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Comparison of post war development in Nepal and Sri LankaBy Muttukrishna Sarvananthan (Principal Researcher, Point Pedro Institute of Development, Point Pedro, Northern Province; [email protected])
Sunday, September 07, 2014In both Nepal and Sri Lanka the
transition from war to durable peace has been painful and is
ongoing and not devoid of pitfalls as has been the case elsewhere
in the World as well. In the case of Nepal underdevelopment of the
vast hinterland has been widely acknowledged as the primary cause
of the armed conflict. In Sri Lanka land, language, and political
rights of the minority Tamil community have been at the forefront
of the separatist armed struggle.However, in the aftermath of the
civil war, while Nepal is on a path to constitutional reforms
towards establishing a parliamentary democracy as its priority
towards reconciliation and durable peace, Sri Lanka on the other
hand has prioritised rapid economic development as the panacea for
reconciliation and durable peace. That is, while a country in which
economic underdevelopment was the root cause of the civil war has
chosen the path of politico institutional reforms in order to lay a
sound foundation for rapid economic advancement, a country that had
undergone a civil war primarily due to linguistic-based political
factors and institutional failures has chosen the path of rapid
economic growth. Both these contrasting post civil war recovery
strategies are in a sense putting the cart before the horse so to
speak; therein lays the enduring fragility in both of these South
Asian countries.This article compares and contrasts the post-civil
war economic development in Nepal and Sri Lanka using key
macroeconomic variables of both countries during the first five
years after the end of the respective civil war. The growth of the
Gross Domestic Product (GDP) (in current and constant prices), per
capita income (in current and constant prices), inflation,
unemployment, and poverty in both Nepal and Sri Lanka are compared
during 2006-2010 and 2009-2013 respectively. Secondly, this paper
compares and contrasts the changes in key macroeconomic indicators
(economic growth, per capita income, inflation, unemployment, and
poverty) at national and provincial levels during the four years of
pause-in-civil war (or ceasefire) in Sri Lanka between 2002 and
2005 and the four years of post-civil war in Sri Lanka between 2009
and 2012.Nepal had a population of 27.8 million in 2013, while Sri
Lankas population was 20.5 million in mid-2013. Whereas Nepal is a
low income country (GNI per capita income of US$730 in 2013) Sri
Lanka is a lower middle income country (GNI per capita income of
$3,170 in 2013).While Nepal continues to rely on concessionary
foreign aid (grants and concessionary loans) to recover from the
civil war, Sri Lanka significantly relies on international private
capital markets to mobilise financial resources to reconstruct and
recover from the protracted civil war. Whereas Nepal continues to
pursue a pragmatic development trajectory through small and medium
scale development projects, Sri Lanka has embarked on an ambitious
mega development drive underpinned by animal spirits in order to
leapfrog to become a Wonder of Asia driven by physical construction
boom (airport, seaport, toll highways, tourist hotels, luxury
high-rise mixed-development complexes, etc).Nepal versus Sri
LankaThe GDP between 2006 and 2010 (in current prices) expanded by
87.8 per cent in Nepal, whereas the GDP expanded by only 79.4 per
cent between 2009 and 2013 in Sri Lanka. Although in nominal terms
(at current prices) GDP growth rate in Nepal was higher tha in Sri
Lanka, in real terms (at constant prices) Sri Lanka had a higher
GDP growth (33.3 per cent) than Nepal (20.2 per cent) during the
respective 5-year periods under consideration.Per capita income
growth rate during the 5-year period in both Nepal (78.5 per cent)
and Sri Lanka (79.1 per cent) was more or less the same in terms of
current prices (nominal per capita income), but at constant prices
(real per capita income) Sri Lanka (34.2 per cent) experienced
significantly higher growth than Nepal (14.3 per cent) during the
respective time periods.Inflation increased by significantly higher
points in Sri Lanka (+3.4 between 2009 and 2013) than in Nepal
(+1.6 between 2006 and 2010). The rate of unemployment declined
marginally higher in Nepal (-1.6) than in Sri Lanka (-1.4). The
headcount poverty ratio dropped by considerably higher points in
Nepal (-5.6) than in Sri Lanka (-2.2). However, the higher drop in
poverty in Nepal could be due to the longer time period in Nepal
(2003-2010) than in Sri Lanka (2009-2012).It appears that in spite
of massive public capital infusion in Sri Lanka in the aftermath of
the civil war resulting in relatively higher real economic growth
and relatively higher growth in real per capita income; inflation,
unemployment, and poverty indicators are relatively worse than that
experienced by Nepal.In spite of significantly lower economic base
than that of Sri Lanka, Nepal appears to have recovered relatively
better in the first 5-years after the civil war than Sri Lanka in
terms of the macroeconomic indicators that matters most to the vast
majority of the people (viz. inflation, unemployment, and poverty).
