Sri Lanka is ready to rise again — a nation on the path to sustained growth path, that is.
That’s according to a recent McKinsey Global Institute (MGI) study, which names Sri Lanka among the few countries that are well-prepared to rise among emerging markets in the next decade– provided that China doesn’t stand on the way, it should be added.
Among Sri Lanka’s strengths is its human capital. Sri Lanka’s HDI value for 2015 was 0.766— which put the country in the high human development category— positioning it at 73 out of 188 countries and territories, according to a World Bank Report. Between 1990 and 2015, Sri Lanka’s HDI value increased from 0.626 to 0.766, an increase of 22.4%.
There was a time, Sri Lanka was ready to grasp the Asian growth miracle. That was in the three decades that followed the country’s independence. Then came the revolution, which threw the country into chaos, shattering its growth prospects.
“In the 1960s Sri Lanka was billed as the next Asian growth miracle, only to be stymied by a tryst of socialism that played a direct role in igniting a civil war,” says Ruchir Sharma, author of Breakout Nations. “Following the independence in 1948, leaders of the Sinhalese majority set out to correct the injustices of British colonial rule, which had heavily favored the country’s Tamil minority.”
The rest is history.
“What followed instead was the Tamil rebellion,” explains Sharma. “Launched in 1977, the revolt coalesced under the “Liberation Tigers” of Tamil Eelam, whose pioneering brutality in the use of child soldiers and suicide bombers—would derail Sri Lanka’s development for thirty years. During the war the central government used sanctions to effectively cut off the rebel-held region from the rest of the country and the world.”
But that’s the past, and the country is getting a second chance to become a ‘break-out nation.’
“The civil war is over, the process of healing is under way, and there is every chance that Sri Lanka will again become a breakout nation,” adds Sharma.
Not so fast, because there’s China, which could spoil Sri Lanka’s second chance to become a break-out nation. For an obvious reason. Sri Lanka has been ceding control of its major ports to Beijing in effort to pay back for the debt it owes to China.
Last year, CM Port made a $584 million payment as part of a $1.12 billion deal to operate Sri Lanka’s deep-sea Hambantota port, according to a Reuters report. Under the agreement, signed in July 2017, CM Port will operate the $1.5 billion Chinese-built port on a 99-year lease.
The $1.12 billion total price is to be used to reduce the Sri Lankan government’s debt to China.
China’s growing presence in Sri Lanka began back in 2007, when Beijing provided President Rajapaksa both military and diplomatic support to crush the Tamil Tigers. Then followed high profile construction projects and high interest loans that left Sri Lanka heavily indebted to China.
Sri Lanka government debt was standing 77.60% of the country’s GDP in 2017, well above the 69.69% average for the 1950-2017 period, according to Tradingeconomics.
Meanwhile, Sri Lanka’s Government Budget deficit stands at 5.5% of the country’s GDP, adding to its indebtedness.
Rising indebtedness comes at the wrong time. Sri Lanka is already living beyond its means, as evidenced by persistent current account deficits, which stand at 2.60% of the country’s GDP in 2017.
That could spoil Sri Lanka’s chance to become a break-out nation again.