Reviving Agriculture: The Case for a Fundamental Re-think

Sri Lanka’s Low Productivity/Growth Syndrome
The 35 years since liberalization of the economy has seen repeated cycles of the economy overheating once growth exceeds 6%. Growth of 8% or more is necessary over a sustained period to achieve economic transformation similar to that achieved by a number of countries in East and South East Asia. The causality for Sri Lanka’s inability to sustain accelerated growth (as seen again after 3Q 2012) is complex. An unstable macroeconomic framework, with an unsustainable budget deficit, is an important explanatory factor. Low productivity is another as it limits the capacity of the economy to achieve non-inflationary growth. In addition, it results in Sri Lanka not being able to produce goods and services the rest of the world needs in sufficient quantities at competitive prices i.e. to earn adequate foreign exchange to support the level of imports necessary to sustain an 8% growth rate without running into balance of payments difficulties. Low productivity also reduces the scope for a non-inflationary rise in incomes.