D A Rajapaksa memorial lecture :
National development of North and East
National development is not merely about the economy but the economy
is central. It entails economic, social, political, cultural and even
moral aspects. The contribution of the North and the East during the
last three decades or so was hampered in all these spheres by the
separatist and the terrorist war. It is necessary to emphasize not only
the terrorist character of the war but also the separatist aspect. One
cannot be separated from the other. If terrorism was the symptom, as
some people argue, separatism was the cause. However, as the war is over
and peace is established, prospects are high for the people, the
institutions and organizations of these provinces to participate in the
processes of national development and contribute to its progress.
D A Rajapaksa
This Memorial Oration of Hon. DA Rajapksa, one of the most
illustrious and committed national leaders of Sri Lanka, highlights both
prospects and challenges of the north-east participation in the national
development. It takes Mahinda Chinthana as the main framework of
analysis which outlines not only the directions but also various
projects and plans for the national development in the ongoing future.
Sri Lanka has entered the category of the middle income countries
with over 42 billion economy and little above a population of 20 million
people. This means that the country is still at the lower level of the
middle income countries with a per capita income of around USD 2,085.
There are vast disparities in the income distribution in the world today
and Sri Lanka’s per capita income is 17 times lower than the United
Kingdom, the country’s former colonial master. When Britain left Sri
Lanka in 1948, the gap was wider. Sri Lanka has managed to catch up to
an extent, but not to the extent of people’s aspirations or country’s
Sri Lanka was a typical ‘export-import’ economy at the beginning of
independence with the agricultural sector contributing to over half of
the GDP. The exports and thus the foreign exchange earnings depended
primarily on three main products of tea, rubber, and coconut. The
situation has drastically changed by now the sectoral composition shows
the following picture in Table I in contrast to 1950.
It is mainly the expansion of services and industries that has
changed the composition. Although the plantation agriculture has
contracted, the food producing domestic agriculture has expanded and
increased. It is believed that the present composition is akin to a
‘modern economy’, the service sector taking the lead in the economy.
While the spread of infrastructure and services is uneven between the
provinces and districts, the overall availability of facilities is
conducive to domestic development and Foreign Direct Investment (FDI).
The most important is the growth that Sri Lanka could sustain during
the last five years irrespective of the war, Asian Tsunami and the
international economic/financial crisis. Sri Lanka could maintain 7.6,
6.8, 4.2 and 3.5 growth rates respectively in 2006, 2007, 2008 and 2009.
While the growth rates were only 1.6 and 2.1 for the first two quarters
of 2009, when the war culminated, after the defeat of the LTTE in May
that year the growth picked up by 4.2 and 6.2 respectively in the last
two quarters. The growth rate rose to 7.1 in the first quarter of this
year followed by 8.5 in the second quarter. This figure is higher than
what prevailed before the Eelam War IV that broke out in mid 2006.
The other main index of economic performance after the war is the
Stock Market. There are two indexes, All Shares Price Index (ASPI) for
all stocks listed in the market and the special index called Milanka
Price Index (MPI) for blue chip companies. The market was extremely
sluggish throughout the war. In May 2009, both indexes were just above
the 2,000 mark. By the end of the year ASPI exceeded the 3,000 mark
while MPI recoding 3,500. Together this was over a 50 percent growth;
since than MPI performing always better than the ASPI as could be
anticipated. So far since the beginning of this year growth has been
around 100 percent. By the end of 2009 Sri Lanka was considered the best
performing stock market.
There are other economic fundamentals that indicate that Sri Lanka
could ‘take off’ for a higher growth and development making the economy
elevated to the upper range of the middle income countries. One
objective of Mahinda Chinthana is to increase the present per capita
income to the level of around USD 4,000 by the year 2016. Sri Lanka
appears well into that direction.
For and efficient market economy, supervised by the state, both the
inflation rate and the interest rates are maintained low. Low interest
rates are an inducement for the small and medium scale enterprises (SME);
which is mainly the nature of the Sri Lankan economy. The unemployment
rate is all time low within the range of 5-6 percent of the labour
The gross official reserves now stand at their highest level of USD
6.1 billion, which is equivalent to six months of imports. Following the
successful completion of the fourth review of the Standby-Arrangement,
the IMF has released the fifth tranche to the value of USD 212.5
million. This shows to the confidence that the IMF has placed on the Sri
Three rating agencies, Standard and Poor’s, Fitch and the Moody’s,
upgraded Sri Lanka’s rating standards primarily in capital markets from
B to B+, from Stable to Positive and from B to B1 repectively in
When Sri Lanka made its third global debt issue aiming at USD 1
billion, it was oversubscribed by more than 6 times within 14 hours.
