficiaries

Expenditure (2008-09) Expenditure (2008-09)(end 2009) (end 2009)(Rs. mn.) (Rs. mn.)

Ampara 784 1,009,765 Kurunegala 2,260 845,648Anuradhapura 1,388 1,164,820 Mannar 293 42,612Badulla 1,080 422,323 Matale 730 348,935Batticaloa 769 775,741 Matara 1,135 291,040Colombo 763 181,956 Moneragala 1,113 537,331Galle 1,616 919,625 N’Eliya 932 1,411,457Gampaha 1,403 437,549 Polonnaruwa 579 395,736Hambantota 1,029 434,150 Puttalam 1,062 276,528Jaffna 563 212,743 Ratnapura 1,132 432,593Kalutara 1,286 278,923 Trincomalee 571 319,570Kandy 1,095 391,398 Vavuniya 156 71,004Kegalle 903 330,516

Source: Ministry of Nation Building and Estate Infrastructure Development.

The highest number of beneficiaries is recorded in Nuwara Eliya, the district with thehighest poverty headcount. Nuwara Eliya, Moneragala, Ratnapura, Badulla, Kegalle andMatale – the six districts recording the highest poverty – has accounted for one-fourth ofthe total expenditure. According to the Ministry of Economic Development, thegovernment has spent Rs. 6.4 billion in 2010, covering the implementation of 32,526projects in 10,567 Grama Niladhari Divisions throughout the country.

regions and poverty stricken districts to en-sure that the benefits are delivered to theneediest segments.

Fund allocation under the Maga Negumarural road development programme, whichaims at improving the connectivity betweenregional and urban areas, has also progressedin terms of beneficiaries. Nonetheless, thelevel of development of the regions whenmaking allocations appears less relevantunder this programme (Box 11.2).


147

Box 11.2Maga Neguma Programme

Since its initiation in 2005, road length of 7,449 kms. has been completed by end 2009according to the Ministry of Finance. The district-wise fund allocation indicates thatmore has been set aside for districts with larger number of beneficiaries and vice versa.However, the allocations seem to have been centred on a few low-poverty areas. Forexample, 28 per cent of total expenditure between 2007 and 2009 has been utilized inKurunegala and Hambantota districts alone.

Source: Ministry of Finance and Planning, Department of National Budget.

The Gemidiriya programme which wasinitiated to support the government's strat-egy to reduce rural poverty through promot-ing sustainable livelihoods and equitablerural development has carried an infrastruc-ture development component since itscommencement. The significance of simul-taneous infrastructure improvements inlagging regions is thus recognized.

The Samurdhi Development Authority alsocarries out a village infrastructure develop-ment programme, a bottom-up operationwhere the needs are identified, prioritizedand implemented by the Samurdhi recipi-ents with the guidance of government offi-

cials in the area. Concreting of village roads,tank renovation, construction of wells andclearing canals, and construction and repair-ing of school buildings have been carried outthus far. By 2010 this programme wasestimated to have reached 3,060 villages in317 Divisional Secretariat divisions.10

Alongside the above special rural infrastruc-ture development programmes, the govern-ment implements programmes aligned withnational service provision. As regards watersupply, locally funded small and mediumscale water supply projects are carried outacross the country, which are planned anddesigned by the National Water Supply andDrainage Board (NWSDB).

10 Media Centre for National Development of Sri Lanka.

Maga Neguma Coverage (2007 - 2009)

020040060080010001200140016001800

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Box 11.3Village Infrastructure Development through Gemidiriya

By end 2009, 3,245 projects had been implemented, benefiting 800,000 rural people.

The higher number of road projects undertaken in this programme indicates that roadsare recognized as a priority in infrastructure facilities. Completed projects of 1,137 havebeen handed over to the communities for operation and maintenance as a measure ofsustainable management through community participation.

Infrastructure Projects under GemidiriyaType No. of ProjectsRoad development 1818Bridges, culverts and causeways 160Irrigation 50Drinking water 353Sanitation 218Multi-purpose building projects 501Other 145

Table 11.3Small and Medium Scale Water Supply Projects (2009)

District Allocation Beneficiaries District Allocation Beneficiaries(Rs. mn.) (Rs. mn.)

Ampara 13 17,500 Kurunegala 84 12,000Anuradhapura 120 5,000 Matale 10 29,800Badulla 29 37,150 Matara 92 192,000Colombo 58 162,500 Moneragala 49 37,800Galle 13 3,000 Nuwara Eliya 56 10,500Gampaha 40 240,000 Polonnaruwa 41 60,000Kalutara 80 142,000 Puttalam 4 2,500Kandy 15 12,300 Ratnapura 92 205,900

Kegalle 63 47,500 Trincomalee 61 60,000

Source: National Water Supply and Drainage Board, Annual Report 2009.

Source: Gemidiriya Community Development and Livelihood ImprovementProject, Annual Report 2009.

In 2009, 17 new projects and rehabilitationand augmentation of 22 water supply schemeswere undertaken benefitting over 1.2 millionpeople (Table 11.3). Anuradhapura, Kalutara,Kurunegala, Matara and Ratnapura districtswhich record higher poverty levels have beengiven priority in terms of share of allocationsand/or larger target groups.

According to HIES data compiled by theDCS, a notable improvement is recorded inaccess to electricity and safe drinking waterbetween 2006/07 and 2009/10, especiallyin the rural and estate sectors (Table 11.4).Such factors, through improving livelihoods,can partly account for the sharp overall re-


149

Table 11.4Access to Services (% of population)

Sector Poverty Head Count Electricity Safe Drinking Water2006/07 2009/10 2006/07 2009/10 2006/07 2009/10

Urban 6.7 5.3 94.9 96.5 97.7 96.8Rural 15.7 9.4 78.5 83.2 85.0 87.1Estate 32.0 11.4 62.3 84.0 46.2 65.1Sri Lanka 15.2 8.9 80.0 85.0 84.8 87.3

Source: DCS, HIES (2009/10 and 2006/07).

Table 11.5Development of Irrigation Facilities, 2010

Districts Agriculture Land No. of Intervention No. of (in hectares)a Projects Allocation Beneficiary

(Rs. mn.) FamiliesColombo 28,385 62 n.a 465Kalutara 91,056 55 25.00 2,647Galle 88,323 7 2.85 3,500Matara 81,246 49 8.40 415Hambantota 89,710 64 125.00 4,000Ratnapura 141,366 n.a 98.00 4,100Puttalam 91,068 1 18.00 579Kurunegala 272,072 1 23.00 353Matale 68,740 179 92.15 951Kandy 94,674 207 54.60 951Nuwara Eliya 86,761 5 2.34 870Badulla 106,738 99 61.38 n.aMoneragala 96,437 8 0.99 n.aAnuradhapura 151,941 116 46.40 7,665Polonnaruwa 71,206 16 15.80 1,702Ampara 73,180 47 135.26 n.aBatticaloa 34,490 4 382.00 n.aTrincomalee 22,474 39 304.52 n.aVavuniya 13,840 2 80.00 334Mulaittivu 16,293 45 100.27 n.aMannar 8,920 4 319.00 n.aKilinochchi 15,939 41 183.80 n.aJaffna 16,942 19 56.97 n.a

Note: a: Latest data available for 2002 only; n.a = not available.

Source: DCS, Census of Agriculture 2002; Ministry of Economic Development, Annual ProgressReview 2010.

duction in poverty levels that have been ex-perienced in the country in more recent years.

Rural infrastructure development contributessignificantly to agriculture and rural devel-opment, particularly in areas where poten-


150

tial for agriculture development exists.11

However, district-wise expenditure on irri-gation in Sri Lanka appears to be somewhatad hoc, where agriculture land extents andthe allocations for irrigation rehabilitationfollow no link. The N&E, comprising eightdistricts accounting for 11 per cent of agri-culture land (according to 2002 mapping),is found to account for 73 per cent of irriga-tion expenditure in 2010 (Table 11.5). Thismay have included the restoration of the de-stroyed schemes in addition to the new de-velopments. Nevertheless, the potential forexpansion is a relevant consideration if allo-cations are to be effective.

11.4 Infrastructure Development andEmploymentThe potential for employment generation ofinfrastructure development is considerable.Infrastructure investments in core areas suchas transportation, water systems, energy andschool buildings have shown to generate asignificant number of new jobs, both directand indirect, with the highest proportionbeing in the construction sector.12 Sri Lankahas mostly resorted to labour-intensiveinfrastructure projects. Although estimates onthe jobs generated due to mega infrastruc-ture projects in the country are not available,its contribution towards easing the issue ofunemployment, especially among the ruralyouth is evident.13 The contribution of in-frastructure developments towards employ-ment generation stretches beyond the periodduring construction to the commencementof operation of these projects. The mega portprojects, for instance, can create direct jobsfor sailors, technicians, bunker suppliers andmany other vocations, and indirect jobs dueto other shipping services and tourism - in

addition to many more opportunities asservice providers to the main operations.

11.5 Conclusion and Way ForwardSri Lanka is aiming to achieve economicdevelopment that is regionally balanced. Theprovision of infrastructure facilities will beimportant in attracting investments into theprovinces. However, despite much progress,the distribution of new infrastructure devel-opments reflects imbalances in some sectors.In terms of financing, rural and social infra-structure developments at national level seemto have gained less attention from foreignfunding sources. Encouraging private invest-ments through an enabling environment withfavourable policy, laws and regulations forpublic-private partnerships is vital in this re-gard.

In its infrastructure policy, Sri Lanka hasattempted to address issues of inclusivenessby giving specific attention to rural infrastruc-ture development. Moreover, the communityparticipation aspect incorporated in most ruraldevelopment programmes is a useful step. Itwill not only improve effectiveness of theprogrammes, but also ease the financingburden. However, the existence of severalrural development programmes addressinginfrastructure requirements at village levelcould lead to inefficiencies, resulting induplication of work and some areas beingtotally missed out from the plans due to theabsence of clearly assigned responsibilitiesof multiple authorities. A national policy forrural infrastructure development governingthese multiple authorities would hence beimportant to properly capture and cater toall villages, avoiding duplication of devel-opments and ensuring effective use ofexpenditures.

11 Rauniyar, G. and R. Kanbur, 2009, Inclusive Growth and Inclusive Development: A Review and Synthesis of Asian Development BankLiterature, Asian Development Bank, Manila.

12 Heintz, J. and R. Pollin, 2009, “How Infrastructure Investment Supports the U.S. Economy: Employment, Productivity and Growth,”Political Economy Research Institute (PERI), University of Massachussetts, Amberst.

13 Anecdotal evidence in field discussions in the North and East (December 2010-February 2011).

Developing Tourism for Inclusive Growth

151

12. Developing Tourism for Inclusive Growth

12.1 BackgroundThe tourism industry in Sri Lanka has begun to recorda strong recovery - with a substantial increase in arriv-als in 2010 - following the end of the conflict in May2009. With tourism and related economic activitiesexpected to continue their strong performance, thecontribution to Sri Lanka's medium to long term de-velopment objectives will be important. Tourism holdsout the promise of supporting inclusive growth in thecountry, through its contribution to foreign exchangeearnings and more critically, by generating employ-ment and livelihoods opportunities. The sector canalso help bridge existing economic inequities giventhe diverse nature of employment it generates acrosssocio-economic segments.

Direct employment opportunities in the tourism in-dustry are to be found in hotels, with tour operators,travel agencies, airlines and transport operators, agen-cies providing recreational services, etc. In addition,a number of economic opportunities can be derivedthrough forward and backward linkages with othereconomic sectors, including transport, construction,engineering, manufacturing, agriculture, food andhorticulture, telecom, IT, healthcare, etc. These mayoften be indirect employment opportunities that aregenerated as a result of a dynamic tourism industry.

In addition, concepts such as 'responsible tourism'can be viewed as important drivers that promote sus-tainable growth. Environmental consciousness is anincreasingly important element in international de-mand for travel and tourism at the global level. There-fore, if tourism strategies can be appropriately placedwithin an environmentally-friendly framework, itwould play an imperative role in inclusive growthand development. In this connection, this discussionlooks at linkages between inclusive growth and tour-ism, and indentifies critical policy issues related toachieving such objectives through tourism develop-ment in Sri Lanka.

Besides the volume-based tourism targets,integrated policies to

take care ofenvironmental concernsand community benefitswould make tourism's

role in economic growthmore inclusive

‘‘


152

12.2 Tourism and Economic Deve-lopmentThe impacts of tourism on an economy arevarious and complex, and is thus hard tomeasure. The benefits of tourist spending canflow in the form of direct, indirect andinduced benefits (Figure 12.1). Directimpacts are generated via initial touristspending, and indirect impacts are due topurchase of goods and services from the non-tourist sectors of the economy. Inducedimpacts arise due to changes in wage incomein the tourism economy and its consequentimpacts on the general economy. Alltourism expenditure is not retained in theeconomy and a portion of tourism expendi-ture leaks out for imports and to pay forforeign factors of production as leakages.

12.2.1 Contribution of TourismIn the case of Sri Lanka, the tourism industryhas direct and significant impacts on foreignexchange earnings of the country, and therebyon the entire economy. There has been asurge in arrivals as well as foreign exchange

Figure 12.1Impacts of Tourism

Source: Lejárraga, I. and P. Walkenhors, 2010, “On Linkages and Leakages: Measuring the SecondaryEffects of Tourism, Applied Economics Letters, Vol. 17, No. 5.

earnings in 2010 (Figure 12.2). Arrivalsincreased by 46 per cent in 2010 whencompared with that of 2009 while earningsrose by 76 per cent from US$ 326 million in2009 to US$ 576 million in 2010. Tourismis the fourth largest source of foreign exchangeearnings for Sri Lanka, following garments,migrant remittances and tea.

In addition to foreign exchange earnings,tourism generated direct and indirect employ-ment of 55,023 and 77,032, respectively, in2010, accounting for 1.6 per cent of totalemployment in the country (Figure 12.3).Around 60 per cent of the direct employ-ment is in hotels and restaurants.1 Otherprimary direct employment channels includetravel agents and tour operators (14 per cent),airlines (10 per cent), and guides (7 per cent).Of total direct employment by the industry,managerial and scientific professionalsaccount for 17 per cent, while technical,clerical and supervisory employment form 59per cent. The rest involve employment thatis of a manual and operative nature.

1 Sri Lanka Tourism Development Authority, Annual Statistical Report 2009.

Tourist Spending Tourism Economy

Hotel Restaurants Travel agencies Transport Entertainment

LINKAGE

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Other sectors Agriculture Manufacture Services

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LEAKAGE LEAKAGE


153

Figure 12.2Tourist Arrivals and Earnings

Source: Sri Lanka Tourism Development Authority.

Over the years, indirect employment has beenhigher than direct employment generated bythe tourism industry. The ratio of directemployment to indirect employment is 1:1.4,meaning that every 100 jobs created in thetourism sector, creates 140 jobs in thesupplying sectors.2 Both direct and indirectemployment shows considerable growth of5.7 per cent in 2010 when compared with1.5 per cent growth in 2009.

Around 56 per cent of employment inhotels and restaurants are informal in nature.3

Some of the employment opportunitiesavailable in the industry are seasonal innature, owing to seasonality in touristarrivals across the year. While disaggregatedata is not available, a high proportioninformal and/or seasonal jobs create equityimplications. The lack of tourism relatedemployment data on a geographic basis

further hinders efforts to assess the contribu-tion of tourism to regional development. Inthe absence of disaggregated data, a roughpicture on distributional impacts of tourismcan be drawn only on the basis of thedistribution of tourism facilities.

Indirect impacts of tourism are usuallymeasured by multipliers. The direct plusindirect revenue multiplier for tourism in SriLanka is estimated to be 2.08.4 It indicatesthat one unit of tourist expenditure, directlyand indirectly generates more than two unitsof output in the economy. However, thereis no mechanism presently in place to assessthe indirect impacts of tourism in theeconomy by means of income generation andas a source of employment. In 2009, anestimated 151 tourist shops and 21 agenciesprovided recreational facilities, whichtogether generated 1,837 jobs.5 As the

2 Ibid.3 DCS, Sri Lanka Labour Force Survey Annual Report 2009.4 Economic and Social Commission for Asia and the Pacific, 1996, Economic Impact of Tourism in the Asia-Pacific Region, Bangkok.5 Sri Lanka Tourism Development Authority, Annual Statistical Report 2009.

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industry grows at a rapid pace, there will beample opportunities for further such employ-ment generation.

12.2.2 Emerging TrendsInternational tourist arrivals at a global levelshow an increase of 6.7 per cent in 2010when compared with 2009,6 with growthbeing faster in emerging economies (8 percent) than in the advanced economies (5 percent). The Asia Pacific region is forecast tolead growth in 2011, with an increase of 13per cent. In terms of preferences, more thana half of international tourists travel forleisure, recreation and holidays.7 As per thepresent world tourism trends, well off, welleducated, health conscious, and socially andenvironmentally aware individuals will bethe industry's new premium customers in theyears to come.8 Accordingly, it can be

Figure 12.3Tourist Arrivals and Employment Generation


expected that there will be high demand fordestinations with high natural and culturalendowments.

In the case of Sri Lanka, over the last decade,more than 60 per cent of tourist arrivals havecome for pleasure (Figure 12.4). Sri Lanka,being a destination with a large variety ofcultural and natural attractions located in asmall geographical area, can take advantageof emerging tourism trends. West Europe andSouth Asia are the regions with highestmarket share in terms of arrivals, with India(19 per cent) and the UK (18 per cent) takingthe lead. It has been widely recognized thatSri Lanka will benefit immensely fromtargeting niche markets and aiming to attracthigh-yielding tourists from higher spendingsegments.9

6 World Tourism Organization, 2011, UNWTO World Tourism Barometer, Vol. 9. No. 1, February 2011.7 UNWTO, 2010, Tourism Highlights 2010.8 World Travel Trends Report 2010/2011, www.messe-berlin.de.9 Sri Lanka Tourism Development Authority, Annual Statistical Report 2009.

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12.3 Tourism and Inclusive Growth inSri LankaInclusiveness in relation to tourism is basedon several aspects. Distribution of tourismresources, infrastructure, distributionalaspects of direct and indirect benefits of tour-ism, and aspects related to environmentaland social sustainability are important toconsider in this regard.

12.3.1 Tourism Resources and Infra-structureA tourist area is characterized by severalfactors including attractions, accessibility,amenities and ancillary services. Therefore,not all regions qualify for tourism and tour-ism has inherently to be based on areas whichfulfill the above criteria. Accordingly, themain tourism resort regions in Sri Lankainclude Colombo city, Greater Colombo,South coast, East coast, hill country andancient cities.

Figure 12.4Percentage of Tourists by Purpose of Visit

Source: Compiled using data from Sri Lanka Tourism Development Authority, Annual StatisticalReport 2009.

Infrastructure services - including airports,railways, roads, waterways, electricity,water supply, etc., - tend to be better incities, which can hold back tourism devel-opment in more remote areas. The distribu-tion of related tourism facilities - such asaccommodation, restaurants, recreational andshopping facilities - tend to be geographi-cally skewed. Although tourism zones arescattered across Sri Lanka, accommodationunits are confined primarily to the Western,Southern and Central Provinces, and to theNorth Central Province to a lesser extent(Figure 12.5).

12.3.2 Distributional Aspects ofTourism BenefitsThe distribution of accommodation facili-ties can be taken as a rough indicator of thedistribution of employment opportunities inthe accommodation sub-sector of tourism.Accordingly, it can be presumed that mostof the employment in tourism is generated

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in the economically developed regions of thecountry. In addition, accommodation occu-pancy rates are comparatively lower incertain tourism regions, with implicationsfor region-wise capacity to reap the benefits.For instance, in 2009, the occupancy rate inthe East coast (37.8 per cent) was much lowerthan at the national level (48.4 per cent).The up-country and ancient cities recordedoccupancy rates of 42.2 per cent and 44.4per cent, respectively. The highest occupancyrates have been recorded in the Colombo City(57.8 per cent) and Greater Colombo Area(52.7 per cent).10

The extent to which tourism can be inclu-sive for development is also dependent onthe benefits it offers to communities in areaswhere tourism takes place and its pro-poorimpacts. It is acknowledged that mass tour-ism does not generate major gains to localcommunities and is characterized with high

Figure 12.5Distribution of Hotel Rooms and Guest House Rooms by District


rates of leakages. In contrast, small scalecommunity-based forms of tourism, wherecommunity participation is considered as anintegral element, can be more gainful forlocal communities. Sri Lanka, a destinationrich with natural and cultural endowments,possesses significant potential for develop-ment of ecotourism, agrotourism, commu-nity tourism, etc. Such forms of tourism uselocal resources, whereby the level of leak-ages is comparatively low. Ecotourism bydefinition carries elements of inclusivenessby means of generating community benefitsand contributing to environmental conserva-tion. Although Sri Lanka has taken initiativesto develop ecotourism policies and strate-gies, they have not yet been implemented inany notable fashion.11

The Sri Lanka Tourism Development Authorityhas introduced 45 tourism zones with theaim of avoiding ad hoc developments across

10 Sri Lanka Tourism Development Authority, Annual Statistical Report 2009.11 Wickramasinghe, K., 2009, “Ecotourism for Sustainable Forest Management in Sri Lanka”, Environmental Economic Policy Series No. 12,

IPS.

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the country. A positive development has beenthat such plans have been based on localcommunity participation, especially fisherycommunities.12 In addition, ongoing tour-ism developments in the East have thepotential to provide significant livelihood op-portunities and assist in the recovery ofconflict-affected households. Anotherexample is the Kalpitiya tourism project,which on completion is expected to offer37,500 direct and indirect employmentopportunities. However, attention also needsto be paid to possible adverse social impactsof tourism, especially in the N&E which arenewly open for tourism.

12.3.3 Environmental SustainabilityAs envisaged in the government's economicpolicy framework, the target for tourist arriv-als to Sri Lanka has been set at 2.5 millionby 2016. Whilst necessary facilities areexpected to be developed to accommodatehigher numbers, unplanned activities can leadto negative environmental and socialimpacts. Past unplanned tourism develop-ments in certain areas of the country provideevidence of negative environmental impactsdue to construction of unauthorized build-ings in environmentally sensitive areas,garbage problems, beach pollution, etc.

With the aim of strengthening the institu-tional framework to facilitate environmen-

tally and socially sound tourism investments,the Sustainable Tourism Development Projectwas launched in 2010. The project is expectedto fund improvements to the overallefficiency and efficacy of the institutionalframework to promote tourism, to provideessential highly localized tourism relatedinfrastructure services in the East, and toimprove and extend the product content andsupply chain of small and medium entrepre-neurs related to the tourism industry.13

12.4 Key Policy Issues and ImplicationsIntegrated policies and strategies should bein place in promoting tourism to contributeto inclusive growth in Sri Lanka. This callsfor links with a number of non-tourismsectors. In this respect, relevant agencies work-ing under tourism, poverty and infrastructureshould collaborate closely. Policy levelinitiatives have to be taken to make sure thattourism generates livelihood opportunitiesfor local communities. At present, commu-nity benefits offered by tourism are belowpotential. The promotion of community-based small scale tourism can reverse suchtrends. Additionally, the tourism industryshould also be encouraged to adopt environ-ment-friendly approaches. Ongoing initiativesof making tourism sustainable shouldprovide incentives for tourism businesses thatadopt environmentally friendly approaches.

12 www.sltda.lk.13 www.sltda.lk.


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13. Natural Disasters, Climate Change and Inclusive Growth

13.1 IntroductionThe increased intensity and frequency of naturaldisasters - and the attendant costs in terms of human,physical, financial and environmental losses - have asignificant bearing on a country's growth prospects.The vulnerability to and impacts of natural disastersalso differ across segments of society, thus posingadded dimension with regard to issues of economicdisparities.

Natural disasters affect inclusive growth by constrain-ing the participation of vulnerable segments in thedevelopment process. They also lead to the diversionof resources, which otherwise could be allocated forpro-poor development activities. The impacts ofnatural disasters also tend to be unevenly distributed -physical vulnerability of different regions to variousnatural disasters varies across regions. In Sri Lanka, forinstance, the Dry Zone is highly vulnerable to droughtsand certain districts of the Wet Zone are at risk ofrecurrent floods. Moreover, disaster vulnerable areashost a large proportion of the poor population, whoare dependent on weather-reliant livelihoods such asagriculture and fisheries.

As the frequency and intensity of natural disastersheighten, their impact in aggravating existing dispari-ties may worsen. The most recent floods in late 2010/early 2011, impacting Sri Lanka's formerly conflict-affected provinces of the N&E, has slowed down on-going post-conflict development activities and affectedlivelihoods recovery. In this context, this discussionlooks at the impacts of natural disasters on inclusivegrowth, to review the present disaster managementsystem in relation to this and, provide policy inputsfor managing natural disasters to support inclusivegrowth in Sri Lanka.

In the midst of thechallenges brought

about by global climatechange, Sri Lanka hasto be better prepared tomanage the differentialsocio-economic impacts

of natural disasters

‘‘

Natural Disasters, Climate Change and Inclusive Growth

159

13.2 Profile of Natural Disasters inSri LankaAlthough there are year-to-year fluctuations,the number of disaster incidents in Sri Lankashows an increasing trend over the years. Thesheer number of incidents, sudden disasterssuch as landslides, floods, extreme windevents, etc., indicates a significant increaseover the past two decades (Figure 13.1).

The geographic distribution of disaster eventsis not heterogeneous across the country.According to the 'Disaster Profile in SriLanka',1 the distribution of natural disasterevents for the period of 1974-2008 indicatesthat the highest number of natural disasterevents has taken place in Anuradapura,Polonnaruwa, Matale and Kurunegaladistricts and certain DS divisions in the South-ern part of the country. However, the num-ber of disaster incidents alone does notreveal their true impacts. For instance,droughts are not significant in terms of thenumber of events, but in terms of thenumber of people affected, it becomes oneof the most critical natural disasters in SriLanka.

Figure 13.1Chronological Trend of Disaster Events in Sri Lanka

Source: Disaster Profile in Sri Lanka, (www.desinventar.lk).

The impacts of natural disasters can bedemonstrated using the number of peopleaffected, loss of properties, impacts on live-lihoods, etc. As evident from Figure 13.2,based on data compiled in the DisasterInformation Management System in SriLanka, the number of people affected hasclearly risen over the last decade. The dataalso indicate that during the period 1974-2008, around 92 per cent of the peopleaffected by natural disasters were prone toadverse effects of floods (48 per cent) ordroughts (44 per cent). Flooding has beenoccurring almost on an annual basis. There-fore, in terms of the number of peopleaffected, climatological disasters have beenthe most critical.

In terms of number of deaths, extreme windsand landslides are the key natural disastersin Sri Lanka. These are responsible for 77 percent of total losses of life during the periodof 1974-2008, with the exclusion of thetsunami disaster of 2004. In terms of destruc-tion and damages to houses, strong winds,tsunami and floods have been the mostimportant natural disasters. Over time,

1 Available online at http://www.desinventar.lk/.

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Polonnaruwa district has experienced thehighest level of destruction and damages tohouses - the result of extreme winds andfloods. Droughts, floods and extreme windsare the major causes of crop damages due tonatural disasters, and accounted for 52, 39and 4 per cent, respectively of agriculturalcrop losses. The geographic distribution ofdisaster-induced agricultural crop lossesshows that Kurunegala and Ampara districtshave experienced the highest crop lossesduring the period of 1974-2008.

13.3 Increased Disaster Vulnerabilitydue to Global Climate ChangeForemost among a number of impacts ofglobal climate change in Sri Lanka areincreased frequency and intensity of naturaldisasters, changes in the rainfall pattern, sealevel rise and changes in temperature. By andlarge, Sri Lanka is expected to experiencemore droughts and prolonged dry spellswhich can accelerate water scarcity in the

Figure 13.2Number of People Affected due to Disasters

Source: Compiled using data from www.desinventar.lk.

country's agricultural districts. Floods are alsoexpected to be more frequent along withchanges in climate and rainfall patterns.Therefore, climate change can be expectedto intensify the impacts caused by naturaldisasters on agriculture and other livelihoodactivities.

Climate change induced impacts are oftencoupled with other socio-economic dynam-ics. It is estimated that by 2025, with theprojected increase in population, the demandfor both irrigation and domestic and indus-trial water is expected to rise, and the coun-try as a whole, and the Dry Zone in particu-lar, will reach a status of medium water scar-city by 2025.2 Although there are uncertain-ties and information gaps in relation to likelyreal impacts of climate change, it can bepresumed that climate change will make theproblem of water scarcity worse in thecoming decades.

2 Amarasinghe, U.A., L. Mutuwatta, and R. Sakthivadivel, 1999, “Water Scarcity Variations within a Country: A Case study of Sri Lanka”,Research Report 32, Colombo: International Water Management Institute.

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With the sea level rise, the coastal regions ofthe country are expected to experienceincreased frequency and intensity of flood-ing and storms, increasing the pressure oncoastal ecosystems and habitats.3 Due tohigh population density in Sri Lanka's coastalarea, inundation will directly affect lowlying coastal settlements and coastal wet-lands. The impacts will create a number ofsocial and economic implications on thecoastal sector.

13.4 Impacts of Natural Disasters onInclusive GrowthAlthough the actual cost of natural disastersis difficult to measure in monetary terms atmacro level, sector-wise evidence suggeststhat the costs are substantial. The cost ofnatural disasters is dependent on a numberof factors including intensity of the disaster,extent of localization, etc.

13.4.1 Direct Economic CostsThe major impacts of natural disasters andclimate change come in the form of loss oflives, injuries, destruction of houses/build-ings, damages to infrastructure, loss ofagricultural and other livelihood activitiesand disturbances of day-to-day activities. Theagriculture sector is particularly vulnerableas climate variables have direct and signifi-cant impacts on agricultural productivity. Onone hand, it holds implications for foodproduction and food security, and on theother, implications for the country's exportearnings via impacts on plantation agricul-ture. The performance of the latter, whichincludes primarily tea, coconut and rubber,shows significant variations with extremedroughts observed in particular areas. Annual

tea production has been highly susceptibleto droughts over the years,4 indicatingdrastic declines in 1982, 1989, 1992 and2003 in line with drought shocks in thoseyears.

In addition, the government has to spendlarge sums of money in managing naturaldisasters, in terms of mitigation, prepared-ness, response and recovery. Centrallycompiled statistics are not available at presentto denote cost of disaster management in SriLanka. However, available informationshows that about 0.04 per cent of govern-ment expenditure is incurred annuallytowards relief for disaster victims (Table13.1). Over the last decade, the highest costof relief has been incurred on floods anddroughts.

The economic costs of natural disasters arelikely to rise with the impacts of globalclimate change. Sri Lanka, as a smalleconomy having an insignificant contribu-tion to global CO2 emissions, will have tofocus on adaptation strategies in facing upto impacts of climate change. It is estimatedthat around Rs. 47.7 billion of additionalfinancing will be required for the period of2011-16 to implement the climate changeadaptation strategies. The estimated addi-tional financing is expected to be used formainstreaming climate change adaptationinto national planning and development,enabling climate resilient and healthyhuman settlements, minimizing climatechange impacts on food security, improvingclimate resilience of key economic drivers,and safeguarding natural resources andbiodiversity from climate change impacts.

3 Hettiarachchi, S.S.L and S.P. Samarawickrama, 2009, “A Strategic Approach towards Planning and Management of Impacts of Sea LevelRise in Sri Lanka”, a paper presented at the workshop on “Mainstreaming Climate Change for Sustainable Development in Sri Lanka”,organized by the IPS, 19-21 August 2009, Sri Lanka. Available at http://www.ips.lk/events/workshops/ 19_8_09_climate_ change/more_detail.html.

