“The Pearl of Indian Ocean— Sri Lanka” & It’s Economy.

Macro-economic data analysis of Sri Lankan economic variables:

This article aims to concede and analyse the various macroeconomic factors or variables that define the economy of Sri Lanka. This data validation indents to show the trends in the relationship between various variables and indicators of macroeconomic terms. It shows the economical trends in Sri Lanka, with reference to GDP growth rate, Inflation Rate, Net Exports, External Debt Stocks and Unemployment rate and how all these factors correlate to each other in one way or another.

The Sri Lankan National Flag

“Economics is the art to meet unlimited needs with scarce resources” — Laurence J. Peter

“Macroeconomics is a branch of economics that deals with how an economy functions on a large scale. It differs from microeconomics, which deals with how individual economic players, such as consumers and firms, make decisions.”(Standard, 2021). It is a well-known fact that macroeconomic theory and data that evolves after the action orientation depicts the real economy of a particular nation and portrays the estimated future graphically. Such data are the ones like GDP(Gross Domestic Product), GNI(Gross National Income), CPI (Consumer Price Index) and other variables that creates a silver lining for the authorities to take financial decisions.

Sri Lanka is one of the fast-developing countries in the world even faster than India, placing records of excellent rank with regards to many criteria like economic growth, poverty rate, employment rate, literacy etc. The country has a population rate of around 2.18 crores(2019) and a landmass of 65,610 Km square. Sri Lanka is a lower-middle-income country with a GDP per capita of USD 3,852 (2019) and a total population of 21.8 million. With over six decades of partnership with Sri Lanka, World Bank Group continues to support Sri Lanka’s transition to a more competitive, inclusive, and resilient country. (World Bank,2019). The governments are in a great strive to develop Lanka and bring world-class standardization. The trends also explain the economic position of Sri Lanka.

Various trends in Macroeconomic data of Sri Lanka

1. GDP Growth Rate and Debt Rate;

Figure 1

The economic theories and facts always talk about the Debt-to-GDP ratio as when GDP rate is less than the debt, the country is at risk of not paying the due fund and faces a lot of financial tensions with regards to repayment and loans the country take in order to pay off the debts. When we analyse Sri Lanka’s debt to China based on the development plan of China, also known as the trillion-dollar plan of China to dominate the global trade. Seaports are being built by China in the southern part of Sri Lanka and it will be controlled by the Chinese government until the debt is repaid.

China’s trillion-dollar plan to dominate global trade which includes the seaport in Sri Lanka and the debt it has to China.

Analysing the graphs depicted above, the country faced three major downfalls in the GDP growth rate in the years 2002, 2009, 2013 and at the same time, the debt rates were at the hike. When we look at the present situation, the country is incapable of repaying the debts anytime soon as the GDP rates are far below than the debt rates. In 2019, when the GDP growth rate was at 2%, the debt rate was above 68%. Such a trend clearly tells us that it would affect the living of people as the government would increase the tax to raise funds and government spending on public affairs would reduce.

2. GDP Growth Rate & Unemployment Rate;

Figure 2

Arthur Melvin Okun, an American economist propagated a law that shows the simple relationship between GDP and Unemployment, that clearly depicts the inverse proportion of both the variables. A part of Okun’s law states that a percentage increase in the unemployment rate causes a fall of 2 per cent of GDP rate. Unemployment is always a drawback when it comes to the nation’s national income and development.

These two variables portray the country’s development components for the world to estimate Sri Lanka’s economic growth. When unemployment rises, the production and consumption of goods and services decrease as less number of people work and less number of people consume both due to unemployment and lack of income respectively. Hence a fall occurs in the GDP rate.

The first fall in the GDP growth rate, in the above graph, was in 2001 with a negative figure and at the same time, the unemployment rate was rising, which gives us a clear cut idea of the relationship between these two variables and how significant it is. When the trends are observed properly, we can find the inverse pattern of both in different years from 2000–2019.

3. GDP Growth Rate and Inflation Rate

Figure 3

It is a well-known fact that the growth rate of GDP causes inflation over time as per the economic trends because when inflation rises, people would spend more money considering the less valuable criteria in the future. Therefore it causes a rise in the GDP in the short term that brings about further price increase. This is the basic relationship between GDP rate and inflation.

However in Sri Lanka, from 2000 to recent times it is going through a situation called “Stagflation” which is an economy that faces a rise in inflation simultaneously and the growth rate would be still less. This concept completely contradicts the fact of growth in GDP forcing a rise in inflation. Sri Lanka has been facing stagflation since so many years and is striving to bring up the GDP growth rate.

The above trends show how Sri Lanka had faced stagflation twice, one in 2001 and the other in 2019 in which both the graph lines repel and go away from each other. From a personal experience, living in Sri Lanka is very expensive as the government imposes more tax on products and services making it difficult for the people to survive but what makes Sri Lanka unique is that its money supply that is efficiently supplied within the country and on top of all this, it has debts to the world bank and China (as mentioned above). The Sri Lankan government does a lot for the welfare of the people but due to the recent economic crisis and other credits remaining, the government reduce public expenditure and focus more on repayment of loans and tax orientation.

Conclusion;

Sri Lanka is not at all deprived of natural resources or the people do not face any kind of poverty situations as the government has taken necessary steps to give a comfortable life to people but at the same time, the stand of living has changed drastically based on the economic trends and especially during the present-day pandemic as it has created a great financial crisis everywhere in the world. The whole article shows the real relationship between GDP growth and other variables such as external debt rate, unemployment, inflation etc. Their interpretations are quite vague often because of the uncertainties and the conditions about arise in the future are also not completely predictable.

All these Macroeconomic variables are the true indicators related to the growth of the nation and it does need to efficiently work as per the economic strategies created to eradicate the problems the country faces. Sri Lanka is a fast-developing country and it has a long way to go and build up the nation to reach the top trending countries and to be in par with the best and positive economic conditions as that of the topmost developed countries.