Economic growth and per capita income growth can be achieved by a
variety of means; some of it could be real growth and some could be
phantom growth. Thus, while the per capita income derived from GDP
is partly phantom income, the per capita income derived from the
Household Income and Expenditure Survey (HIES) is the real
disposable income. Unfortunately, comparable HIES data is
unavailable for Nepal for comparison with Sri Lanka.Sri Lanka:
Pause in civil warversus post civil warWe also compare key
development indicators during the time of the ceasefire in Sri
Lanka (2002-2005 four year period) with that of the development
indicators in the aftermath of the civil war (2009-2012 four year
period) both at the national and provincial levels in order to
compare and contrast the pause-in-civil war and post-civil war
development outcomes nationally as well as in the conflict-affected
provinces.
While economic growth (in current prices) at both the national and
provincial levels has been significantly higher during the post
civil war period in comparison to the ceasefire period, the per
capita income rise has been phenomenally higher (at both naional
and provincial levels) during the ceasefire period. The Provincial
GDP (PGDP) is available only in current prices because there are no
provincial consumer price indices in Sri Lanka. The per capita
income here is based on the Household Income and Expenditure Survey
(HIES) rather than the P/GDP.Inflation in the country increased by
a considerably greater margin during the post-2009 period in
comparison to post-2002 period. Whereas inflation increased by 3.4
points between 2009 and 2012 (3.5 per cent-6.9 per cent), it
increased by only 2.0 points between 2002 and 2005 (9.6 per
cent-11.6 per cent). As noted before provincial inflation rates are
unavailable.However, the unemployment rate dropped at a marginally
higher rate during the post civil war period as opposed to the
ceasefire period. The unemployment rate dropped by (-) 1.6 between
2002 and 2005 (8.8 per cent-7.2 per cent) as opposed to (-) 1.8
drop between 2009 and 2012 (5.8 per cent-4.0per cent). The
unemployment rates at provincial level are unavailable for the
periods under consideration.On the other hand, the headcount
poverty ratio of Sri Lanka declined by a much greater scale during
the ceasefire than in the aftermath of the civil war; while poverty
declined by (-) 7.5 points during the ceasefire period (22.7 per
cent-15.2 per cent) between 2002 and 2006-7, it declined by only
(-) 2.2 points during the post civil war period (8.9 per cent-6.7
per cent) between 2009-10 and 2012-13. This could be partly due to
the higher duration of the time period during the ceasefire (four
years 2002-2006) as opposed to post civil war (three years
2009-2012). The comparative data for the provinces are unavailable.
However, in the Eastern Province the headcount poverty ratio
declined by (-) 3.5 points between 2009 and 2012 (14.8 per
cent-11.3 per cent). In the North, we have data for only 2012-13
incorporating all five districts.
What ails Sri Lanka?
