A Vision for Sri Lanka 2025& 2035 – Pre-Requisites of Very High Human Development (Part 2)

2. Per Capita incomes of Sri Lanka in 2025 and 2035

Sri Lanka’s Human Development Index and global ranking would be a good starting point for our exercise. Let us assume that the Sri Lankan economy would be able to sustain an average rate of growth of 6.5 %  in real terms during this twenty-year period, From this we can derive a per-capita income growth of  6%, assuming an average annual rate of population growth of  0.5%  for the entire 20 year period.

The population projections that are available have forecast a  lower average rate for the entire period  – around 0,5% for the ten year period 2015-2025 and 0,25 for 2025-2035. The economy has sustained growth rates of  8%, 8.2%,6.3%, 7.3%, and 7.4% during the last five year period 2010-2014. The government is predicting that the growth rate will rise to over 8% in the next few years. Therefore the more modest annual average GDP growth rate of 6.5%  and growth of per capita income at 6%  used in the scenarios projected in this paper are arguably well within realizable limits. As economies reach high-income levels growth rates tend to decline, The World Bank estimates that growth rates for high-income countries during the period 1965-1999  was in the region of 3.2%. For the period 2000 -2010 the average growth for most VHHD economies which had reached the VHHD condition much earlier ranged from about 2.0%   (Sweden, Canada)   to less than 1% (Japan, Denmark). However fast-growing developing countries that reached the high-income levels of developed countries during 2000-2010, as in the case of South Korea and Singapore continued to sustain high growth rates in the region of 6% to 7%. Therefore there should be no insuperable structural constraints that would prevent Sri Lanka from sustaining a growth rate of 6.5% over the next 20 years until it reaches the current levels of per capita income currently enjoyed by  South Korea or the developed countries such as Ireland or New Zealand which have per capita incomes in this range. Towards the end of this period growth will decelerate and move in the direction of zero growth. This long term trend has to be kept in perspective in Sri Lanka’s journey to the VHHD condition.

Table 1 below gives two goalposts for the state of development that Sri Lanka could reach in 2025 and 2035. The calculations are made in terms of the purchasing power parity dollar (PPP$)which has been universally accepted for making international comparisons of per capita income and the state of economic development of countries. All the data for per capita PPP$ incomes presented in this paper are taken from the UNDP Human Development Report 2014. Table 2 and 2a in the Annexe provide the data for the 49 countries in the category of “very high human development “. Table 2 shows their state of well –being for the year 2013  and Table 2a  the past trends for the period 1980- 2013.

The PPP dollar income of Sri Lanka in 2013 – PPP$ 9250- has been projected at 6% per annum and the outcomes for 2025 and 2035 have been derived accordingly. These projections of PPP$ income for the two goal posts are based on the methodology used in the human development report for constructing a time series of PPP$ incomes. The HDR uses the growth rate of real output for this purpose (Technical note 1 http//hdr.undp.org). Undoubtedly there are issues of great complexity that arise in the use of such a method. Purchasing power parity measures income at one time; it is an inter-spatial measure, not an inter-temporal measure whereas in the methodology used for the present exercise, the 2013 PPP dollar is taken as the benchmark and used as a constant PPP dollar over time. We need to bear in mind these limitations when we use the projections that are given below. We have to note that these projections cannot fully and accurately represent the trajectory of development that Sri Lanka takes over a twenty-five year period; nevertheless, it provides an adequately reliable framework for realistically  “imagining” Sri Lanka which the children and grandchildren of the present generation will inherit.

Table 1:  Projection of Growth and Population 2025, 2035

*standard projection by Indralal de Silva – A population projection for Sri Lanka-for the new millennium 2001-2100.

