Sri Lanka’s quest for higher development trajectory

By Naoko Ishii, Country Director World Bank Sri Lanka

This year’s World Development Report focuses on an issue that has received a lot of attention from policy makers and development practitioners, but is also an issue that has not received a lot of attention in terms of comprehensive analysis and consistent policy recommendations.
This issue is the vast differences in prosperity between different geographical areas that seem to be an unavoidable companion to economic development.
In Sri Lanka, the Government’s 10-Year Development Strategy puts the issue of regional differences in economic outcomes at centre stage. The first page of the executive summary of the Government’s Strategy states: “In Sri Lanka, there has been a perpetuation of income disparities, both among income earners and geographic regions”. The Strategy continues by stating that “it is clear that in the past economic growth has largely bypassed the rural areas and concentrated in the Western Province”.
It is well known that economic activity in Sri Lanka is concentrated in the Western Provinces. The Western Province makes up only 5 ½ percent of Sri Lanka land area. Yet it houses 29 percent of the country’s population. And, about 50 percent of total GDP in Sri Lanka originates in the Western Province. More starkly, GDP per square kilometre in the Western Province amounts to about US$ 3.8 million. By comparison, in the rest of the country GDP per square kilometre amounts to only US$ 230,000. In the language of the WDR, the economic density of the Western Province is far higher than the rest of the country.
Measures of individual economic welfare also show that the Western Province is ahead of the rest of the country. Average incomes are higher. Per capita GDP in the Western Province is around US$2,400. This is more than twice as much as the average in the rest of the country, where it is about US$1,000. As a result, the poverty rate in the Western Province is much lower than in the rest of the country. According to the latest Household Income and Expenditure Survey, it is 8.2 percent. By comparison, the average for the country as a whole is 15.2 percent.
More broad-based measures of well-being point to the same thing. Last year the Central Bank published a regional prosperity index. The prosperity index includes measures of the regional economy and business climate, basic social services, and infrastructure provision. Again, the Western Province’s score of 66.1 in 2007 outpaces that of the other regions. The average score for the country as a whole was 52.7, with the Northern Province receiving the lowest score of 43.6.
Against this background, the 2009 World Development Report (WDR) is refreshing reading. The WDR presents ample evidence that economic development almost always is unbalanced. That is, as the WDR notes, somewhat unfairly, prosperity does not come to every place at the same time. This is true at the local, national and global scales. Locally, cities pull ahead of the country side. Nationally, some provinces grow fast, while other lag behind. And globally, growth in some countries accelerates, while it stagnates in other countries. As the WDR emphasizes, development is bumpy, not smooth. The WDR also argues that efforts to equalise economic growth prematurely will jeopardise progress.
It could be asked if this means that there is no room for policy makers to shape development. To this, the WDR replies a resounding “no”. Experience shows that the most successful nations are those that have managed to facilitate concentration of economic production, and at the same time instituted policies that have made basic living standard more uniform across space. These nations have experienced unbalanced growth, but inclusive development. And it is through economic integration which will get a country the benefits of both uneven growth and inclusive development. The governments can potentially play a huge role of putting policies and institutions to unify regions, and building infrastructure to connect regions.
One of key objectives of the Government’s 10-Year Development Strategy is, in my view, how to integrate lagging regions into the growth path led by the leading region, namely the Western Province, without discouraging growth momentum enjoyed by the leading region. This is the challenge the WDR puts forward, and something that resonates well with the World Bank’s Country Assistance Strategy (CAS). The CAS identified “expanding economic opportunities in the lagging regions for inclusive and equitable growth” as one of three strategic objectives. However, this is easy to say but difficult to implement. At this workshop, I hope we can discuss those policy implications important for Sri Lanka to climb up to the higher trajectory of development.
This article is based on Ms. Naoko Ishii’s opening remarks at the Launch of World Development Report in Colombo last week.