Life in Northern Sri Lanka (File Pic)
The average real economic growth in Sri Lanka in the four year
period 2010-2013 has recorded 7.5 per cent (annual growth rates of
8 per cent, 8.2 per cent, 6.3 per cent, and 7.3 per cent
respectively between 2010 and 2013). According to the official
statistics, inflation has remained at single-digit level
continuously for nearly six years now (2009-2014). The unemployment
rate of 4 per cent at the national level in 2012 was the lowest
ever since independence, though it has marginally increased to 4.4
per cent in 2013. The headcount poverty ratio has declined by more
than half to 6.7 per cent in 2012-13 from 15.2 per cent in 2006-07.
However, some of the official statistics on the economy of Sri
Lanka have been contested in recent times.In spite of the populist
propaganda and massive hype in Sri Lanka about the post civil war
development thrust throughout the country and especially in the
former conflict-affected provinces, this article has highlighted
the not so glittering reality by comparing selected key economic
indicators of post-civil war period in Sri Lanka (2009-2013) with
that of post-civil war period in Nepal (2006-2010) and with that of
the previous pause-in-conflict period in Sri Lanka (2002-2005) as
well.To the best of our knowledge two critical factors have
negatively impacted on the outcomes of the development process in
Sri Lanka under the incumbent President and the Government since
2006 which have wider implications to countries emerging out of
civi war. As mentioned at the outset, the present Government since
2006 has been increasingly relying on international private capital
market borrowings and bilateral commercial borrowings from new
development partners such as China and India as opposed to
erstwhile reliance on traditional concessionary finance from
international financial institutions (such as the Asian Development
Bank and the Work Bank Group) and Western bilateral development
partners (including Japan). Almost 42 per cent of the total
outstanding foreign debt of Sri Lanka as of end-2013 is owed to
international private financial markets, which was just 6.6 per
cent in 2005; the year the incumbent President came to power. Of
course, since the graduation of Sri Lanka into a lower
middle-income country in the recent past, eligibility for the
erstwhile concessionary development finance has shrunk
considerably.Secondly, severe restrictions on international,
national, and local Non-Governmental Organisations have had a
debilitating impact on the general population, and vulnerable
groups of people and regions (former conflict-affected provinces
for instance) in particular. Although official statistics is
unavailable, the International Non Governmental Organisations
(INGOs) contribute over $100 million annually to marginalised and
vulnerable populations throughout the country.The lower
middle-income country status of Sri Lanka has become a ruse for
both mal-development and mal-economic governance in the country
underpinned by mass appropriation of public finance by bureaucrats,
politicians, and crony businesses. Although the traditional
concessionary finance usually comes forth with strings attached
(such as on economic policy, governance, etc) that may be
politically unfavourable, it undergoes stringent scrutiny in terms
of economic and financial feasibility and probity of the projects
and potential benefits to the people of the country. Whereas in the
case of commercial borrowings from Sri Lankas new development
partners such as China and India, political imperatives override
economic imperatives for the lender. On the other hand, the
borrowings from international private capital markets are
non-project based and do not undergo any needs assessment at all by
the lender/s.The new international finance model pursued by the
Government of Sri Lanka since 2006 has resulted in uneconomical and
financially unviable mega projects around the country. The creation
of the second national airline Mihin Air, Mattala Rajapaksa
International Airport, Magam Ruhunupura Mahinda Rajapaksa Port are
a few loss-making from inception mega projects that have not
undergone market-based economic and financial feasibility studies.
Hence the migration of international finance of Sri Lanka to
private capital market borrowings and borrowings from new
international development partners has obliterated the necessary
checks and balances in international finance and has opened the
door to mass appropriation by bureaucrats, politicians, and crony
businesses. The mass appropriation of public finance by a coterie
is reflected in the fact that over 75 percent of the annual budget
of the Government is allocated to the ministries and departments
under the purview of the President and his two brothers. The
current situation in Sri Lanka is similar to that of Indonesia
during the 1990s under the late President Suharto.Moreover, the
capacity of the central, provincial, and local public
administrative system has been severely depleted since the
early-1970s which has led the successive governments to promote few
mega development projects since late-1977 (The Accelerated Mahaweli
Development Project for example) instead of a number of small and
medium scale development projects undertaken in the 1950s and
1960s. The mega development projects are also means of
appropriation of huge rents for bureaucrats and politicians. Hence,
development projects in Sri Lanka in recent times are chosen not on
the basis of the needs of the people of the country, but on the
basis of the extent of rents that could be amassed by a
coterie.
