The political conflicts of the last decades have given prominence to the economic difficulties of the Republic of Sri Lanka. These result from the difficult situation which must inevitably face any developing country which has inherited a long established economy of colonial type together with its social consequences. The aim of any such country must be to break away from its undeveloped condition and its economic dependence on other countries, while at the same time seeking to reduce excessive disparities in income.
The Present Situation
Sri Lanka displays all the characteristics of a developing country, but the situation is by no means catastrophic, since it has great potential which requires only to be turned to account. Despite of the persisting civil war and political instability the country was able to attain a 6.2% economic growth in 2007. The main points in Sri Lanka's economic status are as follows:
(a) The domination of the service sector to the once agricultural base economy. The service sector is the largest contributor in Sri Lanka's economy, contributing 60% of GDP and employing 45% workforce.
(b) The boom in textile and garment industry of the country which is now the biggest source of Foreign exchange. The export of three products (tea, rubber and coconuts) brings in more than 80% of Sri Lanka's Foreign exchange in 1970s dropped into 20% in 2006.
(c) The rapid growth of IT industry. The steady growth in the revenue of the Sri Lankan software companies.
(d) The income per capita, from less than 200 U.S. dollars during 1980s to 4,100 U.S. dollars as of 2007.
(e) The reduction of burden on the state coffers due to the liquidation of loss-making state enterprises.
Some of the factors why Sri Lanka's remains a low income developing country are as follows:
(a) The balance of trade shows a deficit, and the country lacks the capital necessary to achieve any real economic take-off: it has to depend on international loans and large amounts of foreign aid.
(b) The country's currency shows a steady fall in value due to the rising uncertainty and resumption of the long standing civil war.
(c) The production of food is still insufficient to meet the country's needs.
(d) The high welfare expenditures restrained the national capital growth and further complicates the economic growth of the country.
There are, however, a number of more promising factors which hold out considerable prospects of development for the future:
(a) The population has one of the highest standards of literacy in the whole of South-East Asia, with barely 9% of illiterates. The spread of education may aggravate certain social problems, but it has produced educated elite which is available to play its part in future development.
(b) There are still large areas of land (about 300,000 hectares) which can be developed for agriculture with the aid of modern techniques (irrigation, fertilisers, selection of seeds and plants). This will of course involve capital investment which will produce a return only in the medium term.
(c) The government is aware of the acute problems which face the country and is determined to carry through the necessary reforms with the help of the people of Sri Lanka.
(d) The educated population is ready to accept the constraints involved in socialised patterns of organisation like the various forms of cooperative, which are necessary for the purpose of bringing new land under cultivation and carrying through the large nationalised developments.
The Aftermath of Colonialism
From the end of the 16th century onwards the maritime provinces of Sri Lanka were under foreign economic control, and successive colonial powers shipped away spices, copra and gems to their own home and overseas markets. After the British conquest, and particularly from the middle of the 19th century, the country was drawn into the economic orbit of Britain and subjected to a colonial regime.
Although the population never reached much more than 3 million during the 19th century it was 3,576,000 at the 1901 census the country was unable to produce enough food to meet its own needs, and had to import more than 60% of its requirements. It was of course more profitable for the colonial authorities to buy the staple foods which were available within the Empire at tow prices and to sell on the world market the more remunerative colonial products. Thus from 1900 to 1907 Sri Lanka imported annually 2,550,000 worth of rice but sold 4,100,000 worth of tea. The trade balance therefore remained in surplus, thanks to the large speculative crops coffee until 1880, cinchona, rubber after 1885 and tea after 1887, in addition to the traditional spices.
In the eyes of the colonial authorities, therefore, the economy of Sri Lanka appeared to be thriving, since in drawing up the balance sheet they took no account of the desperate shortages or the human difficulties of the poor native farmers. On the other hand Sri Lanka was an importer of British goods coal and oil (an average of 700,000 worth annually from 1903 to 1907), cotton goods (500,000) and a whole range of manufactured articles, from the humblest types of hardware to railway rolling stock. This situation continued until Independence, with the cooperation of an anglicized middle class, which indeed sought to perpetuate it after 1947.
Credit is, however, due to the colonial authorities for a number of positive contributions the whole of the island's modern infrastructure, including the roads and railways, the ports and airports, and the various plantations. Above all, they were responsible for the creation of a modern nation in Sri Lanka and for giving it a unity which transcended all racial, linguistic and religious divisions. Thanks to their work the Independent State of Sri Lanka which emerged in 1947 was, in spite of its youth, a unified and modern state.