CIA- 1

CHARACTERISTICS OF A DEVELOPING COUNTRY

Yoshita Lakka
2140897

Submitted to
Dr. Mahesh E
(Department of Economics)

BSc. Economics Mathematics Statistics (EMS)

Department of Mathematics
Science Deanery
16 August 2022

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 CONTENTS
S. No Page Contents
No
1 3 Abstract

2 3 Introduction

3 3-4 Sri Lanka: A Developing Country

3 4-6 Development Analysis of Sri Lanka

4 6-7 Problems of Present Economic Crisis in Sri Lanka

5 7 Solutions for Sri Lankan Economic Crisis

6 7-8 Recommendations for Sri Lankan Economic Crisis

7 8 Conclusion

8 8 References

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 DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA
A CASE STUDY

ABSTRACT
This study provides a rudimentary idea of what a developing country is and the factors
that make the Democratic Socialist Republic of Sri Lanka one. It further explores the
various indices that aid in the analysis of the degree of development in Sri Lanka. It also
takes us through the core factors contributing to the economic turmoil- the Easter
Bombings of 2019, the transition from chemical fertilizers to organic farming, and the fall in
tourism due to COVID-19. The paper provides innovative and effective solutions to
overcome Sri Lanka’s challenges and bring Sri Lanka back to economic stability.

INTRODUCTION
Sri Lanka’s economic crisis commenced in 2019 with the Easter Bombings by the Islamic
state which crumbled its economic integrity. This along with the COVID-19 pandemic
disintegrated Sri Lanka’s tourism sector- its 3rd largest contributor to its GDP. Further, the
ban on chemical fertilizers and unforeseen shift to organic farming severely affected
paddy yield. This coupled with the Ukrainian War brought about vast food shortages
and inflation. Further, a number of factors exacerbated Sri Lanka's economic crisis,
including poor financial management, an increase in foreign debt, declining foreign reserves,
depreciating currency, price increases, tax cuts, and the COVID-19 effect. The Sri Lankan
rupee experienced its lowest point in April 2022, making it the worst-performing currency
in the world.

Since imports are more than exports and spending is higher than income, the nation has a
trade deficit. Sri Lanka is likewise experiencing a fiscal deficit, which has resulted in a
scenario of double debt. This crisis has been managed poorly because, rather than
implementing measures to lower its deficit, Sri Lanka has expanded its debt. Colombo
borrowed a sizable sum of money from international institutions, and as a result, Sri Lanka's
debt to GDP ratio is 111%, meaning that the island nation spends more than it earns,
creating the perfect storm that forced their president, Gotabaya Rajapaksa, to leave the
country.

SRI LANKA: A DEVELOPING COUNTRY

Low living standards, an underdeveloped industrial base, and a low Human

Development Index are characteristics of developing nations. In this study, we examine the
Democratic Socialist Republic of Sri Lanka, one such developing nation bordered by the
Indian Ocean.

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With a population of 22 million people and an amalgamation of many cultures, languages,
and races, Sri Lanka, once known as Ceylon, is a colossal country. The Sinhalese majority
and Tamil minority in this nation have long-running conflicts, both communities have
played a pivotal role in the island’s history.
Sri Lanka’s Gross National Product (GNP) rose to 22.229 USD (in billions) in December
2021 from its previous number of 20.180 USD in September 2021 and is a developing
country with a rank of 72 on the Human Development Index.

Figure 1: Steep fall in Sri Lankan growth rate from 2020 due to COVID-19 pandemic

Source: WPA

DEVELOPMENT ANALYSIS OF SRI LANKA

1) Human Development Index

Sri Lanka’s HDI value for 2019 is 0.782 positioning it at 72 out of 189 countries.
Its HDI value increased from 0.629 to 0.782 which is a 24.3 percent increase between
1990 and 2019.
Figure 2: Progressive rise in Sri Lankan HDI over the years

Source: Research gate

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 Figure 3: Trends in Sri Lankan HDI component indices

Source: Research gate

Figure 4: Trends in Sri Lankan HDI with respect to other countries

Source: Research gate

2) Inequality Adjusted Human Development Index (IHDI)

Sri Lanka’s HDI is 0.782 in 2019, however, when the value is discounted for
inequality, the HDI falls to 0.673 which is a loss of 13.9 percent due to inequality
in the dissemination of the HDI indices.

Figure 5: Sri Lankan IHDI relative to some selected countries

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 3) Happiness Index

Sri Lanka has a rank of 127 out of 146 countries in the World Happiness Index
report of 2022 which is two spots above its former position at rank 129 in 2021.

4) Gender Development Index (GDI)

Sri Lanka's 2019 female HDI score is 0.759, while the male HDI value is 0.794.
This difference results in a GDI rating of 0.955, which places Sri Lanka in Group
2.

Figure 6: Sri Lankan GDI relative to some selected countries

5) Gender Inequality Index (GII)

With a GII rating of 0.401, Sri Lanka is ranked 90th out of 162 nations in the
2019 report. In Sri Lanka, women have 5.3% of the parliamentary seats, and 79.2%
of adult females have at least a secondary education, compared to 81.0 % of their
male counterparts.

