Development Of Sri Lankas Economy Since Independence In Focusing On The Trade Balance And Exchange Rate Movement 1948

At the time of Independence in 1948, Sri Lanka's economy was highly dependent on international trade, but concentrated on exporting few agricultural product exports , hence experiencing balance of payment problems. For the past fifty years Sri Lanka was experiment ground for different economic policy packages. For the first three decades after independence the focus was on import substitution.Once the limitations of such policy for development was identified, and influenced by the Asian success stories, Sri Lanka decided to focus on export oriented industrializationfrom1977. After two decades, the country has identified several weaknesses in the economy that had prevented her from achieving rapid economic growth. Although the manufacturing sector has shown considerable growth, the high import dependency of the industry has resulted in low value addition. While creating small scale industry with forward linkages to the manufacturing industry the country should make an effort to attract foreign capital as well as technology that is necessary to create a strong industrial base.

At the time of independence in 1948, Sri Lanka's economy was highly dependent on international trade, but concentrated on exporting few agricultural product exports, hence experiencing balance of payment problems. For the past fifty years Sri Lanka was experiment ground for different economic policy packages. For the first three decades after independence the focus was on import substitution. Once the limitations of such policy for development was identified, and influenced by the Asian success stories, Sri Lanka.

Social, political, economic and constitutional developments are considered as well as the evolution of science and arts in the development process. This is in accordance with the Sri Lankan tradition of seeing the world as a connected whole."--BOOK JACKET.

This is a pivotal period in Sri Lanka's economic development. The end of conflict opens a door for accelerated economic growth and poverty reduction. Reform is needed to regain momentum because fiscal imbalances and rising public debt could jeopardize macroeconomic stability. The economy would benefit from significant trade and commercial policy reform. The labor market suffers from sluggish growth of formal sector employment and from skills mismatches, which can be addressed by changes in education policy and systems. The book analyzes these and related critical constraints on the Sri Lankan economy, and proposes a set of policy reforms that would lay the foundations for more rapid and inclusive development.

This Selected Issues paper on Sri Lanka underlies the dynamics of growth and external competitiveness. The slowdown in the contribution of sectors that are labor intensive, together with faster growth in sectors that are capital intensive and have higher productivity levels, resulted in total factor productivity (TFP) as the main contributor to growth. Sri Lanka’s strong growth performance has brought positive benefits to the economy and has benefited from a high quality labor force. The labor productivity is low by regional standards and the internal terms of trade are skewed toward the nontraded sector.

Sri Lanka has taken several steps towards the development of the financial sector of the country, with the objective of achieving both internal and external stability. Specially, after the economic liberalization 1977, several new financial institution were created and steps were taken to develop the financial markets. However these markets are in their infancy and measures needed to be taken to develop them to the extent that they will help provide capital for the local enterprises. The exchange rate was changed from a fixed peg to a managed float and finally to a free float ,with a view to achieving a realistic level for the rupee that would encourage exports from the country.

Sri Lanka and Malaysia have similar land areas and resource endowments. Both countries were once colonies, and in both a large plantation and mining export sector coexists with a peasant rice economy. The expansion of the plantation and mining sector in past centuries attracted large numbers of immigrant Indian and Chinese workers and created plural societies composed of different ethnic groups with different cultures and traditions. Despite this common background, these two countries have had very different experiences with economic development since their independence. Malaysia achieved unusually high growth rates but had trouble with equity and employment and did not establish an indigenous growth process. Sri Lanka did well on equity by trying to maintain its culture and Buddhist heritage, but its policies created problems with productivity and balance of payments and finally led to a virtual collapse of the economy by early 1970. The author and his associates point to the constraints within which government policies in both countries were made, and they seek to evaluate the origins and legitimacy of these constraints. Their much-needed, comparative study is readable, thorough, and sometimes provocative.