For
purposes of understanding the evolution of the macroeconomy
of Sri Lanka in the period since 1970, it is useful to divide
the 18-year period 1970-1987 into two sub-periods, the dividing
line being drawn at 1977. At this point, a number of far-reaching
economic policy reforms were introduced. A definite acceleration
of economic growth and a general improvement in economic
activity followed these economic policy reforms. For most
macroeconomic variables 1977-1978 appears to be a point
of departure from the old trend. See for example Charts
1 and 2.
However, together with these changes and
also as a consequence of other elements in this reform package,
the overall balance between supply and demand for resources
became suddenly disturbed; so much so that, in the period
since 1981, the restoration of economic stability became
a major policy objective. A question that naturally arises
concerns the trade-off between growth and economic stability.
A closer analysis of the movements of the various macroeconomic
variables may provide useful insights into the nature of
this trade-off in the case of Sri Lanka and, consequently,
may help to draw some lessons for the future.
The approach in the present paper will be basically one
of examining the movements of the major macroeconomic variables
in the two periods. The emphasis will be on the identification
of similarities and differences between the two sub-periods
and on the nature of common or invariant factors.
Table of Contents
- Growth and Composition of the Domestic Product
- Aggregate Supply and Demand
- Investment and Savings
- The Balance of Payments
- Public Finance
- Income and Employment
- Price Movements and Monetary Growth
- Conclusions
- Notes
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