With an economy worth $80.591 billion (2015) ($233.

637 billion PPP estimate),[1] and a per

capita GDP of about $11,068.996 (PPP), Sri Lanka has mostly had strong growth rates in recent
years.The Sri Lankan economy has seen robust annual growth at 6.4 percent over the course of
2003 to 2012, well above its regional peers. In GDP per capita terms, it is ahead of other countries in
the South Asian region.Since the end of the three-decade civil conflict, Sri Lanka is now focusing on
long-term strategic and structural development challenges as it strives to transition to an upper
middle income country.
The main economic sectors of the country are tourism, tea export, apparel, textile, rice
production and otheragricultural products. In addition to these economic sectors, overseas
employment contributes highly in foreign exchange, 90% of expatriate Sri Lankans reside in
the Middle East.
Sri Lanka has met the Millennium Development Goal (MDG) target of halving extreme poverty and is
on track to meet most of the other MDGs, outperforming other South Asian countries. Sri Lanka
experienced a big decline in poverty between 2002 and 2009 from 23 percent to 9 percent of the
population. Despite this pockets of poverty continue to exist. An estimated 9 percent of Sri Lankans
who are no longer classified as poor live within 20 percent of the poverty line and are, thus,
vulnerable to shocks which could cause them to fall back into poverty.[10]
According to economic reforms proposed by Prime Minister Ranil Wickremesinghe, Sri Lanka plans
to create aknowledge based social market economy and an export-oriented economy as well as
a Megapolis in the western province to rival Dubai and Singapore with a financial hub in Colombo.
Creation of several business and technology development areas specialized in various sectors
island wide as well as tourism zones in a planned manner is also being planned. [11] The government
is also planning to lift the ban of Sri Lankan seafood imposed by the EU and regaining GSP+ trade
concessions as well as joining the Trans-Pacific Partnership(TPP).[12][13]
Contents
[hide]

1Economic history

2Macro-economic trend

3External sector
o

3.1Trade account issues

3.2Key cushioning items in the current account

3.3Capital account

3.4Overall balance (BOP)

4Financial institutions

5Economic infrastructure and resources

o

5.1Transportation and roads

5.2Energy

6Economic sectors
o

6.1Tourism

6.2Tea industry

6.3Apparel and textile industry

6.4Agriculture

7Global economic relations

o

7.1Credit rating and commercial borrowing

7.2Foreign assistance

8See also

9References

10External links

Economic history[edit]
Since becoming independent from Britain in February 1948, the economy of the country has been
affected by natural disasters such as the 2004 Indian Ocean earthquake and a number of
insurrections, such as the 1971, the 1987-89and the 1983-2009 civil war. The government during
1970-77 period applied pro-left economic policies and practices. Between 1977 and 1994 the
country came under UNP rule in which under President J.R Jayawardana Sri Lanka began to shift
away from a socialist orientation in 1977. Since then, the government has been deregulating,
privatizing, and opening the economy to international competition. between 1994 and 2004
under SLFP rule. In 2001, Sri Lanka faced bankruptcy, with debt reaching 101% of GDP. The
impending currency crisis was averted after the country reached a hasty ceasefire agreement with

the LTTE and brokered substantial foreign loans. After 2004 the UPFA government has concentrated
on mass production of goods for domestic consumption such as rice, grain and other agricultural
products.[14] however twenty five years of civil war slowed economic growth,[citation needed] diversification
and liberalization, and the political group Janatha Vimukthi Peramuna (JVP) uprisings, especially the
second in the early 1980s, also caused extensive upheavals.[15]
Following the quelling of the JVP insurrection, increased privatization, economic reform, and a stress
on export-oriented growth helped improve the economic performance, increasing GDP growth to 7%
in 1993.
Economic growth has been uneven in the ensuing years as the economy faced a multitude of global
and domestic economic and political challenges. Overall, average annual GDP growth was 5.2%
over 1991-2000.
In 2001, however, GDP growth was negative 1.4%--the first contraction since independence. The
economy was hit by a series of global and domestic economic problems and affected by terrorist
attacks in Sri Lanka and the United States.
The crises exposed the fundamental policy failures and structural imbalances in the economy and
the need for reforms. The year ended in parliamentary elections in December, which saw the
election of a pro-capitalism party to Parliament, while the socialism oriented Sri Lanka Freedom
Party retained the Presidency.
The government of Prime Minister Ranil Wickremasinghe of the United National Party has indicated
a strong commitment to economic and social sector reforms, deregulation, and private sector
development.
In 2002, the economy experienced a gradual recovery. Early signs of a peace dividend were visible
throughout the economySri Lanka has been able to reduce defense expenditures and begin to
focus on getting its large, public sector debt under control.
In addition, the economy has benefited from lower interest rates, a recovery in domestic demand,
increased tourist arrivals, a revival of the stock exchange, and increased foreign direct investment
(FDI).
In 2002, economic growth reached 4%, aided by strong service sector growth. The agricultural
sector of the economy staged a partial recovery. Total FDI inflows during 2002 were about $246
million.