Between January and June this year, Sri Lanka’s exports improved by
13.7 percent and internal remittances by 13.5, compared to the same
period last year. The balance of trade, however, shows a 108 percent
deficit due to the heavy import of investment and infrastructure
material including motor vehicles.
Although the FDI inflows are still sluggish due mainly to the world
decline by 29 percent in 2009, for example, it is estimated that the
situation would improve after the favourable international ratings and
confidence. So far this year, USD 124.2 million flowed into the
infrastructure sector, USD 55.6 million to the manufacturing sector and
USD 25.9 million to the service sector. A reason for the FDI reluctance
into the country could be the prevailing fiscal deficit which might be
improved or corrected after the new budget for 2011.
North and East
Traditionally, the East was considered the granary of the country.
The North and the East are two distinct and important portions of the
Sri Lanka’s national economy that became obliterated by the war for
nearly three decades.
As the Governor of the Eastern Province Mohan Wijewickrama stated at
the inauguration of the new Provincial Assembly in June 2008,
Sectoral Contribution to GDP
Agriculture 50.1 11.9
Industry 11.2 28.1
Services 38.7 60.00
Source: Snodgrass and Central Bank
The Eastern Province contributed around 14% to the national GDP in
the early eighties which declined to about 8% thereafter because of the
unsettled conditions in the Province.
The above is to highlight the essence of this Oration before going
into some description of the two provinces under discussion.
Provincial demarcations were first devised by the British for revenue
and administrative purposes in 1883 and later abandoned considering the
importance of the district for both purposes. As a result, the district
was the main focus of analysis before the provinces again became a major
unit under devolution of governance in 1987.
In terms of total area, the Eastern Province is the second largest
province (9,996 km2) after the North Central (10,472km2) and North is
the third largest (8,884km2) in the country. However, in terms of land
area, the North becomes third to Uva because of high inland water area
(594km2). When considered the population percentage or population
density, the North and East stand two of the lowest in the country with
North Central and Uva. The relative land area of the East constitutes
15.2 percent of Sri Lanka’s total and the North 13.5 percent.
In contrast, while the Northern population is 5.8 percent of the
country’s total, the East constitutes 7.5 percent. These population
figures and land areas should be taken into consideration in estimating
and generating possible contribution by these provinces to the national
economy in the foreseeable future.
The disparity between the area size and the population perhaps is one
major factor why these provinces were relatively underdeveloped with
similar provinces like the North Central and Uva. These are the
predicaments of uneven development linked to climatic and other
conditions which could also give rise to social unrest again and again.
All these provinces by and large constitute the dry zone of Sri
Lanka. Unless these areas are planned, irrigated and taken care of by
proper national policies in coordination with provincial
administrations, disregarding ethnic or political considerations, the
lives of the people inhabited in these provinces may remain largely
destitute. North-East in Sri Lanka is not unique in underdevelopment.
Like in the world at large, there are many countries where there are
‘centres and growth poles as well as peripheries and underdeveloped
The objective of sustainable development is to avoid them. There is
the Ministry of Development of North Eastern Region in India established
in 2001 by the central government to take care of development planning
and projects in eight states of North-East India covering Arunachal,
Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim. Even
in Egland, the North-East is considered relatively underdeveloped and
special attention is made to develop the areas from Northumberland to
Durham and from Tyne to Middlesbrough.
However, before the separatist war began, the conditions could not be
considered singularly unsatisfactory in the North or the East in overall
terms compared with many other regions or provinces. For this period,
national accounts or survey data was not available for provinces.
Most of the data was compiled on the basis of agro-climatic zones and
all the districts in the North-East except Ampara came under Zones 3.
The following Table 2 gives Consumer Finance Survey (CFS) data for four
years between 1973 and 1986 presented in index form compiled taking Zone
5 or the Colombo Municipality area as the base (100) at a previous year.
Consumer Finance Survey
One Month Income as Index of Different
1973 1978 1982 1986
Zone 1 262 627 1126 2001
Zone 2 262 654 1183 1989
Zone 3 273 742 1133 -
Zone 4 178 445 983 1400
Zone 5 275 972 1979 3846
Source: W D Lakshman, Dilemmas,p. 192
While the above data corroborates with many other data available for
the period, what can be seen is the common predicament that Sri Lanka
has been facing in respect of centre-periphery dichotomy.