Another primary reason for the very limited improvements in the
livelihoods of the people in the North and East is the severe
limitations imposed on the operations of the Non-Governmental
Organisations (local, national, and international NGOs) as a result
of the security phobia of the state. Traditionally it is the
non-governmental organisations that fund small and micro scale
development initiatives by local communities throughout the
country. Some INGOs have completely withdrawn from Sri Lanka and
many have scaled-back their operations, especially in the former
conflict-affected regions. Moreover, as Sri Lanka has graduated
into a lower middle-income country grants from bilateral and
multilateral development partners are drying and therefore INGOs
are valuable sources of external financial resources which are
entirely outright grants. It is high time the Government stops
shooting the geese that lay the golden eggs.Further, reparations to
the victims of the long drawn-out civil war in Sri Lanka by way of
compensation for the loss of life and property could have had a
positive impact on improving the livelihoods of the Eastern and
Northern people. Unfortunately, the Government has not undertaken
any measures of reparations to date (five years after the end of
the civil war). Reparations to victims of armed conflict are an
integral part of almost all the post-civil war rehabilitation and
reconstruction efforts by the national governments and
international organisations as reflected in the case of Nepal in
the aftermath of the civil war that resulted in a comprehensive
peace agreement signed in 2006 and in the ongoing peace
negotiations between the Government of Colombia and the FARC
(Revolutionary Armed Forces of Colombia) rebels. There is no
logical reason why Sri Lanka could not be accommodative of the
livelihood needs of the vanquished population by way of
reparations.On the one hand, Nepal is on a slow but steady path of
economic, political, and social recovery from its decade long civil
war underpinned by Constitutional reforms and setting-up of the
Ministry of Peace and Reconstruction and the Truth and
Reconciliatin Committee. However, Nepals post-civil war economic
growth is inadequate to emerge out of underdevelopment.On the other
hand, while Sri Lanka has been on a rapid economic recovery at the
national level, the economic recovery in the peripheries (in terms
of per capita income, employment, and poverty), especially in the
former conflict-affected provinces, have been slow. Moreover, not
only is there no political process at all in Sri Lanka to find a
solution to the root causes of the armed conflict, there are new
conflicts instigated by religious bigots suspected to be closer to
the regime. The ongoing anti-Muslim hate campaign in the past few
years after the end of the civil war by a small but powerful group
of religious bigots is capable of having severe macroeconomic
repercussions by negatively impacting on the largest foreign
exchange earning sub-sector of the country, namely labour exports
to Middle-Eastern countries, and the third largest foreign exchange
earning sub-sector, viz. tourism. The second largest foreign
exchange earning sub-sector to the Sri Lankan economy, viz. apparel
exports, could also be hit by the outcome of the ongoing
international probe on violation of the international humanitarian
laws and war crimes suspected to be perpetrated by the armed forces
during the final stages of the civil war.In the case of both the
countries fragilities still remain in spite of progress in certain
spheres of the post-civil war economic recovery. While Nepal needs
to accelerate its economic growth, per capita income, and various
other human development indicators, Sri Lanka needs to ensure real
tangible economic benefits filters down to the peripheries,
especially to the former conflict-affected provinces.(This is an
abridged version of a paper presented at the Annual Symposium of
the Centre for Poverty Analysis on Post War Development in Africa
and Asia in Colombo on September 1, 2014)Posted byThavam