The year 2010, when the thirty year civil war ended, generated much optimism regarding Sri Lanka’s economic prospects. The real GNP growth at this time seemed to bear this out. The first nine months of 2010 recorded a 7.9 percent real GDP growth, compared to 3.5 percent in 2009, and as against an expected growth rate of 7.5 percent in 2011. The business conglomerates that incurred losses in 2009 recorded nearly a 50 percent year over year growth in net earnings during the first three quarters of 2010. Having displayed this striking buoyancy the private sector is expected to do even better in 2011.
These signs of a turn-around have been widely attributed foremost to the ending of the prolonged civil war. With this presumption there is the hope that the next few years’ growth rate will increase further, having performed poorly during the war and because of the war. Yet, a comparison with Sri Lanka’s war time economy hardly provides ground for this optimism which the mere ending of war has generated. Respectable rates of growth were achieved even during the war years of 1983 to 2008. During this 26 year period the average annual growth of the real GDP averaged 5.8 percent, considerably higher than in the twenty one years preceding the war from 1961-1982, when the growth rate was only 3.8 percent (Table 1). In this connection it is also important to note that this commendable growth rate during conflict years was realized even without the tourist boom –the offspring of peace- which helped the economy to reach 7.9 percent growth in the immediate post-war year 2010.
The relatively high average annual increment in GDP during the war, suggests that growth was not adversely affected by the conflict if growth is measured in conventional terms. It might not be wrong to say that, the economy reaped what may be considered to be a ‘war dividend’ much larger until now than the ‘peace dividend’ which was expected to accrue once the war was over. On this reckoning, contrary to what is commonly supposed is borne out: the war had not unduly depressed economic growth, with the economy waiting to take off when peace and political stability returned. The war seemed in fact to have enhanced growth rather than curtailed it.
Further, the growth of 7.9 percent in 2010 – the immediate post conflict year – is only marginally above the average growth rate of 7.3 percent during 2006/2007, the years of intensified fighting (Table 2) and escalating defense expenditure. The GDP growth of 7.3 percent in these two years was all the more notable since it took place after a high-base output growth of 6.2 percent in 2005, as opposed to 2010 in which year the growth performance occurred from a low base of 3.5 percent. Hence, even the average growth rate achieved during the severely war ravaged years of 2006/07, proved to be more robust than that during the post-conflict year – 2010, allowing for a clear twelve months period.
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