4 Wickramasinghe, K., A. Senaratne, 2009, “Climate Impacts on Performance of Agricultural Exports of Sri Lanka: Analysis Based on the TeaSector”, a paper presented at the “Third Annual Research Forum of the Sri Lanka Agricultural Economics Association (SAEA)”, 2 October,2009, Colombo.


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13.4.2 Distributional Impacts ofNatural Disasters and Climate ChangeNatural disasters and climate change cancause distributional impacts owing to twokey reasons. First, due to the fact that physi-cal vulnerability to natural disasters andclimate change vary across regions, theoccurrences and the impacts of naturaldisasters are heterogeneously distributedwithin the country. Second, natural disasterscan lead to worsening regional disparities dueto the differences in the ability to managedisaster risks effectively among differentendowment classes.

The Dry Zone, coastal areas and certain partsof the Wet Zone are experiencing most ofthe natural disasters in Sri Lanka. Most ofthe Dry Zone districts are based on agricul-ture for livelihoods, whereby droughts andfloods have significant adverse effects on

Table13.1Cost of Relief for Selected Disasters (Rs. mn.)

Animal Drought Flood Landslide Rains Total ReliefAttack Expenditure

as % ofGovernmentExpenditure

2001 3 245 9 - 0 257 0.0892002 3 121 10 3 1 138 0.0422003 5 48 941 152 0 1,147 0.3472004 7 221 6 1 0 235 0.0622005 3 14 56 1 1 75 0.0172006 3 25 53 10 7 97 0.0182007 1 51 30 3 4 90 0.0152008 1 1 70 3 4 80 0.0112009 1 18 5 1 3 27 0.0032010 - 0 11 - - 12 0.001Total 31 753 1,228 174 19 2,206 0.040

Source: Compiled using data from data www.desinventar.lk.

output. Agricultural households constitutearound 45 per cent of total poor householdsin Sri Lanka, with the poverty headcountindex at 21.6 per cent - significantly higherthan the national figure of 15.2 per cent in2006/07.5 Water scarcity in Dry Zone agri-culture can further exacerbate existing ineq-uities in poverty outcomes. Moreover, ad-verse impacts on sectors where many tea/rubber plantations exist - with the highestincidence of poverty in comparison to urbanand rural sectors of the country - may alsosee a worsening of equity gaps.

Climate-induced water scarcity has implica-tions on energy security of the country aswell. During 2000-08, for instance, hydro-electricity is estimated to have contributed43 per cent on average to national electricitysupply.6 Lack of adequate water in thecountry's major reservoirs thus leads to a

5 Department of Census and Statistics, Poverty in Sri Lanka, available online: www.statistics.gov.lk.6 Department of Census and Statistics, Statistical Abstract 2008, available online: www.statistics.gov.lk.


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reduction in hydro power generation. Ifappropriate mitigation and adaptive strate-gies are not implemented, natural disastersand climate change can have considerableimplications on poverty and inequality.

Natural disasters can also have broaderconsequences on development processes. Forinstance, floods in certain districts in the N&Ein late 2010/early 2011, hampered ongoingpost-conflict development activities, includ-ing delays and damage to reconstruction ofinfrastructure, resettlement, etc. Revival oflivelihoods of conflict-affected communitiesalso suffered a set-back due to destruction ofagriculture and other livelihoods. Such im-pacts tend to worsen existing conditions. Poorinfrastructure and less developed institutionalmechanisms in some of the flood-affectedregions in the N&E made them inaccessiblefor relief services.7

Recurrent floods also hold implications forurban poverty. It has been found that mostof the shanty and slum settlements withinthe Colombo Municipal Council are locatedin the flood-prone areas. If natural calami-ties continue to occur at higher frequencies,they will undeniably worsen prevailing socio-economic disparities.

Given that the impacts of natural disastersdepend on a host of varying factors -segments of the society, income groups, live-lihood categories, geographical regions, etc.- and that the impacts are becoming moresignificant for vulnerable groups with theincreased intensity and frequency ofdisasters, adopting an inclusive strategy formanaging disasters is critical.

13.5 Disaster Management System inSri LankaGiven the varying types of natural disasters,there cannot be a uniform approach tomanage disasters, but rather strategies haveto be location and cause-specific.8 Disastermanagement processes usually comprise fourbasic elements: namely, disaster mitigation,preparedness, response, and recovery. Interms of facing the impacts of global climatechange, Sri Lanka will have to take adaptivemeasures, which might fall into all fourelements of disaster management. However,in broad terms, disaster management andclimate adaptation strategies fall into the twocategories of (i) physical measures, and(ii) socio-economic measures.

13.5.1 Measures to Reduce PhysicalVulnerabilityDisasters are not entirely natural phenom-ena. Natural disasters are also caused due toanthropogenic factors. Unplanned defores-tation and unsustainable land utilizationpractices lead to landslides, where climaterelated factors aggravate the occurrences andintensities. Therefore, as a preventivemeasure, it is important to adopt sustain-able strategies for the utilization of naturalresources. However, all natural calamities arenot always preventable. Mitigation actionscan help to lessen the impacts of certain natu-ral disasters, including droughts and floods.Commendably, a number of disaster mitiga-tion projects are ongoing aimed at droughtsand floods. They are mainly concerned withrehabilitation of tanks, canals, constructionof culverts, etc. In 2011, 39 such projectsare expected to be conducted in vulnerabledistricts across Sri Lanka. Sustainable naturalresource utilization and disaster mitigation

7 Based on field discussions in N&E regions in early 2011.8 Steele, P., M. Knight-John, A. Rajapakse, K. Senanayake, and K. Wickramasinghe, 2007, “Disaster Management Policy and Practice: Sharing

Lessons among Government, Civil Society and Private Sector”, IPS, mimeo.


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measures should be incorporated into sectoraldevelopment activities to make them viablein the long run.

13.5.2 Measures to Reduce Socio-economic VulnerabilitySocial protection also has an importantcomplementary role in disaster management.There is ample evidence of instances wheresocial protection has been used as an impor-tant component in overall disaster manage-ment,9 although the results have tended tobe mixed. The presence of effective socialsafety nets is vital to minimize impacts ofnatural disasters on the poor. In the absenceof effective coping mechanisms, vulnerablegroups tend to adopt sub-optimal or ineffi-cient coping strategies. At present, existingsocial protection mechanisms in Sri Lankado not play an effective role in disaster riskmanagement.10 They are found to be highlybiased towards relief, while schemes suchas agricultural insurance cover only smallproportions of the cultivated area of thecountry. Agriculture insurance is primarilyused by farmers as a prerequisite for obtain-ing agricultural loans and insurance is nottaken as a direct risk management strategy inmost of the cases. It is timely to revisit socio-

economic security systems in Sri Lanka andenhance their ability to cover against nega-tive impacts of climate change.

13.6 Implications for PolicyThere is a need to mainstream disastermanagement into national developmentstrategies, as it cuts across a number ofsectors including agriculture, infrastructure,poverty, etc. Given the wide spectrum ofissues in relation to disaster management andclimate change adaptation, a number ofmeasures have to be taken to mitigate thedisaster impacts on inclusive growth in SriLanka. The measures should address thedifferential impacts of natural disasters, andaim to minimize the consequent implica-tions on poverty and equality. First, reduc-tion of physical vulnerability should receivehigh attention in order to lessen the impacts.In line with the physical measures, the socio-economic system in terms of coping andadaptation strategies has to be strengthenedto enable vulnerable groups to bettermanage risks. It is only with the adoption ofboth types of measures that efforts to reduceimpacts of natural disasters and climatechange will successfully support inclusivegrowth strategies.

9 Vakis, R., 2006, “Complementing Natural Disasters Management: The Role of Social Protection”, Social Protection Discussion Paper No.0543, The World Bank.

10 Wickramasinghe, K., 2008, “Natural Disasters and Socio-economic Security in Sri Lanka”, a paper presented at the International Conferenceon “Universalizing Socio-economic Security in South Asia”, New Delhi, India, 18-21 January, 2008.

Strategic Remedies for Rising Food Prices

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14. Strategic Remedies for Rising Food Prices

The easing of global food price increases of 2007/08- the highest recorded in 30 years - reversed onceagain in late 2010/early 2011. Price increases under-pin changing global supply and demand conditions.A rising world population - especially in India, Chinaand Russia - and growing incomes in developing coun-tries resulting in and associated with changing foodconsumption patterns - are key factors on the demandside. On the supply side, cyclical and structuralfactors are also at work. Cyclical factors includeadverse impact on crop production - such as on corn,rice, wheat, and sugar due to poor weather condi-tions in the US, Australia, China, etc., while risingcrude oil prices, directly and indirectly, also impactsfood prices. Structural factors include reduced invest-ment in R&D in agriculture which decelerates growthin agricultural productivity, constraints in expansionof cultivated lands, diversion of resources used forfood production for bio-fuel production due to highercrude oil prices, etc. In 2010/11, the main reason forrising global food price increase was the price in-crease in crude oil, maize, wheat, soyabeans andsugar. Simultaneously, the crisis in the Middle-Eastand natural disasters contributed directly to food priceinflation.

Sri Lanka's food prices also increased in parallel withglobal trends, not surprisingly given that the countryis a net food importer. While the country is almostself-sufficient in its staple food (rice), producingapproximately 97 per cent of requirements, Sri Lankais dependent on imports for all its wheat require-ments, 85 per cent of milk, 93 per cent of sugar, and70 per cent of cereal. Thus, even a slight change inglobal prices can influence domestic food prices.

However, the factors behind price increases in 2010/11 are different from those of 2008/09. The recenthike is largely due to poor weather, where heavy rains

14.1 Introduction

Implementing foodprice policy measuresto support consumers

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and floods destroyed nearly 200,000 ha ofcultivated paddy crop, with an estimated lossof nearly one million metric tons of paddyyield. Livestock, vegetables and other foodcrops were also damaged due to the badweather. Many hundreds of farmers inAmpara, Batticaloa and Trincomalee in theEastern Province, for instance, lost lives,homes, cultivated lands, etc. The extent ofdamage can go further afield, as crops in otherareas may also get affected by fungaldiseases that flow from extreme wet weatherconditions. Therefore, mitigating escalatingfood prices is a serious challenge for Sri Lankain the near term. This discussion aims to ana-lyze recent trends in global and domestic foodprices, and suggest short and long term policyoptions that Sri Lanka can adopt to mitigatehigh food prices, drawing on examples frominternational best practices.

14.2 Global Food Prices"Global food prices are rising todangerous levels and threaten tens ofmillions of poor people around theworld, the price hike is alreadypushing millions of people intopoverty, and putting stress on the most

vulnerable, who spend more than halfof their income on food."

Robert B. Zoellick, President,The World Bank

Global food prices have increased persistentlyover the last decade, with significant hikesfrom mid-2008 and early 2011 (Figure 14.1).Relative to 2000, food prices rose by approxi-mately 77 per cent in 2008 and by 120 percent in the first quarter of 2011.

When looking at global trends in major foodcommodity prices during 2008-11, sugarindicates clear changes - rising by 25 per centin 2008 and by nearly 200 per cent in 2011relative to prices in 2000 (Figure 14.2).Similarly, crude oil prices increased by 314per cent, cereal by 154 per cent, dairy by104 per cent, and meat prices by 49 per cent,relative to 2000 prices. The initial causes forthe 2010/11 price hikes include bad weatherconditions in the sugar, grain and meatproducing countries and rising crude oilprices.

The main reason for the positive correlationbetween oil and food prices is that when theformer increases, demand for bio-fuel rises,

Figure 14.1World Food Price Index

Source: FAO, Food Price Index.

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whereby maize production is diverted toproduce bio-fuel rather than as a consump-tion food item. In turn, heightened competi-tion for bio-fuel produced crops pushes up

prices. Moreover, oil price increases raisesthe cost of fertilizers, transportation, usageof agricultural machinery, etc., leading tohigher food prices overall.

Figure 14.2Global Food Commodity Price Indices

Source: FAO, Food Price Index.

Figure 14.3Correlation between Oil and Food Prices

Source: FAO and Organization for Petroleum Exporting Countries (OPEC).

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Rice, maize and wheat provide 60 per centof the world's food energy intake. Rice is thesecond most important grain after corn, andis the most important food item for a largepart of Latin America and Asia. World riceproduction increased at only a very marginalrate up to 2008, before stagnating at 450 mn.tonnes (Figure 14.4). Wheat, which issecond to rice in terms of total productiontonnage, saw a fall in production of nearly30 mn. tonnes in 2010 compared to theprevious year. Grain production and utiliza-tion have seen a significant increase over thelast decade, albeit with production experi-encing stagnation since 2008. In terms of

staple foods, utilization has risen faster thanproduction.

Apart from these structural and cyclicalreasons, several other factors such as govern-ment policies on international trade affectrising food prices. For instance, exportrestrictions by the world's main wheatproducers - Russia, Ukraine, Uzbekistan andKazakhstan - prompted hoarding with a surgeof exports to the Middle-East and NorthAfrica. Speculative hoarding was anotherfactor which influenced food prices in 2008and 2011. Food shortages and rising prices -due to demand and supply side factors as

Figure 14.4World's Production, Supply and Utilization of Rice, Wheat, Cereal and Grain

Note: Supply contains production and the opening stock of that year.

Source: FAOSTAT.


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discussed above - are estimated to havecaused nearly one billion people to be inhunger in early part of the 2011.1

14.3. Foodflation in Sri LankaThe food component of the ColomboConsumer Price Index (2002) - carrying aweight of 46.7 per cent - started to climbfrom 2003 (Figure 14.5). It clearly indicatesa sharp price hike in 2008 and a significantincrease again in the first quarter of 2011.

By and large, Sri Lanka's food price trendsreflect that of global trends.

In terms of trends in major food commodityprices in Sri Lanka, significant price increasesare noted in green gram and cowpea. Riceand wheat also saw price increases of 68 and63 per cent, respectively, in 2008, prompt-ing the government to impose price controlson rice in December 2009. However, theprice of a kilogram of wheat flour and of rice

Figure 14.5Global and Domestic Food Price Trends

Figure 14.6Major Food Commodity Prices (2000-2011)

Sources: World Food Price Index (WFPI); FAO, Food STAT; DCS, Sri Lanka FoodPrice Index (SLFPI).

Source: Hector Kobbekaduwa Agrarian Research Institute.

1 According to the FAO data collection, available at World Food Situation, http://www.fao. org/ worldfood.

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are close. In Sri Lanka, wheat flour is themost popular substitute for rice. Given thatthe country is entirely dependent on importsfor its wheat requirements, domestic pricesare subject to global price fluctuations. How-ever, when domestic prices began to rise in2007, prices were stabilized through govern-ment price control measures.

A comparison of trends in international anddomestic rice prices - with rice importsbeing only around 3 per cent of Sri Lanka'srequirements - suggests that the internationalprice of wheat (the primary substitute for ricein Sri Lanka) is the main channel throughwhich high food prices are passed on to SriLanka. In mid-2008, when the global foodprices were at a peak, domestic rice priceswere below the world prices due to govern-ment price controls. However, as the priceof wheat rose in mid-2008 - in the contextof high demand for wheat flour by Sri Lankanconsumers - the substitution to rice as analternative impacted on the price of thelatter.

The HIES data suggest that from an averagemonthly household income of Rs. 31,331in 2009/10, nearly 42.3 per cent wenttowards food expenditure relative to 37.6 percent in 2006/07. Higher food price inflationvis-à-vis non-food price inflation has meantthat a greater share of household expendi-ture is devoted to food during times of foodprice increases.

14.4 Coping with Soaring Food PricesFood pricing is a very sensitive subject inany country. In Sri Lanka too, food pricing isa politically contentious issue. Besides thebroader macroeconomic consequences of ris-ing food prices for the economy, it lowersthe level of household welfare, where the

poor are the most vulnerable to its adverseconsequences.

14.4.1 Coping Strategies during the2007/08 Food CrisisCountries around the world adopted severalstrategies to deal with the 2007/08 foodcrisis. These strategies included pricing policymeasures, trade policy measures, welfaremeasures, public distribution measures, etc.Sri Lanka too took certain policy measures tomitigate rising food prices, the vast majorityof which were aimed at mitigating theproblems faced by consumers. Given thepredominance of rice and wheat in thecountry's food consumption basket, most ofthe policy measures were confined to thesetwo commodities.

The government imposed price controls or amaximum retail price on rice and wheat, aswell as on selected items of milk. Pricecontrols run the risk of negatively affectingsupply by creating perverse incentives toproducers. This was experienced in severalother countries that applied similar measures.For example, in Pakistan, it was found thatas a result of government attempts to controlsmuggling by placing temporary restrictionson private trader movement of wheatbetween provinces, it prevented the flow ofwheat from surplus to deficit areas, and wid-ened the price variation amongst provinces.2

Government intervention in Sri Lanka was alsoto be seen in food distribution, marketingand storage. Through the re-established PaddyMarketing Board (PMB), a national paddypurchasing programme is conducted and abuffer stock of rice maintained. Restrictionson the import of maize were imposed, whileimports of wheat grain were encouragedthrough tax exemptions. A Special Commod-

2 World Bank, “Food Price Increase in South Asia”, available at siteresources.worldbank.org/SOUTH ASIAEXT/.../South_Asia_Regional_Food_Prices_Final.pdf.


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ity Levy was imposed on rice, wheat, redonion, potatoes, sugar and garlic with thehope of protecting farmers from gettingaffected by imported products. A Cabinetsub-committee on 'Food Security and Con-trol of Cost of Living' to monitor and adviceon price issues was established. Its aim is toregularly review the food situation in thecountry, price changes in the markets andother developments with a view to makingrecommendations on price related matters.

Other initiatives include a programme toestablish 30,000 home gardens under Divi-Neguma programme around the country toenhance household food security. Thegovernment provides vegetable, fruit seeds,fertilizers, tools and gardening techniques tothe people willing to grow fruits or vegetablesin their gardens. The programme is beingmonitored by the Pradesheeya Sabhas.According to available data, this programmeis successfully carried out in several areas.3

However, these types of programmes areunlikely to be accommodated by urbanhouseholds. Several welfare and supportprogrammes also lend assistance. Forinstance, nutrition packs for pregnant moth-ers, fresh milk for malnourished children of2-5 years of low income families, and schoolnutrition programmes are some of theinitiatives.

The above are some of the policy measuresthat Sri Lanka initiated during the 2007/08food crisis. It needs to be highlighted thatmost of these strategies focus on consumersrather than on producers. Supply responsepolicies and producer welfare received muchless attention. At the same time, mostmeasures are of a short term nature asopposed to being long term sustainablestrategies.

14.5 Way ForwardAs discussed above, there are structural andseasonal reasons for high food prices. Highfood prices occurring seasonally can in mostinstances, be patched up with short term strat-egies. However, in the case of structural fac-tors, strategies that address both demand andsupply issues with a more long term outlookare required.

Policies to increase crop productivity arecritical given constraints that may exist inincreasing cultivated land areas. To enhanceproductivity, technical interventions,advanced technologies and high yield seedvarieties are required. It also needs advance-ments in R&D in agriculture. At present, eventhough there are research institutes for majorfood crops such as rice, coconut, sugar, tea,etc., the main problems continue to be lackof adequate funding and support for researchactivities. Government financial and techni-cal support for research institutes is at a veryminimal level. However, more recently,incentives have been provided to these insti-tutes, but there are several issues that requireattention such as bureaucracy, externalinfluence, fund utilization, etc.

Public investment in agricultural research inSri Lanka - denoted as a percentage ofagricultural GDP - increased during the 'greenrevolution' in the 1970s, but from the late1970s continued on a negative trend.4 Yieldson rice and other important food cropsstarted to stagnate, corresponding to a de-cline in investment in research and exten-sion on agriculture.

To improve productivity, farmers need highquality seeds, fertilizers and tools, as well astechnical assistance, training and credit madeavailable to them on a predictable basis.

4 See Chapter 7 on “Agriculture Sector and Challenges to Inclusive Growth”.

3 Interview with Hector Kobbekaduwa Agriculture Research Institute ( HARTI).


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Currently, Sri Lanka provides a fertilizersubsidy to farmers, distributes high yieldvarieties and seeds at marginal costs, andprovides necessary assistance through 'goviniyamaka' at village level. However, it isimportant to make sure that these systemsare working in an effective manner avoidingpolitical interference in selecting farmers forthese programmes.

It is also important to have an effectiveinformation system among farmers, tradersand consumers. Recently, the Department ofAgriculture introduced Rural AgricultureKnowledge Centres/Cyber Extension Units inseveral districts. At present, 53 KnowledgeCentres are providing necessary informationto farming communities. Asymmetryin information is one of the reasons whichreduce efficiency in agricultural markets.Information search costs are estimated to bemuch higher in Sri Lanka compared to otherSouth Asian countries.5 Improved connectiv-ity among suppliers and consumers canreduce asymmetries in information. It is alsoessential to develop rural infrastructurefacilities such as roads, electricity, irrigation,etc., to provide easy and efficient access tourban markets and to connect rural farmerswith urban consumers. As agricultural prod-ucts are easily perishable, a developed roadsystem and electricity are of utmost impor-tance. The government has implemented newprojects such as 'Gama Neguma' and 'MagaNeguma' to improve rural infrastructure,especially the rural road network.

The government has to take necessary stepsto reduce the post-harvesting losses byproviding storage and transport facilities, plas-tic containers, etc. The main purpose of there-established PMB is to enable consumersto obtain their food requirement at reason-able prices while providing the farming

community a reasonable price for their prod-ucts through guaranteed price schemes. It isnoted that due to limited storage facilities,the PMB is unable to buy the entire produc-tion of farmers, and on average, buys onlyone-fifth.6 Whilst the PMB is also respon-sible for maintaining a buffer stock of rice,limitations - such as storage facilities, moni-toring, protection from pests, etc., hinder itseffectiveness. Further, these facilities are dif-ferent from area to area, where different co-operative shops have to buy paddy from farm-ers and store it for the PMB. Thus, it is im-portant to provide sufficient storage facili-ties, and close supervision of paddy storagein PMB and its agents.

Sri Lanka banned the import of GeneticallyModified (GM) foods in mid-2001 by Ge-netically Modified Foods (Provisional) Regu-lations, No. 1 of 2001. Currently, most de-veloped countries are experimenting withGM foods as a solution for high food prices.However, GM foods remain a contentiousissue. On the one hand, GM foods are easyto grow and produce higher yields which canreduce world hunger. These food productsuse very minimum amount of pesticides,herbicides and fertilizers, causing less dam-age to the environment. On the other hand,it is contended that GM foods can be detri-mental to human health, through transfer ofantibiotic resistance, toxicity andallergenicity. It is also argued that cross-pol-lination with pollens from GM plants canchange non-GM plants too. Moreover, sinceproduction of GM foods needs well advancedtechnology, there is also a concern that itwill create a monopoly situation in worldmarkets.

Further, a well designed safety net programmeis a timely requirement to safeguard the poorfrom escalating food prices. At present, many

5 LIRNEasia, 2008, “Using ICT to Reduce Transaction Costs in Agriculture through Better Communication: A Case-study from SriLanka”, available at ; www.lirneasia.net/wp-content/uploads/2008/.../ transactioncosts.pdf.

6 Interview with Hector Kobbekaduwa Agriculture Research Institute ( HARTI).


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countries have food banks, most of whichare non-profit organizations or civil societyorganizations. As explained before, Sri Lankahas introduced several programmes to pro-tect the poor from high food prices. How-ever, it is important to identify the exact tar-get group and there is need to strengthen themonitoring system, for any such programmeto be effective.

Finally, it is most important to link consumerside policy measures with producer sidepolicy measures by improving consumer andproducer welfare. For instance, Bangladeshcombined consumer side policies withmeasures on the producer side, in orderto boost rice production and productivity.7

These measures mainly consisted of a 50 percent increase in the procurement price of rice,and improved availability and timely deliv-ery of inputs.

7 “Food Price Increase in South Asia”, World Bank, available at: siteresources.worldbank.org/SOUTHASIAEXT/.../South_Asia_Regional_Food_Prices_Final.pdf.

14.6 ConclusionIn the light of the above discussion, it isimportant to identify policy measures thatimpact both consumers and producers to easethe burden arising from rising food prices.Some areas requiring policy attention includethose aimed at developing communicationand connectivity amongst producers and con-sumers. This will support efforts to achieveequilibrium in food demand and supply. Itis also critical to reduce market asymmetrythrough the provision of improved connec-tivity, particularly between urban and ruralsettings. Simultaneously, the government alsoneeds to develop both short term and longterm strategies to effectively tackle escalat-ing food prices, which is likely to be a per-sistent phenomenon in the coming years.


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15. Social Determinants of Health

15.1 IntroductionShaping a healthy, equitable and sustainable futurefor all is a central goal of global health initiatives.Actions to narrow 'health inequities' - the result ofimbalances in wealth and power and other resourcesat global, national and local levels - that ultimatelyfinds expression in inequalities in quality of life,within and between countries, contribute to sustainedand inclusive economic development. The majorcauses for health inequity are social conditions inwhich people live and work, referred to as the 'socialdeterminants of health (SDH)'. The social determi-nants reflect different positions that people occupywith regard to social status, power and resources,where global experience suggests that a large burdenof disease and health inequalities are caused by suchfactors.1

The Alma-Ata conference of 1978 is recognized asan important milestone for SDH initiatives. TheAlma-Ata declaration of 1978 adopted the conceptof 'Health for All (HFA) by 2000', through improve-ments to primary health care (PHC). The HFA/PHCstrategy encouraged the recognition of social deter-minants as a major public health concern. Conse-quently, the PHC model took a more comprehensiveapproach, recognizing that while PHC services them-selves are important, they should also address under-lying social, economic and political causes of poorhealth.2 In the 1980s, the concept of 'Inter-sectoralAction for Health (IAH)' was adopted to drive andspread the HFA concept. Subsequently, in the mid-1980s, the first International Conference on HealthPromotion adopted the concept of 'Ottawa Charteron Health Promotion' under which eight key deter-minants (prerequisites) of health were identified,namely: peace, shelter, education, food, income, a

‘‘

1 McGinnis J.M., et al., 2002, “The Case For More Active Policy Attention to Health Promotion”, Health Affairs, Vol. 21, No. 2.2 WHO, 2005, Action on the Social Determinants of Health: Learning from Previous Experiences, WHO, Geneva.

As the country aims toachieve rapid growth, Sri

Lanka's health sectorneeds to take urgent action

on the SocialDeterminants of Health

approach to mitigatehealth inequities

Social Determinants of Health

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stable eco-system, sustainable resources,social justice, and equity.

In 2005, the WHO initiated the Commis-sion on Social Determinants of Health(CSDH) with the intention of encouraginggovernments, civil society groups, interna-tional organizations and donors to addressthe social and economic circumstances thatinfluence health, particularly among the mostvulnerable populations. The specific goalsof the CSDH were:3

• to support health policy change incountries by assembling and promot-ing effective evidence-based modelsand practices that address SDH,

• to support countries in placing healthequity as a shared goal to which manygovernment departments and sectorsof society contribute, and

• to help build a sustainable globalmovement for action on health equityand social determinants, linking gov-ernments, international organizations,research institutions, civil society andcommunities.

In 2008, the final report of the CSDH on'Closing the Gap in a Generation: HealthEquity Action on the Social Determinants ofHealth' was launched with a set of recom-mendations.

Following the CSDH, Sri Lanka - along withother member countries - initiated a NationalCommission on SDH in 2005 under theMinistry of Health in collaboration with theWHO country office. A working groupcomprising members who represent health,academia, social services, and civil societywas appointed to develop a framework forSDH to address and take action on socialconditions which reduce health inequities,especially in relation to groups across thecountry.

This policy discussion makes an attempt tounderstand the SDH concept and its approach-through health and inter-sectoral actions -to address adverse effects of health inequityin Sri Lanka. The relevance of the SDH ap-proach will be looked at through select healthoutcomes such as life expectancy, infant/ma-ternal mortality, crude death/birth rate, nu-tritional status, and morbidity patterns. Fur-ther, strategies under the SDH approach inSri Lanka's efforts to achieve health equity,aimed at improving human capital for sus-tained growth will be discussed. Finally,possible policy options to strengthen partici-pation in the SDH approach to mitigate ad-verse health outcomes due to social deter-minants in the country will be presented.

15.2 Growth, Social Inclusion andHealthThe health of a country's population con-tributes crucially to economic and socialdevelopment. Investing in health is neces-sary for both creating opportunities andeasing access to such opportunities. Indeed,four links are typically identified betweenhealth and the economy, namely: (i) betterhealth leads to greater productivity,(ii) better health leads to improveddemographic dividend, (iii) better healthimproves human capital, and (iv) betterhealth improves social capital. In principle,there is a reciprocal relationship betweengrowth and health. A better health system -that is more efficient, equitable and acces-sible - is a prime input in producing humancapabilities that in turn, contribute togrowth.

In addition, 'social inclusion' - theprovision of certain rights to all individualsand groups in society (such as employment,adequate housing, health care, education andtraining, etc.) - is vital for sustained growth

3 WHO/SEARO (October 2007), “Social Determinants of Health: Report of a Regional Consultation”, Colombo.


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and development. Social inclusion is a keysocial condition of health that is addressedby SDH to narrow health inequity.

Including health policies in a country'sdevelopment agenda is more likely to leadto inclusive growth rather than implement-ing social policies separately. This is vital ashealth is a goal in the development agendaitself, and a key development input towardsother development goals. For example, duerecognition was given in MDGs, where ofthe total eight goals, health related goalsnumber three, namely; reduce child mortal-ity, improve maternal health, and combatHIV/AIDS, malaria and other diseases forachieving good health status universally.

The WHO initiated the Commission onMacroeconomics and Health (CMH) in 2002with a specific focus 'to assess the place ofhealth in global economic development'. TheCommission report on 'Macroeconomics andHealth: Investing in Health for EconomicDevelopment', published in 2001 highlightsthat 'investing in health' is the pillar ofeconomic growth/development. The reportalso emphasized the need for countries todevelop their own strategies for improvinghealth through macroeconomic development.

In Sri Lanka too, periodic reports that spellout the country's overall national develop-ment framework have generally focused onimproving health status and equity in thehealth sector through development policies.Objectives of accelerated economic growthand improvements in socio-economic out-comes have underpinned targeted improve-ments in health status across the country.

15.3 Sri Lanka's Health SectorAchievementsSince the late 1930s, Sri Lanka has imple-mented universal free health coverage, andas a result, the country has experiencedremarkable health outcomes with relativelylow public health expenditure whencompared with countries at similar levels ofsocio-economic development. Health indi-ces such as infant mortality rate (IMR),maternal mortality rate (MMR) and life ex-pectancy have shown positive trends in SriLanka. In addition, expansion in healthservice delivery - through staffing, institutionsfor each level of care, technology-intensivemedical equipment, etc. - has also beenprovided through the state.

After the implementation of welfare policiesin the 1930s, IMR and MMR have seen asignificant decline (Table 15.1). Widelyextended infectious disease controlprogrammes by the state also resulted in arelatively low death rate of 5.8 per 1,000population in 2007 relative to 11 per 1,000population in 1955. In turn, Sri Lanka saw arising life expectancy rate. By 2009, lifeexpectancy on average was 71 years whichwas much higher than the prevailing averageof 65 years for the South East Asiancountries.4

The network of curative care institutions foreach level of care - primary, secondary andtertiary - has been constructed in demarcatedgeographical areas across the country. In1941, the number of hospitals was estimatedat 129, excluding maternity homes and otherhealth centres.5 By 1950, this had increasedto 263. In 2007, the total number of hospi-tals with in-patient care was estimated at

4 WHO, 2011, World Health Statistics.5 Silva. K. Tudor, 2010, “Social Determinants of Health: Lessons from Sri Lanka”, in S. Bhattacharya et al. (eds.). Social Determinants of

Health: Assessing Theory, Policy and Practice, Orient Blackswan, New Delhi.


