Development Constraints in Sri Lanka

Poor governance can be viewed as a major constraint to the development of a country. Through a brief political history of Sri Lanka this section will demonstrate the linkages present in a number of government issues that have hindered the development of Sri Lanka.

Sri Lanka gained independence from Britain in 1947. From 1948 to 1977 Sri Lanka was a socialist country. Industries were nationalized and a welfare state was established. This improved living conditions but produced slow economic growth, economic inefficiency, and a lack of foreign investment . Since 1971, the constitution of Sri Lanka has established a presidential representative democratic republic , this is rare as Sri Lanka is viewed as less developed country. For the past 25 years, two parties have ruled Sri Lanka: the United National Party (UNP), and the Sri Lankan Freedom Party (SLFP). Since introducing democracy the Sri Lankan government has performed admirably in its attempts to improve the standard of living of its citizens.

Large investments in social welfare have produced positive and commendable achievements in health indicators. The infant mortality rate and maternal mortality rate are ahead of other developing countries, and Sri Lanka is on track to attaining Millennium Development Goal 4: to reduce child mortality . For the past 25 years they have experienced gross domestic product (GDP) growth rates around 5%, and gross national incomes (GNI) have risen (Figure X1). These have led to an increase in the standard of living of the citizens as well as a decrease in overall poverty levels . These achievements have come via an inefficient bureaucratic system, through a variety of macroeconomic decisions, and have provided an ideal environment for corrupt government officials and institutions. These constraints are inextricably linked and these linkages will be traced through the past 25 years of development in Sri Lanka.

In 1977 the United National Party (UNP) gained control of the country through a democratic election. Their primary goal was to open the economy to the global market and move away from the nationalization associated with their socialist past. This process involved large-scale public investment and had drastic effects on the countries monetary supply and consequently its development. The industrialization process continued through the early 1980’s, as investment as a percentage of GDP increased significantly (figure X2). In the later half of the decade economic growth stagnated. The ongoing civil war necessitated enormous amounts of government funding and reduced foreign investment. The lack of foreign investment and the deterioration of some of the larger state owned enterprises resulted in heavy borrowing from the countries banks. This had a huge impact on the countries money supply. The government countered by printing more money, resulting in inflation. Inflation is a constraint to development as those already marginalized are most affected. Individuals with limited economic worth do not have an accumulation of assets to increase their position in stride with inflation and therefore their economic position is greatly decreased compared to individuals with greater personal wealth. This ailing money supply also constrained the development of the private sector as the banks had limited funds, available only at high interest rates for the private sector. The large investment projects, and lack of political stability resulted in massive monetary issues that had a negative effect on development of the country.

The Sri Lankan government development policies that have constrained development have primarily been financially driven. As figure X3 demonstrates since 1988 expenditures have exceeded revenue, and capital expenditures have been steadily declining since 1980. This can be attributed to a reduction in the GDP growth rate, resulting in lower tax revenues, and political instability resulting in decrease foreign investment . Furthermore in the late 1990’s the government was spending 5% of its GDP on defence expenditures . The billions of dollars borrowed for capital investment and defence spending resulted in massive debts for Sri Lanka. Presently public debt is more than 100% of GDP, and debt payments absorb over half of the tax revenue . Couple this with the tremendous cost of the civil war ($1.29 billion defence budget for 2007 ) and the result is billions of dollars in misallocated funds that could have been used for the development of the country. Ineffective monetary management is but one constraint faced by the people of Sri Lanka from the government, as an increased amount of corruption has been uncovered in government officials and institutions.

“While corruption of some form or another may inhere in every human community, the system of governance has a great impact on its level and