Sri Lanka : A Ray of Hope

Sri Lanka is a South Asian island Nation situated below India and surrounded by the Indian Ocean. The island nation has one of the strongest economies in the region in the present. However, due to the civil and constant disturbances in law and order of country from 1983–2001, the economy hit back severely. It took various steps to recover from the economic war effects. The following paper discusses the economy of Sri Lankan Economy during the war, calculating the nation’s military Spending during the war and finally, how the economy has revived from the bad phase of war through peace dividend.

Sri Lanka Economy during the war

In 1977 Sri Lanka, a South Asian nation started its economic liberalization programs compared to earlier than its neighbours. However, a civil war erupted in the country from 1983–1989 which was a fierce period in Sri Lanka’s monetary administration with the Eelam War corresponding with disobedience in the south of the country started by a guerrilla military organization LTTE (Liberation Tigers of Tamil Elam ). The economic growth rate during 1987–1989 was 2.2 per cent mirroring the effect of the twin interior stuns from both north/east and south of the country due to the civil war. The second influx of progression came into an activity with its principal columns: further advancement of foreign capital inflows, a privatization program, and measures to resuscitate the offer imprint — turned around the president’s program. Various military operations in the mid-1990s raised the guard spending plan to about 4.5 per cent of GDP. This drove the public authority to present an increasing military demand which laid to set up of PSL (personal security levy tax). Another quality of hopefulness overwhelmed the economy with this declaration and the end of threats between the public authority and the LTTE. This was done to show the public authority’s obligation to a private area benevolent change plan. The harmony endured distinctly for a very long time, and the Eelam War II initiated in late April 1995. The PA government’s technique was to haggle with the LTTE from a place of solidarity, and the war was alluded to as a ‘war for peace’. The LTTE dismissed the devolution recommendations that the PA acquainted as an answer with the north-east issue in August 1995.

The year 2000 was not an ideal year for the Sri Lankan monetary administration yet was a decent year regarding accomplishing 6 per cent development because of high fare profit from clothing and tea pieces. Expanded guard buys corresponded with the world oil cost increment in mid-2000. This prompted extreme disintegration of foreign trade saves in the country, and before the finish of 2000, unfamiliar stores were sufficient. The monetary expense of the war can’t be estimated with precision. An unpleasant count by the creator assessed the cost from 1983–1995 to be 131 per cent of 1995 GDP. There were antagonistic effects that the war has made on the general venture system. Japanese financial specialists stayed away because of war-related vulnerability. The travel industry endured a simple inversion, and the 1982 vacationer appearance figures couldn’t be met until 1994. ]. Despite the fact that Sri Lanka changed its economy much before its south Asian neighbours, there was significant getting up to speed by the tenderfoots because of the moderate advancement of the Sri Lankan progression program. Sri Lanka would have been in any event 50% independent in sugar and 80% self-reliant in fish notwithstanding the war, but due to the war, the fishing areas and the sugarcane fields have gone under the hands of the LTTE. Two industrial facilities creating sugar couldn’t work successfully because of the interruptions brought about by the war. The endeavour to restore the offer market during that time wave of advancement didn’t bear the expected outcomes after the mid-1990s. Sri Lanka wound up in troublesome circumstances. Despite making the BOI an ‘all in one resource’ in 1992 Sri Lanka neglected to pull in substantial notable organizations under its FDI technique

Finally, the Sri Lanka Civil war has had a significant adverse impact on the economy that included lack of private investment, side-lined tourism sector, slow progress of economy which made it loose many economic opportunities during the war period frame and had not many foreign portfolio investors in share market that resulted in declining share price index from 986.7 in 1994 to 447.6 in 2020.

Calculating Military Expenditure by Government (One of the Major Macro-Economic Aggregate ):-

During the Civil war, the Government had spent most of the military expenditure and had also had a significant chunk in the national GDP. It was estimated that the government nearly spent 15 billion U.S dollars in military Spending.

It can be calculated as:-

Government (military Spending) = Savings-Investment +Net Exports (Exports-Imports)+(Tax revenues-Government spending on non-financial assets )

Due to the war, the Government had to increase its spending on the military that contributed to 1.1 per cent of GDP in 1982, but later in 1983, the Spending went to take 4.9 per cent of GDP. Later, the Government even bought in additional tax for all the nation’s citizens called National Security Levy, where the collected taxes would go to the government for additional military Spending.

Reviving the Economy

In the year 2001, The LTTE (liberation tigers of Tamil Elam) have officially come into negotiations with Sri Lanka and started to have peace talks that gave a ray of hope for the revival of the hard-hit economy. The NSL has been abolished, and new taxes have taken and formed an efficient tax system, and from, there has been a significant steady growth average growth rate of 5 per cent in the economy. The Exports of tea which have been hit hard earlier due to the civil war have started and become a significant part of the Sri Lankan Exports which contributed to an increased average 8 per cent of Net Exports of Sri Lanka. It has even shown a considerable growth rate in inflation at an average of 8 per cent from 2001. The third phase of liberalization programme has begun, which has significantly resulted in forming a concrete Consumer Price Index to the country maintained at an average of 101 approx. From 2002–2019 with 2010 taken as the base year and finally, the per capita income has shown a positive sign with an average being at 4.6 approximately Between 2002 and 2019. Therefore, after the war, Sri Lanka is becoming one of the significant economies of South-east Asia.

Conclusion

The following analysis of the data from the above study of macro-economic aggregates signifies how exogenous variables such as the war and people’s disobedience can determine and shape the economy in a threatening manner. However, despite the war’s adverse effects on the economy, Sri Lanka during the war has achieved 785 dollars per capita income in 1998 successfully and has become second highest per capita income after the Maldives in the South-east Asian region.

Henceforth in the whole region, it has maintained acceptable trade policy that significantly helped to utilize its strategic position in the Indian Ocean. It flourished it’s an open economy with the vibrant export sector, thus having access to significant sea routes through the Indian Ocean. It is one of the largest exporters of Tea and is famous for it’s Ceylon tea. At present, it is one of the highly economically ranked countries in South Asian region having a high level of education, an absence of extreme poverty and inequality, a relatively well-developed physical infrastructure, and a broad-based and efficient administrative apparatus