Figure 7: Sri Lankan GII relative to some selected countries

PROBLEMS OF PRESENT ECONOMIC CRISIS IN SRI LANKA

Two of the largest contributors to the Sri Lankan GDP are tourism and agriculture both
of which were adversely impacted since 2019. Tourism dropped steeply since the terrorist
shootings took place in 2019 and the commencement of the COVID-19 pandemic. On the
other hand, the agriculture sector took a colossal hit once the government banned the use of
chemical fertilizers. Although this was a step taken toward environmental conservation, this
severely affected the yield of crops thereby creating a situation of food shortage.
The aftermath that followed was that Sri Lanka ran out of money and foreign exchange
reserves were depleted. Sri Lanka is spent more than it earned, the government failed to take
any corrective measures, the government continued to take loans worth 51 billion USD

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from unsustainable sharks like China, and earlier this year it even ran out of resources to
import oil leading to massive power cuts. Additionally, the recent Ukraine War has
contributed to a rise in food prices, fuel prices, peaking inflation, and a drastic fall in
the value of the Sri Lankan currency. An amalgamation of all these factors created a
massive burden on the government’s shoulders from which the former President of Sri
Lanka, Gotabaya Rajapaksa, fled on 13th July 2022.

SOLUTIONS FOR SRI LANKAN ECONOMIC CRISIS

Since Sri Lanka’s crisis is multi-dimensional, it requires a multi-pronged solution:
 Political Solution: Appointing a stable government acceptable to all parties
 Economic Solution: Introducing reforms to curb the debt burden of Sri Lanka
 Social Stability: Restoring public order and establishing peace
 Tackling Internal Threats: Preventing ethnic tensions that could amplify the chaos

After the fleeing of Sri Lanka’s president, Gotabaya Rajapaksa, immediate steps had been
taken to fill the political void and to re-establish the integrity of the government. The
interim government thus formed was said to rule until the stability of Sri Lanka is restored
even though people had no say in this matter. This is because the parliament could not be
dissolved by the President as his term was less than 2.5 years and Sri Lanka simply did
not have the budget for re-election which would require more than 5.7 billion INR.
Therefore, the citizens of Sri Lanka have no choice but to trust and have faith in the interim
government to bring Sri Lanka to a path of economic stability and growth.

RECOMMENDATIONS FOR SRI LANKAN ECONOMIC CRISIS

 Boosting Agricultural Productivity
Sri Lanka metamorphosed from chemical farming to organic farming in 2019
which proved to be disastrous for its economy. Although it was a step taken toward
environmental advancement, the country-wide ban on chemical fertilizers backfired
on the government. This resulted in domestic rice production falling by 20 percent
and cash crops were devastated. In order to reverse this, the government could roll
back on its manure policy and invest more in fertilizers that are less damaging to
the environment.

 Diversifying the Economy

Agriculture is the core contributor to the Sri Lankan economy. If the government
implemented policies that could enable the growth of other sectors, it would ensure
a more stable inflow of revenue than placing all its eggs in one basket. The
government could take steps to create more non-agrarian jobs and invest in non-
farming sectors. The government could also redirect its funding toward the
tourism sector after its fall due to the Wuhan virus thereby bringing Sri Lanka’s
economy back on track.
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  A shift from Informal to Formal Sector
Unfortunately, 70 percent of Sri Lanka’s population is employed in the informal
sector which leads to a fall in productivity and a rise in poverty. The government
could implement policies that boost productivity, enhance education, promote skill
development, create jobs, and shift the working population from the informal sector to
the formal sector.

CONCLUSION
Presently, Sri Lanka is seeking help internationally to aid in its pursuit of damage control.
India has sent aid worth 3.6 billion USD and is making sure to tread on a path that
respects public sentiment without getting involved in Sri Lanka’s political mess as it did
during Sri Lanka’s Civil War in 1987. Global bodies are also pitching in bailout packages
to help with economic recovery; however, these will take time to reach Sri Lanka. There
exists a power vacuum that could be exploited by radicals and extremists so it is important to
keep in mind that any insensitive step could open up old wounds and flare up ethnic tensions.

REFERENCES
1. https://www.researchgate.net/publication/
361571361_Sri_Lanka's_Economic_Crisis_A_Brief_Overview
2. https://hdr.undp.org/sites/default/files/Country-Profiles/LKA.pdf
3. https://economictimes.indiatimes.com/news/international/world-news/solutions-to-
economic-crisis-must-be-found-in-accordance-with-peoples-wishes-oppn-leader-to-
sri-lanka-pm/articleshow/91565914.cms
4. https://www.cnbc.com/2022/07/13/gotabaya-rajapaksa-flees-sri-lanka.html
5. https://www.orfonline.org/expert-speak/sri-lanka-food-security-impacted-by-flawed-
economic-policies/
6. https://www.eco-business.com/news/how-can-sri-lanka-solve-its-impending-food-
crisis/