Spending smarter to boost growth, lessons for Sri Lanka

Sri Lanka stands at a critical juncture.

- by C. A. Saliya [e-mail] www.researcher.lk

After decades of ambitious infrastructure projects, expanding public sector employment, and rising debt burdens, the nation's 2022 economic crisis exposed fundamental weaknesses in how public resources are managed. As the country implements IMF-supported reforms, a crucial question emerges: Can Sri Lanka achieve robust growth not by spending more, but by spending smarter? Recent International Monetary Fund research analysing 174 economies offers compelling insights.

The Efficiency Paradox: Rwanda's Success Story

Rwanda's remarkable transformation over two decades, achieving near-universal mobile phone access, doubling electricity coverage, and adding 20 years to life expectancy, was accomplished with relatively modest spending increases from $150 to $420 per person, still below the sub-Saharan African average. The critical factor was not the quantum of spending, but its efficiency.

This stands in stark contrast to Sri Lanka's experience. Despite significantly higher per capita spending, Sri Lanka's development outcomes have been inconsistent, with persistent inefficiencies in public investment and service delivery.

Sri Lanka's Spending Dilemma: Contradictions and Consequences

The Asian Development Bank (2022) notes that Sri Lanka's public sector employment as a percentage of total employment stands at approximately 13.5 percent, significantly higher than comparable economies like Vietnam (7 percent) or Malaysia (9 percent). This allocation crowds out productive spending on infrastructure and human capital development.

The Public Wage Bill Conundrum