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615, in addition to which 441 centraldispensaries provided out-patient careservices.6 In turn, bed strength also increasedprogressively, estimated at 3.4 beds for 1,000population in 2007 relative to 2.8 in 1985.In terms of key health personnel, thenumber of medical officers (MOs) rose from2,035 in 1982 to 11,023 by 2007. Accord-ingly, doctors per 100,000 population haveincreased to 55.1 in 2007 from 13.9 in 1980,while nurses also rose to 157 per 100,000population in 2007 from 75 per 100,000population in 1997. Overall, Sri Lanka'sachievements on availability of health facili-ties and health outcomes are the resultprimarily of state-led programmes by succes-sive governments.

15.4 Relevance of SDH for Sri LankaThe focus on SDH arises owing to the factthat while medical care itself can onlyprolong survival, social determinants exertsignificant influence on premature death anddiseases, particularly amongst vulnerablegroups such as women, children, theelderly, etc. Emerging trends - viz., increas-ing inequalities within and betweencountries, new patterns of consumption andcommunication, commercialization, globalenvironmental change, and urbanization - canexacerbate existing inequities.

Table 15.1Select Health Indicators

1935 1950 1970 1990 1995 2000 2005 2009IMRa 263 82.3 47.5 19.3 16.5 13.3 11 13MMRb 265 55.5 14.5 9.1 2.4 2 n.a. 3.9Life expectancy 42.3c 55 65 71 72 73 73 74

Notes: a: Per 1,000 live births; b: Per 10,000 live births; c: Figure refers to 1946; n.a= not available.

Sources: WHO, World Health Statistics; Ministry of Health, Annual Health Bulletin (2000, 2003 and2007); WHO–Sri Lanka (2002), “Macroeconomics and Health Initiatives”.

Overall, narrowing health inequity is the mostcritical goal underpinning policies andinterventions on SDH. Health inequityrefers to the presence of systematic dispari-ties in health between groups with differentsocial advantages/disadvantages. The SDH arebroadly constituted by: (i) the structuralfactors - unequal distribution of power,income, goods, and services, globally andnationally; and (ii) individual level factors -consequent unfairness in the immediate, vis-ible circumstances of people's lives (accessto health care, schools, education, conditionsof work/leisure, homes, communities, towns,or cities and chances of leading a flourishinglife) including the health system.

In order to understand the relevance of SDHfor Sri Lanka, an analysis of health inequityneeds to done, as addressed in the discus-sion that follows.

15.4.1 Health InequityInequity in health is known simply as unfairdistribution of services. Inequity can beobserved through three means, namely:7

(i) health status/outcomes, (ii) access toservices and, (iii) financial allocations. Fivecommon measures for health system assess-ments are:8 (i) overall level of health, (ii)distribution of health in the population, (iii)

6 Ministry of Health, Annual Health Bulletin 2007.7 WHO–Sri Lanka, 2002, “Poverty, Transition and Health: A Rapid Health System Analysis”.8 WHO, 2000, The World Health Report 2000: Health Systems - Improving Performance, WHO, Geneva.


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overall level of responsiveness, (iv) distribu-tion of responsiveness, and (v) distributionof financial contribution. Of these, threemeasures - distribution of health, responsive-ness and finance - are related to equity. Whileequity has two objectives pertaining to bothinputs and outcomes, the latter is vital. Evenin developed countries, where input distri-bution is relatively equitable, outcome dis-parities can be present.

Inequity in health outcomes: Even though SriLanka has achieved exceptional healthoutcomes through universal coverage of freehealth services, some significant pockets ofdisparities remain in groups with differentsocial conditions. For instance, IMR acrossdifferent levels of education of mothers vary(Table 15.2). The IMR for those in the 'noschooling' group is relatively high comparedto the group with tertiary education levels.Accordingly, it is evident that disparities inhealth outcomes owing to social status,remains a concern.

Second, variations for crude death rate (CDR)and crude birth rate (CBR) are to be foundacross districts. For example, the highest CBR(29.4 per 1,000 population for 2007) wasreported from Kilinochchi district, while thelowest at 13.5 was recorded in Gampahadistrict.9 Furthermore, the highest CDR (8.4per 1,000 population in 2007) was reported

Table 15.2Infant Mortality Rate by Mothers’ Education Level

1993 2000 2006/07

No schooling 44.7 25.5 33Primary 32.3 29.9 23Secondary 22.7 17.6 19GCE(O/L) and GCE(A/L) 18.0 13.6 13

Higher 18.0 13.8 17

Source: Ministry of Health, Annual Health Bulletin 2007.

in Colombo district despite a relatively highaccessibility of care. It may be that deathsoccurring in hospitals in the Colombodistrict - with such hospitals drawing highnumbers from across the country - arerecorded as deaths in the Colombo districtitself. The lowest CDR of 3.3 per 1,000population was recorded in the Monaragaladistrict.

Additionally, the prevalence of stuntingamongst income groups vary. For instance,the percentages in the poorest and richestquintiles were 24 and 4 per cent, respec-tively, in 2000.10 When considering wastedchildren, the poorest income quintilereported the highest rate of 20.1 per cent,while the richest quintile recorded 3.5 percent in 2000.

Inequity in access to services: Improvinghealth services through appropriate match-ing of facilities and recruitment of manpowerin Sri Lanka remains an issue in the absenceof adequate needs assessments. Most of thetertiary (teaching/special/provincial hospi-tals) and secondary care (district base hospi-tals) facilities are located in urban and semi-urban areas. In addition, health staff alsoprefer to work in these areas because of otherfacilities such as availability of accommo-dation in hospital premises or outside,schooling, transport, availability of safe

9 Ibid.10 Rannan-Eliya, R., 2008, “Activities at Regional Level to Address Social Determinants and Health Inequalities”, paper presented at seminar

on ‘Social Determinants of Health in the Maldives’, October 2008.


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drinking water, electricity, etc. Though peoplein rural or estate areas have access toprimary care level facilities (divisionalhospitals, including primary medical careunits), they tend to by-pass these owing tounavailability of health staff and essentialmedicines/equipment at primary care level.11

This phenomenon has adverse effects oninequalities in health outcomes betweenrural and urban sectors, as well as betweenincome quintiles.

In 2006/07 for instance, IMR in the urbansector was 10 per 1,000 live births whilst forthe rural and estate sectors it was 19 and 29per 1,000 live births, respectively.12 Whenconsidering health personnel, the majorityof specialist doctors for curative care are tobe found at higher level facilities in urbanareas. Of a total 852 specialists in the coun-try, 229 were in Colombo and a further 83in Kandy in 2007. Moreover, skilled birthattendance by the poorest quintile in 2000was 91 per cent while the richest was 99 percent. Thus, the above figures reveal existingdisparities in health facilities that in turn,constrain accessibility for care to patients.

Inequity in health financing: Financial riskprotection is another pillar of attainingequity in health. In Sri Lanka, free health careis available to all citizens, but whether theyare protected from financial risk in practiceor whether services are free at the point ofdelivery is quite doubtful. Out-of-pocketexpenditure for health (OOPE) is a valuablemeans of showing inequity in health financ-ing in the context of free health services. In2009, OOPE was 51 per cent of total healthexpenditure on average,13 which is quite high

compared to Thailand (34 per cent) whichalso has a well developed universal coverageexisting within a mixed health financingsystem.

High OOPE has important implications. InSri Lanka, unequal distribution of publichealth infrastructure may push people topoverty and impoverishment. At the sametime, better quality of services in privaterather than public facilities may increasedemand for private care that results in rising'catastrophic' expenditure - i.e., catastrophicimpact signifies households with health carespending greater than 15 per cent of totalhousehold consumption.14 Sri Lanka reportsa figure of less than 2 per cent of householdswho fall into this category, better than coun-tries with successful health systems likeThailand (2 per cent) and Taiwan (3 percent).15

The recommendation by the WHO is thatOOPE should not exceed 30-40 per cent oftotal health expenditure to achieve universalcoverage.16 In other words, as OOPE goesbeyond 40 per cent of total health expendi-ture, it increases the financial risks of careseekers and that can contribute to risinginequity.

15.5 Way Forward on SDH Approachin Sri LankaSri Lanka has been successful in acting onSDH through its national Commission. TwoSouth East Asia Regional Consultations onSDH took place in 2007 and 2009 in SriLanka. As documented in the ConsultationReport 2007, Sri Lanka aims to have a frame-work with regard to scaling up of sustain-

11 de Silva, U.H.S and N. Attanayake, 1992, “Utilization of Resources at Peripheral Health Care Institutions in Gampaha District”, mimeo.12 Ministry of Health, Annual Health Bulletin 2007.13 Central Bank of Sri Lanka, Annual Report 2010.14 Catastrophic expenditure refers to percentage of consumption at individual household level.15 Central Bank of Sri Lanka, Annual Report 2010.16 WHO, 2009, Health Financing Strategy for the Asia Pacific Region 2010-2015, WHO, Geneva.

.


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able action to address health inequitiesusing an SDH approach. Three approacheshave been identified, namely: (i) equity asan explicit and key objective of policy,(ii) SDH as an approach to narrow inequi-ties, and (iii) PHC and inter-sectoral actionas strategy. Actions on SDH in Sri Lanka havebeen implemented through the Sarvodaya andShramadana Movement, the GemidiriyaCommunity Development and LivelihoodImprovement Project, and a geo-spatialapproach analysis. The Sarvodaya andShramadana Movements work as NGOs whilethe Gamidiriya Project is financed by thestate with foreign assistance. All develop-ment activities come through household levelat the village and in turn, the benefits alsogo to the participants.

There are also other significant policydevelopments in relation to SDH. The WHOhas proposed a project to strengthen nationallevel policy formulation and implementationto tackle health inequities in Sri Lanka usingan SDH approach, which in turn, is expectedto provide support to develop interactionswith other sectors. Second, two other inter-ventions have been initiated - linked, althoughnot directly targeted to SDH - including apilot project on strengthening PHC by theMinistry of Health, and a pilot project onWHO Package of Essential Non-Communi-cable Disease Interventions (WHO PEN) forprimary care in low-resource settings. Whilethese are positive developments, given themany disparities faced by Sri Lanka's healthsector due to social and economic condi-tions, actions to mitigate such disparities arefew.

15.6 Conclusion and PolicyImplicationsEquity is vital to maintain good health out-comes and achieve economic and develop-ment objectives. It is evident that the greatershare of health inequity is due to the socialconditions in which people live and work.

In Sri Lanka, socio-economic disparities invarious forms continue to persist. In particu-lar, income inequality becomes the mainsocial condition for pushing people out fromaccessing opportunities. Unless checked, thegap between the poor and rich can widenfurther.

At present, Sri Lanka is attempting to addressinequalities via SDH approach throughlimited economic and social interventions.However, it is clear that progress remainsslow. Although inter-sectoral collaborationis a key strategy of Sri Lanka's SDH frame-work, its absence between health and othersectors in the country is the main constraintto make progress on issues of health equity.Previously, the National Health Council fa-cilitated inter-sectoral actions, but its non-functionality at present, and the absence ofan alternative high level stakeholder assem-bly, is a factor for the slow progress. Accord-ingly, a proper institutional mechanism tofacilitate inter-sectoral actions on health,needs to be initiated by the Ministry ofHealth.

Health in All Policies (HiAP) is a key pathof intersectoral actions for health. In thecontext of Sri Lanka, HiAP is still notformalized. Therefore, as a first step, stake-holders need to be convinced of the benefitsof HiAP. Second, effective policy formula-tion to implement the HiAP concept couldbe developed thereafter.

Sri Lanka, as a lower-middle income coun-try, is grappling with accelerating growth onone hand, and changing morbidity/mortalitypatterns and lifestyles with an ageing popu-lation due to transitions of demography andepidemiology, on the other. As a result,NCDs and a rapidly ageing population areon the rise. Such transitions may cause exist-ing health inequities in the country to in-crease. Thus, while PHC as a major strategyof SDH approach is currently being strength-


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ened, an effective, efficient, equitable andaccessible health service with formalizedhealth policies need to be implementedto tackle health outcome inequities, espe-cially through PHC. Second, to manage eq-uity in health financing, existing health fi-nancing policy needs to be revisited, in par-ticular to ensure that the poor and vulner-able groups are protected from financial risks.

Overall, addressing SDH is urgent tomitigate health inequity in Sri Lanka. TheCSDH provides technical guidance throughregional consultations and other forms. The2008 report of the CSDH called for global

recognition to tackle health inequity throughits three recommendations,17 namely:(i) improving daily living conditions, (ii) tack-ling inequitable distribution of power, moneyand resources, and (iii) measuring andunderstanding the problems and impacts ofinter-sectoral actions and PHC. Thus, SriLanka's health sector - together with othersectors - needs to take urgent action on SDHapproach to mitigate health inequities as thecountry aims to achieve rapid growth. It iswith the bridging of inequities that Sri Lankawill achieve the broader objective ofinclusive economic development.

17 WHO, 2008, Closing the Gap in a Generation: Health Equity through Action on the Social Determinants of Health, WHO, Geneva.


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16. A Rational Drug Policy: An Imperative of 'Health for All’

16.1 Introduction

The provision of essential drugs - which are acces-sible and affordable to all - is one of the critical meansto achieve the ultimate goal of 'health for all'. SriLanka's current demographic transition is a reflectionof its success in providing good health services overmany decades. Nevertheless, emerging disparities instatus, income and access to resources have led toinequalities in health services and outcomes withinthe country. While health disparities within a popu-lation are common to any country, what is importantis the recognition that restoration of equity in healthcare service delivery is critical for sustained andequitable socio-economic development of a country.In this respect, an essential element in the healthpolicy paradigm is equitable access to drugs andequitable health outcomes resulting from access todrugs.

Policy making in the provision of essential drugs can-not be examined and studied in isolation, but has tobe approached as an integrated function of a healthsystem. Sri Lanka's health policy covers a system thatcontributes specific services such as health adminis-tration, promotion, preventive, curative, and rehabili-tative care. Among these, the most important in theprovision of health care services - i.e., curative careand community care - are laboratory services andpharmaceutical services. All these services havespecific policies as integral parts of a national healthpolicy. In this context, pharmaceutical services playa pivotal role in health service delivery which meetsan essential element in health care needs of the popu-lation. This discussion aims to examine the mainpolicy issues linked to usage of pharmaceuticals (drugs)and identify gaps in making available essential drugsat affordable prices and its rational usage through awell defined drug policy. It remains a critical area ofpolicy concern given the rising burden of disease andexperiences of drug shortages.

‘‘

Access to essential lifesaving medicines has

become a crucial issuein recent times,

requiring policies thatbuild an institutionallysound and transparentpharmaceutical system

A Rational Drug Policy: An Imperative of 'Health for All'

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16.2 Burden of DiseaseAfter World War II, the disease picture in SriLanka was dominated by infectious diseaseslike tuberculosis (TB) and malaria. As aresult of improved health advisory and hy-giene, and the availability of life saving medi-cines, such as penicillin, other antibioticsand various vaccines, infectious diseasesdeclined. Improvement made over time inprimary care, reproductive health, and effortsto reduce maternal and infant mortalityresulted in increasing life expectancy at birth.These trends led to a dramatic advance inhealth status and fertility reduction in thecountry. From the 1960s, Sri Lanka enteredthe third stage of demographic transition,namely, the phase of declining fertility.1 Asa result, the country is experiencing a rapidincrease in the elderly cohort. It is estimatedthat the above 70-year age category willdouble over the next 20 years.

As NCDs emerge as the most prevalentdiseases, the direct and indirect costs of treat-ing such patients are currently estimated tobe about US$ 420 per person per year.2 Thisprovides an indication of the magnitude ofthe cost of medi-care needed for the popula-tion for similar illnesses. As the prevalenceof chronic diseases increases with age, theburden of NCDs can be heavy on the poorand marginalized population.

In addition, preventable communicablediseases such as Dengue are also on the rise.Dengue is the most common mosquito-borneillness and is endemic in Sri Lanka, spreadby rapid urbanization - characterized bydensely populated areas and widespread

mosquito breeding grounds. Other emergingdiseases in Sri Lanka include, HIV-Aids.According to the Aids Prevention Divisionof the Ministry of Health, registration of Aidspatients was up by 3,000 in 2009, with 1,249new registrations in 2010.

The seriousness of the burden of diseases isalso evident by the rising demand for treat-ment for multiple illnesses by different age/gender groups, and by different communi-ties of varied income levels. Data on out-patient visits and in-patient admissions inpublic and private hospitals reveal that therehad been around 43 million out-patient visitsto government hospitals, in addition toannual clinic visits of 16 million, andin-patient admissions of 4.6 million in 2007.3

Of the patients who obtained indoor treat-ment in government hospitals, bed occupancyrates in differently categorized hospitalsprovide a cross-sectional view of the degreeof demand for long term care in non-feelevying government hospitals - i.e., estimatedbed occupancy rates in provincial hospitalsstood at 101 per cent, national hospital (101per cent), teaching hospitals (90 per cent)and base hospitals (82 per cent).4

Further, in 2007, 5.7 million out-patientvisits and 221,000 in-patient admissions havebeen reported by private hospital facilities.5

This does not include the out-patienttreatment delivered by around 2,000General Practitioners (GPs) spread through-out the country. In the late 1990s for instance,when the number of GPs stood at 900, anestimated 12.7 million patients were seenby them annually.6 Indeed, private Western

1 Indralal De Silva “Beyond Twenty Million: Projecting the Population of Sri Lanka 2001-2081”, Research Studies: Demographic Transitionand Pension Series No.6, Institute of Policy Studies.

2 Price Water House Coopers, 2009, Pharma 2020: The Vision.3 Ministry of Health, Annual Health Bulletin 2007.4 Fernando, Joel, 2002, “Functional Perspective in Health Sector in Sri Lanka: Current Status and Challenges”, mimeo.5 IPS, Census of Private, Co-operative and Estate Hospitals 2005-2008.6 De Silva N., and K. Mendis, 1998, “One Day General Practice Morbidity Survey in Sri Lanka”, Family Practice, Vol. 15, pp. 32331.


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out-patient services were considered to bethe fastest growing segment of healthservices in the country.

When glancing at the profiles of patientsseeking health provisions from governmenthealth institutions and from private GPs,government hospital facilities have beenmostly patronized by the lower-middle classand poor households, while households ofalmost all income groups make use of GPout-patient facilities when a need arises.7 Freedelivery, quality and confidence are some ofthe key factors that influence low incomegroups to obtain drugs from state institutions.

16.3 Sri Lanka's Drug PolicyDrug policy is a branch of health policy thatdeals with the development, provision anduse of medications within a health caresystem. It embraces drugs (both brand nameand generic), biological products, vaccinesand natural health products. An effective drugpolicy aims at ensuring that people get goodquality drugs at the lowest possible price,and that doctors prescribe the minimum ofrequired drugs in order to treat the patient'sillnesses. As is found commonly in othercountries, Sri Lanka too has a three-tieredstructure of demand where a physicianprescribes, a pharmacist dispense, and thepatient consumes free of charge, pays or athird party pays.

Pharmaceutical policy is the part of healthpolicy that aims at addressing problems suchas increasing access to safe, effective andaffordable medicines for all patients.8

Obstacles to achieving these goals can arisefrom financial interests on the side ofsuppliers and health care providers, who maybenefit from charging higher prices and

issuing more prescriptions than might bejustified from a clinical and economic view-point. Obstacles can also arise from unscru-pulous suppliers trying to introduce lowquality or counterfeit drugs into markets,exploiting regulatory weaknesses. In addition,corruption and ineffective bureaucraciessometimes interfere with well intendedprogrammes to offer access to essential medi-cines for the poor.9 Some of the issues raisedabove have relevance to Sri Lanka's currentdrug administration system as will bediscussed later.

The drug registration and regulatory systemin Sri Lanka began in the early1960s. TheNational Formulary Committee establishedin 1962, introduced a drug list by reducingthe number of drugs from 4,000 to 2,100, tobe imported only by the private sector.During this period, the procurement proce-dure for drugs was biased towards more ex-pensive brand names. Sri Lanka's first Na-tional Drug Policy in 1971, aimed at ensur-ing that people could get good quality drugsat the lowest possible price, and that doc-tors would prescribe the minimum requireddrugs to treat illnesses. The new drug policyidentified the need for a state buying agencyfor procurement in accordance with the na-tional formulary, to reduce the costs of drugswhile maintaining the quality in order to saveforeign exchange, rationalize drug usage, andsupply essential drugs to the whole popula-tion at an affordable cost. Accordingly, anessential drugs list was introduced by a newformulary that reduced the number of essen-tial drugs to 600.

In 1971, the State Pharmaceutical Corpora-tion (SPC) was established to replace privatesector drug importers, and in 1973, the SPC

7 Fernando, Joel 2002, “Private Sector Community Health Services and Health Sector in Sri Lanka: Current Status and Challenges”,mimeo.

8 World Bank, 2007, Practical Approach to Pharmaceutical Policy, World Bank, Washington, D.C.9 Ibid.


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became the sole importer of pharmaceuti-cals by replacing 134 private pharmaceuti-cals importers. Subsequently, the SPCintroduced an international tendering systemwith quality control requirements, purchas-ing of low-cost generic products wheneveravailable, approaching non-patent observingsources for newer patented products, andbargaining with transnational sources fornewer patented products that were not avail-able elsewhere. As a result, branded drugswere replaced by generic drugs in theprescription and sale of medicine. In 1972,the SPC is estimated to have imported 52drugs at a third of their previous prices, andsome drug prices dropped by a half or two-thirds.10 The 1971 National Drug Policy wasa part of health reforms that was pro-poor,in line with the government policy ofcentralization of economic activities moreor less within a welfare state.

With the introduction of trade liberalizationpolicies in 1977/78, efforts were made toreduce the monopoly of drug imports by theSPC, and its activities were confined only toimport the drug requirements of the publicsector while the private sector was given afree hand to import drugs, creating a pricedistortion in the pharmaceutical market. Thenew policy stance did not make any changesto the existing formulary or the essential drugslist. Although the State Pharmaceutical Manu-facturing Corporation (SPMC) established in1987 aimed to manufacture commonlyneeded drugs - such as paracetamol and afew others - the institution was mostlyrunning as a loss making venture.

There were attempts to develop a NationalDrug Policy in 1991 and in 1996, which wereaccepted by the Ministry of Health (MOH),but failed to gain Cabinet level approval. Thereport of the 'Presidential Task Force on

Formulation of a National Health Policy forSri Lanka' - established in 1992 - recognizedthe need for a national drug policy but itwas not fully comprehensive nor was it welldefined. In 2005, the MOH, with the assis-tance of the WHO, worked out a compre-hensive draft for a National Medicinal DrugPolicy for Sri Lanka. After at least four roundsof talks with all stakeholders, the final draftwas approved by the Cabinet in October2005, but is yet awaiting the ratification ofParliament prior to implementation. Thedelay is largely assumed to be on account oflobbying by vested interests, opposed to itsimplementation.

16.4 Why Sri Lanka Needs a RationalDrug PolicyThe necessity for a comprehensive drug policyhas been warranted due to various issues.The more critical are: emerging profile ofdisease burden; growing influx of patientsseeking treatment from free health careservices; availability of around 9,000 variet-ies of branded, generic, and cheap drugs;rising conflicts in prescribing low costgenerics and expensive branded drugs; short-ages of life saving drugs in governmenthospitals and dispensaries; sales of drugswithout prescriptions over-the-counter; andaffordability to pay from out-of-pocket forprocurement of drugs by poor households.Among these, shortage of drugs - against thebackground of disease burden and influx ofpatients seeking free treatment at statehospitals to avoid the high cost of drugs andcare - is the most significant issue for themajority of people.

Effective pharmaceutical delivery to patientsseeking treatment from government hospi-tals is being hampered by non-availability ofadequate stocks, absenteeism of qualified

10 Lall,S., and S. Bibile, 1977, “The Political Economy of Controlling Transnationals: The Pharmaceutical Industry in Sri Lanka (1972-76)”, World Development, Vol. 5, pp. 677-98.


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pharmacists, and uneven distribution of phar-macists and dispensers in dispensaries acrossthe country. As a result, most patients tendto receive less than the quota of prescribeddrugs from these institutions, and arefrequently required to purchase more expen-sive drugs from private pharmacies. The grant-ing of state approval for government healthprofessionals to engage in private practice,and intermittent shortages of essential drugsexperienced in state hospitals, in combina-tion, has led to patients having to seek treat-ment at higher costs through private consul-tations.

The shortage of drugs is a key health policyconcern. Shortages in Dextran 40 (a crucialfluid administered to critically ill Denguepatients), in cancer treatment related vaccines,in supplies of Saline, and other essentialdrugs critical for patients suffering fromdiabetes, asthma and heart conditions, as wellas expectant mothers, etc., have been noted.Indeed, media reports suggested that "300essential drugs are in short supply in manyof the country's hospitals….Doctors haveconfirmed that the shortages have affectedgovernment hospitals."11 In some instances,Sri Lanka was compelled to take extraordi-nary action to address critical shortages. Forinstance, Saline stocks were replenished byimmediately airlifting supplies into thecountry in 2010.

Other irregularities in the supply of drugshave also been highlighted. Drug companieshave been found to supply drugs prescribedfor cancer patients in Sri Lanka to the privatesector at higher prices, while failing tosupply the same to the MOH throughout2010. In such instances, the MOH iscompelled to purchase drugs locally at higher

prices in order to provide effective treatmentto patients. Other reported malpracticesinclude instances where despite the presen-tation of quality drug samples to the NationalDrug Quality Assurance Laboratory(NDQAL), the subsequent delivered ordersare found to be sub-standard drugs. Due tosuch fraudulent practices, the MOH tookaction to withdraw 228 kinds of drugs inbatches and 58 other items over the period2006-10.12 Moreover, it is also the case thatthe irregularity of drug supplies makes itharder for hospitals to give accurate figureson what drugs are available or in shortsupply at any given time.

According to the Sri Lanka Chamber ofPharmaceutical Industry, the shortage of drugsin state hospitals is primarily a procurementissue, requiring more transparent tenderprocedures.13 The recommendations madeare to institute time frames for every step ofthe tender procedure - i.e., predeterminedtimes for tender boards, awards, indents, let-ters of credit, etc. - whereby participants areinformed within the specific time period.Transparent procedures are also argued to earngreater acceptance and recognition of theSPC, amongst other suppliers. Safeguardsagainst irregular suppliers through the execu-tion of bid bonds and performance bonds ontime, subject to a proper evaluation of anyreasonable excuses for delays (which shouldagain be limited to a fixed time frame), isalso considered important in this regard.

16.4.1 A Case of Shortages:ParacetamolParacetamol is a widely used pain reliever,commonly used for the relief of headaches,other minor aches and pains, and is a majoringredient in numerous cold and fluremedies. Paracetamol is also used for relief

11 Daily Mirror, “Essential drugs shortage puts patients and hospitals in a spot”, 5 May, 2010.12 Daily Mirror, “Sickening mismanagement”, 19 April, 2011.13 The Island, “Shortage of drugs in state hospitals: transparency in procurement vital – Samarasinghe, Ananda, President, Sri Lanka Chamber

of Pharmaceutical Industry”, http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=22356.


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of more severe pain such as in post-surgicalrecovery. In Sri Lanka, the SPMC is respon-sible for manufacturing a part of the localrequirement of paracetamol for state hospi-tals, while private industry providers andimporters supply the same to the pharma-ceutical market under brand names (e.g.,Panadol, Panadin, etc.). The drugs are madeavailable without a prescription, and haveincreasingly become a common householddrug.

Since 2008, state-run hospitals across thecountry have been affected by a chronicshortage of Paracetemol. As a result, it isalleged by the Government Medical Offic-ers Association (GMOA), that doctors at-tached to both government and private hos-pitals have had no alternative but to prescribemore expensive brands.14 It is reported thatthe SPMC has been entrusted to manufac-ture only 150 million tablets out of arequired annual quantity of around 750million tablets, forcing Sri Lanka to import600 million tablets.

In February 2011, the MOH initiated inquir-ies into the purchase of 100 millionParacetamol tablets from the open market ata cost of Rs.37 million under the 'EmergencyPurchase' tag, as the SPC holds the monopolyin the supply of drugs to the Medical SupplyDivision. The inquiries have revealed thatthe SPC unaccountably delayed supplying therequired stocks that led to country-wide short-ages of Paracetamol tablets at state hospi-tals, while there had been ample stocks inthe open market manufactured by the SPMC.In March 2011, the MOH instructed theSPMC to take immediate measures toproduce 564 million tablets.15

16.5 Present Status of Drug RegulatoryRegimeSri Lanka's drug procurement process whichfollows various stages, including registration,selection procurement, distribution andservice delivery, was designed to be trans-parent. The registration process is expectedto guarantee the drug's safety and efficacy,but there are allegations that the credibilityof this guarantee is eroded by the pharma-ceutical industry lobby. Studies have notedthat the registration of new drugs takes al-most one year and involves tedious bureau-cratic procedures. This has led to an increasedcirculation of unregistered drugs that under-mines the objective of quality regulation toensure the supply of safe drugs to thepublic.16

The next stage of the process is the selectionof drugs which ensures that the most cost-effective and appropriate drugs for apopulation's health needs are chosen fairly.Unfortunately, the cost effectiveness is notconsidered often, and as a result, around9,000 varieties of (mostly expensive) drugsare imported. These drugs are imported bythe SPC as well as by the private sector. TheSPC is responsible for procurement of drugsfor the Medical Supplies Division of theMOH. The Medical Supplies Division over-looks the distribution of drugs to govern-ment health institutions, while private sec-tor importers distribute drugs to private phar-macies. Sri Lanka's NDQAL does not havethe capacity to quality test all the drugs thatare being brought to the country, and thereare weaknesses in post-marketing surveillancedue to limitations in capacity.

The ineffectiveness of the NDQAL for qual-ity testing has created two issues, namely:

14 The Island, “Paracetamol causes headache for Health Dept.”, 20 May, 2008.15 Daily Mirror, “SPMC asked to make more Paracetamol available”, 10 March, 2011.16 Knight-John, Malathy, P.P.A.Wasantha, Andrew Perumal, Pubudini W. Rupasinghe, Avanthi Gunathilake, 2003, “Cross- Border

Competition and Implication for Sri Lanka: Case Studies of Pharmaceutical, Cement Markets and Shipping Line Sector”, IPS/LST.


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(i) unlicensed individuals and/or entitiesconducting illegal trade of pharmaceuticalproducts containing controlled substances,and (ii) licensed individuals and/or entitiescontravening laws to sell controlled drugs,such as pharmacists who sell controlled drugswithout a prescription. Due to these areas ofweaknesses, it has become common thatpharmacies market drugs not registered in thecountry, employing under-qualified personsas pharmacists, failing to store drugs underspecified temperature, and storing foods anddrugs in the same refrigerators - which areagainst the set standards for selling pharma-ceutical items.

16.6 ConclusionThe call for a national medicinal drug policyin Sri Lanka has spanned several decadessince the liberalization of trade in the late1970s. The MOH was involved in the prepa-ration of a National Medicinal Drug Policyin 2005, which is yet to receive Parliamen-tary approval for implementation. Given thenumber of years that has lapsed since thereport was first drafted, it may be that thereport itself needs to be revisited to ascertainwhether it reflects the key features of aviable drugs policy and best practices, priorto completion of passage of legislative ratifi-cation.

