Economic Analysis of Sri Lanka (Part 2)

The structure of the economy in terms of GDP spending, the information shows that in 2018, personal service spending made up 70% of the Sri Lankan economy, making it the most significant share of the economy. The second most prominent element of the expenditure in 2018 is expenditure on investments with a 29% share. Government spending represents 9% of the Sri Lankan economy.

Net Balance of Trade, which is exports minus imports, remained an adverse contributor, and their share of the economy in 2018 was about -7%. It is quite apparent that in the last five years, the structure of the economy has not altered much in terms of expenditure either. As for nominal development in expenditure elements, during 2014-2018 consumption and public spending grew at an average pace of 8% and 11.9% respectively.

They were somewhat volatile, especially as the growth in 2016 was minimal. Investment growth ranged from 7 per cent in 2015 to 22 per cent in 2017, which was the most volatile over time. The increase in net exports was negative, except for 2015, and the magnitude of adverse development continued to rise, reflecting poor trade performance. Net exports have grown by 5.2 per cent on average.

Sri Lanka's biggest challenge is to stem the country's declining development in latest years and reinvigorate the economy with a concerted attempt to achieve the next decade's higher single growth. This needs a more in-depth assessment of the Sri Lankan economy's growth dynamics, taking into account experiences in other markets with lower-middle revenue and upper-middle earnings.

While in the five years from 2013 to 2017, Sri Lanka averaged an increase of 4.2 per cent, each other nation in the South Asian region reported more significant average growth development than Sri Lanka. The greatest highlights were India with an average growth rate of 7.4%, Bangladesh with 6.6% and Maldives with 6.3%. East Asia's average growth was 6.5 per cent, with development in China, Cambodia, Laos, and Myanmar exceeding 7 per cent.

OSL Take: While the growth routes of these high-growth Asian economies may not replicate, their growth experiences involve lessons and plans from which Sri Lanka can learn. Economic reforms are vital if Sri Lanka is to unleash its true potential for development.

The key to enormous economic growth is export-oriented industrial development funded by private capital, especially foreign direct investment. Hence, Sri Lanka requires a solid export development policy and a regionally competitive incentive framework to attract large-scale foreign direct investment in this context.

To improve productivity and the contribution to development, significant reforms are required to modernise and diversify the agricultural sector. Private Equity capital must leverage as a growth driver for infrastructure development. High-level human development and extremely trained workers in the country could be harnessed to expand current service industries and generate new ones that can add to growth.

VBS/AT/17102019/Z_TB