This dichotomy was significantly enlarging particularly after the
districts of Jaffna, Mannar, Vavuniya, Mullativu, Trincomalee and
Batticoloa. This zone did not have any special disadvantage in overall
terms before 1978, and by 1986 it was virtually impossible to conduct
any reasonable survey to gauge the socio-economic conditions of these
However, there were clear indications of significant disparities
between districts within the zone, before and after, perhaps which led
to unrest among the people who lived in these marginal districts. One
implication of the situation is that even in the future, the allocation
of resources and funding should be primarily on the basis of districts
and not merely on the basis of provinces.
Prospects for Development
The major premise for the North and East contribution to the national
development is peace. An extremely volatile region before, the provinces
have not reported any type of disturbing violence since May 2009 and
even the crime rates have gone down with the establishment of law and
order in 1977. Zone 5 was the centre and all others represented the
peripheries. Zone 3 composed.
The economic cost of the war has been estimated to be around USD 200
billion in the last decade only. This is around five times of the annual
GDP estimated from the present amount. Now the ‘cost of war’ has stopped
except for the maintenance and payments for the armed forces. As the
most successful section of the public sector in recent times, the armed
forces are contributing immensely for the resettlement, rehabilitation
and reconstruction. Development will be one outcome.
There was no doubt that even the ‘illusive peace’ during the
Ceasefire Agreement (CFA) in 2002-2004 also resurrected the economy to
an extent until the Asian Tsunami came. However, the economy was kept
apart from the national economy for the benefit of the war efforts of
the LTTE. Many of the foreign funded projects and their monies also were
channeled for war purposes than peace or people’s benefit.
The contribution of the North to the national GDP has been the lowest
for a very long period. It was around 2.5 percent in 1999 which went
only up to 2.9 percent in 2004. While the contribution of the East has
been double of the North, yet it was around 5 percent in 1999 which went
up to 5.4 percent in 2004. One reason attributed to the low contribution
was the informal or the LTTE war economy which has completely ended with
the end of the war in May 2009.
In 2009, the contribution of the East was around 8 percent and hope
that it would go up to at least 14 percent this year as it was the
pre-war contribution in early 1980s. Likewise, the contribution from the
North is expected to be at least around 5 percent this year.
What would matter is not so much the percentage contribution in the
short term. Since some of the other provinces (particularly the Western
Province) are on a rapid growth path, obviously the contribution of the
North or the East might be depressed for some time until the regional
imbalances are corrected. When sectoral composition of the North and the
East is compared with each other and with the national economy, there
are interesting revelations. While the Northern economy is predominantly
service dominated (65 percent), the East is basically an agricultural
economy (39 percent) according to 2004 figures. It might be the case
that the service sector in the North appeared bigger because of the war
conditions. What are clearly resuscitated at present are agriculture,
fisheries and the service sector. An author from a Tamil nationalist
point of view nevertheless reported the resurrection of the economy in
As for the Tamil Homeland, there is already some signs of increased
economic activity in the North and East with trade booming between North
East and the rest of the country and while tourism is another thriving
industry. Opening of the major banks, supermarket chains in the North
are signs of increased economic activity. Further more, the rise in
property value over past 6 months in and around Jaffna has been
phenomenal combined with the fall in property values in Tamil dominated
areas in Colombo, indicating a tendency of return of the local Tamil
economic ‘migrants’ to the North. This seems a clear sign of economic
prosperity in the North and East in the short period.”
Challenges for Development
A major challenge that needs to be taken into consideration in terms
of economic development in the North and the East is the vast
disparities between districts. This is not only in respect of population
but perhaps related to that as well. In respect of population
distribution, Jaffna district has more people than the rest of the other
three districts of Mannar, Vavuniya and Mullativu taken together. This
is very much the case at present and even before the war. In the case of
population in the East, disparities are less conspicuous except between
Ampara and Trincomalee.
The socio-economic disparities between districts are more significant
which might impinge on development strategy. If the consumer finance
surveys (CFS) of the good old days were of any indication, there were
major disparities between Jaffna and rest of the three districts in the
Northern Province. Perhaps this has enlarged further due to the fact
that Jaffna was largerly liberated from the LTTE well before the other
district. This is not unusual in Sri Lanka as a whole either.
When household output, consumption, sales and stocks were surveyed
for a month for non-seasonal crops in 1984, Jaffna district stood 30
times higher than Vavuniya and 90 times of Mullativu. Only Mannar could
compete with Jaffna yet with a 50 percent disparity.