The largest share of FDI has been in the services sector. Good progress was made under the Stand
By Arrangement, which was resumed by the International Monetary Fund (IMF). These measures,
together with peaceful conditions in the country, have helped restore investor confidence and
created conditions for the government to embark on extensive economic and fiscal reforms and seek
donor support for a poverty reduction and growth strategy.
The Mahinda Rajapakse government halted the privatization process and launched several new
companies as well as re-nationalizing previous state owned cooperations.However this was seen as
an attempt to get his relatives into the top poisition and amny state-owned coperations were
overstaffed as well resulting in major losses and large scale fraud.[16] The negative human righst
record during this time resulted in Sri Lanka losing the GSP from the EU and resulted in major
losses for the Sri Lankan apparel industry.[17][18]
The resumption of the civil-war in 2005 led to a steep increase defence expenditures. The increased
violence and lawlessness also prompted some donor countries to cut back on aid to the country.[2]
[3].
Sri Lanka has also accumulated a 9.2% deficit and the central bank has not intervened since late
2006 to print more currency [4].
A sharp rise in world petroleum prices combined with economic fallout from the civil war led to
inflation that peaked 20%. However, as the civil war ended in May 2009 the economy started to grow
at a higher rate of 8.0% in the year 2010.[19]

Macro-economic trend[edit]
This is a chart of trend of gross domestic product of Sri Lanka at market prices [20] by the International
Monetary Fund with figures in millions of Sri Lankan Rupees.

Year

Gross Domestic Product

US Dollar Exchange

1980

66,167

16.53 Sri Lankan Rupees

1985

162,375

27.20 Sri Lankan Rupees

1990

321,784

40.06 Sri Lankan Rupees

1995

667,772

51.25 Sri Lankan Rupees

2000

1,257,637

77.00 Sri Lankan Rupees

2005

2,363,669

100.52 Sri Lankan Rupees

For purchasing power parity comparisons, the US Dollar is exchanged at 113.4 Sri Lankan Rupees
only.
In 1977, Colombo abandoned statist economic policies and its import substitution trade policy for
market-oriented policies and export-oriented trade.
Sri Lanka's most dynamic industries now are food processing, textiles and apparel, food and
beverages, telecommunications, and insurance and banking.
By 1996 plantation crops made up only 20% of exports (compared with 93% in 1970), while textiles
and garments accounted for 63%. GDP grew at an annual average rate of 5.5% throughout the
1990s until a drought and a deteriorating security situation lowered growth to 3.8% in 1996.
The economy rebounded in 1997-98 with growth of 6.4% and 4.7% - but slowed to 3.7% in 1999.
For the next round of reforms, the central bank of Sri Lanka recommends that Colombo expand
market mechanisms in nonplantation agriculture, dismantle the government's monopoly on wheat
imports, and promote more competition in the financial sector.
Pre 2009 there was a continuing cloud over the economy the civil war and fighting between
the Government of Sri Lanka and LTTE. However the war ended with a resounding victory for the Sri
Lankan Government on 19 May 2009 with the total elimination of LTTE.

External sector[edit]

Trade account issues[edit]

In the recent past, the Sri Lankan Government has identified some key focal areas to address the
external imbalances of the economy, especially with regard to reducing its high trade deficit (~15%
of GDP for 2012) in order to make the economy comply with the MarshallLerner condition. Sri
Lanka's oil import bill accounts for an estimated 27% of total imports while its pro-growth policies
have resulted in an investment goods import component of 24% of total imports. These inelastic
import components have led to Sri Lanka's Export goods price elasticity + Import goods price
elasticity totaling less than 1, resulting in the country not complying with the MarshallLerner
condition.

Current version: 1.0.7.

Sri Lanka Export Treemap by Product (2012) fromHarvard Atlas of Economic Complexity

Some of the suggested proposals include:

Import substitution of investment goods and consumer goods

Tax concessions towards value added exports

Negotiating longer credit periods for oil imports

Allowing the external value of the currency to be determined by market forces (with minimal
central bank intervention).

Key cushioning items in the current account[edit]

Tourism revenue (Sri Lanka's tourism revenue accounted for ~US$1bn for FY2012 with
~1mn tourist arrivals)

External worker remittances accounted for ~US$6bn in FY2012

However, as the income account reported a negative balance owing to high debt servicing
payments and repatriation of income from foreign investments, the current account deficit was
reported at 5.5%to 2012 GDP.

