The conflict has reduced Sri Lanka’s economic growth and the most obvious direct cost is in terms of defence expenditures, which increased from 1.3% of GDP in 1980 to 4-6% over recent years. Some of the other direct costs are government expenditures on relief, damaged infrastructure and military expenditure by the LTTE.
There are many invisible costs, of which most important is the crowding-out of public investment due to the large defence outlays. This has had adverse impacts on both domestic and foreign investment and the island’s long-term growth prospects. Other indirect costs include foregone tourist arrivals, tightening of the labour market for certain categories of population, disruptions in economic activity, infrastructure bottlenecks and reduction in social welfare due to the tight security system.
The World Bank further says 60,000 have lost their lives in the protracted conflict, 700,000 have been repeatedly displaced and half a million persons are part of the Sri Lankan Tamil diaspora. The conflict has taken the lives of many political leaders and long-term impacts are worst on children in the north-east. Around 400,000 children are displaced in the region, with a large proportion suffering from serious psychological trauma.
Children in the region have an added trauma of being forcibly conscripted or lured into military combat by the LTTE. The World Bank also says the conflict has rendered the administrative apparatus in the north-east non-functional. It has contributed to rising violence and degradation of social and physical capital, destroyed trust between communities and undermined the legitimacy of the State.
The concerns of the World Bank seem to have had no effect. The Sri Lankan government tabled supplementary estimates in Parliament on 9 August for an additional Rs 28 billion ($360million) for defence. The total expenditure for defence for the year 2000, excluding many hidden expenditures, stands at a staggering Rs 80.43 billion ($1.3 billion), nearly 8% of GDP.