Various countries, including both drug manu-facturing and drug importing nations, haveadopted features in their drugs policy that fitin to national needs. Among these, the keyfeatures that could be seen are equitableaccess, safety, affordability, sustainability,evidenced-based decision, transparency, im-partiality, participation and inclusiveness. AsSri Lanka is highly dependent on importeddrugs - importing around 90 per cent of re-quirements - the most important featuresamongst these are: (i) equitable access whichinvolves individual access to approved drugsand accessibility to a speedy new drugapproval process; (ii) safety which requires

appropriate pre-market evaluation and post-market surveillance, (iii) affordability appli-cable to both individuals and the healthsystem, so that no one should suffer unduefinancial hardship in accessing needed drugtherapies, (iv) sustainability which ensuresthat drugs are evaluated in the context ofthe overall burden of illness, and of theirimpact on direct and indirect illness costsand health system sustainability, and (v) par-ticipation and inclusiveness of all stakeholderengagement for meaningful involvement inthe development and implementation of aproposed national drug policy.

Another issue that is needed to be looked atis the present controversy over genericsversus branded drugs, which is closelyrelated to the economics of the pharmaceu-tical industry. Brand name drugs are severaltimes more expensive than equivalent gener-ics which are feely available in the globalmarket. In the ongoing debate, several ques-tions have been raised whether branded drugsare worth the extra cost, or whether genericalternatives give the same results at a lessercost. What is important is the ability ofpatients to understand the difference betweengenerics and brands, recognize the genericname of a drug, and find a good qualityvariety of that particular drug. A rational drugpolicy resolves this intricate issue as it isbased on drug use, in which patients receivemedications appropriate to their clinicalneeds, in doses that meet their ownindividual requirements, for an adequateperiod of time, and at the lowest cost to them.

Access to essential life saving medicines hasbecome a crucial issue in recent times and itis the responsibility of governments toensure a policy that builds an institutionallysound and transparent pharmaceutical sys-tem, with appropriate mechanisms in placeto avoid the likelihood of denial of lifesaving medicines to those in need, especiallythe poor and marginalized population.

Accessibility and Affordability in the Power Sector

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17. Accessibility and Affordability in the Power Sector

17.1 Introduction

Numerous studies suggest the existence of a strongcorrelation between electricity consumption and eco-nomic growth.1 Clearly, as the dependence of aneconomy on electricity rises, its impact on growthwill become critical. In Sri Lanka, available evidencesuggests that current as well as past changes in elec-tricity supply have a significant impact on thecountry's growth outcomes.2 Indeed, the lagged ef-fects of increased electricity supply are found to havea greater impact on GDP. For instance, estimates sug-gest that for every increase in supply of electricity by1 megawatt hour (MWh) in the current year leads toan income increase of Rs. 38,200 in the same year,Rs. 30,000 in the second year and Rs. 44,100 in thethird year.

Given a clear nexus between electricity consumptionand growth, access to a sufficient, affordable and re-liable supply of electricity across all sectors of theeconomy has strong distributional implications. InSri Lanka, despite considerable progress in ensuringaccess to electricity - currently estimated to reach 90per cent level of electrification - significant dispari-ties are to be found across sectors and provinces ofthe country. With a set government target of reaching100 per cent electrification by 2012, an assessmentof key policy issues in the power sector is timely.This discussion aims to provide an overview of thepower sector in Sri Lanka - with a specific focus onhousehold, commercial (hotel) and industrial sectors- and outline the new developments in the sector asit pertains to supporting the country's overall growthand development objectives.

‘‘

1 See Ferguson, R., W. Wilkinson, R. Hill, 2000, “Electricity Use and Economic Development”, Energy Policy, Vol. 28, No. 13; Gupta, G.and N.C. Sahu, 2009, “Causality between Electricity Consumption and Economic Growth: Empirical Evidence from India”, MunichPersonal RePEc Archive, available at http://mpra.ub.uni-muenchen.de/22942.

2 Morimoto, R., C. Hope, 2001, “The Impact of Electricity Supply on Economic Growth in Sri Lanka”, Research Papers in ManagementStudies, University of Cambridge.

Given a clear nexusbetween electricityconsumption and

growth, access to asufficient, affordableand reliable supply ofelectricity has strong

distributionalimplications


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17.2 Power Sector and its NewDevelopments17.2.1 Overview of the Power SectorThe power sector in Sri Lanka is assigned threemain functions, namely, the generation,transmission and distribution of electricity,which are licensed out to several parties. Themajority of consumers are served by thenational grid while isolated pockets ofconsumers are served by off-grid systems. In2009, the Ceylon Electricity Board (CEB)contributed 55 per cent of gross generationto the national grid, while the rest was

generated by Independent Power Producers(IPPs).3 While the CEB is the sole transmis-sion licensee in the national grid, distribu-tion is jointly carried out by CEB and LankaElectricity Company (LECO) licensees.Figure 17.1 illustrates the functionalstructure of the electricity sector in Sri Lanka.

At present, the electricity industry has longterm debt exceeding Rs. 200 billion (largelythe debts of CEB) which is expected toincrease to Rs. 500 billion by 2015.4 Therevenue is only adequate to meet around 90per cent of industry expenditures.5 The CEB

Figure 17.1Functional Structure of the Electricity Industry

Notes: IPPs = Independent Power Producers; SPPs = Small Power Producers.

Source: Public Utilities Commission of Sri Lanka (PUCSL).

3 PUCSL, 2009, The Electricity Act of 2009 and the Development of the Sector.4 Siyambalapitiya, Tilak, 2011, “The New Electricity Pricing Policy in Sri Lanka”, Prof. R. H. Paul Memorial Lecture, Institute of

Engineers, Colombo, 10 February 2011.5 Ibid.

CEB Generation

IPPGenera

CEB Transmission Own and maintain Transmission grid System operation

Power procurement

Bulk Consumers

CEB Distribution and LECO Own maintain and operate

Distribution grid Bulk power purchase

Retail supply

Ge

Off-Grid Systems

Isolated Consumers

Retail Consumers

SppsGeneration

IPPsGeneration


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has reported steady losses since 1999,6 andthe utility has been making increasinglynegative returns (Table 17.1). The reasons forthe poor performance are two-fold, namely,the dependence on oil-powered thermalgeneration to meet the electricity demandand sustenance of end user tariffs below thecost.

The major share in the cost of sales to endusers consists of generation cost which isaround 80 per cent of the total. Of this,generation fuel alone was estimated to makeup 62.4 per cent of the total in 2010. Giventhe energy mix of the country, the electricitysector is largely dependent on oil-fired ther-mal generation. As Table 17.2 indicates, 59.8per cent of electricity generation in 2007 wasoil-fired. This was estimated to increase to63.3 per cent by 2010. Except for a slightdrop in 2009, the global price of crude oil

increased steadily, driving up generation costsin the electricity sector. Therefore, the longterm generation expansion plan of CEB isaiming at gradually decreasing the depen-dence on oil-fired thermal generation. By2020, the industry will be dominated by coal-fired thermal generation, which is a cheaperalternative.

End user tariffs in Sri Lanka have consistentlybeen set below the cost of sales, and havebeen insufficient to fulfill the revenuerequirement of the CEB. For example, theaverage earnings of the CEB in 2005 were7.71 rupees per kilowatt (Rs/kW), whereasthe average revenue required to satisfy thecash flow requirements was 9.62 Rs/kW.7

Government efforts to mitigate the financialloss of the sector such as direct settlement ofCEB dues to Ceylon Petroleum Corporation(CPC), moratorium on capital and interest

Table 17.1Recent Financial Performance of CEB

2006 2007 2008

Net profit before tax (Rs. mn.) -11,125 -19,811 -33,870Return on average net fixed assets (%) -0.56 -2.29 -5.85

Source: Siyambalapitiya, Tilak, 2011, “The New Electricity Pricing Policy in Sri Lanka”, SriLanka Energy Managers Association, Vol. 14, No. 1.

Table 17.2Planned Generation Mix of the Sri Lanka Grid (Base Case)

Primary source Share of Total Gross Energy in the Grid (%)2007 2010 2015 2020

Hydro 40.2 36.7 28.2 19.5

Oil-fired thermal 59.8 63.3 5.7 9.6

Coal-fired thermal 0.0 0.0 66.1 70.9

Biomass, solar Not included in the long term plan

Wind Not included in the long term plan

Total 100.0 100.0 100.0 100.0

Source: PUCSL, The Electricity Act of 2009 and the Development of the Sector.

6 PUCSL, 2009, The Electricity Act of 2009 and the Development of the Sector.7 Ibid.


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due from CEB on long term debts andremoval of value added tax (VAT) on fuel oilhave failed to guarantee the financialsuccess of the CEB.8 Therefore, a few keychanges were made in the power sector witha view to making the entity profitable.

17.2.2 Recent Developments in thePower SectorSri Lanka Electricity Act No. 20 of 2009:The Act aims to address the shortcomings ofthe power sector by introducing well targetedmeasures. The main features of the Act areto:

• Place the electricity sector under theregulatory purview of the Public Utili-ties Commission of Sri Lanka (PUCSL)

• Introduce a new mechanism forsetting the tariff structure, and

• Assign the authority to form generalpolicy guidelines to the Ministry ofPower and Energy.

Although the PUCSL came into operation in2003, it was not fully functional owing tothe failure to pass the Electricity Reform Actof 2002.9 This was addressed by the newElectricity Act as the PUCSL was appointedto administer the provisions of the Act. Oneof the main functions of the PUCSL withinthis capacity, is advising the government onall matters concerning the generation, trans-mission, distribution and supply of electric-ity. The second key function, is regulatingtariffs and other charges levied by licenseesand other electrical undertakings in order toensure that the most economical andefficient service possible is provided toconsumers. The third, is consulting any

person or group of persons who may beaffected, or are likely to be affected, by thedecisions of the PUCSL. Thus, the Actensures that the PUCSL safeguards theinterests of all parties involved in the powersector.

The Act allows licensees to set electricitytariffs in a cost reflective methodologyapproved by the PUCSL. Within this capac-ity, the licensees may recover all reasonablecosts in the carrying out of the activitiesauthorized by the licensee in an efficientmanner either through tariffs or by directsubsidies from the government. This aims toalleviate one of the main hindrances to thefinancial sustainability of the power sector -i.e., of electricity tariffs being set below cost.However, it is essential for the tariffs to fallwithin the policy guidelines set by the gov-ernment and the PUCSL retains the right torevise the tariffs periodically.

The Ministry of Power and Energy is expectedto form policy guidelines taking into consid-eration factors such as the requirements ofelectricity based on socio-economic charac-teristics, fuel diversity, and electricitypricing policy to ensure sustainableeconomic growth and any other measuresbeing taken by the government with regardto the sector. Although this characteristiclimits the authority of the PUCSL as anindependent regulator, the implication of thisprovision is that the government is able toaccurately reflect the views and needs of thestakeholders in making policy decisions. Thepolicy guidelines, as outlined in the 'NationalEnergy Policy and Strategies of Sri Lanka',10

aims to ensure that access and affordability

8 The Ministry of Power and Energy recently claimed that the CEB has made a profit of Rs. 5.06 billion. However, critics have pointed outthat this has been achieved through a large government subsidy and underpriced fuel provided to CEB (see The Island, “Energy PolicyReview: Need to Remain Focused in Fundamentals”, May 31, 2011).

9 The Act was introduced in order to facilitate the restructuring process of the power sector. This included unbundling of CEB to form a singlebuyer and five companies for distribution, as well as appointing an independent regulator to regulate these independent businesses.However, owing to political pressure and opposition from the CEB staff, the sector failed to secure the Ministerial Order required to makethe Act fully operational.

10 http://power.lk/about-us/energy-policy.


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of electricity by consumers is addressed.Priority to improve access to rural areas, anda pricing policy that encompassesaffordability by households and viability ofcommercial and industrial categories, areimportant elements in the policy documents.

The road map for tariff re-balancing: Theroad map as set out by the PUCSL aims torestore financial viability to the power sec-tor by 2015,11 with key characteristics of theexercise being:

• Debt moratorium to be granted on alllong term debts till 31 December2009.

Box 17.1The Roadmap for Tariff Rebalancing

Year Households Religious Other retail Industry Hotel General(industry, (bulk) (bulk) (bulk)general,hotel)

2011 No major changes No changes Reduce the TOU All hotel Nogap between mandatory customers changesthe three unified intoclasses one

category2012 Reduce blocks from No changes Further All three classes of bulk customers

6 to 4. For 0-30 kWh reduce the to be unified and Time of Usecustomers, Govt fully price gap (TOU) tariffs to be mandatoryimplements a direct between the Introduce a charge for reactivesubsidy, as provided in three classes powerthe National Energy of customerPolicy and the Govt’s10-year plan

2013 Reduce blocks from No changes No difference between the customer classes,4 to 3 except in terms of voltage at which service is

provided. For the purpose of retaining a data-base, customer classification will be retainedin the accounting system.TOU tariffs will be mandatory for all retail andbulk customers in industry, hotel and generalpurpose categoriesAny subsidies will be addressed outside thelicensee tariffs.

2014 Retain 3 blocks No changes No further changesOptional TOU tariff for No changesall 3-phase customersTariffs yield adequate revenue to breakeven, meet all commitments including debtservice, but excluding a return on assets to GOSL

2015 Abolish block tariffs. No changes No further changesOptional TOU tariffsto all customersTariffs to all customers are targeted to be fully cost reflective. GOSL earns a return onassets on the sector

Source: PUCSL, 2010, Consultation Paper on Setting Tariffs for the Period 2011 – 2015.

11 PUCSL, 2010, Consultation Paper on Setting Tariffs for the period 2011 – 2015.


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• Licensees held strictly responsible formatters under their control and to betransparently compensated for param-eters beyond their control. Forexample, short term losses owing toweather conditions, etc., will bepassed on to consumers, and anysubsidies provided will be dulycompensated by the government.Similarly, benefits arising fromweather conditions, etc., will bepassed through to consumers asreduced tariffs.

• Gradual reduction of the number oftariff blocks to three and apply Timeof Use (TOU) tariffs to all consumers.

The first tariff revision as per the proposedrebalancing exercise was implemented for theperiod January-June 2011, which carriedmodifications such as reducing consumercategories from 27 to 20, unifying mediumand large hotels into one category, mandat-ing TOU tariffs for all medium and largeindustries as well as medium and large ho-tels, and distributing the cost of streetlighting among all consumers. These alter-ations in the tariff structure have consider-able impacts on affordability and competi-tiveness of industries, which will be discussedin the next section.

17.3 Electricity Sector and InclusiveGrowth17.3.1 Household SectorWhen considering the accessibility ofelectricity, the overall level of electrificationin Sri Lanka increased to 90 per cent by theend of 2010 compared to 86 per cent in 2009.It is targeted to reach 100 per cent by 2012.12

As seen in Table 17.3, there is a remarkableimprovement in the level of electrification,especially in the estate and rural sectors.

However, substantial disparities in the levelof electrification at the district level can beseen. While developed areas such as Co-lombo and Gampaha have electrification lev-els close to 100 per cent, areas such asMonaragala, Kilinochchi and Mullaitivu havevery low levels of electrification (Figure 17.2).As pointed out previously, lack of accessi-bility to economic infrastructure can constrainthese areas from making use of gainfuleconomic opportunities and contributing ef-fectively to the growth process.

With a view to addressing inequitableaccess to electricity, the government haslaunched numerous rural electrificationschemes (Table 17.4). Some of these arefunded by the Treasury while others are imple-mented with funding received from lendingagencies as well as bilateral governmentassistance.

Table 17.3Level of Electrification by Sector

2006/07 2009/10

Urban 94.9 96.5Rural 78.5 83.2Estate 62.3 84.0

Source: DCS, HIES, 2006/07 and 2009/10.

12 CBSL, Annual Report 2010.


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Figure 17.2Level of Electrification by District – 2009

Source: http://power.lk/electricity-distribution.

Table 17.4Rural Electrification Schemes

Source: http://power.lk/re-projects.

Power Sector Development Project(RE6)

Conflict Affected AreasRehabilitation Project (CAARP)

RE4

RE8

Wadakkin Wasantham

Lighting Sri Lanka - HambantotaDistrict

Lighting Sri Lanka - KalutaraDistrict

Lighting Sri Lanka - North CentralProvince

Lighting Sri Lanka - EasternProvince (Trincomalee andBatticaloa Districts)

Lighting Sri Lanka - Uva Province

Sustainable Power Sector SupportProject II

Pubudamu Wellassa

Rural Household Connection(Part 8)

SIDA Extension

Targeted to benefit 141,000 consumers.

Benefiting 12,000 households in the N&E with extension to additional9,000 households.

Benefiting 34,300 rural consumers.

Targeted to electrify remote areas as well as gap areas in betweenelectrified areas, and aimed to benefit 180,000 households.

Aimed to supply electricity to the whole of Northern Province.

Benefit 68,000 consumers in the underdeveloped regions of theHambantota district.

Target of 2,412 beneficiaries.

Initial beneficiary pool of 10,500 and extension with a view toachieving 100 per cent electrification in the North Western Province.

Provide electricity to 30,000 new consumers in these districts.

Expected to provide electricity to 800 villages – 80,000 householdsand small, medium and large scale industries.

Provide electrification to 12,245 rural households in the EasternProvince.

Implemented in the areas of Kataragama, Sevanagala and Thanamalvilato benefit 637 households.

Aims to connect 60,000 rural households to the national grid.

Aims to achieve 100 per cent electrification in the North CentralProvince.

Electrification Scheme Description

0102030405060708090

100

Col

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Gam

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Gal

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Mat

ara

Nuw

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liya

Mat

ale

Kalu

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Mha

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a

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la

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Polo

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a

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Level of electrification

%


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However, affordability of electricity remainsan issue for the household sector (Table 17.5).Estimates suggest that nearly 15 per cent ofhouseholds find it difficult to pay their billson a monthly basis, while another 14 percent do not make payments on a monthlybasis. Around 43 per cent of households havefound it necessary to adopt ways of reducingtheir electricity bills. Further, a high level ofdisparity is found to exist between consumergroups. The lowest 10 per cent of householdsconsume only 2 per cent, while the top 10per cent consumes 27 per cent of totalelectricity consumption. Low end users areargued to find it difficult to afford electricitydue to pricing policy.

A possible alternative would be to identifylow income groups and administer targetedsubsidies. Although not implemented as yet,the energy policy document proposes to sub-sidize the electricity consumption ofSamurdhi beneficiaries by financing 50 percent of the cost of supply up to 30 kWhs.This is to be funded by the Treasury byproviding coupons worth the value of thesubsidy. However, poor targeting ofSamurdhi recipients is an issue in Sri Lanka.More often than not, the appointment ofSamurdhi officers and subsequently theselection of beneficiaries, are carried outunder political patronage rather than incomecriteria.13 This leads to a misallocation of

Table 17.5Affordability of Electricity

Percentage ofHouseholds

Difficulty in paying the electricity bill 15.39Fail to pay the electricity bill on a monthly basis 14.06

Taken steps to reduce the bill 43.06

Source: Social Policy Analysis and Research Centre, 2010, “A Study on Requirementsof Prospective Electricity Consumers and Fuel Poverty (Electricity) andAffordability”, PUCSL.

resources. Perhaps, an alternative would beto credit the subsidy directly to consumeraccounts held with the distributor, aspractised in Hong Kong,14 for consumersidentified by the distributor based on incomecriteria.

Another alternative adopted by consumersand much advocated by the government, isdemand management strategies such asreducing the use of electricity at peakdemand periods. However, despite the factthat electricity is meant to be used primarilyfor lighting, a number of appliances - suchas televisions, irons, radios, etc., - consti-tute basic needs for decent living standards.These account for the major share ofelectricity demand by households, with amajority of households estimated to own anumber of these high energy consumptionequipment (Table 17.6). Although thedegree of necessity for these is arguable, manyview them as basic needs given the positiveimpact they have on living standards.

It is also noteworthy that a key feature of theroad map is passing on any increased costsor benefits to consumers. Therefore, inprinciple, the profit of Rs. 5.06 billion madeby the CEB in 2010 should ease costs forconsumers in the next tariff period of July-December 2011.

13 http://ipslk.blogspot.com/2010/07/better-targeting-of-transfers-samurdhi.html#more.14 https://www.clponline.com.hk/Documents/Govt_Subsidy_update_clponline_pdf_file_English_v2.pdf.


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17.3.2 Commercial (Hotel) andIndustrial SectorsOver 40 per cent of urban manufacturingfirms and 25 per cent of rural enterprises inSri Lanka are estimated to find electricity tobe a major bottleneck for industrial growth.15

In 2004, less than 70 per cent of rural enter-prises received electricity from the nationalgrid. Although this may have improved dueto various electrification schemes, reliabil-ity of electricity supply continues to hamperthe industrial sector. Nearly 75 per cent ofurban manufacturing firms own generatorsto cope with power outages, which accountsto 12 per cent of their fixed assets onaverage.16

Maintaining competitiveness is crucial forthe growth of commercial and industrialsectors, where electricity tariffs impinge onproduction costs. However, these sectorshave been neglected within the tariff struc-ture. At best, the low end commercial andindustrial sub-sectors have received marginalsubsidies. On the other hand, these twocategories are surcharged in order to crosssubsidize other categories (Table 17.7).Subsidies granted to 'Industrial 1', 'Indus-

Table 17.6Ownership of Electric Equipment

Equipment Percentage of OwnershipTelevision 89.4Electric iron 75.1Hand phone 62.7Radio 50.1Refrigerator 46.8Cassette 44.2Fan 41.8

Source: Social Policy Analysis and Research Centre, 2010, “A Studyon Requirements of Prospective Electricity Consumers andFuel Poverty (Electricity) and Affordability”, PUCSL.

trial 2' and 'Hotels 2' categories are compa-rable to that of the 'religious' category, whichis smaller in terms of the amount of salesand has no commercial viability. On theother hand, the rest of the categories incommercial and industrial categories areheavily surcharged.

Implementation of TOU tariffs from January2011 has further driven up the costs ofcommercial and industrial categories. Tariffincrements in the commercial categoryaffect key sectors such as tourism, where itis estimated that top city hotels will incuradditional costs of Rs. 120 million due toelectricity tariff increases in 2011.17

Similarly, electricity intensive industries suchas textile, cement, ceramic, metal andaluminum, ship building and food andbeverages are also affected by this measure.Industry sources expect a cost increase of 4to 8 per cent on average, which adverselyaffects the competitiveness, especially ofexport-oriented manufacturers. In the ceramicmanufacturing industry for example, theelectricity component alone accounts forabout 50 per cent of total costs. A statementby the Sri Lanka Ceramics Council (SLACC)

15 http://www.enterprisesurveys.org/documents/enterprisesurveys/ICA/SriLankaICA.pdf.16 Ibid.17 http://www.porcelaintablewares.com/news/news32.html.


198

indicates that they expect the cost ofelectricity of their member companies toincrease by 20 to 42 per cent.18

Consequently, global competitiveness of SriLanka's export manufacturing industries will

Table 17.7Total Subsidy or Surcharge on Consumers

Customer Category in the Total Sales Total Cost Total Revenue Total Subsidy2010 Tariff Schedule Forecast in (Rs. mn.) (Rs. mn.) or Surcharge

2011 (GWh) on Customers (Rs. mn.)

Households 0-30 233 5,518 1,113 -4,405 31-60 756 15,928 3,695 -12,233 61-90 1,018 20,093 5,974 -14,119 91-180 1,254 22,225 14,973 -7,252 181-600 492 8,346 9,957 1,611 >600 100 1,479 3,561 2,082 Sub Total 3,853 73,590 39,273 -34,317 Other LV Religious 57 1,004 513 -491 General purpose 1 1,149 15,809 23,943 8,134 Industrial 1 238 3,171 2,611 -561 Hotel 1 1 19 20 1 Street lighting 148 2,292 3,668 1,376 Sub total 1,594 22,295 30,754 8,460 LV BULK - General purpose 2 875 9,751 18,555 8,803 Industrial 2 1,561 19,899 19,444 -455 Industrial 2 TOU 174 2,159 2,343 184 Hotels 2 TOU 2 26 30 4 Hotels 2 (GP) 73 824 1,169 345 Hotels 2 (IP) 54 656 625 -31 Sub total 2,739 33,315 42,165 8,850 Medium voltage - General purpose 3 223 2,263 4,378 2,115 Industrial 3 1,035 10,965 11,661 697 Industrial 3 TOU 143 1,376 1,721 345 Hotels 3 8 77 83 6 Hotel 3 TOU 71 629 725 95 Sub total 1,480 15,310 18,569 3,259 Total 9,666 144,510 130,761 -13,749

Source: PUCSL, 2010, Consultation Paper on Setting Tariffs for the period 2011-2015.

18 Ibid.

be affected. Competing economies such asIndia, Thailand, and Vietnam not only havelower electricity tariff rates than Sri Lanka,but also provide subsidies to their industrialsector. This may have significant repercus-sions on the external sector as export


199

margins become thinner, which will trickledown to other sectors of the economy byreducing employment. One such example,is the decision by Lanka Walltile PLC toshut down its Balangoda plant and retrench800 odd employees owing to high energycosts.19 A suggested alternative by theMinistry of Power and Energy was shiftingproduction from peak to off-peak hours.However, this is not practical in industrieswhich have several shifts, work twenty fourhours a day, seven days a week, and employa large number of female staff. Anotheroption is to install energy efficient plantand machinery which is a costly alternativeinvolving considerable capital investment.

17.4 Conclusion and Way ForwardIt is evident that electricity supply is asignificant determinant of growth. To ensurethat such growth outcomes are inclusive,factors such as accessibility, reliability ofsupply and affordability are important.Although accessibility to electricity has seena remarkable improvement in the recent past,this was mainly achieved through ruralelectrification projects, most of which arenot connected to the national grid as yet.Similarly, apart from urban centres, fewareas enjoy electricity supply without poweroutages. Therefore, steps need to be taken toconnect the rural electrification schemes tothe national grid and minimize poweroutages in order to provide a constantsupply of electricity.

Affordability of electricity remains aproblem for households, commercial and in-dustrial consumers. In the case of households,the best policy alternative would be to applytargeted subsidies to low income consumerssuch as Samurdhi beneficiaries. Ensuringaffordability for commercial and industrialcategories is equally important, as they aremajor contributors to national output. Apossible measure which could be adopted isshifting the production process to off-peakhours in order to reduce the cost of electric-ity. However, this cannot be universallyadopted given the practical constraints suchas working several shifts a day or wheresignificant numbers of female employees arepresent. Transforming the production processto energy saving plant and machinery isanother option, albeit a costly one. Removalof import duties and taxes on energy savingequipment can help mitigate the high costof installing such equipment.

It should be noted that these concerns are tobe addressed amidst the attempts by theMinistry of Power and Energy to restorefinancial viability to the power sector, whichmay drive up electricity tariffs further. There-fore, the challenge remains for the govern-ment to strike a balance between affordabilityof electricity and the financial success of thepower sector.

19 Ibid.


200

18. Prospects

The outlook for a sustained global economic recov-ery received a significant blow in mid-2011 with adeepening of the debt crisis in the Euro Zone econo-mies, and political intransigence in resolving a dealto raise the US debt ceiling and avert a debt default.The uncertainty rattled financial markets across theworld, signalling loss of investor confidence in eco-nomic leadership worldwide.

In the Euro Zone, a string of sovereign debt crises inGreece, Portugal and Ireland began to spread to thelarger EU economies of Spain and Italy - and morerecently France - threatening to unravel the singlecurrency at the heart of the European integration pro-cess. As borrowing costs for the already weakenedeconomies rose in the face of half-hearted measuresto stabilize the Euro Zone, the European Central Bank(ECB) moved in to support Spain and Italy by ex-panding its bond-buying programme on the under-standing that they continued to cut fiscal deficits.Despite this immediate relief, pessimism about Eu-ropean economic prospects is deeply rooted. Secondquarter 2011 growth figures for the Euro Zone rose bya mere 0.2 per cent, the slowest quarterly economicgrowth since mid-2009. Any attempt to come to gripswith the potential escalation of the sovereign debtcrisis will require a commitment from more fiscallyprudent EU member states such as Germany to raisethe current •440 billion European Financial StabilityFacility (EFSF) rescue fund and/or for the Euro Zoneto issue bonds backed by all member nations. Whilstsuch a move will no doubt calm markets, it will be adifficult sell for many of the stronger Euro Zone econo-mies given the significant economic and political costsrepresenting such a bailout. The shakier Euro Zoneeconomies will be called on to undertake deep struc-tural reforms carrying painful austerity measures, asgovernments attempt to persuade their creditors thatthey can meet their debt obligations. Austerity mea-sures are likely to hurt growth, but there appears tobe little choice for the debt-ridden governments.

‘‘

An important lesson fromthe debt crises in the Euro

Zone economies is thatdependence on private

capital to finance publicexpenditure can create

stresses and strains on aneconomy when they are

least expected

Prospects

201

The problems for the US economy are ascomplex. Political brinkmanship on a dealto raise the US debt ceiling - agreed on al-most at the last moment on 31 July 2011 -was purportedly a key factor in the decisionby Standard & Poor's to strip the country ofits AAA credit rating on August 5, 2011. Thefinal debt deal that focused more on spend-ing cuts than tax increases to tackle fiscalproblems was lopsided, and unlikely to helpa faltering economic recovery. Nonetheless,unlike the Euro Zone - which lacks true po-litical integration - the US has favourablefactors working for it, including a greater like-lihood of tackling fiscal problems if politi-cal leadership is able to rise above partisanpolitics. The reasoning behind the US dollar'exceptionalism' - the global reserve currencyof choice - also suggests that the downgrad-ing will have a limited impact, especiallygiven that the euro is hardly likely to beviewed as a viable alternative to the dollaranytime soon. However, with an unemploy-ment rate of over 9 per cent, an annualizedGDP growth rate of a mere 0.8 per cent inthe first half of 2011, and consumer spend-ing at its weakest in two years, the US eco-nomic downturn is clearly more severe thanwas previously understood. Indeed, the eco-nomic woes of the US and EU have beendescribed as a second 'Great Contraction' ofgrowth (the first being the period after theGreat Depression) as opposed to a typicalrecession or even a double-dip Great Reces-sion.1 The symptoms - slow growth overmany years - are argued to be the result ofdeep financial crises that require bailouts bystates, which are then left with few resourcesand tools to cope with stagnant growth andhigh unemployment.

Even as the developed world is being plaguedby record levels of debt and weak growth aseconomies struggle to recover, a slow butsteady re-balancing of the global economy is

taking shape, moving the centre of globaleconomic gravity from the West to the East.Emerging economies of Asia - particularlyChina and India - have already begun to playa more prominent role in global economicgovernance reforms through membership ofkey forums such as the G20. However, theregion is unlikely to escape unscathed fromthe recent developments. While demand forexports may shrink, the direct impact ongrowth will be less severe as the larger Asianeconomies rely ever more on stimulatingdomestic demand to keep growth buoyant.Alternatively, their growth prospects are morelikely to be impacted by the possibility ofinvestors fleeing to safer havens. The Asianregion may experience a renewed inflow offoreign capital, raising the risks of overheat-ing even further, and requiring a tighter mon-etary policy response that will take a toll ongrowth. While economic growth in Asianemerging markets, particularly in China andIndia, is already forecast to slow relative tohistorical trends over the last decade, the re-gion will still be the driving force behindany global economic recovery process.

