Socialist Democratic Republic of Sri Lanka - Is it socialist?

21 May 2014 05:06 am Views - 8116

Presently there is a substantial discourse on whether the Democratic Socialist Republic of Sri Lanka is waning in its commitment to the institutions of democracy. This insight explores a different question, is it waning its commitments to social institutions?



Economics of social commitments
Government expenditure can be classified into three categories: expenditure on public services, social services and economic services. In this classification, social services i.e. expenditure on education, health, welfare and community services play an important role in terms of creating economic opportunities, making opportunities accessible to all and protecting  the vulnerable.

In other words, expenditure on social services helps to ensure that the benefits of economic growth are better shared within a society. The economic jargon for this is “inclusive growth”. Additionally, when applied wisely (to encourage rather than discourage hard work and entrepreneurship) they also help to unleash economic potential. For example, education and healthcare directly improve the welfare of the poor even as these services augment their human capital and productive capacity. Social protection (e.g. pension schemes) helps to protect individuals from the risks and uncertainties of life, and free them to engage confidently in the social and economic life of the country.

The Asian Development Bank’s economic outlook released in April 2014, shows ‘developing’ Asia doing poorly in terms of government expenditure on health, education and social protection compared to other regions in the world. This analysis shows that while ‘developing’ Asia lags behind the rest of the world in commitments to social institutions, ‘developing’ Sri Lanka is doing even worse than the Asian average.




Asia lagging behind rest of the world
According to ADB Outlook 2014, developing Asia lags behind advanced economies as well as its peers in Latin America in terms of public expenditure on education, health and social protection (Exhibit 1). The public spending on education averages 5.3 percent of gross domestic product (GDP) in advanced economies and 5.5 percent in Latin America but only 2.9 percent in Asia. The difference is more stark for public spending on healthcare, which equals 8.1 percent of GDP on average in the developed world and 3.9 percent in Latin America but a paltry 2.4 percent in developing Asia. Finally, Asian governments devote 6.2 percent of GDP to social protection, essentially half of Latin America’s 12 percent and less than a third of the 20 percent in advanced economies.



Sri Lanka lagging
behind Asia
While Asia is lagging behind the rest of the world, Sri Lanka is lagging behind Asia in terms of spending on education, health and social protection (i.e. expenditure on social welfare and community services).

While the Asian average government expenditure on education as a percentage of GDP is at 2.9 percent, Sri Lanka stands even below the Asian average by spending less than 2 percent of GDP on education. The same is true of government expenditure on health. While the Asian average spending on healthcare is at 2.4 percent of GDP, Sri Lanka’s spending is well below 1.5 percent. While developing Asia spends only 6.2 percent of its GDP on social protection, Sri Lanka spends only 2.4 percent.



Negative trends need to be reversed
Expenditure is not only low, it has been declining during the better part of the last decade (since 2006, Exhibit 2). The expenditure on education, health and community services as a percentage of GDP has been in steady decline and approaching record lows. This trend suggests that Sri Lanka’s commitments to its social institutions are waning.

Even existing social spending is increasingly bypassing traditional social institutional structures and being channelled through new methods that are more connected to political patronage (e.g. the Rural Development Organisations in Sri Lanka have become increasingly prone to political capture). Sri Lanka has held on to many of the social protection institutions from its pre-independence days (e.g. public healthcare), but suffer from flagging professionalism in management and lower funding commitments. These trends spell trouble ahead for the economic potential of the country.

The expenditures on health and education are especially important. Neglecting these can have huge economic and social consequences and more-so in the medium to long term. It is clear that the “socialist” tag attached to the name of the country is not being reflected in its current trend of policy decisions. Sri Lanka’s resulting status of being a laggard in its social commitments, even in lagging Asia, is an economic problem that needs attention.

(Verité Research provides strategic analysis and advice for governments and the private sector in Asia. Comments welcome, email insights@veriteresearch.org)