Business

The battle of the independents; How does Sri Lanka compare?

By Madhusha Thavapalakumar

After Sri Lanka gained its independence from the British in 1948, the island shone brightly as one of the most promising nations in Asia. Due to its strategic maritime location, the British inherited trade relations as well as its substantial infrastructure network.

In fact, it had been reported that Sri Lanka was ranked one of the most prosperous Asian countries two years after independence, placing it not only well above its South Asian neighbours but also ahead of countries such as Thailand and Singapore.

Ahead of Sri Lanka’s 71st Independence Day celebration, The Sunday Morning Business decided to ascertain Sri Lanka’s grown since 1948 compared to several countries nearing or in their sixth or seventh decade of independence.

The countries we picked are India and Pakistan, which gained independence in 1947, Jordan, Israel, and Malaysia which became independent in 1946, 1948, and 1963 respectively.

For ease of comparison, we looked at key economic indicators such as Gross Domestic Product (GDP), GDP growth rate, Purchasing Power Parity (PPP), employment rate, and inflation.

GDP

According to the World Bank (WB) reports, Sri Lanka’s GDP was $ 1.41 billion in 1960 and massively grew to $ 87.3 billion in 2017 – a growth of 98.3% since then.

India, Sri Lanka’s closest ally, gained independence in 1947. It recorded a GDP of $ 36.5 billion in 1960 and stood at $ 2,600 billion in 2017, marking a growth of 98.5%.

Pakistan, which achieved independence on the same day as India, had a GDP of $ 3.7 billion in 1960 and a GDP of $ 305 billion in 2017, showing a growth of 98.7%.

Israel gained its independence three months after Sri Lanka, and at the time had a GDP of $ 2.5 billion in 1960 which grew to $ 350.9 billion in 2017; a slightly higher growth of 99.2% than that of India, Pakistan, and Sri Lanka.

Jordan, which became an independent state in 1946, had a GDP of $ 0.59 billion in 1965 (the oldest data available). In 2017, its GDP was recorded at $ 40.7 billion, similar to the percentage growth of GDP in India.

Malaysia freed itself from the British Empire in 1963. In 1965, it had a GDP of $ 2.6 billion and a GDP of $ 314.5 billion in 2017 – a growth of 99.1%.

Even though Sri Lanka shows the lowest rate of growth, contrasting the above information, it can be concluded that all countries experienced similar growth, with minor variations.

GDP growth rate

Moving onto the growth rate of these countries during the same period, Sri Lanka’s GDP growth rate was recorded at 3.8% in 1962 and 3.3% in 2017, with its highest growth rate in 2012 at 9.1% and the lowest in 2001 at a negative growth of 1.5%.

India’s annual GDP growth rate was 3.7% in 1961 and 6.6% in 2017. During this period, the highest growth rate was recorded at 10.26% in 2010 and the lowest negative growth of 5.2% was recorded in 1979.

Pakistan’s GDP growth was 5.9% in 1961 and 5.7% in 2017. The highest growth rate was recorded in 1970 at 11.3% and the lowest growth rate of 0.46% was recorded in the following year.

According to the World Bank’s limited data on Jordan, it recorded 24.3% GDP growth in 1976 and 1.9% in 2017. The period in between saw the lowest growth in 1989, amounting to a negative growth of 13.4%, while 1976 remains the year with the highest growth so far.

Israel’s annual GDP growth rate was 11.2% in 1961 and 3.3% in 2017. The highest growth rate was recorded in 1968 at 16.2% and the lowest was a negative growth of 0.08%, recorded in 1966.

Malaysia recorded a GDP growth rate of 7.6% in 1965 and 5.8% in 2017. The lowest negative GDP growth in Malaysia’s economy was recorded in 1998 at 7.3%, while the highest growth rate was recorded at 11.7% in 1973.

In 2017, Sri Lanka and Pakistan recorded a GDP growth rate which was a little lower than in 1962 and 1961, respectively, while the only country which saw growth is India.

Jordan and Israel witnessed massive drops compared to what they achieved in the 1960s, while Malaysia witnessed a slight drop.

PPP

Purchasing Power Parity (PPP) is gross domestic product converted to international dollars using purchasing power parity rates.

Sri Lanka’s PPP GDP was $ 40.4 billion in 1990 and increased to $ 275.2 billion in 2017.

India’s PPP GDP was $ 986.9 billion in 1990 and $ 9.4 trillion in 2017, while Pakistan’s PPP GDP was $ 212.6 billion in 1990 and $ 1 trillion in 2017.