For Sri Lanka, renewed concerns about theglobal economic outlook will have mixedbearings. The most obvious concern will bein regard to the medium term prospects forthe country's major export industries that areheavily reliant on US and EU markets. In thefirst half of 2011, export growth remainedstrong, albeit on the back of a steady im-provement from the poor performance expe-rienced in 2009. While the immediate im-pact on key exports such as garments may belimited, if consumer demand in the US andEU continues to weaken further, it willclearly have an impact on order books in themonths to come. On the import side, ex-penditures have outpaced export earnings,with Sri Lanka's trade deficit expanding by62.7 per cent in the first six months of 2011.

1 http://www.project-syndicate.org/commentary/rogoff83/English.


202

A slowdown in export earnings could be off-set if international oil prices were to ease asglobal growth falters. However, a generaldownward movement in commodity pricescould be double-edged, if there is a knock-on impact on some of Sri Lanka's key non-industrial exports such as tea and rubber.

Even as the trade deficit swells, Sri Lanka hascontinued to see a strong surge in workerremittances, with inflows growing by 26.4per cent in the first half of 2011. Addition-ally, earnings from tourism remain healthy,estimated to have grown by over 50 per centto US$ 370 million over the same period,2

with an increase in tourist arrivals of 37 percent. However, such inflows are not suffi-cient to bridge the trade balance, as a resultof which Sri Lanka is likely to see an ex-panded deficit in its current account of theBOP in 2011.

Overall, however, the outlook for thecountry's external payments position remainspositive in view of inflows on the capitalaccount transactions. The CBSL reported of-ficial reserves of US$ 7.5 billion by end June2011 - sufficient for 5.4 months of imports,country's official reserves jumped to US$ 8.1billion by end July 2011, adequate for 5.8

Box 18.1External Sector Performance (January-June)

% growth 2009 2010 2011

Exports -18.0 13.7 35.2

T&G -4.1 -2.5 34.7

Imports -36.7 42.1 46.5

Petroleum -56.6 97.3 27.7

Trade balance -59.9 108.6 -62.7

Remittances 5.4 13.5 26.4

Source: CBSL, External Sector Performance, various issues.

months of imports. On the face of it, there-fore, the country appears favourably posi-tioned to withstand an immediate externalshock to the economy. However, as SriLanka’s trade balance widened, non-borrowedreserves have declined steadily in recentmonths amidst efforts to hold the exchangerate within a pre-determined band.

Despite a faltering global economy, with aGDP growth rate of 8 per cent recorded dur-ing the first half of 2011, Sri Lanka's growthforecast for the year of around 7-8 per centis also likely to remain unchallenged. Muchof the country's recent growth momentum isderived from domestic stimulus as thegovernment's public investment programmeis implemented. However, this is not to sug-gest that Sri Lanka should be complacent andoverlook more medium term risks to eco-nomic performance and macroeconomic sta-bility. The risk is all the more should thedebt crises in the developed countries leadto a protracted and slower global economicrecovery process.

As already noted, Sri Lanka's export earningscould be adversely affected. Apart from this,there are also other adverse spillover effectsthat could materialize. These relate in the

2 CBSL, External Sector Performance – June 2011, www.cbsl.gov.lk.

0100020003000400050006000700080009000

Total exports T&G Total imports

Petroleum Remittances

US$

mn.

2009 2010 2011

Prospects

203

main to the possible impact on global finan-cial flows. Short term capital inflows to SriLanka's sovereign debt market are necessar-ily curtailed by regulatory restrictions cap-ping the holdings of foreign investors. Therisk for a small economy such as Sri Lanka,making a slow but steady post-conflict eco-nomic recovery, is investor perception withregard to the outlook for medium term eco-nomic stability. Should the current globaleconomic uncertainties make investors highlyrisk-averse, smaller emerging economies suchas Sri Lanka could see a slowdown - or evena reversal - of capital flows. Such a develop-ment could also come about, as previouslyexperienced in 2008, if foreign investors facea liquidity crunch. The underlying pressureson global flows of FDI are likely to be simi-larly driven. In the first half of 2011, Sri Lankais estimated to have attracted gross FDI in-flows of US$ 413 million as part of thegovernment's target of raising US$ 1 billionby end 2011.3 The anticipated upsurge inFDI inflows to Sri Lanka in 2011 is tied largelyto the leisure and real estate sectors. Attract-ing FDI inflows more strategically into manu-facturing and skilled services sectors can beexpected to become more difficult if global

2008a 2009a 2010b

Loans Grants Loans Grants Loans Grants

Bilateral 397.4 79.9 870.7 99.4 2402.5 104.6 China 46.3 0.8 295.4 2.4 821.4 7.5 India 0.5 30.2 17.2 483.8 Japan 263.3 15.4 295.8 15.6 396.6 42.3Multilateral 380.1 213.7 427.0 224.5 762.3 19.0 ADB 248.2 41.7 243.4 40.5 366.7 5.5 World Bank 96.0 49.6 147.6 54.5 347.4Total 932.0 293.6 1297.9 323.9 3136.9 123.6

Table 18.1Sources of Foreign Financing (US$ million)

Note: a: Disbursed; b: Committed.Source: Department of External Resources, Performance Report, various issues.

economic conditions deteriorate to a signifi-cant extent.

FDI, however, accounts for only a fractionof Sri Lanka's Gross Domestic Capital For-mation (GDCF). Net FDI amounted to only3 per cent of GDCF in 2010. Sri Lanka's cur-rent investment drive, driven by an expandedpublic investment programme, is largely de-pendent on a mix of private capital and mul-tilateral/bilateral development finance. In July2011, Sri Lanka issued its fourth US dollarbenchmark offering in global bond markets,raising US$ 1 billion. In addition, Sri Lankahas also been raising larger volumes of de-velopment finance through loans in recentyears. Access to such finance is unlikely tobe affected by the global debt upheavals. ForSri Lanka, Asian economies such as Chinaand India - with significant foreign exchangereserves - have emerged as the main sourceof bilateral development finance. Indeed,these two countries accounted for over 40per cent of total foreign financing commit-ments made to Sri Lanka in 2010.

While Sri Lanka may not see its access tosources of foreign savings drying up, there

3 CBSL, “Monetary Policy Review – August 2011”, http://www.cbsl.gov.lk.


204

could be other risks. For one thing, ratingagencies are likely to adopt a tougher stancein the aftermath of the US downgrading whichmeans that room for policy slippage narrows.A downgrade in ratings can be costly for acountry that relies on private capital for pub-lic investment, as Sri Lanka has done inrecent years.

The medium term outlook with regard tomacroeconomic stability is, therefore, criti-cal. The positive inroads Sri Lanka had madein fiscal restructuring have continued into2011 and the government appears to be wellon target to achieve a reduced fiscal deficitof under 7 per cent in 2011, helped by im-proved revenue generation. The deficit forthe first half of 2011 was estimated at 3.4per cent, compared to 3.8 per cent in thesame period a year ago. A stronger fiscal per-formance will help in maintaining price sta-

As % of GDP 2010 2011Revenue 4.3 4.4Recurrent expenditure 5.8 5.6Public investment 1.6 1.6Overall budget deficit 3.0 2.7

Table 18.2Fiscal Trends (January-April)

Source: Ministry of Finance and Planning, Mid-Year Fiscal PositionReport, June 2011.

bility, in spite of rising inflationary pressuresin more recent months.

In June 2011, the CCPI (with 2002 as thebase year) was revised by the DCS to takethe two year average (2006/07) as a base pe-riod, computed on the basis of the House-hold Income and Expenditure Survey 2006/07. The most significant change was a dropin the weight assigned to food items from46.7 to 41.0 per cent in the new index. Whilethe revision was justified on the basis of morerecent data, the lower weight assigned to fooditems in the midst of rising food prices, sawthe new CCPI recording a lower rate of in-flation as compared to the previous index(Figure 18.2). Nonetheless, with annual in-flation touching 7 per cent by end June 2011,ensuring that the country continues to enjoya low inflationary environment will be a pri-ority for the government.

Figure 18.1Inflation Trends

Source: CBSL, Colombo Consumer Price Index, www.cbsl.gov.lk.

0.01.02.03.04.05.06.07.08.0

11020102

%

Annual Average Inflation

CCPI (2002) CCPI (2006/07)

0.02.04.06.08.0

10.012.0

11020102

%

Year-on-Year Inflation

CCPI (2002) CCPI (2006/07)

Prospects

205

Box 18.2Select Monetary and Financial Indicators (January-June)

% change 2009 2010 2011Reserve money -2.2 6.4 10.2Broad money (M2b) 8.1 4.2 8.6Credit to private sector -5.8 6.5 14.0

Rate of Inflation 12.5 3.9 7.0


The acceleration of credit growth to the pri-vate sector in the second half of 2010 hascontinued into 2011. The onus for the CBSLwill now be to try and cool down creditgrowth to prevent the economy from over-heating. It did so in April 2011 with an in-crease in the SRR of commercial banks, whilealso using moral suasion on commercialbanks to ease on credit allocation, as op-posed to raising policy interest rates that couldhave an impact on the country's growth pros-pects. For the moment, such a policy stancemay suffice. Nonetheless, it is critical thatas Sri Lanka aims to achieve rapid develop-ment progress in the coming years, the coun-try does not lose sight of striking the appro-priate balance between growth and stability.

A stable macroeconomic outlook will havea strong bearing on investor confidence inthe Sri Lankan economy, particularly in thecontext of disarray in the outlook for the moreadvanced economies globally.

Sri Lanka's monetary policy stance in thecoming months will also have an impact onanother fundamental indicator of macroeco-nomic stability - i.e., the exchange rate. SriLanka has being experiencing a steady nomi-nal appreciation of the rupee against the USdollar since the beginning of 2010 (Figure18.3). Despite carrying a current accountdeficit - which suggests that the rupee shouldideally be depreciating - strong net capitalinflows have put upward pressure on the ex-

Figure 18.2Exchange Rate and Interest Rate Trends

Note: REER = Real Effective Exchange Rate; AWPR =Average Weighted Prime Lending Rate.Source: CBSL, Monthly Economic Indicators.

0200400600800

10001200140016001800

Jan Feb Mar Apr May Jun

Rs. m

n.

Credit to Private Sector

2010 2011

92949698100102104106

106107108109110111112113114115

11020102

2010

=10

0

Rs/

$

Exchange Rate Trends

Rs/$ REER

0

2

4

6

8

10

12

106107108109110111112113114115

11020102

Interest Rate Trends

Rs/$ AWPR

Rs/

$ %


206

change rate. The CBSL has intervened in theforeign exchange market to ensure that therupee stays within a pre-determined band.

The policy stance has been to target the ex-change rate by mopping up capital inflows.The consequent build-up of foreign exchangereserves can potentially raise inflationary pres-sures - i.e., it allows the domestic monetarybase to expand without a corresponding in-crease in production. If inflationary pressuresare to be countered, interest rates should beallowed to move up.

Ensuring a stable exchange rate and interestrate policy regime raises a critical policy di-lemma for countries that face a surge in for-eign capital inflows. If an independent mon-etary policy - i.e., setting interest rates - takesprecedence over an exchange rate target, thenthe exchange rate has to be allowed to movein line with market developments and viceversa. If global economic growth contracts -dampening aggregate demand in Sri Lanka -there could be an easing of credit growthand any potential build-up of inflationarypressures. If not, the current monetary andexchange rate policy stance will need to bereviewed.

In more recent months, the upward pressureon the currency has reversed as import ex-penditures have continued to outpace exportearnings. Efforts by the CBSL to ensure thestability of the exchange rate have seen agradual decline in Sri Lanka's non-borrowed

reserves. Clearly, a stable exchange rate hasa bearing on fiscal outcomes, particularly asdependence on foreign capital borrowingrises. Notwithstanding the above, the under-lying market fundamentals driving move-ments in the rupee raise concerns. There aremany difficulties in ascertaining what con-stitutes an equilibrium real exchange rate -particularly in distinguishing between 'per-manent' and 'transient' capital flows. Whatcounts as sustainable levels of net capitalflows is the relevant issue in determining theequilibrium rate, and any deviation suggestsa misalignment. Such a misalignment canbe costly for longer term export growth.

Sri Lanka needs to be extra vigilant to ensurea healthy growth in earnings from exports ofgoods and services which has a critical bear-ing in meeting the country's growing foreigndebt service obligations. Although, the coun-try appears to be comfortably placed withgross official reserves of US$ 8 billion, theseinclude net foreign inflows into Treasury billsand bonds as well as other forms of com-mercial borrowing. An important lesson fromthe debt crises unfolding in the Euro Zoneeconomies offers a reminder that dependenceon private capital to finance public expendi-ture can create stresses and strains on aneconomy when they are least expected. Thus,maintaining macroeconomic stability is criti-cal. Any perceived weakening can have a sig-nificant impact on investor confidence, mag-nified by the uncertainties currently grippingthe global economy.

Appendices

i

Appendix A: Macroeconomic Indicators

Appendix A: Macroeconomic Indicators (Statistical Base)Table A1: Socio-Economic Indicators

1. Basic indicator UnitArea: Sq. km. 65,610Mid year population (2010) ('000) 20,653Population growth rate (2010) % 1.0Life expectancy at birth (2007) years 74.1Infant mortality rate (2007) per 1000 live births 8.5Gross school enrolment ratio (2005)(a) % 62.7Adult literacy rate (2009) % 91.4Human development index (HDI) (2010) Value 0.658Human poverty index (HPI) (2005) Value 17.8

2006 2007 2008 2009 2010(e)2. Output, labour force and employment

GNP at current market prices Rs. bn. 2,898.0 3,540.0 4,306.0 4,779.0 5,530.0GDP at current market prices Rs. bn. 2,939.0 3,579.0 4,411.0 4,835.0 5,602.0GDP at current factor cost prices Rs. bn. 2,938.7 3,578.7 4,410.7 4,835.3 5602.3GDP per capita at current market prices US$ 1,421.0 1,634.0 2,014.0 2,057.0 2,399.0Labour force(b) mn. 7.6 7.5 8.0 8.1 (C) 8.1Labour force participation (b) % 51.2 49.8 49.5 48.7 (C) 48.1Unemployment (b) % 6.5 6.0 5.4 5.8 (C) 4.9

3. Real output growthGDP % 7.7 6.8 6.0 3.5 8.0Agriculture, forestry, and fishing % 6.3 3.4 7.5 3.2 7.0Mining and quarrying % 24.2 19.2 12.8 8.2 15.5Manufacturing % 5.5 6.4 4.9 3.3 7.3Construction % 9.2 9.0 7.8 5.6 9.3Services % 7.7 7.1 5.6 3.3 8.0

4. Prices & wagesCCPI (annual average) % change 13.7 17.5 22.6 - -New CCPI (2002=100) % change 10.0 15.8 22.6 3.4 5.9WPI (annual average) % change 11.7 24.4 24.9 -4.2 11.2Implicit GNP deflator % change 11.2 14.0 16.3 5.9 7.3Real wage ratesWorkers in wages boards trades % change -7.1 4.1 2.7 1.5 24.5Government employees % change -11.8 5.0 -12.4 5.7 -2.5

5. Consumption, investment, and savingsConsumption % of GDP 83.0 82.4 85.9 82.1 81.3Gross domestic capital formation % of GDP 28.0 28.0 27.5 24.4 27.8Gross domestic savings % of GDP 17.0 17.6 14.1 17.9 18.7Gross national savings % of GDP 22.3 23.3 18.2 23.7 24.7Net imports of goods and services % of GDP -11.0 -11.3 -14.7 -7.4 -10.5

6. Government financeRevenue % of GDP 16.3 15.8 14.9 14.5 14.6Expenditure & net lending % of GDP 24.3 23.5 22.6 24.9 22.9Current expenditure % of GDP 18.6 17.4 16.9 18.2 16.7 Capital expenditure & net lending % of GDP 5.6 6.1 5.7 6.7 6.1Current a/c balance % of GDP -2.4 -1.6 -2.0 -3.7 -2.1Budget deficit Primary deficit % of GDP -1.9 -1.8 -2.2 -3.5 -1.7Overall deficit (before grants) % of GDP -8.0 -6.9 -7.0 -9.9 -7.9Public debtExternal % of GDP 38.4 37.1 32.8 36.5 36.1Domestic % of GDP 50.3 47.9 48.5 49.8 45.8

Contd..../-

ii


Unit 2006 2007 2008 2009 2010(e)

7. External tradeTerms of trade % change -3.5 -1.0 -11.8 24.0 -5.3Import price index % change 8.0 5.9 20.0 -19.7 17.2Export price index % change 4.2 4.8 5.8 -0.4 10.9Import volume index % change 7.1 4.1 4.0 -9.8 13.0Export volume index % change 4.1 7.3 0.4 -12.3 5.7

8. External financeTrade balance % of GDP -11.5 -11.3 -14.7 -7.3 -10.5Current account balance % of GDP -5.3 -4.3 -9.5 -0.5 -2.9Capital & financial account balance % of GDP 6.7 6.5 4.4 6.2 5.7 Foreign direct investments % of GDP 1.7 1.7 1.7 1.0 1.0Foreign portfolio investments % of GDP 0.2 0.3 0.2 0.0 0.0Import capacity months of imports (d) 4.7 5.3 3.1 8.3 7.7External debt % of GDP 50.3 51.0 43.7 49.7 50.1Debt-service ratio % of exports 12.7 13.1 15.1 19.0 15.2

9. Exchange rates (year end)U.S.A. Rs./US$ 107.7 108.7 113.1 114.4 111.0U.K. Rs./UK Pound 211.3 217.1 163.3 181.8 171.4Japan Rs./Yen 0.9 1.0 1.3 1.2 1.4European Union Rs./Euro 141.6 160.3 159.5 163.7 147.6India Rs./Rs. Indian 2.40 2.8 2.4 2.5 2.5SDR Rs./SDR 162.00 171.60 174.3 178.7 170.8

10. Money supplyNarrow money supply (M1) % change 12.6 2.7 4.0 21.4 20.9Broad money supply (M2) % change 17.8 15.6 11.7 18.6 15.8Domestic credit % change 25.9 16.3 18.0 0.5 18.6External banking assets % change -15.0 33.2 -65.9 417.2 -6.1

11. Interest ratesTreasury bill yield rates3 month % per annum 12.8 21.3 17.3 7.7 7.2 12 months % per annum 12.9 19.9 18.6 9.3 7.6Call money rates % per annum 14.5 25.0 14.7 9.1 8.0Average prime lending rate % per annum 15.2 17.9 18.5 10.9 9.3Commercial banks saving % per annum 10.5 16.5 16.5 10.5 9.5NSB saving % per annum 5.0 5.0 5.0 5.0 5.0Commercial banks fixed deposits % per annum 14.0 20.0 20.25 19.0 17.0NSB fixed deposits % per annum 11.0 15.0 15.0 9.5 8.5

12. Share market indicatorsAnnual turnover Rs. bn. 105.1 104.9 110.4 142.5 570.3Companies listed No. 237 235 235 231 241Market capitalisation Rs. bn. 835.0 821.0 489.0 1092.1 2210.5Net purchases by non-nationals Rs. mn. 5,377.0 11,254.0 13,950.5 -789.0 -26,335.0Share price indicesCSE Share (Index, 1985=100) 2,722.4 2,541.0 1,503.0 3385.6 6,635.9CSE Sensitive(f) (Index, 1985=100) 3,711.8 3,291.9 1,631.3 3849.4 7,061.5

Notes: (a): Combined first, second, and third level gross enrolment ratio.(b): Excluding Northern and Eastern Provinces.(c): Average of four quarters.(d): Months of same year imports.(e): Provisional.(f): The Milanka Price Index (MPI) was introduced in January 1999, (1998 December=1000) to replace the Sensitive Price Index.(g): From 2003, data are based on GDP estimates compiled by the Dept. of Census and Statistics.

Sources: IPS database.Central Bank of Sri Lanka, Annual Report, various issues.Colombo Stock Exchange, Annual Report, various issues.UNDP, Human Development Report, various issues.Dept. of Census and Statistics, Quarterly Report of the Sri Lanka Labour Force Survey, various issues.

iii


Table A2: Gross Domestic Product (GDP), Mid-year Population (POP), Per Capita GDP(PGDP), and their Growth Rates, 1988-2010

Constant Prices (c) Growth Rates GDP PGDP POP(b) GDP PGDP POP Rs. mn. Rs.mn. (‘000)

1988 475,441.7 28,665.2 16,586 2.7 1.3 1.4

1989 486,140.6 28,926.6 16,806 2.3 0.9 1.3

1990 516,152.7 30,335.2 17,015 6.2 4.9 1.2

1991 539,954.8 31,270.9 17,267 4.6 3.1 1.5

1992 563,061.9 32,311.6 17,426 4.3 3.3 0.9

1993 602,171.5 34,125.1 17,646 6.9 5.6 1.3

1994 636,061.5 35,571.9 17,891 5.6 4.2 1.3

1995 670,742.2 36,984.0 18,136 5.5 4.0 1.4

1996 695,934.0 37,954.5 18,336 3.8 2.6 1.1

1997 739,763.0 39,875.1 18,552 6.3 5.1 1.2

1998 774,796.0 41,225.7 18,794 4.7 3.4 1.3

1999 808,340.0 42,448.1 19,043 4.3 3.0 1.3

2000 857,035.0 44,270.6 19,359 6.0 4.3 1.7

2001 843,794.0 45,045.6 18,732 -1.5 1.8 1.4

2002 877,284.0 46,155.8 19,007 4.0 2.5 1.5

2003(d) 1,733,222.0 90,028.2 19,252 5.9 4.6 1.3

2004 1,827,597.0 93,905.9 19,462 5.4 4.3 1.1

2005 1,947,671.0 99,027.4 19,668 6.2 5.5 1.0

2006 2,090,548.0 105,126.6 19,886 7.7 6.2 1.1

2007 2,232,656.0 111,577.0 20,010 6.8 6.1 0.6

2008 2,365,500.0 117,005.5 20,217 6.0 4.9 1.0

2009 2,449,214.0 119,766.0 20,450 3.5 2.4 1.1

2010(a) 2,645,432.0 128,089.5 20,653 8.0 6.9 1.0

Notes: (a): Provisional.(b): From 2001 the figures are based on Census of Population and Housing-2001.(c): Up to 2002 data are based on 1996 prices and 2003 onwards data are based on 2002 prices(d): From 2003, data are based on GDP estimates compiled by the Department of Census and Statistics.

Source: Central Bank of Sri Lanka, Annual Report, various issues.

iv


Uni

t 2

002

200

3 ( c

)20

0420

0520

0620

0720

0820

0920

10 (a

)20

00-2

010

(b)

1. S

truc

ture

of o

utpu

tAg

ricul

ture

, for

estry

, and

fish

ing

% o

f tot

al o

utpu

t20

.513

.212

.511

.811

.311

.912

.112

.011

.910

.7A

gric

ultu

re%

of t

otal

out

put

16.6

14.7

14.3

14.3

13.4

10.8

10.9

10.9

10.7

10.6

Tea

% o

f agr

icul

ture

7.2

10.9

11.6

11.4

10.5

13.6

11.0

12.1

11.5

9.1

Rubb

er%

of a

gric

ultu

re1.

22.

63.

23.

86.

15.

95.

43.

67.

13.

5C

ocon

ut%

of a

gric

ultu

re8.

413

.411

.911

.310

.111

.212

.59.

89.

78.

9Pa

ddy

% o

f agr

icul

ture

18.0

14.8

13.7

14.8

13.1

12.3

19.1

19.2

18.3

13.0

Min

ing

and

quar

ryin

g%

of t

otal

out

put

1.8

1.4

1.4

1.5

1.6

1.6

1.6

2.1

2.3

1.4

Man

ufac

turin

g%

of t

otal

out

put

15.8

18.6

18.7

19.5

19.2

18.5

18.0

17.4

17.3

14.8

Expo

rt pr

oces

sing

% o

f man

ufac

turin

g11

.34.

24.

03.

43.

13.

34.

14.

44.

53.

8Fa

ctor

y in

dustr

y%

of m

anuf

actu

ring

77.2

89.6

89.8

90.9

91.4

91.5

91.0

90.8

90.8

73.0

Smal

l ind

ustry

% o

f man

ufac

turin

g7.

66.

36.

25.

75.

55.

34.

94.

84.

64.

6C

onstr

uctio

n%

of t

otal

out

put

7.2

6.0

6.1

6.8

7.4

7.4

7.4

7.8

7.6

5.8

Serv

ices

% o

f tot

al o

utpu

t54

.958

.358

.858

.058

.058

.457

.359

.359

.347

.5

U

nit

2002

2003

2004

2005

2006

2007

2008

2009

2010

(a)

2000

-201

0 (b

)2.

Real

out

put g

row

thA

gric

ultu

re, f

ores

try, a

nd fi

shin

g%

gro

wth

2.5

-54.

9-5

.5-6

.1-4

.33.

47.

53.

27.

0-4

.3A

gric

ultu

re%

gro

wth

1.9

-12.

9-2

.80.

0-6

.72.

37.

32.

86.

4-0

.2Te

a%

gro

wth

5.1

33.9

6.4

-2.3

-8.7

-1.8

4.2

-8.4

13.1

3.8

Rubb

er%

gro

wth

5.0

53.2

20.5

15.8

37.7

4.2

10.3

7.9

12.7

15.2

Coc

onut

% g

row

th-1

3.6

37.3

-12.

4-5

.2-1

2.1

5.1

5.2

5.2

-14.

3-0

.4Pa

ddy

% g

row

th5.

1-2

1.9

-7.6

7.4

-13.

2-6

.222

.9-5

.117

.5-0

.1M

inin

g an

d qu

arry

ing

% g

row

th-1

.1-2

8.5

2.8

1.6

6.8

19.2

12.8

8.2

15.5

3.4

Man

ufac

turin

g%

gro

wth

2.1

15.0

0.7

4.1

-1.5

6.4

4.9

3.3

7.3

3.8

Expo

rt pr

oces

sing

% g

row

th-0

.9-1

70.6

-3.4

-19.

3-7

.92.

45.

30.

75.

8-1

7.1

Fact

ory

indu

stry

% g

row

th2.

513

.80.

31.

20.

66.

75.

03.

47.

53.

7Sm

all i

ndus

try%

gro

wth

2.1

-21.

3-1

.8-7

.4-4

.84.

55.

63.

35.

5-1

.3C

onstr

uctio

n%

gro

wth

-0.8

-19.

21.

110

.87.

29.

07.

85.

69.

32.

8Se

rvic

es%

gro

wth

6.1

5.9

0.8

-1.5

0.1

7.1

5.6

3.3

8.0

3.2

GD

P%

gro

wth

4.0

5.9

6.9

7.9

8.9

6.8

6.0

3.5

8.0

5.3

Not

es:

(a):

Pro

visio

nal.

(b):

Ave

rage

ann

ual g

row

th ra

te.

(c):

From

200

3, d

ata

are

base

d on

GD

P es

timat

es c

ompi

led

by th

e D

epar

tmen

t of C

ensu

s and

Sta

tistic

s.So

urce

: Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, va

rious

issu

es.Ta

ble

A3:

Str

uctu

re a

nd G

row

th o

f Out

put,

2002

-201

0

v


T

able

A4:

Val

ue A

dded

in In

dust

ry a

nd In

dust

rial

Pro

duct

ion,

199

8-20

10

1998

1999

2000

2001

2002

2003

(b)

2004

2005

2006

2007

2008

2009

2010

(a)

1. V

alue

adde

d, cu

rren

t pric

es (R

s. m

n.)

Food

, bev

erag

es an

d to

bacc

o40

,452

44,5

0349

,031

54,2

8261

,550

136,

058

158,

229

202,

785

241,

854

282,

843

348,

358

397,

244

458,

151

Text

ile, w

earin

g ap

pare

l and

leat

her p

rodu

cts

47,4

8255

,263

69,4

5171

,263

77,0

2876

,511

85,1

7910

3,19

811

3,95

613

1,52

214

7,82

215

5,40

917

2,72

6 W

ood

and

woo

d pr

oduc

ts (in

clud

ing

furn

iture

)1,

313

1,39

01,

554

1,63

91,

736

1,08

51,

121

1,14

31,

245

1,35

31,

447

1,58

51,

786

Pape

r and

pap

er p

rodu

cts

2,57

82,

664

2,80

83,

103

3,12

41,

669

2,07

92,

963

3,99

84,

857

5,78

96,

631

7,65

3C

hem

ical

s, pe

trole

um, c

oal,

rubb

er a

nd p

lasti

c pr

oduc

ts14

,274

13,8

3217

,771

19,2

4522

,653

46,1

3358

,912

72,0

8995

,346

112,

915

135,

447

142,

935

170,

000

Non

met

allic

min

eral

pro

duct

s (ex

cept

pet

role

um an

d co

al)

12,4

6313

,817

14,2

4016

,010

17,2

7311

,388

13,4

3215

,805

17,9

3020

,352

22,7

7624

,653

27,8

65Ba

sic m

etal

pro

duct

s71

077

795

91,

131

1,30

697

099

81,

061

1,29

21,

521

1,63

81,

659

1,82

6Fa

bric

ated

met

al p

rodu

cts,

mac

hine

ry a

nd tr

ansp

ort e

quip

men

t6,

779

7,36

77,

714

8,73

19,

698

28,3

3930

,217

34,4

8038

,872

47,9

4755

,185

62,0

1372

,990

Man

ufac

ture

d pr

oduc

ts n.

e.s.

3,42

63,

799

3,96

54,

154

4,69

51,

307

1,35

01,

446

1,87

92,

208

2,50

82,

903

3,41

0To

tal

129,

477

143,

412

167,

493

179,

559

199,

063

303,

460

351,

517

434,

970

516,

372

605,

544

720,

979

795,

032

916,

407

2. C

ompo

sitio

n of

indu

stria

l pro

duct

ion

(%)

F

ood,

bev

erag

es a

nd to

bacc

o31

.231

.029

.330

.230

.944

.845

.046

.646

.846

.748

.350

.050

.0Te

xtile

, wea

ring

appa

rel a

nd le

athe

r pro

duct

s36

.738

.541

.539

.738

.725

.224

.223

.722

.121

.720

.519

.518

.8W

ood

and

woo

d pr

oduc

ts (in

clud

ing

furn

iture

)1.

01.

01.

00.

90.

90.

40.

30.

30.

20.

20.

20.

20.

2Pa

per a

nd p

aper

pro

duct

s2.

02.

01.

71.

71.

60.

50.

60.

70.

80.

80.

80.

80.

8C

hem

ical

s, pe

trole

um, c

oal,

rubb

er a

nd p

lasti

c pr

oduc

ts11

.09.

610

.610

.711

.415

.216

.816

.618

.518

.618

.818

.018

.6N

onm

etal

lic m

iner

al p

rodu

cts (

exce

pt p

etro

leum

and

coal

)9.

69.

68.

58.

98.

73.

83.

83.

63.

53.

43.

23.

13.

0Ba

sic m

etal

pro

duct

s0.

50.

50.

60.

60.

70.

30.

30.

20.

30.

30.

20.

20.

2Fa

bric

ated

met

al p

rodu

cts,

mac

hine

ry a

nd tr

ansp

ort e

quip

men

t5.

25.

14.

64.

94.

99.

38.

67.

97.

57.

97.

77.

88.

0M

anuf

actu

red

prod

ucts

n.e.

s.2.

62.

62.

42.

32.

40.

40.

40.

30.

40.

40.

30.

40.

4To

tal

100.

010

0.0

100.

010

0.0

100.

010

0.0

100.

010

0.0

100.

010

0.0

100.

010

0.0

100.

0

Not

es:

(a):

Prov

ision

al.

