Taking stock of the Sri Lankan economy and its intra-provincial development

For any economy, balanced regional development is as essential as overall national growth. This makes regular assessment of regional disparities, an important exercise for an evolving policy framework. The island nation of Sri Lanka is divided into nine provinces and 25 districts. While much attention has been given to study and address inter-provincial disparities, intra-provincial disparities get overlooked in the process. To address this gap, a collaborative study by ACI lays the foundation for a district level analysis in Sri Lanka using a large set of indicators. Despite severe data constraints, the authors were able to develop a District Development Index (DDI) for the sub-national economies of Sri Lanka.

For a comprehensive analysis, data was collected for indicators under four environments – Macroeconomic Stability, Government and Institutional Setting, Financial, Businesses and Manpower Conditions, and Quality of Life and Infrastructure Development. This foundational study was carried out for the years 2012, 2016, and 2019 using 2012 and 2016 as base years. Needless to say, since 2020, the pandemic and the ensuing economic and political crises wreaked havoc across all sectors of the economy. Due to the unfortunate dearth of data, authors resort to qualitative analysis during this period.

The standard ranking of districts in 2012, 2016 and 2019 has remained very similar with the districts in the Western province staying at the top with Colombo leading. Kurunegala, Kandy, Galle, and Anuradhapura are also in the top seven list in the three years. These districts record positive scores well above zero (roughly on or above 0.5). The districts of the Northern and Eastern provinces, excluding Jaffna, are at the bottom. The bottom also includes Badulla and Moneragala. The bottom nine districts record scores well below zero (roughly on or below -0.5). Figure 1 shows the colour-coded map of the districts with green showing the top seven, red the bottom nine and amber the remaining nine districts.

For the pandemic-hit period, district level analysis was carried out only under Macroeconomic Stability. There were two key findings. First, although the GDP growth rebounded in 2021, growth of per capita GRDP at the district level shows a substantial contraction in 2020 without much growth in 2021. It is very likely that this effect may have fallen disproportionately on vulnerable low-income groups. Second, economic crisis started to surface with social and political unrest since March 2022. Sparks of the crisis stayed dormant for decades. Heavy winds of the Covid-19 pandemic and other bad luck events simply exposed the sparks.

This study warrants a deeper study into the economic and political crises that erupted in the wake of the pandemic in the country. This exercise, however, is futile without understanding the macro- and socioeconomic environments of Sri Lanka. Despite significant data constraints, the authors were able to develop the DDI for the Sri Lankan economy, which exposed the intra-provincial disparities. Further, they advocate improvements in agricultural efficiency, enhancing political stability (which goes a long way in attracting much needed FDI), and developing resilient export sectors.

By GUPTA, Shubhangi

Researchers: ABEYSINGHE, Tilak, GUNARATHNA, Nethmini

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