Jordan’s PPP GDP was $ 14.46 billion in 1990 and $ 88.8 billion in 2017, while Israel’s and Malaysia’s PPP GDP were $ 70.1 billion and $ 123 billion in 1990 and $ 333.3 billion and $ 931.3 billion in 2017, respectively.

Over the years, Sri Lanka’s PPP GDP has grown by 85.3%, while India, Pakistan, Jordan, Israel, and Malaysia’s grew by 89.5%, 78.7%, 83.7%, 78.9%, and 86.7%, respectively.

Among these six countries, Sri Lanka has the third-highest PPP GDP growth rate next to India and Malaysia.

Inflation

Sri Lanka had a deflation rate of 2.3% in 1962 and an inflation rate of 8.2% in 2017. During the period between 1962 and 2017, inflation peaked to its highest level in 1974, recording inflation at 24.3%, while 1962 remains the year with the lowest rate of inflation.

In 2015, Sri Lanka’s inflation hit its lowest level in 30 years, at 0.64%.

In 1961, India had an inflation rate of 2.1% and a rate of 3% in 2017. The period between recorded a drastic drop in inflation – in 1975 with a deflation rate of 1.6% – and also the highest spike to 17.8% in 1973.

India’s inflation rate fell to its lowest levels in 40 years in 2015 and was recorded at 2%.

India’s neighbour, Pakistan recorded an inflation rate of 3.1% in 1961, which then experienced ups and downs similar to other countries, and recorded an inflation rate of 4% in 2017.

Within the 26 years in question, Pakistan’s inflation hit its peak level in 2000 as the country recorded inflation at 24.8%.

In 2016, Pakistan had its lowest rate of inflation, at 0.4%, in over 50 years.

Jordan had an inflation rate of 4.6% in 1976, which saw a record-drop two years later, to a deflation rate of 4.7%. In 2017, the rate of inflation was 1.6%, and it reached its highest level in 2008, with a rate of 19.8%.

Israel’s inflation trend was different to the other countries examined. It was 8.6% in 1961 and reached 384.7% in 1984 – a massive increase.

The inflation rate in Israel was at the three-digit level from 1980 to 1985. However, from 2000 to date, it has been below 4.1%.

Malaysia experienced deflation in 1961, at a rate of 7.7% and in 2017 its rate of inflation was 3.8%. Within the 29 years in question, it reached its peak level in 2008, with an inflation rate of 10.3%.

A closer look at Sri Lanka’s inflation graph over the years revealed that an inflation hike was often followed by a massive drop the next year, somewhat similar to Pakistan’s graph during this period and India’s graph from 1961 to 1980.

However, India has maintained a rate of inflation below 10% since 1992, while Sri Lanka stayed well above India, recording a rate of 22.7% during that period.

Jordan and Malaysia maintained their inflation rates in single digits since 2009.

Employment

The employment-to-population ratio is a statistical ratio that measures the proportion of the country’s working age population that is employed.

According to the employment-to-population ratio data from the World Bank, 51.1% of the Sri Lankan population was employed in 1991.

Despite the ups and downs in the graph, as of 2018, the number remains the same.

In 1991, India’s ratio stood at 58.3% and now stands at 51.7%.

Pakistan had an employed population of 47.6% in 1991 and 52.2% in 2018.

Jordan and Israel had ratios of 33% and 51.2% in 1991 and 33.2% and 61.6% in 2018, respectively. Malaysia’s employment-to-population ratio was 59.9% in 1991 and 62.5% in 2018.

Sri Lanka still hovers around its almost three-decades-old rate, while the rates of Malaysia, Pakistan, and Israel have grown significantly.

Even though India’s employment rate has dropped, its employed population is still higher than that of Sri Lanka.
Sri Lanka stays only ahead of Jordan in this area.

In conclusion

In terms of five economic indicators mentioned above, even though Sri Lanka’s growth in GDP is similar to these countries’, Sri Lanka’s GDP growth rate stays ahead of Jordan and Israel and well below that of Malaysia, India, and Pakistan.

India, which shared a growth rate with Sri Lanka with a 0.1% variation in 1960, has improved considerably here.

Sri Lanka’s PPP GDP has grown over the years, the growth of which is preceded by Jordan, Israel, and Pakistan.

Even though the national employment rate grew over the past few quarters, it has not grown significantly since the 1990s, indicative of the need for job creation.

However, in comparison to countries with single-digit inflation rates – Malaysia, Jordan, and India – Sri Lanka is in dire need of contractionary monetary policy, increased reserves, and reduced monetary supply.