All other survey indicators on trade, transport and livestock also
indicated to that direction. In the case of the Eastern Province, Ampara
was similarly ahead of Batticaloa and even Trincomalee on the same
indicators. There is much talk about provincial disparities after the
introduction of the provincial council system, which is important.
However, it should be noted that the district or even divisional
disparities are equally or more important which needs priority
There are other challenges which are economic as well as
non-economic. When the war ended, there were over 300,000 internally
displaced people. It was independently estimated that over two years
might take to resettle them particularly due to the spread of landmines
in areas where they had to be resettled. It is reliably estimated that
almost 95 percent of the case load is now cleared, after one and half
years, and only around 20,000 remain to be resettled. This does not
however mean that the resettled IDPs would automatically contribute to
the economy. There are considerable social dislocation among IDPs and
others. It is estimated that over 89,000 women are widowed as a result
of the war; 40,000 in the North and 49,000 in the East. The most
devastated is children’s education. All these might affect economic
development adversely for some years to come.
The Northern Province or particularly Jaffna was well prominent for
its educational and professional contribution the national economy in
yesteryears. By the time of independence, Jaffna produced around 15
percent of the key three professions of doctors, lawyers and engineers.
Even by 1985, educational standards of the Jaffna community were
exceptionally high, with 25 percent of the age group of 15-60 years
having GCE (O/L) and 10 percent of the same age group attaining GCE
(A/L). There were 1,411 degree holders, with 140 of them having
postgraduate degrees. Irrespective of the war, the educational standards
of Jaffna have not deteriorated.
Thanks to the functioning of the University of Jaffna under trying
conditions, there are more graduates today than anytime in the history.
This is a welcome sign for the resurrection of the economy in the North
and their contribution to economic planning. The situation in the East
is not dissimilar with having two universities functioning under similar
In considering the North and East contribution to the national
economy or national development, the ‘ethnic challenge’ cannot be
ignored or overlooked.
As there had been open discontent from these provinces in the past
three decades, a political reconciliation is in order. The following is
what President Mahinda Rajapaksa stated recently on the subject.
The entire focus of our nation is now on building a lasting peace;
healing wounds, ensuring economic prosperity and guarantee in the rights
of the whole nation to live in harmony. We are mindful that in order to
fulfill these aspirations, economic development and political
reconciliation must go hand in hand.
There are provincial structures in place under devolution to address
many of the issues as the obstacles of terrorism are now eliminated.
However, two important matters have to be reconsidered under devolution.
First is whether, the provincial councils have the competence or full
capacity to handle all the 37 functions attributed to them under the
Second is how far the present system obliterates the issues of
districts or the local government system as a result of the overwhelming
concentration of power in the hands of the provincial councils. There
need to be some form of rethinking about devolution, moving towards more
cooperation between the central government, provincial councils and
local governments. ‘Cooperate devolution’ might be the right word and
Sri Lanka is in a different paradigm altogether after the end of the
war. There were various reasons why Sri Lanka could not progress enough
compared to some other countries in the region in the past. It is an
exaggeration to consider the north-east issue or the war as the only
reason. The main reason was the ‘lack of a proper strategy’ in
addressing the fundamental issues, including the war, in a comprehensive
manner. This gulf has now been filled by Mahinda Chinthana. Connected to
this issue is the question of political leadership and political will.
Sri Lanka inherited a political culture from Britain and according to
this culture political plurality was overemphasized to the extent that
‘concerted national effort’ for development of social progress was
almost impossible until recently. This has changed dramatically after
A concerted national effort is now forged through broad political
coalitions of various parties and formations, minimizing divisiveness
and also maintaining the main tenets of dissent, freedom and political
plurality. The most important need of the hour is for the political
parties and the groups representing the North and the East to
participate in this ‘grand coalition’ more broadly than as at present.
There are different views as to how a national economy could be
constructed and developed. In economic terms, the infrastructure
development is emphasized along with the importance of technology. There
are other factors and sectors that need to be developed. While there is
no much dispute over what appear to be technical or pure material
conditions necessary for such a development, the main controversy appear
to be on two directions. First is the private sector public sector mix
or the role of the State.
While there are extremes of view on the matter, Mahinda Chinthana has
developed a conception of a ‘developmental state’ where the market is
allowed to function with public sector participation and supervision.
Second is the center-provincial policy mix in the national development.
Yet again there are extremes of view, and the present paper argues for a
mixture of national-provincial participation in development where
devolution could be implemented in a cooperate fashion. It might be on
that basis that ‘expected contribution from he North and the East’ could
be anticipated for the ‘national development of Sri Lanka’.