Research Programme: Background
Following the far reaching economic liberalization programme initiated in 1977, the Sri Lankan economy saw a significant transformation, moving away from a predominantly agriculture based economy to an increasingly industrialized and services oriented one. Despite domestic setbacks, including the outbreak of a heightened armed conflict from the early 1980s, Sri Lanka continued to maintain a reasonable growth momentum over the next two decades, in the process achieving a measure of convergence in the broad direction of economic policies of the main political parties. However, economic growth was undoubtedly constrained by the civil conflict, stifling employment generation and investment in socio-economic development. Of particular concern is that despite a progressive improvement in per capita income, poverty remains widespread with the national poverty headcount ratio estimated at 22.7 per cent, and increasing evidence to suggest that income inequality too may have been on the rise in recent years.
Throughout the country there are signs that inequality has risen and many remain excluded from the benefits of growth. Of particular concern is the incidence of poverty in the slow growing rural agricultural sector, the conflict-affected Northern and Eastern Provinces, and dry zone areas of the country. Agricultural households are estimated to account for about 40 per cent of Sri Lanka’s poor. Many rural households depend on non-farm incomes such as remittances from family members working in garment factories, migrant remittances or employment in the armed forces. The family dislocation this entails can have high social costs. There continues to be widespread unemployment, particularly amongst the educated youth that has in the past fuelled violent unrest with incalculable costs to the socio-economic development of the country.
There is little disagreement on the central notion that economic growth is a necessary condition to generate employment and alleviate poverty. However, growth alone may not always be a sufficient condition and requires other complementary policies and institutions to improve the capacity of the poor to access economic opportunities. Slow growth in the rural economy – home to 80 per cent of the population and 90 per cent of the country’s poor – deserves greater policy attention if Sri Lanka is to make headway in alleviating poverty and bridging the widening gap in income inequality. A central theme that has emerged in policy discussion, therefore, is how to achieve more equitable growth – be it on the basis of regional, income, or ethnic disparities – without compromising the overall growth potential of the economy. While the broad thrust of economic policy remains within the framework of a liberal open economy, the perceived disparities in economic growth has brought about a nuanced change in focus. Increasingly, greater emphasis has come to be placed on rural economic development, agriculture, and small and medium enterprises (SMEs) as means of generating growth with equity. The challenge will be to devise policies that regenerate the rural economy without imposing a cost on the more competitive industrial and services sectors.
A rethinking on how Sri Lanka can deliver equitable growth has become all the more urgent in light of the tsunami disaster of December 2004 that is estimated to have claimed 40,000 lives, left more than 1 million people displaced and caused widespread infrastructure damage to the country’s coastline. The severity of the tsunami disaster in the Northern and Eastern Provinces compounded problems arising from the two decades of conflict where the majority of the estimated 360,000 internally displaced people continue to reside.
The core aim of IPS research is to contribute constructively to the discussions and debates on appropriate policies to achieve sustained and equitable growth by providing an analysis of some of the priority issues. The Institute’s research output over time has addressed many of these key areas; the intention is to build on the substantive work that has already been carried out, identify gaps in the existing body of research and formulate a coherent medium-term work programme. As such, under the overall theme of achieving sustainable growth with equity, key questions around which the research agenda is programmed include the following:
- Where will growth come from in the medium-term?
- Why and how is poverty and inequality increasing?
- What is the role of the State in generating equitable growth?
- How can Sri Lanka’s macroeconomic policies be shaped to achieve equitable growth?
- How can livelihoods be protected and vulnerability of the poor reduced?
The research programme seeks to address some of these key issues through IPS funded work as well as externally funded collaborative work with both domestic and international partners.