The projections given in the table indicate that Sri Lanka would enjoy a per capita PPP$ income of 18952 in 2025. It would be in a state of development similar to the countries in the bottom half of the very high human development category in 2025 – countries with PPP$ per capita incomes in the range of 18,000 -20,000 – Argentina with a per capita dollar income of 17,297 or Chile with an income of 20, 804. In 2035 it would have reached a PPP$ per capita income of 33,300 which is a little above the per capita incomes reached by South Korea and New Zealand in 2013. In order to reach these destinations in 2025 and 2035, we must assume that Sri Lanka t should have closed the gaps in health and education. This means that by 2025 about 2 years should have been added to both life expectancy and the span of learning  By 2035, 4 more years should have been added to life expectancy and two more years to the span of learning. We are assuming that with economic growth taking place as projected, concomitant action will be taken to close these gaps.  Some of the requirements for closing these gaps are discussed in the sections that follow.

In the VHHD category, we are dealing with countries with populations of widely varying size. Countries with much smaller populations have economies of much larger size than Sri Lanka. Switzerland,(8.I million population ), Belgium  (11.1 million population ) and (Sweden  9.6 million population);  each has economies in a range between 400 billion PPP$ and  440 million. These are the closest in the VHHD category to the size of the economy of Sri Lanka in 2025. All of them have large service sectors above 70% of GDP. By 2035, Sri Lanka’s economy would be the size of the present economy of the Netherlands which has a population of around 17 million. 72% of its output is in the service sector  These figures broadly indicate the magnitude of Sri Lanka’s economy and the size to which it must grow to reach the two goalposts.  They also suggest the structure of the economy and in which sector it needs to grow fastest – the services sector.   This paper does not deal with the potential of Sri Lanka’s economy and the sources of growth that would lead the Sri Lankan economy to the VHHD state as such a task does not come within its scope. It is however an essential task and would have to be undertaken as a separate exercise. Nevertheless, what can be robustly demonstrated here is that the ongoing development trends in Sri Lanka point in the direction of an economy that relies heavily on the services sector;. Services should probably account for about 70 % of GDP. Some of the implications of such an economy for the pattern of growth and quality of life are examined later in the paper.

When we make international comparisons of this nature we need to move very cautiously. While it is easy enough to point to differences and similarities when making these comparisons, the degree of uncertainty and variability becomes increasingly difficult to control when we come to evaluate the impact that these have on the total outcome. The PPP dollar helps us to reduce a part of this uncertainty by taking the component of development that can be monetized or priced. But even with regard to the PPP $ as a common measure of income,  experts who designed this measurement have elaborated on the problems of selecting a common bundle of goods and services, tradable and non-tradable which can serve as a tool for international comparisons. Quality of life comparisons across countries on the basis of PPP$ per capita income alone can also be very misleading. We can illustrate this by taking three countries in the “very high human development” category, – South Korea, New Zealand and Israel. All three cluster round the per capita income of PPP dollars  30,000- South Korea with a  per capita income of  PPP$ 30,345, Israel 29,966, and New Zealand 32,599. However this proximity in terms of PPP $ per capita incomes have nothing to say about the huge distance that separates the quality of life as experienced by the average citizen in these three countries in terms of personal security, quality of the environment, the geopolitical location and threat of conflict Whereas South Korea and Israel are at the centre of these strategic conflict zones, New Zealand located far away from the international conflict zones enjoys an existence which is almost idyllic by contrast.

What are the conclusions that we could draw from the current human development performance of Sri Lanka regarding its capacity to achieve a state of very high human development according to the two-goal posts 2023 and 2035? We are beginning with the state of Human development in 2013 and looking across a span of 12 years to 2025 and in the second stretch of the journey a further span of 10 years. How do our initial conditions compare with those of countries in the very high human development category 20 years ago?

Fortunately, we have the data for human development trends for the period 1980-2012 in HDR Table 2 ( Table 2 A  in Annexe). The Table provides comparable data for countries that have graduated from a “high” level to “a very high level”. In 1990, 20 of the countries in the very high human development category had a human development index lower than that of Sri Lanka today – 0,750. These include Singapore, South Korea, Greece, Poland, Portugal, Chile, and Argentina. South Korea with an HDI of 0.731 in 1990 reaches an HDI of 0.891 in 2013 – a path of growth closest to the path to be taken by Sri Lanka -0.750 in 2013 to 0.892 in 2035.