Columns - The Sunday Times Economic Analysis

National harmony vital for economic development

By Nimal Sanderatne

A fundamental error in thinking is that economic development is dependent on economic variables alone. A spectrum of conditions—social, political, educational, legal, administrative and institutional determines the character and pace of economic development. Values and attitudes a society inculcates in its people through various socializing mechanisms largely explain why some countries develop more rapidly and equitably than others. Behavioural and attitudinal characteristics that are conducive to development are essential in providing an impetus to growth.

Economic development has taken place only when cultural, sociological, institutional and technological changes conducive to economic growth have occurred. They not merely influence, but determine the economic variables that are needed for rapid economic growth. Sustained economic development cannot be achieved by investment and economic incentives alone.

The preconditions for achieving economic development include the establishment of law and order and the rule of law, development of institutions and enhancing their capacity, advancement of learning, a set of values that are conducive to economic growth, discipline, good work ethics, inventiveness, entrepreneurship, development of skills, infrastructure and proper economic policies.

National unity

In the Sri Lankan context national unity is a precondition for realization of the country’s full economic potential. The end of the war has removed the most serious constraint to economic development and the country is reaping what I have described as an interim peace dividend.

A full peace dividend can be achieved only by a durable resolution of minority issues and the building of bridges among all communities living in the country. The acceptance of Sri Lanka as a pluralistic society is vital towards this. The road to such a durable reconciliation and building of a solid sense of nationhood is neither easy nor achievable in a short period of time. What is vital at this present time is movement in the correct direction.

Economic burdens of ethnic conflict

The mismanagement of the ethnic and language issue has been a deep-rooted cause for the country’s modest economic growth and development. The war was a financial burden, an impediment for investment and crippled several areas of production in the economy. Consequently it performed at less than its potential.

The cultivation of food crops in the North and East, tourism, fisheries, foreign investment and economic and social infrastructure were adversely affected. The war discouraged foreign and local investment and diminished tourist arrivals. It had a severe impact on the public finances of the country. Persistent large fiscal deficits, increasing public debt and high debt servicing costs have been crippling blows on the economy. A precise estimate of the cost of the war is difficult but the severity of the war’s impact on the economy was enormous.

The economic consequences are even more than all these; it was a cancer eating into the body politic and affecting the country’s political economy and economic growth. It set back the economic development of the country at a time when the economy was in full swing in 1982-83. The insecurity caused by the war was the main deterrent to foreign investment. Large foreign companies shunned investing in Sri Lanka and preferred more stable countries like Malaysia, Singapore and Vietnam. This setback to foreign investment occurred much before the war, with the ethnic disturbances of 1983.

The enormous economic burdens of the war continue even after peace and are serious constraints to development. These include a massive debt burden, the huge debt servicing costs and the soaring costs of reconstruction of the areas devastated by the war. The cost of the war led to large budget deficits that in turn resulted in massive domestic and foreign borrowing that gave rise to a large public debt over the years. In some years the public debt exceeded the country’s GDP. It now hovers around 80 to 90 per cent of GDP. These are serious constraints on the development capacity of the country.

Economic benefits of national unity

The economic benefits of a united nation are substantial, especially in the long run. The resolution of the ethnic issue and the development of a national consciousness are vital for the full realization of the country’s economic potential. In the past the constant distraction of the country by ethnic conflicts that developed into terrorism and then to a costly war of almost thirty years are significant causes for arresting potential economic development. Peace now offers an opportunity for ethnic reconciliation that is an essential foundation for rapid economic development.

The country’s economic engine cannot fire with all its pistons without all communities feeling that they belong to this Island nation as equal citizens with equal rights and opportunities. Without a durable solution to the ethnic problem the brain drain will continue, foreign investors would be vary of political instability, the educational and skills development of the country would be stifled and the country would be continuously distracted from the tasks of economic development by sporadic issues of communal disharmony.

The economic gains of a united nation are not quantifiable: it is intangible but huge. It will strengthen and consolidate efforts for development. The recognition of such benefits should spur the government and people towards the settlement of the ethnic issue expeditiously and with consummate skill.


The successful rebuilding of the devastated areas and the reconstruction of economic and social infrastructure are basic requirements. This requires a massive investment that the country’s own finances are quite inadequate to mobilise for this purpose. Fortunately countries such as India, China, United States and Japan, among others have promised huge sums of money and plan to develop the North and East. Regrettably the inflow of foreign funds that were promised has been much less than promised. Little progress in forging an acceptable solution may hinder the amount of foreign assistance and the development of the North and East. An equitable solution to the national problem and realistic international diplomacy are needed to enhance reconstruction assistance.

Summing up

The current economic gains of peace are only an interim peace dividend. For the full benefits of peace there need to be measures towards nation building that enable the full participation of all communities and regions of the country. Moreover, sound economic policies and priorities are needed to achieve rapid economic growth. Although the war was the most serious impediment to economic development, peace is not a sufficient condition for the economy to perform at its full potential. Peace and political stability are necessary conditions for economic development.

The right economic policies and their effective implementation are vital to achieve the goal of a high trajectory of growth. Pragmatic economic policies, reform of public institutions, education, health and administration, and realistic diplomatic and political strategies are also needed.

The road to the realization of the post war economic expectations of rapid economic growth is not an easy task. It is one requiring a focus and dedication to these changes and not being distracted by ethnic and other issues. The full peace dividend is not automatic; it requires putting in place a number of pre-requisites for development. An equitable permanent political settlement is foremost among them.

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