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High-Income Growth Opportunities for Sri Lanka

High-Income Growth Opportunities for Sri Lanka

From 2009 to 2018, the Sri Lankan economy grew at an average annual pace of 5.4% over the previous ten years. Earlier this year, the country reached a very crucial milestone when the World Bank announced that Sri Lanka would be an upper-middle-income country. Hence, this can be a suitable time for foreign investors who are wishing to invest in Sri Lanka’s unparalleled opportunities as the country has geared towards making new progress on the goal of reaching the high-income country classification status by the World Bank.
The World Bank classifies countries based on the Gross National Income (GNI) generated annually by each state – in layman’s terms, it calculates all the income of the citizens and established businesses in the country. In 2018, Sri Lanka recorded US$ 4,060 as its GNI, the threshold for the classification being $3,996. Hence, Sri Lanka has now reached the ranks of sub-continent tiger economic countries such as China, Thailand, and Malaysia which are upper-middle-income countries.
However, these are much larger economies merely in terms of GDP generated and the population levels in comparison to the Sri Lankan economy, which recorded a GDP of $89 billion. China recorded a staggering $13.6 trillion as its GDP last year. In terms of per capita income, China generated $9,470 while Malaysia and Thailand generated $10,460 and $6,610 respectively.
Sri Lanka is now on the verge of reaching the high-income country status – the threshold for such is currently at $12,736. Countries in the sub-continent that have achieved this status includes Korea and Singapore. As per the calculations, this is highly achievable for the island in the next 10 to 15 years if Sri Lanka maintains a steady economic growth rate of over 6% while the macro-economic policies remain stable. The aforementioned calculations are based on a population growth rate of 0.5%, 5% inflation, and 3% LKR depreciation while maintaining a steady economic growth rate of 6% per year. We conclude that Sri Lanka could achieve the GNI per capita level of about $8,000 in 10 years (by 2029) and $12,000 in 15 years (by 2034).
Evidence indicates that a country’s median amount of years for the transition from upper-middle revenue to high revenue is around 15 years. Since reaching the upper-middle-income position in 2010, China and Thailand have been upper-middle-income nations for ten years. Malaysia has been in the upper-middle revenue bracket since 1994 (for 25 years).
The World Bank has stated that Malaysia could reach the High-Income Country status by 2024 at present levels of economic growth. Hence, Malaysia’s shift to a high-income economy would have taken at least 30 years. The time it takes to achieve high-income country status solely relies on the country’s future macroeconomic policies, which includes vital factors such as the economic growth, exchange rate, inflation rate, and population growth which should remain stable.

OSL Take:

The chances of achieving high-income country status is challenging. However, Sri Lanka can maintain strong economic growth as witnessed in the past decade with a long-term integrated domestic socio-economic development policy structure that aims to increase labor and capital investment rate as well as productivity.

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Article Code : VBS/AT/01102019/Z_T3

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