(b):

From

200

3, d

ata

are

base

d on

GD

P es

timat

es c

ompi

led

by th

e D

epar

tmen

t of C

ensu

s and

Sta

tistic

s.So

urce

:C

entra

l Ban

k of

Sri

Lank

a, A

nnua

l Rep

ort,

vario

us is

sues

.

vi


Tabl

e A

5: M

ajor

Agr

icul

tura

l Cro

ps, P

rodu

ctio

n an

d Pr

ices

, 198

8-20

10

T

ea

R

ubbe

r

Coc

onut

Pad

dy

Prod

uctio

n

P

rice

Prod

uctio

n

P

rice

Prod

uctio

n

Pr

ice(

a)

Pro

duct

ion

Pric

e(b)

Mn.

kg.

Colo

mbo

(net

)Ex

port

(f.o

.b.)

Mn.

kg.

Colo

mbo

(RSS

1)

Expo

rt (f

.o.b

.)

Mn.

nut

Rs./n

ut

‘ 000

Mt

R

s./bu

shel

(c)

R

s/kg.

R

s/kg.

R

s/kg.

Rs/k

g.19

8822

7.0

41.5

955

.95

122.

424

.40

37.3

31,

936

4.00

2,47

780

.00

1989

207.

052

.16

66.9

111

0.7

22.6

336

.18

2,48

43.

362,

063

80.0

019

9023

3.0

65.7

291

.78

113.

122

.93

35.5

02,

532

3.63

2,53

811

0.00

1991

241.

057

.13

84.1

210

3.9

23.5

934

.55

2,18

44.

822,

389

136.

0019

9217

9.0

60.5

181

.98

106.

129

.28

37.6

52,

296

6.47

2,34

013

6.00

1993

231.

968

.88

91.1

610

4.2

35.4

844

.34

2,16

46.

312,

570

155.

0019

9424

2.2

65.1

291

.32

105.

350

.36

51.8

12,

622

5.67

2,68

415

5.00

1995

245.

972

.21

102.

3110

5.7

72.0

483

.69

2,75

56.

082,

810

155.

0019

9625

8.4

103.

8813

9.56

112.

567

.85

79.7

82,

561

9.42

2,06

115

5.00

1997

276.

911

9.40

158.

4010

5.8

56.7

075

.40

2,63

19.

602,

239

155.

0019

9828

0.1

134.

3018

4.90

95.7

49.7

067

.70

2,55

28.

302,

692

155.

0019

9928

3.7

115.

3016

2.40

96.6

45.3

054

.00

2,82

89.

902,

857

155.

0020

0030

5.8

135.

5018

4.40

87.6

55.0

066

.90

3,09

67.

402,

860

155.

0020

0129

5.1

143.

9020

8.90

86.2

55.0

066

.40

2,79

67.

102,

695

-20

0231

0.0

149.

3021

6.30

90.5

68.8

069

.50

2,39

212

.10

2,85

9-

2003

303.

214

9.05

221.

0192

.010

2.50

105.

252,

562

9.98

3,07

1-

2004

309.

518

0.74

248.

9294

.712

7.20

128.

512,

591

11.0

02,

628

-20

05(d

)31

7.2

185.

8426

3.31

104.

414

7.41

147.

732,

515

13.0

03,

246

-20

0631

0.8

198.

8727

9.97

109.

220

2.50

189.

902,

785

24.3

03,

342

-20

0730

5.2

279.

1036

4.28

117.

623

4.22

234.

502,

869

16.8

73,

131

-20

0831

8.7

301.

6343

0.40

129.

226

9.51

278.

202,

909

24.7

73,

875

-20

0929

1.0

360.

8547

0.11

136.

921

1.65

202.

232,

853

18.2

33,

652

-20

10(e

)32

9.0

371.

5449

4.39

153.

040

3.02

373.

872,

317

25.6

74,

301

-

Not

es:

(a):

Ave

rage

exp

ort p

rice

of th

e th

ree

maj

or c

ocon

ut p

rodu

cts o

nly.

(b):

Gua

rant

eed

pric

e.(c

): 20

.9 k

g. o

f pad

dy =

1 b

ushe

l of p

addy

.(d

): Rev

ised.

(e):

Prov

ision

al.

Sour

ce:

Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, va

rious

issu

es.

vii


Table A6: Labour Force Participation of the Household Population All Island, 2000-2010

Household Labour Labour Labour forcepopulation force force Employed Unemployed(10 yrs. & over) participationNo. mn. No. mn. rate (%) No. mn. Rate No. mn. Rate

2000q1 13.5 6.9 50.8 6.3 92.0 0.5 8.0q2 13.5 7.0 52.0 6.5 93.0 0.5 7.0q3 13.5 6.7 49.4 6.2 92.0 0.5 8.0q4 13.6 6.7 49.2 6.2 92.6 0.5 7.4

2001q1 13.7 6.7 49.2 6.2 92.3 0.5 7.7q2 14.0 6.9 49.0 6.3 91.7 0.6 8.3q3 13.9 6.7 48.3 6.2 92.2 0.5 7.8q4 14.1 6.8 48.9 6.2 91.7 0.5 8.3

2002q1 14.1 7.2 51.7 6.7 91.3 0.6 8.7q2 14.2 7.0 49.5 6.3 90.2 0.7 9.8q3 14.2 7.1 49.4 6.4 90.9 0.6 9.1q4 14.3 7.2 50.6 6.7 92.5 0.5 7.5

2003q1 15.6 7.6 49.1 6.9 90.8 0.7 9.2q2 15.6 7.5 48.3 6.9 91.9 0.6 8.0q3 15.7 7.6 48.6 7.0 91.6 0.6 8.4q4 15.8 7.8 49.6 7.2 92.1 0.6 7.9

2004 (a)q1 16.3 7.9 49.0 7.3 91.9 0.6 8.1q2 16.5 8.0 48.6 7.3 91.0 0.7 9.0q3 16.7 8.0 47.8 7.3 91.5 0.7 8.5q4 16.7 8.1 47.8 7.4 91.8 0.7 8.2

2005 (b) 16.9 8.1 48.3 7.5 92.3 0.6 7.72006

q1 14.8 7.6 51.7 7.1 92.8 0.5 7.2q2 14.8 7.6 51.1 7.1 93.7 0.5 6.3q3 15.0 7.6 50.7 7.1 93.5 0.5 6.5q4 15.0 7.6 51.0 7.1 93.7 0.5 6.3

2007q1 15.0 7.5 49.8 7.0 93.3 0.5 7.1q2 15.0 7.4 49.0 7.0 94.6 0.5 7.1q3 15.0 7.5 50.2 7.1 94.7 0.4 5.6q4 15.1 7.6 50.1 7.2 94.7 0.4 5.6

2008q1 15.1 7.5 49.8 7.1 94.7 0.4 5.3q2 15.1 7.5 49.6 7.1 94.7 0.4 5.3q3 14.8 7.6 51.1 7.2 94.7 0.4 5.3q4 15.2 7.6 50.3 7.2 94.7 0.4 5.3

2009 (c)q1 16.6 8.1 49.2 7.7 94.5 4.0 5.5q2 16.5 7.9 48.3 7.4 93.8 0.5 6.2q3 16.7 8.1 48.7 7.6 94.1 0.5 5.9q4 16.6 8.1 48.5 8.0 94.3 0.4 5.7

2010 (c)q1 16.9 8.1 48.2 7.7 95.0 0.4 5.0q2 16.8 8.1 47.9 7.6 94.6 0.4 5.4q3 16.8 8.0 47.4 7.6 95.1 0.4 4.9q4 17.0 8.3 48.8 7.9 95.5 0.4 4.5

Notes: (a) Up to 4th quarter 2002, data excludes both Northern and Eastern Provinces. Commencing from 1st quarter 2003, EasternProvince is included and only the Northern Province is excluded from the survey.

(b) Quarterly labour force survey was conducted as a one-off survey in August 2005.(c) Data exclude Northern Province.

Source: Department of Census and Statistics, Quarterly Report of the Sri Lanka Labour Force.

viii


Table A7: Gross Domestic Fixed Capital Formation, 1988-2010 Private(a) Public(b) Private(a) Public(b) Private(a) Public(b) Private(a) Public(b)

(Rs. mn., current market prices) (As % of GDP) (At constant prices(c)(e)) (Growth in real terms)

1988 37,156 12,805 16.7 5.8 86,801.6 29,914.3 -3.5 2.4

1989 39,943 14,306 15.9 5.7 85,114.8 30,484.7 -1.9 1.9

1990 57,910 12,507 18.0 3.9 102,852.2 22,213.3 20.8 -27.1

1991 68,368 15,838 18.4 4.3 109,412.4 25,346.3 6.4 14.1

1992 86,407 13,632 20.3 3.2 125,717.4 19,833.8 13.0 -27.8

1993 105,305 20,570 21.1 4.1 139,953.2 27,338.1 10.2 27.4

1994 136,649 17,611 23.6 3.0 166,094.3 21,405.8 15.7 -27.7

1995 147,280 23,595 22.1 3.5 165,105.2 26,450.7 -0.6 19.1

1996 160,181 23,328 20.9 3.0 160,181.0 23,328.0 -3.1 -13.4

1997 186,950 29,923 21.0 3.4 172,145.0 27,553.4 6.9 15.3

1998 221,754 33,960 21.9 3.3 188,246.2 28,828.5 9.4 4.6

1999 266,518 35,210 24.1 3.2 216,505.3 28,602.7 15.0 -2.6

2000 311,460 41,132 24.8 3.3 237,212.5 31,326.7 9.6 9.5

2001 267,298 42,346 19.0 3.0 181,058.0 28,683.6 -23.7 -8.4

2002 298,731 31,812 19.1 2.0 188,863.2 19,913.6 4.1 -44.1

2003(f) 318,909 46,285 17.5 2.5 62,531.2 9,075.5 -66.9 -54.4

2004 422,060 51,262 20.2 2.5 47,961.4 5,825.2 -23.3 -35.8

2005 478,917 94,347 19.5 3.8 46,049.7 9,071.8 -4.0 55.7

2006 624,972 105,938 21.3 3.6 55,307.3 9,375.0 20.1 3.3

2007 807,400 192,900 22.6 5.4 57,671.4 13,778.6 4.3 47.0

2008 928,800 286,000 21.1 6.5 56,981.6 17,546.0 -1.2 27.3

2009 838,629 308,811 17.3 6.4 142,140.5 52,340.8 149.4 198.3

2010(d) 1,128,151 323,851 20.1 5.8 154,541.2 44,363.2 8.7 -15.2

Notes: (a): Private sector and public corporations.(b): Government and public enterprises.(c): Current series deflated by GDP deflator.(d): Provisional.(e): Up to 2002 data are based on 1996 prices and 2003 onwards data are based on 2003 prices.(f): From 2003, data are based on GDP estimates compiled by the Department of Census and Statistics.


ix


Tabl

e A

8: S

avin

g an

d In

vest

men

t, 19

96-2

010

1996

1997

1998

1999

2000

2001

2002

2003

(c)

2004

2005

2006

2007

2008

2009

2010

(a)

(As %

of G

DP)

Gro

ss d

omes

tic ca

pita

l for

mat

ion

24.2

24.4

25.1

27.3

28.0

22.0

21.3

20.0

22.6

23.4

24.9

27.9

27.5

24.4

27.8

Gro

ss d

omes

tic sa

ving

s15

.317

.319

.119

.517

.415

.814

.516

.016

.417

.917

.017

.614

.117

.918

.7

Net

impo

rts o

f goo

ds a

nd n

on-fa

ctor

serv

ices

(b)

8.9

7.1

6.0

7.8

10.6

6.2

6.8

6.4

6.6

7.1

6.7

10.4

13.7

6.5

9.1

Net

fact

or in

com

e fro

m a

broa

d-1

.5-1

.1-1

.1-1

.6-2

.1-1

.7-1

.6-0

.9-1

.0-1

.2-1

.4-1

.1-2

.2-1

.2-1

.3

Net

priv

ate

trans

fers

5.1

5.2

5.4

5.6

5.9

6.2

6.6

6.4

6.5

7.1

6.7

6.8

6.3

7.0

7.3

Gro

ss n

atio

nal s

avin

gs19

.021

.523

.423

.521

.520

.319

.521

.522

.023

.822

.323

.317

.823

.724

.7

Fore

ign

savi

ngs

5.2

5.2

1.7

3.8

6.5

1.7

1.8

-1.5

0.6

5.9

5.3

5.7

3.9

5.8

6.0

Not

es:

(a):

Prov

ision

al.

(b):

Also

refe

rred

to a

s ext

erna

l inf

low

or t

he re

sour

ces g

ap.

(c): F

rom

200

3, d

ata

are

base

d on

GD

P es

timat

es c

ompi

led

by th

e D

epar

tmen

t of C

ensu

s and

Sta

tistic

s.

Sour

ces:

IPS

data

base

; Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, v

ario

us is

sues

.

x


Tabl

e A

9: S

umm

ary

of G

over

nmen

t Fis

cal O

pera

tions

, 199

8-20

10

(As

% o

f GD

P)19

9819

9920

0020

0120

0220

03 ( c

)20

0420

0520

0620

0720

0820

0920

10 (b

)

Reve

nue

17.3

17.7

16.8

16.7

16.5

15.7

15.4

16.1

16.3

15.8

14.9

14.5

14.6

Gra

nts

0.7

0.6

0.4

0.4

0.4

0.5

0.4

1.5

1.7

1.6

1.6

0.5

0.3

Expe

nditu

re C

urre

nt e

xpen

ditu

re19

.618

.720

.221

.620

.819

.019

.218

.718

.617

.416

.918

.216

.7

Cap

ital &

net

lend

ing

6.7

6.5

6.5

5.9

4.5

4.7

4.3

6.0

5.6

6.1

5.7

6.7

6.1

Cur

rent

acc

ount

bal

ance

-2.4

-1.0

-3.4

-4.9

-4.4

-3.3

-3.9

-2.7

-2.4

-1.6

-2.0

-3.7

-2.1

Prim

ary d

efic

it-3

.8-1

.9-4

.2-4

.1-1

.6-0

.9-2

.2-3

.6-2

.9-2

.6-2

.2-3

.5-1

.7

Ove

rall

defic

it (b

efor

e gr

ants)

-9.2

-7.5

-9.9

-10.

8-8

.9-8

.0-8

.2-8

.7-8

.0-7

.7-7

.7-9

.9-7

.9

Fina

ncin

g bu

dget

def

icit

For

eign

fina

ncin

g1.

70.

70.

41.

40.

62.

98.

23.

42.

53.

70.

64.

84.

4

N

et b

orro

win

gs1.

00.

10

1.0

0.1

2.4

1.8

2.0

1.4

2.8

-0.1

4.7

0.2

G

rant

s0.

70.

60.

40.

40.

40.

50.

41.

41.

00.

90.

70.

50.

3

Dom

estic

fina

ncin

g7.

16.

89.

48.

88.

04.

55.

85.

25.

63.

67.

05.

13.

6

M

arke

t bor

row

ings

7.1

6.8

9.2

8.7

8.0

4.5

5.5

5.0

5.6

3.6

7.0

4.9

3.4

B

ank

1.9

2.5

4.5

3.5

-0.3

-1.2

2.1

1.1

2.7

0.4

4.4

1.0

-

N

on-b

ank

5.2

4.4

4.7

5.3

8.3

5.7

3.4

3.9

2.9

3.1

2.6

3.8

3.5

O

ther

bor

row

ings

-0.1

-0.1

0.3

0.1

-0.1

-0.

20.

2-

--

0.2

0.2

Priv

atisa

tion

proc

eeds

(a)

0.4

--

0.6

0.4

0.6

0.1

--

--

--

Not

es:

(a):

Sinc

e 19

94, p

rivat

izat

ion

proc

eeds

hav

e be

en sh

ifted

from

the

capi

tal e

xpen

ditu

re an

d ne

t len

ding

cate

gory

to th

e fin

anci

ng se

ctio

n.(b

): Pr

ovisi

onal

.(c

): Fr

om 2

003,

dat

a are

bas

ed o

n G

DP

estim

ates

com

pile

d by

the

Dep

artm

ent o

f Cen

sus a

nd S

tatis

tics.

Sour

ce:

Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, va

rious

issu

es.

xi


T

able

A10

: Mon

ey S

uppl

y an

d U

nder

lyin

g Fa

ctor

s, 1

991-

2010

Uni

t19

91

1992

1

993

199

4

199

5

199

6

199

7

1

998

1

999

200

01.

Fina

ncia

l dep

thN

arro

w m

oney

supp

lyM

1/GD

P12

.511

.811

.912

.211

.310

.210

.710

.510

.910

.5Br

oad

mon

ey su

pply

M2/G

DP

29.7

30.5

32.1

33.1

34.2

33.0

35.9

34.6

36.0

36.0

2.M

onet

ary e

xpan

sion/

cont

ract

ion

Nar

row

mon

ey su

pply

% g

row

th17

.77.

418

.618

.76.

74.

09.

812

.112

.89.

1Br

oad

mon

ey su

pply

% g

row

th22

.117

.423

.419

.719

.210

.813

.89.

713

.313

.03.

Caus

al fa

ctor

s3.

1Ex

tern

al b

anki

ng as

sets

Rs. m

n.12

,258

.020

,940

.048

,119

.064

,467

.066

,532

.061

,861

.089

,292

.093

,724

.083

,892

.059

,448

.0%

gro

wth

258.

570

.812

9.8

34.0

3.2

-7.0

44.3

5.0

-10.

5-2

9.1

3.2

Dom

estic

cred

itRs

. mn.

127,

751.

214

4,00

3.0

150,

696.

917

3,79

5.6

223,

798.

325

2,31

7.0

272,

733.

031

1,62

6.0

374,

120.

046

9,08

4.0

% g

row

th10

.212

.74.

615

.328

.812

.78.

114

.320

.125

.43.

2.1

Gov

ernm

ent

Rs. m

n.35

,392

.033

,065

.026

,993

.028

,148

.035

,214

.048

,537

.046

,365

.058

,591

.085

,881

.013

4,48

4.0

% g

row

th0.

1-6

.6-1

8.4

4.3

25.1

37.8

-4.5

26.4

46.6

56.6

3.2.

2 Pr

ivat

e se

ctor

Rs. m

n.92

,359

.211

0,93

8.0

123,

703.

914

5,64

7.6

188,

352.

020

3,78

0.0

226,

368.

025

3,03

5.0

288,

239.

033

4,59

9.0

% g

row

th14

.620

.111

.517

.729

.38.

211

.111

.813

.916

.13.

3O

ther

liabi

litie

sRs

. mn.

-29,

435.

0-3

5,15

0.0

-38,

679.

0-4

6,59

0.0

-61,

794.

0-6

0,97

8.0

-73,

768.

0-8

9,17

6.0

-99,

936.

0-1

23,8

63.0

% g

row

th2.

119

.410

.020

.532

.6-1

.321

.020

.912

.123

.9C

ontd

…

Uni

t20

0120

0220

03 (b

)20

0420

0520

0620

0720

0820

0920

101.

Fina

ncia

l dep

thN

arro

w m

oney

supp

lyM

1/GD

P9.

88.

88.

99.

09.

48.

87.

46.

37.

07.

3Br

oad

mon

ey su

pply

M2/G

DP

36.0

32.2

31.9

32.9

33.6

33.8

32.1

29.1

31.8

32.4

2.M

onet

ary e

xpan

sion/

cont

ract

ion

Nar

row

mon

ey su

pply

% g

row

th3.

214

.016

.014

.218

.311

.22.

74.

021

.420

.9Br

oad

mon

ey su

pply

% g

row

th11

.413

.215

.315

.616

.417

.116

.68.

518

.618

.03.

Caus

al fa

ctor

s3.

1Ex

tern

al b

anki

ng as

sets

Rs. m

n.82

,966

.010

1,71

7.0

129,

487.

012

9,15

2.0

167,

147.

018

5,00

5.0

225,

989.

088

,760

.035

8,55

4.0

390,

284

% g

row

th39

.622

.627

.3-0

.322

.79.

622

.1-6

0.7

303.

98.

83.

2D

omes

tic cr

edit

Rs. m

n.51

3,45

7.0

548,

578.

060

2,89

8.0

734,

605.

086

4,39

2.0

1,13

8,80

5.0

1,60

7,80

0.0

1,89

7,50

0.0

1,90

7,74

8.0

2,26

2,86

1.0

% g

row

th9.

56.

89.

921

.811

.624

.144

.943

.00.

518

.63.

2.1

Gov

ernm

ent

Rs. m

n.16

1,73

5.0

153,

171.

014

3,44

4.0

181,

111.

024

9,56

5.0

357,

289.

037

4,10

0.0

582,

907.

064

0,32

6.0

627,

185.

0%

gro

wth

20.3

-5.3

-6.3

26.3

11.6

30.1

10.5

55.8

9.9

-2.1

3.2.

2 Pr

ivat

e se

ctor

Rs. m

n.35

1,72

2.0

395,

407.

043

0,57

5.0

526,

236.

068

0,69

3.0

856,

842.

01,

184,

500.

01,

267,

601.

01,

194,

189.

01,

494,

155.

0%

gro

wth

5.1

12.4

16.2

22.2

22.7

20.0

33.1

7.0

-5.8

25.1

3.3

Oth

er lia

bilit

ies

Rs. m

n.-1

45,6

96.0

-139

,899

.0-1

51,6

38.0

-175

,793

.0-2

08,6

08.0

-330

,545

.0-4

31,8

00.0

-452

,423

.0-5

03,4

60.0

-548

,895

% g

row

th17

.64.

08.

515

.915

.736

.812

.14.

811

.39.

0

Not

es:

Dat

a ha

ve b

een

recl

assif

ied

starti

ng fr

om 1

990.

For

mor

e in

form

atio

n, se

e C

entra

l Ban

k of

Sri

Lank

a, 1

995,

Ann

ual R

epor

t.Fr

om 2

003,

dat

a ar

e ba

sed

on G

DP

estim

ates

com

pile

d by

the

Dep

artm

ent o

f Cen

sus a

nd S

tatis

tics.

Sour

ce:C

entra

l Ban

k of

Sri

Lank

a, A

nnua

l Rep

ort,

vario

us is

sues

.

xii


Tab

le A

11: I

nter

est R

ates

, 199

7-20

10(%

, end

of p

erio

d)19

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

10

Bank

rate

17.0

17.0

16.0

25.0

18.0

18.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

Trea

sury

bill

s, yi

eld

rate

s 3

Mon

th10

.012

.012

.117

.812

.99.

97.

37.

210

.112

.821

.317

.37.

77.

2 1

2 M

onth

10.2

12.6

12.8

18.2

13.7

9.9

7.2

7.6

10.4

13.0

20.0

19.1

9.3

7.6

Repu

rcha

se ra

te11

.011

.39.

317

.012

.09.

97.

07.

58.

810

.010

.510

.57.

57.

3C

all m

oney

rate

Max

imum

20.0

16.5

14.3

32.0

13.0

10.9

8.2

10.6

11.1

15.1

40.0

20.0

9.1

8.4

Min

imum

9.0

11.3

9.8

20.3

12.5

10.2

7.4

9.5

10.5

12.7

16.0

13.3

8.0

7.8

Wei

ghte

d av

erag

e pr

ime

lend

ing

rate

14.2

15.1

15.2

21.5

14.2

12.2

8.9

10.2

12.1

14.7

17.0

19.2

11.1

9.3

Com

mer

cial

ban

k sa

ving

Max

imum

11.0

10.0

10.0

10.0

12.0

11.0

7.2

7.7

10.3

10.5

16.5

16.5

10.5

10.5

Min

imum

3.0

2.0

2.0

2.0

4.0

3.5

2.1

3.0

3.0

3.0

3.0

3.0

1.5

1.5

NSB

savi

ng10

.810

.59.

28.

48.

46.

05.

05.

05.

05.

05.

05.

05.

05.

0C

omm

erci

al b

ank

fixed

dep

osit

(one

yea

r) M

axim

um15

.313

.012

.515

.014

.511

.07.

89.

811

.514

.020

.020

.319

.018

.0 M

inim

um8.

59.

09.

09.

09.

57.

55.

05.

05.

55.

58.

58.

57.

35.

1N

SB fi

xed

depo

sit (o

ne y

ear,

paid

on

mat

urity

)11

.011

.511

.515

.013

.010

.07.

08.

09.

011

.015

.015

.09.

58.

5

Sour

ces:

Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, va

rious

issu

es.

Cen

tral B

ank

of S

ri La

nka,

Bul

letin

, Var

ious

Issu

es.

xiii


Table A12: Basic Indicators of the General Price Level, 1990-2010

CCPI CCPI WPI GDPD(1952=100) % change (2002=100) % change (1974=100) % change (1996=100) % change

1990 1,008.6 21.5 651.1 22.2 56.3 20.0

1991 1,131.5 12.2 710.8 9.2 62.5 11.0

1992 1,260.4 11.4 773.0 8.8 68.7 10.0

1993 1,408.4 11.7 831.8 7.6 75.2 9.5

1994 1,527.4 8.4 873.4 5.0 82.3 9.3

1995 1,644.6 7.7 950.7 8.9 89.2 8.4

1996 1,906.7 15.9 1,145.1 20.4 100.0 12.1

1997 2,089.1 9.6 1,224.3 6.9 108.6 8.6

1998 2,284.9 9.4 1,298.7 6.1 117.8 8.4

1999 2,392.1 4.7 1,295.3 -0.3 123.1 4.4

2000 2,539.8 6.2 1,317.2 1.7 131.3 6.7

2001 2,899.4 14.2 1,471.2 11.7 147.6 12.3

2002 3,176.4 9.6 1,629.0 10.7 159.9 8.4

2003 3,377.0 6.3 1,679.1 3.1 168.2 5.1

2004 3,632.8 7.6 115.3 9.0 1,889.0 12.5 183.0 8.8

2005 4,055.5 11.6 128.0 11.0 2,105.9 11.5 202.1 10.4

2006 4,610.8 13.7 140.8 10.0 2,351.6 11.7 224.9 11.3

2007 5,416.1 17.5 163.1 15.8 2,924.4 24.4 256.4 14.0

2008 199.9 22.6 3,653.6 24.9 298.3 16.3

2009 206.8 3.5 3,500.9 -4.2 315.8 5.9

2010 219.1 5.9 3,893.0 11.2 338.8 7.3

Notes: CCPI : Colombo Consumers’ Price Index.GCCPI : Greater Colombo Consumers' Price Index.WPI : Wholesale Price Index.GDPD : GDP deflator.

Sources: Department of Census and Statistics. Central Bank of Sri Lanka, Annual Report, various issues.

xiv


Table A13: Wage Rate Indices, 1989-2010 (December 1978=100)

Workers in wages boards trades(a) Government employees(b)

Nominal Real Nominal Real

1989 338.1 112.0 421.8 121.9

1990 453.5 107.6 476.8 113.2

1991 518.8 109.7 534.6 113.2

1992 590.0 112.0 557.6 106.0

1993 685.8 116.6 675.5 114.8

1994 712.4 111.7 735.5 115.4

1995 740.3 107.8 792.5 115.4

1996 801.7 100.7 818.2 103.5

1997 849.1 97.3 906.5 104.0

1998 953.3 99.9 1,001.4 104.9

1999 977.6 97.8 1,001.4 100.2

2000 1,000.4 94.3 1,084.7 102.1

2001 1,049.3 86.6 1,310.8 108.1

2002 1,126.5 84.9 1,525.3 115.0

2003 1,205.2 85.4 1,525.0 108.1

2004 1,233.0 81.3 1,872.1 123.3

2005 1,329.7 81.3 2,417.5 142.7

2006 1,358.2 70.7 3,150.8 164.0

2007 1,648.8 73.6 3,828.4 171.6

2008 2070.4 75.5 4116.1 150.4

2009 2171.4 76.7 4502.8 159.0

2010(c) 2865.3 95.5 4651.6 155.1

Notes: The wage rates used in the calculation of index numbers are minimum wages.(a): Combined index for workers in agriculture, industry and commerce, and services.(b): Combined index for non-executive officers and minor employees.(c): Provisional.


xv


Table A14: Sri Lanka's Direction of Foreign Trade, 1993-2010Unit 1993 1994 1995 1996 1997 1998 1999 2000 2001

1.Exports to selected countries and groupings

U.S.A US$ mn. 1,006.8 1,115.3 1,353.5 1,395.8 1,666.4 1,890.2 1,791.8 2,192.5 1,925.9U.K. US$ mn. 203.5 285.4 345.3 388.6 525.4 530.4 604.2 736.7 576.4Germany US$ mn. 227.5 222.5 254.3 239.3 230.0 231.9 215.7 230.2 198.5Japan US$ mn. 148.0 165.3 200.4 256.4 234.2 196.1 159.1 229.7 185.8

EC % of total exports 31.2 31.3 31.0 29.4 35.0 33.6 35.3 33.4 32.3Germany % of exports to EC 25.5 22.2 21.6 19.8 17.1 17.9 16.2 15.2 15.8UK % of exports to EC 22.8 28.4 29.3 32.2 39.0 41.0 45.0 48.5 45.8

ASEAN % of total exports 2.9 3.9 3.7 2.8 3.4 3.0 3.1 3.5 2.9 Singapore % of exports to ASEAN 58.6 60.6 52.3 52.0 43.7 38.1 37.9 38.7 51.4 Malaysia % of exports to ASEAN 4.0 4.6 15.7 23.5 16.6 10.1 6.0 5.0 5.9

SAARC % of total exports 2.5 2.7 2.7 2.6 3.1 3.0 3.8 4.2 4.1 India % of exports to SAARC 27.6 27.2 31.3 39.6 37.0 33.2 33.7 30.6 45.6

NAFTA % of total exports 37.1 36.8 37.3 35.6 45.5 51.5 49.8 50.5 52.0USA % of exports to NAFTA 94.9 94.4 95.4 95.6 95.3 95.4 95.1 95.4 95.1Canada % of exports to NAFTA 3.4 4.3 3.5 3.1 3.2 3.1 3.1 3.1 3.4

APEC % of total exports 48.7 49.6 50.1 48.7 59.8 58.9 56.3 57.8 59.5USA % of exports to APEC 72.3 70.1 71.0 69.8 72.4 83.4 84.1 83.5 83.1Japan % of exports to APEC 10.6 10.4 10.5 12.8 10.2 8.6 7.5 8.7 8.0Singapore % of exports to APEC 0.2 0.2 0.1 0.1 0.1 1.9 2.1 2.3 2.5

2. Imports from selected countries and groupings

Japan US$ mn. 452.6 526.6 498.6 497.3 479.3 555.9 560.9 646.0 336.9India US$ mn. 342.9 404.4 469.2 561.9 559.8 539.4 511.6 600.1 709.3Hong Kong US$ mn. 312.4 316.6 357.4 354.1 411.3 411 459.1 515.9 500.3U.S.A US$ mn. 131.3 284.7 172.7 198.3 186.6 229.5 216.2 254.9 265.6U.K. US$ mn. 184.8 247.6 242.6 251.7 282.4 304.8 251.1 311.4 220.6Taiwan US$ mn. 225.7 250.2 286.4 287.8 372.1 378.7 347.1 390.1 322.8

EC % of total Imports 15.8 16.3 15.3 15.4 17.6 23.3 19.4 18.8 18.0Germany % of Imports from EC 21.9 21.8 20.5 18.4 20.5 20.2 15.8 16.5 16.3UK % of Imports from EC 29.2 31.8 29.8 30.1 31.6 30.3 29.1 32.8 26.0

