constraints to sustained and inclusive growth in...
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CONSTRAINTS TO SUSTAINED AND INCLUSIVE GROWTH IN SRI LANKA!An Initial Diagnosis and Key Topics for Discussion!
Ricardo Hausmann!Colombo, Sri Lanka!7 January 2016!
And this growth has
been matched by
progress across broader
measures of well-being!
Source:UNDPHumanDevelopmentReport2015
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Sri"Lanka" Maldives" India" Bhutan" India" Nepal" Pakistan" Afghanistan"
High"human"development" Medium"human"development" Low"human"development"
Human&Development&Index&(HDI)&for&South&Asian&Countries&
1990"
2000"
2010"
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Whataresomeofthechallengesahead?
• Isgrowthconstrainedbyexportsandthebalanceofpayments?
• Aregovernmentrevenuestoolow?• IsstructuraltransformaHonachallenge?• IsurbanizaHontoolow?• Howchallengingwillitbetomakegrowthinclusiveofthedifferentregionsandsectors?
But growth is limited by the Balance of Payments!0
510
15
1990 1995 2000 2005 2010 2015Year
GDP per capita growth (annual %) External deficit in goods and services
Deficitingoodsandservices
GrowthinGDPpercapita
Hitting the constraint shows up in the exchange rate!
Datasource:WikiExchangeRates
100#
105#
110#
115#
120#
125#
130#
135#
140#
145#
150#
2010# 2011# 2012# 2013# 2014# 2015#
LKR$/$USD
$
Daily$Exchange$Rate$(Sri$Lankan$Rupee$to$U.S.$Dollar),$2010$A$2015$
External debt is already pretty high as a share of exports and primary income (including remittances)!
Difference from expected value = +119 percentage points
Sri Lanka’s government revenues are significantly lower than other middle-income countries!
LKA
010
2030
4050
2 3 4 5
Revenue, excluding grants (% of GDP)Revenue, excluding grants (% of GDP)95% CI lpoly smooth: Revenue, excluding grants (% of GDP)
GovernmentrevenuesasashareofGDP
Actual 12%Expected 25%Gap 13%
LogofGDPpercapitaSource:WorldDevelopmentIndicators
Public savings are negative, the deficit is substantial!
Source: IMF Country Report No. 15/335 (December 2015)!
Sri Lanka’s fiscal deficit currently exceeds its level of public investment!
Data source: IMF Country Report No. 15/335 (December 2015)!
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t#of#G
DP#
Select&Economic&Indicators&for&Sri&Lanka&
Government#investment# Central#government#deficit#
Currently, the share of GDP from agriculture is what would be expected based on Sri Lanka’s level of income!
But employment in agriculture remains well above what would be expected, implying low productivity!
Difference from expected value = +14.9 percentage points
Productivity in agriculture in very low compared with industry and services!
Datasource:WorldDevelopmentIndicators
RelaHveprod
ucHvity
ofind
ustrytoagriculture
RelaHveproducHvityofservicestoagriculture
We can compare its current export basket to the trajectory of export diversification in other countries!
Sri Lanka, 2012-2014!
Tea
Clothing
Thailand’s export basket in 1991 was similar to Sri Lanka’s now, but then it changed a lot!
Sri Lanka, 2012-2014!
Tea
Clothing
Thailand, 1991!
Turkey’s export basket in 1994 was similar to Sri Lanka’s now, and then it changed!
Sri Lanka, 2012-2014!
Tea
Clothing
Turkey, 1994!
Costa Rica in 1996 was similar to Sri Lanka today, but then it changed!
Sri Lanka, 2012-2014!
Tea
Clothing
Costa Rica,!1996!
Tea: Low income competitors!
GlobalShareofTeaExports(Net)in2014 GDPpercapita(USD)in2014
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Sri"Lanka" China" Kenya" India"
Datasource:WorldDevelopmentIndicators
Women’s Undergarments: Low income competitors !!
GlobalShareofWomen’sUndergarmentsExports(Net)in2014 GDPpercapita(USD)in2014
Datasource:WorldDevelopmentIndicators
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China" India" Bangladesh" Sri"Lanka" Cambodia" Vietnam"
Retreaded Tires: Middle and high income competitors!
