15 - Case study: Sri Lanka

Summary

Sri Lanka is in many ways typical of a great number of smaller developing countries. Lacking indigenous fossil resources, oil imports have come to represent an increasing burden on the balance of payments. Its natural forests, that once covered much of the land area, have become dangerously depleted as a result of the needs for agriculture, and of increasing demand for fuelwood. With an economy that despite efforts to diversify its export base is still largely dependent upon a few major commodity crops, namely tea and rubber, its balance of payments remains precarious. And the outlook for mobilizing the significant foreign investment necessary for expansion of the capital-intensive energy sector remains a major problem.

In some respects, however, Sri Lanka is not at all typical. Sri Lanka's social indicators – health, education, general social welfare – are much higher than suggested by standard per capita income comparisons. Macroeconomic reforms initiated in the late 1970s resulted in a sustained period of real economic growth, that has slowed recently only as a result of the increasing level of civil disturbances.

Sri Lanka therefore makes for an excellent case study. Much progress was made in the mid 1980s towards the formulation of a coherent National Energy Strategy, which is currently being implemented with some success. It was also one of the first countries in which the writers were able to implement a hierarchial modeling and analysis system in direct support of policy-making, an experience that permits many useful lessons to be drawn.

Macroeconomic background

Sri Lanka's economy has undergone a remarkable transition in the past decade.