ASEAN % of total Imports 14.5 13.2 12.8 12.6 14.7 19.6 21.1 21.0 19.4Singapore % of Imports from ASEAN 35.8 37.2 36.6 37.7 38.3 36.8 48.2 46.7 44.8Malaysia % of Imports from ASEAN 29.5 28.8 31.1 26.7 22.3 22.8 18.0 20.5 22.7

SAARC % of total Imports 10.7 10.3 10.2 11.9 13.1 15.1 14.2 14.0 15.1India % of Imports from SAARC 80.1 82.7 86.1 86.9 83.9 83.3 81.4 84.8 84.4

NAFTA % of total Imports 3.7 6.3 3.6 4.3 5.7 7.1 5.5 6.0 6.2USA % of Imports from NAFTA 89.4 95.0 91.3 84.6 64.7 75.0 89.0 84.1 91.5Canada % of Imports from NAFTA 10.1 4.6 7.9 10.0 19.0 13.6 9.3 15.6 8.2

APEC % of total Imports 55.7 55.4 50.2 50.4 61.9 45.9 53.4 54.9 55.6USA % of Imports from APEC 5.9 10.8 6.5 7.3 5.9 11.6 9.1 9.2 10.1Japan % of Imports from APEC 11.3 11.0 9.4 9.2 9.4 28.1 23.6 23.2 12.8Singapore % of Imports from APEC 9.3 8.8 9.3 9.5 9.1 15.7 19.0 17.8 15.6

xvi


Unit 2002 2003 2004 2005 2006 2007 2008 2009 2010(a)

1. Exports to selected countries and groupings

U.S.A US$ mn. 1,764.0 1,777.4 1,869.3 1988.1 2,005.5 1,970.0 1,869.3 1,576.0 1,754.0U.K. US$ mn. 590.3 640.4 779.2 777.3 880.1 1,018.0 1,090.4 1,024.3 1,021.0Germany US$ mn. 199.3 232.4 274.1 271.8 328.8 437.9 405.3 347.2 399.0Japan US$ mn. 140.3 165.4 157.6 144.6 163.6 159.6 159.0 139.0 168.0

EU % of total exports 35.2 35.9 38.3 37.2 40.7 37.6 37.4 38.5 35.0Germany % of exports to EU 14.4 15.3 14.9 13.9 14.5 15.2 13.4 12.7 13.7UK % of exports to EU 42.8 42.2 42.3 39.9 38.7 35.4 35.9 37.6 35.1

ASEAN % of total exports 2.6 2.5 2.6 2.9 3.4 2.8 2.9 3.7 5.3 Singapore % of exports to ASEAN 63.6 61.8 67.9 52.2 39.0 37.6 31.8 32.7 42.6 Malaysia % of exports to ASEAN 8.4 11.7 7.1 9.5 12.9 16.7 18.6 17.7 16.4

SAARC % of total exports 6.5 8.3 10.5 12.5 10.7 8.5 6.9 6.2 7.2India % of exports to SAARC 66.5 70.0 77.3 86.7 81.6 79.8 74.6 73.0 77.5

NAFTA % of total exports 47.6 44.5 41.2 40.4 38.1 27.6 24.9 24.1 22.9USA % of exports to NAFTA 94.6 94.5 94.5 94.1 94.2 93.3 92.4 92.2 91.9Canada % of exports to NAFTA 3.3 3.4 3.6 3.7 3.6 3.7 4.4 4.3 4.9

APEC % of total exports 54.6 52.2 47.8 46.2 44.0 37.1 35.0 34.0 35.3USA % of exports to APEC 82.5 80.6 81.4 82.3 81.5 69.4 65.6 65.3 61.4Japan % of exports to APEC 6.6 7.4 6.9 5.9 6.6 5.6 5.6 5.8 5.9Singapore % of exports to APEC 3.1 3.0 3.8 3.3 3.0 2.8 2.7 3.6 6.4

2. Imports from selected countries and groupings

Japan US$ mn. 355.3 448.1 411.7 379.7 449.6 413.2 424.5 224.0 584.0India US$ mn. 852.9 1,073.2 1,439.1 1,835.4 2,172.9 2,610.1 3,443.0 1,820.3 2,570.0Hong Kong US$ mn. 491.0 559.5 619.4 648.2 659.1 724.8 694.6 517.0 580.0U.S.A US$ mn. 218.7 188.3 240.1 204.5 200.6 412.1 272.6 259.2 168.0U.K. US$ mn. 262.9 272.9 312.1 276.2 303.4 229.8 243.2 254.0 267.0Taiwan US$ mn. 288.0 276.1 290.8 278.7 274.8 263.6 251.2 201.4 264.0

EU % of total Imports 18.0 18.8 18.2 16.7 15.9 12.4 12.4 12.6 11.3Germany % of Imports from EC 13.5 13.4 15.7 14.3 16.2 16.4 16.2 15.9 16.5UK % of Imports from EC 29.3 25.5 25.2 22.2 22.1 16.5 14.0 19.7 17.4

ASEAN % of total Imports 19.1 19.8 20.0 20.5 21.7 16.7 15.7 18.8 18.5Singapore % of Imports from ASEAN 46.0 46.2 51.2 48.2 52.9 59.3 56.7 55.6 62.2

Malaysia % of Imports from ASEAN 21.7 25.6 24.1 25.7 23.7 15.0 16.3 15.0 15.3

SAARC % of total Imports 19.1 19.9 23.1 26.6 27.2 24.9 26.1 20.1 21.3India % of Imports from SAARC 89.4 91.5 91.4 92.6 92.4 92.7 94.1 88.6 89.3

NAFTA % of total Imports 4.7 4.1 4.1 3.9 4.8 4.4 4.7 5.2 3.3USA % of Imports from NAFTA 93.8 85.4 84.4 71.2 48.0 83.5 41.6 48.0 37.6

Canada % of Imports from NAFTA 5.8 14.2 15.3 28.0 51.4 16.1 57.9 51.6 62.4

APEC % of total Imports 52.1 49.2 46.4 44.0 43.8 42.5 39.4 46.9 51.2 USA % of Imports from APEC 8.5 7.1 7.6 6.2 5.3 8.6 4.9 5.4 2.8Japan % of Imports from APEC 13.8 16.0 13.0 11.6 11.9 8.6 7.7 4.7 9.9Singapore % of Imports from APEC 16.8 18.7 20.5 22.4 26.2 23.3 22.5 22.1 26.4

Cont../

Note: (a): Provisional.Sources: International Monetary Fund, Direction of Trade Statistics, various issues; Central Bank of Sri Lanka, Annual Report, various issues.

xvii


Tabl

e A

15: S

truc

ture

of C

omm

odity

Impo

rts,

199

1-20

10

1991

1992

1993

1994

1995

1996

1997

199

819

9920

00

1.Co

nsum

er go

ods

Val

ue (U

S$ m

n.)

782.

173

4.6

774.

593

0.6

982.

01,

030.

01,

084.

01,

128.

01,

131.

01,

261.

0

Gro

wth

10.3

-6.1

5.4

20.1

5.6

5.2

4.9

4.0

0.3

11.5

% o

f tot

al im

ports

25.5

21.0

19.3

19.5

18.5

19.0

18.5

19.2

18.9

17.3

1.1

Food

Val

ue (U

S$ m

n.)

404.

941

9.7

415.

948

3.9

522.

059

7.0

642.

059

6.0

551.

056

6.0

Gro

wth

3.8

3.7

-0.9

16.4

7.8

14.3

7.5

-7.2

-7.6

2.7

% o

f tot

al im

ports

13.2

12.0

10.4

10.2

9.8

11.0

11.0

10.1

9.2

7.8

1.2

Oth

erV

alue

(US$

mn.

)37

7.2

314.

935

8.7

446.

646

1.0

433.

044

2.0

532.

058

1.0

696.

0

Gro

wth

18.1

-16.

513

.924

.53.

1-5

.81.

820

.69.

219

.8

% o

f tot

al im

ports

12.3

9.0

8.9

9.4

8.7

8.0

7.5

9.0

9.7

9.5

2.In

term

edia

te go

ods

Val

ue (U

S$ m

n.)

1,55

3.3

1,88

4.4

2,15

4.4

2,42

5.0

2,90

0.0

2,97

1.0

3,23

5.7

3,10

8.0

3,16

8.0

3,91

6.0

Gro

wth

11.6

21.3

14.3

12.6

19.6

2.6

8.9

-3.9

1.9

23.6

% o

f tot

al im

ports

50.7

53.8

53.7

50.9

54.6

54.6

55.2

52.8

53.0

53.5

2.1

Petro

leum

Val

ue (U

S$ m

n.)

311.

531

8.0

309.

229

6.3

386.

947

9.9

539.

534

5.0

500.

090

1.0

Gro

wth

-13.

22.

1-2

.8-4

.230

.624

.112

.4-3

6.1

44.9

80.2

% o

f tot

al im

ports

10.2

9.1

7.7

6.2

7.3

8.8

9.2

5.9

8.4

12.3

2.2

Text

iles

Val

ue (U

S$ m

n.)

498.

276

5.5

865.

11,

038.

11,

158.

51,

168.

81,

386.

91,

397.

01,

320.

01,

471.

0

Gro

wth

48.3

53.7

13.0

20.0

11.6

0.9

18.7

0.6

-5.5

11.4

% o

f tot

al im

ports

16.3

21.9

21.6

21.8

21.8

21.5

23.7

23.7

22.1

20.1

3.In

vest

men

t goo

ds V

alue

(US$

mn.

)72

0.1

850.

91,

046.

81,

366.

51,

189.

01,

203.

01,

324.

01,

477.

01,

565.

01,

737.

0

Gro

wth

23.2

18.2

23.0

30.5

-13.

01.

510

.011

.36.

011

.0

% o

f tot

al im

ports

23.5

24.3

26.1

28.7

22.4

22.1

22.6

25.1

26.2

23.6

4.To

tal i

mpo

rts

Val

ue (U

S$ m

n.)

3,06

1.1

3,50

3.4

4,01

1.3

4,76

7.3

5,31

1.1

5,43

9.0

5,86

4.0

5,88

9.0

5,97

9.0

7,32

0.0

G

row

th13

.814

.514

.518

.811

.42.

67.

70.

41.

522

.4

xviii


Con

td…

./20

0120

0220

0320

0420

0520

0620

0720

0820

0920

10(a

)1.

Cons

umer

good

sV

alue

(US$

mn.

)1,

126.

01,

189.

01,

344.

01,

440.

01,

503.

01,

782.

01,

768.

02,

174.

01,

713.

02,

613.

0G

row

th-1

0.7

5.6

13.0

7.1

4.4

18.6

-0.8

23.0

-21.

652

.5%

of t

otal

impo

rts18

.919

.520

.118

.016

.917

.415

.615

.516

.819

.31.

1Fo

odV

alue

(US$

mn.

)54

5.0

566.

056

4.0

596.

061

1.0

757.

083

1.0

1,13

8.0

987.

01,

385.

0G

row

th-3

.73.

9-0

.45.

72.

523

.99.

836

.9-1

3.3

40.3

% o

f tot

al im

ports

9.1

9.3

8.5

7.5

6.9

7.4

7.3

8.1

9.7

10.2

1.2

Oth

erV

alue

(US$

mn.

)58

1.0

623.

078

0.0

844.

089

1.0

1,02

4.0

937.

01,

047.

072

6.0

1,22

9.0

Gro

wth

-16.

57.

225

.28.

25.

614

.9-8

.511

.7-3

0.6

69.3

% o

f tot

al im

ports

9.7

10.2

11.7

10.6

10.1

10.0

8.3

7.5

7.1

9.1

2. In

term

edia

te go

ods

V

alue

(US$

mn.

)3,

430.

03,

622.

03,

948.

04,

828.

05,

458.

06,

161.

06,

751.

08,

716.

05,

928.

07,

753.

0

Gro

wth

-12.

45.

69.

022

.313

.012

.99.

629

.1-3

2.0

30.8

%

of t

otal

impo

rts57

.459

.359

.260

.461

.660

.159

.862

.258

.157

.42.

1Pe

trole

umV

alue

(US$

mn.

)73

1.0

789.

083

8.0

1209

.01,

655.

02,

070.

02,

501.

03,

368.

02,

167.

03,

019.

0G

row

th-1

8.9

7.9

6.2

44.3

36.9

25.1

20.8

34.7

-35.

639

.3%

of t

otal

impo

rts12

.212

.913

.715

.118

.720

.222

.124

.021

.222

.32.

2Te

xtile

sV

alue

(US$

mn.

)1,

320.

01,

321.

01,

372.

01,

514.

01,

531.

01,

546.

01,

632.

01,

702.

01,

442.

01,

732.

0G

row

th-1

0.3

0.1

3.9

10.3

1.1

1.0

5.6

4.3

-15.

120

.1%

of t

otal

impo

rts22

.121

.620

.618

.917

.315

.114

.512

.214

.112

.83.

Inve

stm

ent g

oods

Val

ue (U

S$ m

n.)

1,08

1.0

1,16

9.0

1,32

0.0

1,67

0.0

1,86

9.0

2,24

6.0

2,68

5.0

2,97

9.0

2,45

1.0

2,97

0.0

Gro

wth

-37.

88.

112

.926

.511

.920

.219

.510

.9-1

9.6

21.2

% o

f tot

al im

ports

18.1

19.2

19.8

20.8

21.1

21.9

23.8

21.3

24.0

22.0

4.To

tal i

mpo

rts

Val

ue (U

S$ m

n.)

5,97

4.0

6,10

5.0

6,67

2.0

8,00

0.0

8,86

3.0

10,2

54.0

11,2

96.0

14,0

08.0

10,2

07.0

13,5

12.0

Gro

wth

-18.

42.

29.

319

.910

.815

.710

.224

.0-2

7.6

32.4

Not

es:(a

): P

rovi

siona

l.So

urce

s:C

entra

l Ban

k of

Sri

Lank

a, A

nnua

l Rep

ort,

vario

us is

sues

; IPS

dat

abas

e.

xix


Table A16: Structure of Commodity Exports, 1991-2010

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

1. Agricultural exports

Value (US$ mn.) 641.4 604.7 655.3 702.1 829.0 961.0 1060.0 1088.0 947.0 1005.0

Growth -11.0 -5.7 8.4 7.1 18.1 16.1 10.3 2.6 -13.0 6.1

% of total exports 32.3 24.6 22.9 21.9 21.8 23.5 22.9 22.9 20.6 18.2

1.1 Plantation crops

Value (US$ mn.) 538.5 468.1 514.9 546.8 660.9 801.3 882.1 878.1 738.0 806.0

Growth -12.8 -13.1 10.0 6.2 20.9 21.2 10.1 -0.4 -16.0 9.2

% of total exports 27.1 19.0 18.0 17.0 17.4 19.5 19.0 18.0 15.8 14.3

1.1.1 Tea

Value (US$ mn.) 431.9 339.8 412.7 424.2 481.0 615.0 719.0 780.0 621.0 700.0

Growth -12.7 -21.3 21.4 2.8 13.3 28.2 17.0 8.5 -20.4 12.7

% of total exports 21.7 13.8 14.4 13.2 12.6 15.0 15.5 16.4 13.5 12.7

1.1.2 Rubber

Value (US$ mn.) 63.8 67.5 64.0 72.5 111.0 104.0 79.0 44.0 33.0 29.0

Growth -17.0 5.8 -5.3 13.3 53.8 -6.6 -24.4 -44.3 -25.0 -12.1

% of total exports 3.2 2.7 2.2 2.3 2.9 2.5 1.7 0.9 0.7 0.5

1.1.3 Coconut kernel products

Value (US$ mn.) 42.8 60.8 38.3 50.1 69.0 81.0 82.0 56.0 84.0 77.0

Growth -7.0 42.2 -37.0 30.9 37.1 17.7 2.0 -31.8 50.0 -8.3

% of total exports 2.2 2.5 1.3 1.6 1.8 2.0 1.8 1.2 1.8 1.4

1.2. Minor agricultural crops

Value (US$ mn.) 82.4 113.1 120.7 129.2 134.0 132.0 145.0 170.0 165.0 155.0

Growth 3.2 37.3 6.7 7.0 3.5 -1.4 9.9 17.7 -2.9 -6.1

% of total exports 4.1 4.6 4.2 4.0 3.5 3.2 3.1 3.6 3.6 2.8

2. Mineral exports

Value (US$ mn.) 61.9 62.7 75.7 86.9 87.0 96.0 90.0 60.0 64.0 97.0

Growth -28.8 1.3 20.7 14.7 -0.1 10.3 -6.7 -33.1 6.7 51.6

% of total exports 3.1 2.5 2.6 2.7 2.3 2.3 1.9 1.3 1.4 1.8

3. Industrial exports

Value (US$ mn.) 1,237.3 1,763.2 2,102.3 2,398.9 2,870.0 3,006.0 3,436.0 3,607.0 3,551.0 4,283.0

Growth 19.4 42.5 19.2 14.1 19.6 5.0 14.3 3.2 -1.6 20.6

% of total exports 62.3 71.7 73.4 74.8 75.4 73.4 74.1 74.9 77.0 77.6

3.1 Textile & garments

Value (US$ mn.) 803.9 1,214.0 1,412.4 1,551.9 1,853.0 1,902.0 2,274.0 2,460.0 2,425.0 2,982.0

Growth 28.0 51.0 16.3 9.9 19.4 2.9 19.6 8.2 -1.4 23.0

% of total exports 40.5 49.3 49.3 48.4 48.7 46.4 49.0 52.0 52.7 54.0

3.2 Petroleum products

Value (US$ mn.) 79.5 63.2 78.8 80.1 85.0 104.0 97.0 73.0 74.0 98.0

Growth -19.9 -20.5 24.6 1.7 5.9 22.4 -6.3 -25.9 1.4 32.4

% of total exports 4.0 2.6 2.8 2.5 2.2 2.5 2.1 1.5 1.6 1.8

4. Total commodity exports inc. petroleum

Value (US$ mn.) 1,987.5 2,460.8 2,863.7 3,208.6 3,806.6 4,199.0 4,736.0 4,871.0 4,684.0 5,620.0

Growth 0.2 23.8 16.4 12.0 18.6 10.3 12.8 2.9 -3.8 20.0

5. Total commodity exports excl. petroleum

Value (US$ mn.) 1,908.0 2,397.5 2,784.9 3,128.5 3,721.7 3,991.0 4,542.0 4,725.0 4,536.0 5,424.0

Growth 1.2 25.7 16.2 12.3 19.0 7.2 13.8 4.0 -4.0 19.6

xx


Contd../2001 2002 2003 2004 2005 2006 2007(a) 2008 2009 2010(b)

1. Agricultural exports

Value (US$ mn.)

Growth

% of total exports

1.1 Plantation crops

Value (US$ mn.)

Growth

% of total exports

1.1.1 Tea

Value (US$ mn.)

Growth

% of total exports

1.1.2 Rubber

Value (US$ mn.)

Growth

% of total exports

1.1.3 Coconut kernel products

Value (US$ mn.)

Growth

% of total exports

1.2. Minor agricultural crops

Value (US$ mn.)

Growth

% of total exports

2. Mineral exports Value (US$ mn.)

Growth

% of total exports

3. Industrial exportsValue (US$ mn.)

Growth

% of total exports

3.1 Textile & garments

Value (US$ mn.)

Growth

% of total exports

3.2 Petroleum products

Value (US$ mn.)

Growth

% of total exports

4. Total commodity exports inc. petroleumValue (US$ mn.)

Growth

5. Total commodity exports excl. petroleumValue (US$ mn.)

Growth

Notes: (a): Revised.(b): Provisional.

Sources: Central Bank of Sri Lanka, Annual Report, various issues; IPS database.

932.0 938.0 965.0 1065.2 1,153.8 1,292.7 1,507.2 1,854.8 1,690.3 2,041.4

-7.3 0.6 2.9 10.4 8.3 12.0 16.6 23.1 -8.9 20.8

19.3 20.0 18.8 18.5 18.2 18.8 19.7 22.9 23.9 24.6

755.0 728.0 770.0 849.0 905.9 1,027.1 1,194.9 1,567.6 1,449.9 1,719.4

-6.3 -3.6 5.8 10.3 6.7 13.4 16.3 31.2 -7.5 18.6

15.5 15.3 14.8 14.5 14.0 14.4 15.6 19.3 20.5 20.7

690.0 660.0 683.0 739.0 810.2 881.2 1,025.2 1,271.5 1,185.1 1,375.4

-1.4 -4.3 3.5 8.2 9.6 8.8 16.3 24.0 -6.8 16.1

14.3 14.1 13.3 12.8 12.8 12.8 13.4 15.6 16.7 16.6

24.0 27.0 39.0 51.0 46.9 93.1 109.4 125.1 98.6 170.4

-17.2 12.5 44.4 30.8 -8.0 98.5 17.5 14.4 -21.2 72.8

0.5 0.6 0.8 0.9 0.7 1.4 1.4 1.5 1.4 2.1

41.0 41.0 48.0 59.0 48.8 52.8 60.3 82.4 58.2 55.4

-46.8 0.0 17.1 22.9 -17.3 8.2 14.2 36.7 -29.4 -4.8

0.9 0.9 0.9 1.0 0.8 0.8 0.8 1.0 0.8 0.7

136.0 168.0 150.0 162.0 183.4 194.6 231.5 287.3 240.4 322.0

-12.3 23.5 -10.7 8.0 13.2 6.1 19.0 24.1 -16.4 33.9

2.8 3.5 2.9 2.8 2.9 2.8 3.0 3.5 3.4 3.9

86.0 90.0 84.0 120.0 143.3 119.9 127.8 97.8 88.7 92.6

-11.3 4.7 -6.7 42.9 19.4 -16.3 6.6 -23.5 -9.3 4.4

1.8 1.9 1.6 2.0 2.3 1.7 1.7 1.2 1.3 1.1

3,710.0 3,631.0 3,977.0 4,506.0 4,948.4 5,401.1 5,967.3 6,158.0 5,305.4 6,172.8

-13.4 -2.1 9.5 13.3 9.8 9.1 10.5 3.2 -13.8 16.3

77.0 77.3 77.5 78.3 78.0 78.5 78.1 75.9 74.9 74.3

2,543.0 2,424.0 2,575.0 2,809.0 2,894.6 3,080.4 3,339.6 3,468.7 3,274.2 3,504.1

-14.7 -4.7 6.2 9.1 3.0 6.4 8.4 3.9 -5.6 7.0

52.8 51.6 50.2 48.8 45.6 44.8 43.7 42.8 46.2 42.2

68.0 73.0 65.0 100.0 130.9 188.4 168.9 254.9 134.7 216.3

-30.6 7.4 -11.0 53.8 30.9 43.9 -10.4 50.9 -47.1 60.6

1.4 1.5 1.3 1.7 2.1 2.7 2.2 3.1 1.9 2.6

4,885.0 4,772.0 5,198.0 5,856.7 6,477.6 7,140.3 7,640.0 8,110.6 7,084.5 8,307.0

-13.1 -2.3 8.9 12.7 10.6 10.2 7.0 6.2 -12.7 17.3

4,749.0 4,626.0 5,068.0 5,657.6 6,215.8 6,882.7 7,740.5 7,855.7 6,949.8 8,090.7

-12.4 -2.6 9.6 11.6 9.9 10.7 12.5 1.5 -11.5 16.4

xxi


T

able

A17

: Tou

rism

, 199

1-20

10

Uni

t19

9119

9219

9319

9419

9519

9619

9719

9819

9920

00

Tour

ist a

rriv

als

No.

317,

703

393,

669

392,

250

407,

511

403,

101

302,

265

366,

165

381,

063

436,

440

400,

414

Excu

rsio

nist

arr

ival

sN

o.2,

665

5,65

16,

093

8,41

310

,556

12,8

6318

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27,6

2928

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44,5

18To

uris

t nig

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000

3,63

34,

055

4,14

84,

251

4,02

42,

947

3,68

03,

944

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94,

056

Earn

ings

Rs.

mn.

6,48

5.8

8,82

5.6

10,0

36.8

11,4

01.6

11,5

51.6

9,55

9.1

12,9

80.0

14,8

68.0

19,2

97.3

19,1

62.2

US$

mn.

156.

820

1.4

208.

023

0.7

225.

417

3.0

216.

723

1.5

274.

925

2.8

Rec

eipt

s pe

r tou

rist

per

day

US$

42.8

49.7

50.1

54.2

56.1

57.9

58.6

59.5

61.4

62.3

Ave

rage

dur

atio

nN

ight

s11

.410

.310

.610

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.09.

810

.110

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mod

atio

n R

oom

sN

o.9,

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1410

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10,7

4211

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11,6

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12,7

7212

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13,3

11 B

eds

No.

18,9

4719

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20,2

4220

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21,6

8022

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22,9

4423

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24,2

1624

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Occ

upan

cy ra

te, g

rade

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48.4

55.3

57.0

56.6

52.6

40.3

49.1

52.8

57.6

52.3

Sri L

anka

nat

iona

ls A

rriv

als

No.

237,

424

339,

109

375,

740

422,

367

459,

441

488,

055

482,

850

481,

793

521,

073

514,

448

Dep

artu

res

No.

310,

373

420,

749

416,

246

448,

437

504,

420

494,

258

530,

712

518,

050

496,

963

524,

212

Empl

oym

ent

Dir

ect

No.

26,8

7828

,790

30,7

1033

,956

35,0

6831

,963

34,0

0634

,780

36,5

6037

,943

Ind

irec

tN

o.37

,629

40,3

0642

,994

47,5

3849

,095

44,7

4847

,608

48,6

9251

,184

53,1

20

Con

td…

/U

nit

2001

2002

2003

2004

2005

2006

2007

(a)

2008

2009

2010

(b)

Tour

ist a

rriv

als

No.

336,

794

393,

174

500,

642

566,

202

549,

308

559,

603

494,

008

438,

475

447,

890

654,

476

Excu

rsio

nist

arr

ival

sN

o.60

,008

63,5

6082

,066

110,

000

119,

618

128,

719

98,4

3287

,695

89,5

2611

2,49

7To

uris

t nig

hts

000

3,43

53,

989

5,09

35,

742

4,75

45,

793

4,94

04,

165

4,07

56,

544

Earn

ings

Rs.

mn.

18,8

63.3

24,2

02.0

32,8

10.0

42,6

66.3

36,3

7742

,586

42,5

1937

,094

40,1

3365

,018

US$

mn.

211.

125

3.0

340.

041

6.8

362

410

384

319

349

575.

9R

ecei

pts

per t

ouri

st p

er d

ayU

S$63

.163

.466

.872

.274

.683

.479

.176

.781

.888

.0A

vera

ge d

urat

ion

Nig

hts

9.9

10.1

10.2

10.1

8.7

10.3

10.0

9.5

9.1

10.0

Acc

omm

odat

ion

Roo

ms

No.

13,6

2613

,818

14,1

3714

,322

13,1

6214

,218

14,6

0414

,793

14,4

6114

,714

Bed

sN

o.25

,595

25,9

5626

,511

26,8

5424

,740

27,1

1727

,500

28,6

9828

,344

28,9

78O

ccup

ancy

rate

, gra

ded

%42

.143

.153

.259

.343

.639

.846

.243

.948

.470

.1Sr

i Lan

ka n

atio

nals

Arr

ival

sN

o.48

7,35

649

3,94

756

0,60

264

6,99

068

3,16

973

4,42

181

7,52

490

0,81

591

4,58

41,

081,

417

Dep

artu

res

No.

505,

341

533,

565

561,

126

680,

248

727,

301

756,

735

862,

011

966,

337

962,

786

1,12

2,21

2Em

ploy

men

t D

irec

tN

o.33

,710

38,8

2146

,761

53,7

6652

,085

55,6

4960

,516

51,3

0652

,071

55,0

23 I

ndir

ect

No.

47,1

9454

,349

65,4

6575

,272

72,9

1977

,909

84,7

2371

,821

72,8

9977

,032

Not

es:

(a):

Rev

ised

.(b

):Pr

ovis

iona

l.So

urce

: C

eylo

n To

uris

t Boa

rd, A

nnua

l Sta

tistic

al R

epor

t, va

riou

s is

sues

.

xxii


Tab

le A

18: M

onth

ly T

ouri

st A

rriv

als,

199

9-20

10

1999

2000

2001

2002

2003

2004

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

Janu

ary

44,3

7919

.243

,311

-2.4

44,1

872.

128

,296

-36.

040

,647

43.6

49,9

5022

.9Fe

brua

ry41

,526

17.7

43,2

874.

246

,575

7.6

31,6

83-3

2.0

39,0

8123

.443

,584

11.5

Mar

ch41

,022

27.2

40,1

10-2

.244

,290

10.4

33,0

84-2

5.3

40,8

1823

.438

,418

-5.9

Apr

il34

,443

34.7

33,6

42-2

.336

,906

9.7

27,0

57-2

6.7

33,7

1424

.630

,672

-9.0

May

25,2

1223

.623

,404

-7.2

26,9

24-1

5.0

26,6

61-1

.030

,048

12.7

30,1

620.

4Ju

ne26

,184

16.8

21,8

25-1

6.6

28,3

2329

.826

,355

-6.9

31,8

3620

.832

,119

0.8

July

33,2

8812

.733

,267

-0.1

28,5

66-1

4.1

35,7

4225

.143

,743

22.4

50,5

2515

.5A

ugus

t39

,081

24.3

34,4

22-1

1.9

15,7

17-5

4.3

35,4

7512

5.7

42,1

1118

.748

,675

15.6

Sept

embe

r33

,915

7.1

31,0

35-8

.511

,758

-62.

132

,982

180.

536

,054

9.3

51,5

2542

.9O

ctob

er35

,112

10.5

26,6

58-2

4.1

12,9

04-5

1.6

36,2

5818

1.0

49,9

2237

.759

,442

19.1

Nov

embe

r41

,952

9.2

32,4

69-2

2.6

17,3

44-4

6.6

37,3

9511

5.6

54,9

4646

.964

,971

18.2

Dec

embe

r40

,326

-10.

636

,984

-8.3

23,3

00-3

6.9

42,1

8381

.057

,722

36.8

66,1

5914

.6To

tal

436,

440

14.5

400,

414

-8.3

336,

794

-15.

939

3,17

116

.750

0,64

227

.356

6,20

213

.1

Con

td../

Janu

ary

38,1

87-2

3.5

52,1

0336

.456

,553

8.5

56,9

160.

638

,468

-32.

450

,757

31.9

Febr

uary

36,6

45-1

5.9

52,6

8743

.843

,051

-18.

340

,551

-5.8

34,1

69-1

5.7

57,3

0067

.7M

arch

50,4

1831

.254

,746

8.6

35,0

31-3

6.0

38,0

498.

634

,063

-10.

552

,352

53.7

Apr

il42

,261

37.8

49,7

7617

.833

,039

-33.

629

,747

-10.

026

,054

-12.

438

,300

47.0

May

40,8

7835

.543

,825

7.2

26,3

07-4

0.0

31,1

4018

.424

,739

-20.

635

,213

42.3

June

45,6

9942

.344

,066

-3.6

30,8

10-3

0.1

27,9

60-9

.330

,234

8.1

44,7

3047

.9Ju

ly56

,745

12.3

55,3

54-2

.544

,142

-20.

332

,982

-25.

342

,223

28.0

63,3

3950

.0A

ugus

t51

,216

5.2

52,9

313.

344

,742

-15.

530

,672

-31.

441

,207

34.3

55,8

9835

.7Se

ptem

ber

43,5

36-1

5.5

38,4

85-1

1.6

37,1

04-3

.629

,529

-20.

437

,983

28.6

47,3

3924

.6O

ctob

er44

,095

-25.

838

,815

-12.