GDPpercapita(USD)in2014
Datasource:WorldDevelopmentIndicators
GlobalShareofRetreadedTiresExports(Net)in2014
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Sri"Lanka" China" Japan" Brazil" Thailand" Belgium"
Richer countries get more from tourism revenue per capita!
Difference from expected value = -598 US$ per capita
Remittance income is probably not going to be an engine of growth in the longer (or shorter) run!
+120US$ per capita
ImplicaHons• Sustainedgrowthinvolvesnotjustmoreofthesame• Astheygrow,countriesdiversifyandevolvetheircomparaHveadvantageintonewareas
• Thesetendtobemorecomplexandabletocompetewhilepayinghigherwages
• ThisprocessisnotjustaboutshiZingfromagriculturetomanufacturingbutwithineachsectorandintoservicessuchasICT,BPO,KPO,bunkeringandtourism
• TransformaHoninvolveschickenandeggproblemsthatneeda^enHon
• Whatcanthegovernmentdo?– AretherelimitstotaxincenHvesasatool,giventhelowtaxrevenueraHo?
Urbanization is surprisingly low in Sri Lanka!
Difference from expected value = -40.0 percentage points
Questions!
• Whydiditnoturbanizefasterinthepast?– Fewurbanexports?– Fewrents?
• Isthecheckinthemail?• WhatwouldittaketoseizethepotenHalgainsfromurbanizaHonwithoutthebadside?– Wherewillthenewindustrieslocate?– Whatgoesintoefficient,producHveurbanizaHon?– Willyouhavethefiscalresourcestomakeithappen?
0.00% 5.00% 10.00% 15.00% 20.00% 25.00%
GovernmentServices
OwnershipofDwellings
Agriculture,LivestockandForestry
Agriculture,ForestryandFishing
PrivateServices
Services
WholesaleandRetailTrade
Banking,InsuranceandRealEstateetc.
Electricity,GasandWater
Manufacturing
TransportandCommunicaHon
Fishing
Industry
MiningandQuarrying
ConstrucHon
HotelsandRestaurants
Growthrate2010-2014
Growthratesbyindustryarequiteheterogeneous
Estate sector production is regionally focused !Caveat: Five districts not included in data (Jaffna, Mannar, Mullativu, Trincomalee, and Vavuniya)!
ExtentunderTeabyDistrict,2002(‘000sofhectares)
ExtentunderRubberbyDistrict,2002(‘000sofhectares)
ExtentunderCoconutsbyDistrict,2002(‘000sofhectares)
Datasource:CensusofAgriculture,2002-AgricultureandEnvironmentalStaHsHcsDivision,DepartmentofCensusandStaHsHcs
As are other agricultural activities!PalayProduc@on,Yala2014
(‘000sofmetrictons)PalayProduc@on,Maha2014-15
(‘000sofmetrictons)CaDlePopula@on,2014
(‘000sofca^le)
Datasource:AgricultureandEnvironmentalStaHsHcsDivision,DepartmentofCensusandStaHsHcs
Different provinces concentrate on different manufacturing industries !
Apparel,Dressing&DyingofFur(%shareofprovincemanufacturingoutput)
Tex@les(%shareofprovincemanufacturingoutput)
Datasource:AnnualSurveyofIndustries2012,DepartmentofCensusandStaHsHcs
Rubber&Plas@cProducts(%shareofprovincemanufacturingoutput)
QuesHons
• Asteaandgarmentsbecomelessimportant,asagriculturalemploymentshrinksandotheracHviHesbecometheenginesofgrowth,howwillthedifferentsocialgroupsandregionsfare?
• Wherewillthebenefitsandtheburdenofadjustfall?
Whataresomeofthechallengesahead?
• Isgrowthconstrainedbyexportsandthebalanceofpayments?
• Aregovernmentrevenuestoolow?• IsstructuraltransformaHonachallenge?• IsurbanizaHontooslow?• Howchallengingwillitbetomakegrowthinclusiveofthedifferentregionsandsectors?