037

,011

-4.6

35,1

03-5

.237

,575

7.0

52,3

7039

.4N

ovem

ber

48,4

57-2

5.4

37,5

91-2

2.4

45,1

0220

.036

,901

-18.

244

,311

20.1

72,2

5163

.1D

ecem

ber

51,1

71-2

2.7

39,2

24-2

3.3

61,1

1655

.848

,925

-19.

956

,862

16.2

84,6

2748

.8To

tal

549,

308

-2.9

559,

603

1.9

494,

008

-11.

743

8,47

5-1

1.2

447,

890

2.1

654,

476

46.1

Not

e:M

onth

ly g

row

th fi

gure

s ref

lect

per

cent

age

chan

ges c

ompa

red

to th

e sa

me

mon

th in

the

prev

ious

yea

r.(a

): P

rovi

siona

l.

Sour

ce:

Cey

lon

Tour

ist B

oard

, Ann

ual S

tatis

tical

Rep

ort,

vario

us is

sues

.

2005

2006

2007

2008

2009

2010

(a)

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

No.

Gro

wth

xxiii


Table A19: Tourist Arrivals by Country of Residence, 1999-2010 1999 2000 2001 2002 2003 2004

No. Growth No. Growth No. Growth No. Growth No. Growth No. Growth

North America 18,477 5 17,319 -6 15,983 -8 19,866 24 25,110 26 29,759 19

Canada 7,905 5 7,503 -5 7,609 1 8,304 9 11,164 34 14,633 31

U.S.A. 10,572 6 9,816 -7 8,374 -15 11,565 38 13,946 21 15,126 8

Western Europe 275,796 15 260,824 -5 203,984 -22 200,295 -2 255,169 27 284,440 11

Germany 77,259 4 70,584 -9 60,405 -14 55,170 -9 58,908 7 58,258 -1

United Kingdom 80,919 22 84,693 5 67,830 -20 67,533 0 93,278 38 106,645 14

France 34,458 28 25,992 -25 20,949 -19 19,989 -5 28,585 28 29,996 5

Italy 19,815 25 16,833 -15 12,074 -28 12,177 1 15,654 29 18,862 20

Netherlands 29,670 29 22,618 -24 12,569 -44 11,748 -7 18,197 55 21,455 18

Asia 114,375 15 91,521 -20 89,732 -2 143,064 59 177,351 24 198,068 12

Japan 16,332 19 10,226 -37 9,237 -10 13,602 47 17,115 26 19,641 15

India 42,315 13 31,860 -25 33,924 7 69,960 106 90,603 30 105,151 16

Pakistan 11,421 6 10,005 -12 8,562 -14 6,756 -21 9,704 44 9,638 -1

Australasia 15,159 25 18,228 20 13,105 -28 13,209 1 22,965 74 26,540 16

Australia 13,218 28 16,443 24 11,457 -30 11,217 -2 19,958 78 23,247 16

Other(a) 12,633 -4 12,522 -1 13,990 12 16,737 20 20,047 20 27,395 37

Total 436,440 15 400,414 -8 336,794 -16 393,171 17 500,642 27 566,202 13

Contd…/

2005 2006(b) 2007 2008 2009 2010(c)

No. Growth No. Growth No. Growth No.Growth No. Growth No. Growth

North America 46,457 56 35,323 -24 28,355 -20 24,311 -14 24,948 3 40,216 61

Canada 21,185 45 14,623 -31 11,869 -19 10,258 -14 10,707 4 21,123 97

U.S.A. 25,272 67 20,700 -18 16,486 -20 14,053 -15 14,241 1 19,093 34

Western Europe 227,191 -20 228,447 1 194,448 -15 167,187 -14 170,123 2 256,861 51

Germany 46,350 -20 47,402 2 35,042 -26 30,625 -13 29,654 -3 45,727 54

United Kingdom 92,629 -13 88,306 -5 94,060 7 81,331 -14 81,594 0 105,496 29

France 26,653 -11 22,693 -15 8,091 -64 10,594 31 15,886 50 31,285 97

Italy 10,192 -46 12,424 22 11,451 -8 13,030 14 7,514 -42 11,423 52

Netherlands 15,156 -29 19,360 28 17,526 -9 9,116 -48 11,291 24 17,861 58

Asia 223,351 13 242,132 8 202,480 -16 173,039 -15 174,534 1 244,124 40

Japan 17,148 -13 16,189 -6 14,274 -12 10,075 -29 10,926 8 14,352 31

India 113,323 8 128,370 13 106,067 -17 85,238 -20 83,634 -2 126,882 52

Pakistan 11,029 14 11,145 1 10,204 -8 7,885 -23 7,373 -7 9,148 24

Australasia 29,738 12 25,127 -16 22,924 -9 21,839 -5 26,068 19 37,290 43

Australia 25,986 12 21,849 -16 20,241 -7 19,536 -3 23,239 19 33,456 44

Other(a) 22,571 -18 28,576 27 45,801 60 52,099 14 52,217 0 75,985 46

Total 549,308 -3 559,603 2 494,008 -12 438,475 -11 447890 2 654,476 46

Notes: (a): Latin America & the Caribbean, East Europe, Africa, and Middle East.(b): Revised.(c): Provisional.

Source: Ceylon Tourist Board, Annual Statistical Report, various issues.

xxiv


Tabl

e A

20: B

alan

ce o

f Pay

men

ts, 1

999-

2010

U

nit

1999

2000

2001

2002

2003

(c)

2004

2005

2006

2007

2008

2009

2010

(a)

1.Tr

ade

bala

nce

US$

mn.

-1,3

69.0

-1,7

98.0

-1,1

57.0

-1,4

06.0

-1,5

39.0

-2,2

43.0

-2,5

16.0

-3,3

70.0

-3,6

56.0

-5,9

81.0

-3,1

22.0

-5,2

05.0

% o

f GD

P-8

.7-1

0.8

-7.4

-9.5

-8.1

-10.

9-1

0.3

-11.

9-1

1.3

-14.

7-7

.4-1

0.5

2.Se

rvic

es b

alan

ce U

S$ m

n.14

7.0

38.0

175.

029

5.0

399.

041

9.0

338.

025

7.0

302.

040

2.0

391.

069

8.0

% o

f GD

P0.

90.

21.

32.

02.

12.

01.

40.

90.

71.

00.

91.

4

3.In

com

e, n

et U

S$ m

n.-2

54.0

-305

.0-2

67.0

-253

.0-1

72.0

-204

.0-2

99.0

-389

.0-3

58.0

-972

.0-4

88.0

-572

.0

% o

f GD

P-1

.6-1

.8-1

.9-1

.7-0

.9-1

.0-1

.2-1

.4-1

.1-2

.4-1

.2-1

.1

4.N

et p

rivat

e tra

nsfe

rs U

S$ m

n.88

7.0

974.

098

4.0

1,09

7.0

1,20

5.0

1,35

0.0

1,73

6.0

1,90

4.0

2,21

4.0

2,56

5.0

2,92

7.0

3,60

8.0

% o

f GD

P5.

65.

97.

07.

56.

36.

57.

16.

76.

86.

36.

97.

1

5.N

et o

ffici

al tr

ansfe

rs U

S$ m

n.26

.024

.022

.031

.036

.030

.093

.010

1.0

97.0

101.

077

.052

.0

% o

f GD

P0.

20.

10.

20.

20.

20.

10.

40.

40.

30.

20.

20.

1

6.C

urre

nt a

ccou

nt b

alan

ce U

S$ m

n.-5

63.0

-1,0

66.0

-244

.0-2

37.0

-71.

0-6

48.0

-650

.0-1

,499

.0-1

,401

.0-3

,775

.0-2

14.0

-1,4

18.0

% o

f GD

P-3

.6-6

.4-1

.7-1

.6-0

.4-3

.1-2

.7-5

.3-4

.3-9

.3-0

.5-2

.8

7.C

apita

l and

fina

ncia

l a/c

US$

mn.

373.

044

3.0

562.

044

4.0

722.

063

1.0

1,22

4.0

1,80

8.0

2,09

7.0

1,77

3.0

2,59

4.0

2,87

6.0

% o

f GD

P2.

42.

74.

03.

03.

83.

15.

06.

46.

54.

46.

25.

7

Cap

ital a

ccou

nt U

S$ m

n.80

.050

.019

8.0

65.0

74.0

64.0

250.

029

1.0

269.

029

1.0

233.

016

4.0

Fina

ncia

l acc

ount

US$

mn.

293.

039

3.0

364.

037

9.0

648.

056

7.0

974.

015

17.0

1828

.014

83.0

2,36

1.0

2,71

3.0

8.L

ong-

term

US$

mn.

435.

030

4.0

164.

032

6.0

722.

068

0.0

798.

090

7.0

1251

.010

16.0

1,30

4.0

2,37

9.0

Fore

ign

dire

ct in

vestm

ent

US$

mn.

177.

017

3.0

82.0

181.

017

1.0

217.

023

4.0

451.

054

8.0

691.

038

4.0

435.

0

Priv

ate

long

-term

(net

) U

S$ m

n.19

6.0

82.0

-257

.0-2

1.0

-33.

014

.011

.0-3

5.0

31.0

74.0

79.0

149.

0

Gov

ernm

ent l

ong-

term

US$

mn.

62.0

47.0

249.

016

2.0

554.

043

9.0

553.

049

1.0

672.

025

2.0

840.

01,

796.

0

9.Sh

ort-t

erm

US$

mn.

-142

.088

.020

1.0

53.0

-75.

0-1

12.0

176.

061

0.0

577.

046

6.0

1,05

8.0

334.

0

Fore

ign

portf

olio

inve

stmen

t U

S$ m

n.-1

3.0

-45.

0-1

1.0

25.0

2.0

11.0

60.0

51.0

101.

060

.0-6

.0-2

30.0

10. O

ther

(b)

US$

mn.

-101

.017

4.0

71.0

-145

.0-2

.020

2.0

323.

029

3.0

364.

072

8.0

346.

0-5

37.0

11. O

vera

ll ba

lanc

e U

S$ m

n.-2

63.0

-522

.022

0.0

338.

050

2.0

-205

.050

1.0

204.

053

1.0

-138

52,

725.

092

1.0

% o

f GD

P-1

.7-3

.11.

62.

32.

6-1

.02.

10.

71.

6-2

.96.

51.

8

Not

es:

(a):

Prov

ision

al.

(b):

Val

uatio

n ad

justm

ents,

erro

rs, a

nd o

miss

ions

.(c

): Fr

om 2

003,

dat

a are

bas

ed o

n G

DP

estim

ates

com

pile

d by

the

Dep

artm

ent o

f Cen

sus a

nd S

tatis

tics.

Sour

ce:

Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, va

rious

issu

es.

xxv


Tab

le A

21: E

xcha

nge

Rate

Beh

avio

ur, 1

999-

2010

Curr

ency

Uni

t19

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

10

Nom

inal

exc

hang

e ra

tes

U

.S.A

.S.

L. R

s. pe

r US$

72.1

280

.06

93.1

696

.72

96.7

410

4.60

102.

1210

7.71

108.

7211

3.14

114.

3811

0.95

Japa

nS.

L. R

s. pe

r Yen

0.71

0.70

0.71

0.82

0.90

1.02

0.87

0.90

0.97

1.25

1.24

1.36

U. K

.S.

L. R

s. pe

r Pou

nd11

6.72

119.

3713

5.06

155.

1217

2.19

201.

3717

5.94

211.

2921

7.15

163.

2818

1.75

171.

41

Eur

opeo

n U

nion

S.L.

Rs.

per E

uro

72.5

374

.32

82.2

710

1.38

121.

6014

2.32

120.

9614

1.58

160.

2715

9.45

163.

7214

7.56

Indi

aS.

L. R

s. pe

r Ind

. Rs.

1.66

1.71

1.93

2.02

2.12

2.40

2.27

2.44

2.77

2.36

2.46

2.48

24 c

urre

ncy

Nom

inal

effe

ctiv

e exc

hang

e rat

es (N

EER)

NEE

R 20

06=

100

(a)

--

--

110.

3197

.57

104.

7794

.35

87.7

910

1.85

98.1

210

0.49

Real

effe

ctiv

e exc

hang

e rat

e (RE

ER)

REER

200

6=10

0 (a

)-

--

-92

.01

89.6

410

0.15

99.2

610

5.64

99.3

597

.57

102.

82

Sour

ces:

Cen

tral B

ank

of S

ri La

nka,

Ann

ual R

epor

t, va

rious

issu

es.

xxvi


Note: (a): Provisional.* Debentures listed is no longer available. (Source: CSE Fact Book 2005, 2006 and 2007).

Sources: Colombo Stock Exchange, Annual Report; Fact Book, Central Bank of Sri Lanka, Annual Report, various issues.

Appendix B: Capital Market

Table B1: Sri Lanka's Capital Market Structure, 2005-2010

2005 2006 2007 2008 2009 2010(a)1. Equity market:

Market capitalization 584,000 834,800 820,700 488,812 1,092,100 2,210,500

of which central depository 259,780 370,076 418,088 488,813 1,092,100 2,210,500

2. Debt market: 1,266,802* 1,460,644* 1,507,698 2,140,228 2,400,955 2,565,662

(i) Private 29,060* 42,260* 50,320*

(ii) Public 1,237,742 1,418,384 1,457,373 2,026,463 2,281,341 2,460,555

(a) Short-term(TBs) 234,174 257,732 307,012 402,600 441,032 514,442

(b) Medium & long term 1,003,568 1,160,652 1,351,999 1,623,863 1,840,309 1,946,113

3. Total debt and equity (Rs. mn) 1,850,802* 2,295,444 2,328,393 2,629,040 3,493,055 4,776,162

As a percentage of GDP(%) 88.20 78.11 65.09 34.35 72.39 85.25

of which actually traded 270,680 393,576 449,288

through the central depository

As a share of total (%) 14.6 17.1 19.3 na na na

4. Foreign participation in the central 14 14 19 na na na

depository as a per cent

of market capitalization (%)

xxvii


Table B2: Recent Developments in the Share Market, 2002-20102002 2003 2004 2005 2006 2007 2008 2009 2010

1. Number of companies listed 238 244 242 239 237 235 235 231 242

New Listings 9 8 5 6 2 - 3 3 10

De-listings 9 2 7 9 4 2 2 6 1

2. Number of Companies Traded 231 236 241 242 232 231 232 231 238

3. Market Capitalization Rs.bn. 162 263 382 584 835 821 489 1,092 2,211

US$ bn. 1.7 2.7 3.8 5.8 8.0 8.0 4.3 9.6 20.1

4. Price -earnings ratio times, year end 12.1 11.1 10.8 12.4 14.0 11.6 11.3 15.3 25.2

5. Number of shares traded No. mn. 1,220 2,255 2,752 5,128 3,912 2,952 3,155 4,763 18,489

Domestic No. mn. 1,035 1,932 2,479 4,313 3,178 2,049 1,935 3,784 16,685

Foreign No. mn. 185 323 273 815 734 902 1,220 978 1,805

6. Trades No. '000 283.2 481.3 645.1 1100.4 952.4 876.9 776.2 1,266 3,355

Domestic No. '000 273.2 460.9 611.6 1038.5 908.2 831.7 730.4 1,190 3,225

Foreign No. '000 10.0 22.0 33.4 61.9 44.2 45.3 45.8 75.5 130.1

7. Turnover: Rs.Bn. 30.5 73.8 59.0 114.6 105.1 105.0 110.5 142.5 570.3

US$ bn. 0.3 0.7 0.6 1.1 1.0 1.0 1.0 1.2 --

Domestic Rs. bn. 24.3 59.9 48.3 89.9 70.7 63.8 50.8 99.0 464.7

Foreign Rs. bn. 6.2 13.8 9.8 24.6 34.5 41.2 59.7 43.5 105.6

8. Liquidity- turnover / market 18.8 28.1 15.4 19.6 12.6 12.8 22.6 26.3 25.79

capitalization ratio (%)

9. No. of new issues (No.) 5 4 _ _ _ _ _ _ _

10. Total no. of shares issued (mn.) 244 _ _ _ _ _ _ _ _

11. Value of shares issued (Rs. bn.) 3.6 _ _ _ _ _ _ _ _

12. Central depository:

Domestic (Rs. bn.) 66.5 98.2 140.4 179.8 248.7 260.4 162.3 387.6 942

Foreign (Rs. bn.) 19.5 37.8 54.6 79.9 121.4 157.6 108.0 231.2 431.3

Total (Rs. bn.) 86.0 136.0 195.0 259.7 370.1 418.0 270.3 618.9 1,373.3

Percentage of market cap. 53.1 51.7 51.0 44.5 44.3 50.9 55.3 56.0 62.0

13. Non-national activity

Net purchases (Rs. mn.) 2,441.5 209.3 1,106.3 6,144.5 5,377.0 11,254.3 13,950.5 -789.0 -26,335.3

Purchases (Rs. mn.) 7,477.7 13,943.9 11,278.0 27,712.4 37,167.0 46,796.8 66,632.2 43,057.3 92,425.5

Sales (Rs. mn.) 5,036.2 13,734.6 10,172.0 21,567.9 31,790.0 35,542.5 52,681.7 43,846.3 118,760.9

14. Price indices

All share 1985 = 100 815.1 1,062.0 1,506.9 1,922.2 2,722.4 2,541.0 1,503.0 3,385.6 6,635.9

Growth % change 31.2 30.2 41.9 27.6 41.6 6.7 40.9 125.3 96.0

Sensitive 1985 = 100 1,374.6 1,898.0 2,073.7 2,451.1 3,711.8 3,291.9 1,631.3 3,849.4 7,061.5

Growth % change 33.3 38.1 9.3 18.2 51.4 11.3 -50.4 136.0 83.4

Note: 1000 Million = 1 Billion.

Source: Colombo Stock Exchange, Annual Report, various issues.

xxviii


Table B3: Market Concentration(% of total market capitalization)

2010(%)

JKH 8.41

Carsons 4.56

Dialog 4.35

Commercial Bank 4.15

Bukit Darah 4.08

SLT 4.00

HNB 3.46

Aitken Spence 3.12

Ceylon Tobacco 3.01

LOLC 2.75

Total 41.89

Note: As at 2010 the top ten of the 231 listed company accounted 41.89% of totalmarket capitalization.

Source: Colombo Stock Exchange , Annual Report, various issues.

xxix


Contd...../-

3.

Table B4: New Equity Listings - 2006-2010Company No. of shares Issue price No. of shares No. of shares Date listed

offered Rs. subscribed devolved toby public underwriters

New listings - 2006Blue Diamonds Jewellery Worldwide Ltd. 65,589,385 2.50 30,057,291 – 6-Jan-06Cargo Boat Development Co. Ltd 3,400,012 15.00 3,400,012 – 4-Jan-06Commercial Leasing Co. Ltd 2,016,667 60.00 2,016,667 – 30-Jan-06Regnis (Lanka) Ltd 1,207,271 50.00 1,207,271 – 20-Jan-06Chemical Industries (Colombo) Ltd 8,100,000 62.00 8,100,000 – 29-Mar-06Chemical Industries (Colombo) Ltd 2,430,000 35.00 2,430,000 – 29-Mar-06Dankotuwa Porcelain Ltd 18,094,296 10.00 12,791,509 5,302,787 25-Apr-06Seylan Merchant Leasing Ltd 5,047,475 18.00 5,047,475 – 20-Apr-06The Fortrees Resorts Ltd 38,882,344 10.00 38,882,344 – 23-May-06Seylan Bank Ltd 83,560,000 12.50 83,560,000 – 2-May-06Vidullanka Ltd 2,981,250 20.00 2,981,250 – 3-May-06Overseas Reality (Ceylon) Ltd 69,057,200 15.00 10,133,921 58,923,279 23-Aug-06Pan Asia Banking Corporation Ltd 55,571,883 10.00 55,068,524 – 26-Oct-06Seylan Merchant Leasing Ltd 3,028,485 20.00 3,028,485 – 30-Oct-06Diesel & Motor Engineering Co. Ltd 1,100,000 50.00 1,100,000 – 20-Nov-06People's Merchant Bank Ltd 12,500,000 20.00 12,500,000 – 14-Nov-06 Value (Rs) 4,705,479,692 Issues (No.) 15

Right issues - 2006 by sector No.of issues No. of shares Value (Rs.)Banks, Finance & Insurance 6 161,724,510 2,122,643,100Chemicals & Pharmaceuticals 1 10,530,000 587,250,000Hotels & Travels 1 38,882,344 388,823,440Land & Property 2 72,457,212 1,086,858,180Motors 1 1,100,000 55,000,000Manufacturing 3 84,890,952 405,279,972Power & Energy 1 2,981,250 59,625,000Total 15 372,566,268 4,705,479,692

New listings-2007 No. of shares Issue price No. of shares No. of shares Date listedoffered Rs. subscribed devolved to

by public underwritersKshatriya Holdings PLC 19,679,528 10.00 19,679,528 – 12-Feb-07Kelsey Development Ltd 5,809,758 20.00 5,809,758 – 12-Feb-07The Fortress Resorts Ltd 20,161,215 10.00 17,242,725 2,918,490 27-Feb-07Lanka Tiles Ltd 5,052,420 35.00 5,052,420 – 1-Mar-07John Keells Holdings PLC 92,103,534 140.00 92,103,534 – 6-Feb-07Amana Takaful PLC 12,500,099 30.00 12,500,099 – 22-Mar-07Commercial Bank of Ceylon Ltd 40,288,996 138.00 40,288,996 (Voting) 4-Apr-07Commercial Bank of Ceylon Ltd 2,790,138 65.00 2,790,138 (Non-voting) 4-Apr-07ACME Printing & Packing Ltd 4,472,160 14.00 3,510,191 961,969 24-Apr-07DFCC Bank 21,639,134 140.00 21,639,134 – 27-Apr-07Kshatriya Holdings PLC 73,798,230 10.00 73,798,230 – 21-Jun-07Dialog Telecom PLC 740,343,492 21.00 740,343,492 – 21-May-07John Keells Hotels PLC 496,413,675 5.75 496,413,675 – 28-Jun-07Marawila Resorts Ltd 14,000,000 4.00 14,000,000 – 7-Aug-07Muller and Phipps (Ceylon) Limited 216,000,000 1.00 87,571,714 – 31-Dec-07First Capital Holdings PLC 18,750,000 10.00 18,750,000 – 17-Aug-07Parquet (Ceylon) Ltd 1,324,800 10.00 1,324,800 – 23-Oct-07LB Finance Ltd 10,100,000 17.00 10,100,000 – 27-Nov-07Coco Lanka Ltd 6,300,000 18.00 6,300,000 – 7-Nov-07Ceylon Glass Company PLC 395,869,200 1.90 395,869,200 – 5-Nov-07The Lanka Hospitals Corporation Ltd 67,119,651 15.00 67,119,651 – 20-Dec-07Ceylon Hotels Corporation PLC 150,000,000 2.00 150,000,000 – 31-Dec-07 Value (Rs) 44,622,201,960 Issues (No.) 21

1.

2.

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Right issues - 2007 by Sector No.of issues No. of shares Value (Rs.)

Banks, Finance & Insurance 5 106,068,277 9,504,919,448Beverage Food & Tobacoo 1 6,300,000 113,400,000Hotels & Travels 4 680,574,890 3,411,990,781Healthcare 1 67,119,651 1,006,794,765Manufacturing 4 406,718,580 1,004,844,420Diversified Holdings 3 185,581,292 13,829,272,340Land & Property 1 5,809,758 116,195,160Stores & Supplies 1 216,000,000 87,571,714Telecommunication 1 740,343,492 15,547,213,332Total 21 2,414,515,940 44,622,201,960

New listings-2008 No. of shares Issue price No. of shares No. of shares Date listedoffered Rs. subscribed devolved to

by public underwriters

Janashakthi Insurance Company Ltd. 33,000,000 12.00 33,000,000 21-Jul-08Ceylinco Insurance PLC 8,500,000 175.00 6,414,480 14-Aug-08

Right issues - 2008 by sector No.of issues No. of shares Value (Rs.)

Banks Finance & Insurance 3 46,519,739 1,136,239,907Chemicals & Pharmacuticals 2 21,000,000 1,335,856,107Healthcare 2 76,502,766 165,000,000Manufacturing 1 1,464,044 14,640,440Investment Trust 1 1,366,667 27,333,340Total 9 146,853,216 2,679,069,794


Banks Finance & Insurance 4 80,111,050 1,095,457,600Beverage Food & Tobacco 2 33,500,000 1,375,000,000Construction & Engineering 1 900,000 9,000,000Healthcare 1 2,352,272 118,431,789Hotels & Travels 2 20,421,050 153,421,000Investment Trust 1 2,500,000 50,000,000Trading 2 121,702,560 2,434,051,200Total 13 261,486,932 5,235,361,589


Banks Finance & Insurance 5 822,860,428 2,613,168,938.60Beverage Food & Tobacco 2 20,799,500 1,059,965,000.00Construction & Engineering 1 3,585,096,339 3,585,096,339.00Hotels & Travels 4 407,206,283 7,114,053,860.00Investment Trust 1 69,544,320 2,086,329,600.00Plantations 3 39,821,988 727,572,875.00Chemicals & Pharmaceuticals 2 144,428,286 382,285,457.40Land & Property 2 290,070,253 4,751,949,795.00Motors 1 1,013,813 50,690,650.00Manufacturing 5 137,119,330 821,614,389.00Footware & Textiles 1 12,500,000 912,500,000.00Power & Energy 1 54,109,700 216,438,800.00Total 28 5,584,570,240 24,321,665,704.00

4.

5.

6.

7.

Source: Colombo Stock Exchange, Fact Book, Various Issues

8.

xxxi


Note: (a): Provisional.** All corporate denbentures listed on the Colombo Stock Exchange were transferred to the DEX with effect from August2005.* Debentures listed is no longer available. (Source: CSE Fact Book 2005, 2006 and 2007).

Source: Central Bank of Sri Lanka, Annual Report, various issues; Colombo Stock Exchange, Annual Reportvarious issues.

Table B5: Structure of Debt Market, 2006-2010(Rs.bn) 2006 2007 2008 2009 2010(a)

1. Private Debt:

(a) Commercial paper(year end) 23.50 30.00 24.00 21.50 12.00

(b) Certificates of deposit 18.76 19.10 19.10 19.62 18.92

(I) Commercial banks 17.70 17.76 17.76 17.25 17.63

(ii) Finance companies 1.06 0.86 0.91 1.07 1.29

(c) Debentures (listed) ** ** ** ** **

Total private debt 42.26 50.30 50.30 41.12 49.84

2. Public debt:

(a) Short terms

(i) Treasury bills 257.73 307.01 307.01 441.03 514.44

(ii) Central bank securities _ _ _ _

(b) Medium & long term

(i) Treasury bonds 885.97 1018.85 1018.85 1513.51 1643.89

(ii) Rupee securities 116.71 131.51 130.01 112.29 87.71

(iii) Certificates of deposit _ _ _ _ _

Total public debt 1,260.41 1,456.37 1,457.37 2,066.83 2246.04

3. Total debt 1,302.67* 1,507.67* 1,507.67* 2,107.95 1,179.61

xxxii


Table B6: Listed Debentures, 2006-2010 Issuer Issued Par value Interest No.of debt Date listed

(No.) (Issue price Rs.) (p.a.) subscribed 1. Listings 2006

Seylan Merchant Leasing Ltd. 10,000,000 with an option 100 13.00% 7,646,400 25.07.06to issue up toa further 100 13.50% 4,620,800 25.07.06

5,000,000 if oversubscribed 100 Floating 305,950 25.07.06DFCC Bank 1,000 13.75% 200,000 17.11.06

Unsecured subordinated Floating 170,000 17.11.06redeemable debenture Floating 40,000 17.11.06

14.00% 590,000 17.11.06

2. Listings 2007Commercial Bank of Ceylon Ltd Issue of 1,000,000 with an 1,000 13.50% 527,800 23.01.07

option to issue up to a further 1,000 Floating 131,020 23.01.07500,000 1,000 13.75% 250 23.01.07

1,000 Floating 300 23.01.071,000 14.00% 467,260 23.01.071,000 Floating 400 23.01.07

Seylan Merchant Bank PLC 950,000 100 16.00% 321,390 08.01.07100 17.00% 628,260 08.01.07100 Floating 350 08.01.07

Issue of 1,000,000 with 100 16.00% 588,080 01.01.07an option to issue 100 16.50% 352,300 01.01.07

upto a further 950,000 100 16.25% 9,000 01.01.07100 16.75% 6,300 01.01.07100 16.50% 11,120 01.01.07100 17.00% 8,500 01.01.07100 17.00% 8,600 01.01.07100 17.50% 16,100 01.01.07

Seylan Bank PLC Issue of 5,000,000 with 100 15.75% 2,916,200 18.01.07an option to issue 100 16.75% 4,275,450 18.01.07

upto a further 100 Floating 302,350 18.01.075,000,000

Sampath Bank Ltd Issue of 10,000,000 100 15.50% 222,650 04.10.07with an option to 100 17.50% 5,206,725 04.10.07

issue up to a 100 Floating 9,570,625 04.10.07further 5,000,000

Nations Trust Bank PLC 14.10% 1,650,000 25.05.07Floating 1,650,000 25.05.07Floating 1,700,000 25.05.07

Hatton National Bank PLC Floating 2,625,000 13.01.07Floating 2,500,000 13.01.07Floating 3,000,000 13.01.07

Zero coupon 5,143,445 13.01.07Zero coupon 13,628,000 13.01.07

16.00% 5,000,000 28.11.0716.75% 7,000,000 28.11.07

National Development Bank PLC 17.50% 250,000 24.12.07

xxxiii


3. Listings 2008Seylan Bank PLC Up to 10,000,000 100 17.00% 2,089,550 14.01.08

Unsecured subordinated 100 Floating 107,550 14.01.08redeemable debentures 100 Floating 433,350 14.01.08

559,285,000 100 18.00% 2,962,400 14.01.08

LB Finance PLC Up to 450,000 1000 21.00% 149,480 21.10.08Unsecured subordinated 1000 14.00% 296,570 21.10.08

redeemable debentures450,000,000 1000 Floating 2,500 21.10.08

1000 Floating 1,450 21.10.08

Singer (Sri Lanka) Up to 6,000,000 100 Floating 280,000 28.10.08PLC Unsecured redeemable

listed rated A+300,000,000 100 19.75% 2,720,000 28.10.08

Bank of Ceylon Up to 50,000,000 100 19.00% 3,451,000 19.12.08Unsecured subordinated

redeemable debentures4,272,370,000 100 Floating 36,993,900 19.12.08

225 Zero 2,277,900 19.12.0810,000,000

Nations Trust Unsecured subordinated 21.00% 06.11.08Bank PLC redeemable debentures

4. Listings 2009Seylan Bank PLC Unsecured subordinated 100 20.50% 395,400 10.02.09

redeemable debentures 100 21.50% 231,600 10.02.093,954,400 100 Floating 330,000 10.02.09

100 Floating 100,000 10.02.09

Nations Trust Bank PLC Rated Unsecured redeemable 1000 20.53% 500,000 14.05.09debentures

5. Listings 2010Bank of Ceylon 50,000,000 100 11.50% 10,747,700 15.07.10

Unsecured subordinatedredeemable debentures

5,000,000,000 100 Floating 39,252,300 15.07.10

Urban Development Authority 100,000,000 100 11.00% 97,211,600 20.10.10Fully secured redeemable 100 Floating 7,300 20.10.10

10,000,000,000 100 10.00% 2,781,100 20.10.10

Issuer Issued Par value Interest No.of debt Date listed(No.) (Issue price Rs.) (p.a.) subscribed

Contd.../

Source: Colombo Stock Exchange.


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