Capital account[edit]

Within the capital account, borrowings still account for a significant proportion as opposed
to Foreign direct investments.

FDIs were estimated at ~US$800mn for FY2012

Overall balance (BOP)[edit]

The economy ended with an overall positive balance of US$151mn for 2012 (vs. a
US$1,061mn deficit in FY2011)

[5]

Financial institutions[edit]
The Central Bank of Sri Lanka is the monetary authority of Sri Lanka and was established in 1950.
The Central Bank is responsible for the conduct of monetary policy in the country and also has
supervisory powers over the financial system.[21]
The Colombo Stock Exchange (CSE) is the main stock exchange in Sri Lanka. It is one of the most
modern exchanges in South Asia, providing a fully automated trading platform. The vision of the
CSE is to contribute to the wealth of the nation by creating value through securities. The
headquarters of the CSE have been located at the World Trade Center Towers [6] in Colombo since
1995 and it also has branches across the country

in Kandy, Matara, Kurunegala, Negombo andJaffna.[22] In 2009, after the 30 years long civil war came
to an end, the CSE was the best performing stock exchange in the world.
See also: Central Bank of Sri Lanka and Colombo Stock Exchange

Economic infrastructure and resources[edit]

Transportation and roads[edit]

Main article: Transport in Sri Lanka

E03 expressway

Most Sri Lankan cities and towns are connected by the Sri Lanka Railways, the staterun railway operator. The Sri Lanka Transport Board is the state-run agency responsible for
operating public bus services across the island.
The total length of Sri Lankan roads exceeds 11,000 kilometres (6,840 mi), with a vast majority of
them being paved. The government has launched several highway projects to bolster the economy
and national transport system, including the Colombo-Katunayake Expressway, the Colombo-Kandy
(Kadugannawa) Expressway, the Colombo-Padeniya Expressway and the Outer Circular Highway to
ease Colombo's traffic congestion. The government sponsored Road Development Authority (RDA)
has been involved in several large-scale projects all over the island in an attempt to improve the
road network in Sri Lanka. Sri Lanka's commercial and economic centers, primarily the capitals of
the nine provinces are connected by the "A-Grade" roads which are categorically organized and
marked. Furthermore, "B-Grade" roads, also paved and marked, connect district capitals within
provinces.

Energy[edit]

Wind farm in Sri Lanka

The energy policy is governed by the Ministry of Power and Energy, while the production and
retailing of electricity is carried out by the Ceylon Electricity Board. Energy in Sri Lanka is mostly
generated by hydroelectric power stations in the Central Province.[23][24] The Sri Lankan Government
and many individual "green groups" in Sri Lanka have been focusing on eco-friendly solutions to
energy development and the country is undergoing changes to enforce stricter environmental
policies in industries, both public and private.[citation needed]

Economic sectors[edit]

Tourism[edit]

Unawatuna Beach

Main article: Tourism in Sri Lanka

Tourism is one of the main industries in Sri Lanka. Major tourist attractions are focused around the
islands famous beaches located in the southern and the eastern parts of the country and ancient
heritage sites located in the interior of the country and resorts located in the mountainous regions of
the country.[25][26] Also, due to precious stones such as rubies andsapphires being frequently found
and mined in Ratnapura and its surrounding areas, they are a major tourist attraction.[27]

The 2004 Indian Ocean Tsunami[28] and the past civil war have reduced the tourist arrivals, however
the number of tourists visiting have been recently increasing, beginning in early 2008. [29] March 2008
by 8.6% and Sri Lanka attracted 1,003,000 tourists in 2012 according to the Central Bank of Sri
Lanka's 2013 roadmap.[30]

Tea industry[edit]

Tea estate in the central highlands.

Main article: Tea industry of Sri Lanka

The tea industry, operating under the Ministry of Public Estate Management and Development, is
one of the main industries in Sri Lanka. It became the world's leading exporter in 1995 with a 23%
share of global tea export, higher than Kenya's 22% share. The central highlands of the country
have a low temperature climate throughout the year and annual rainfall and the humidity levels that
are suitable for growing tea. The industry was introduced to the country in 1867 by James Taylor, a
British planter who arrived in 1852.[31]
Recently, Sri Lanka has become one of the countries exporting fair trade tea to the UK and other
countries. It is believed that such projects could reduce rural poverty.[32][33]

Apparel and textile industry[edit]

Main article: Apparel industry of Sri Lanka
The apparel industry of the Sri Lanka mainly exports to the United States and Europe. Europe
increasingly relies on Sri Lankan textiles due to the high cost of labor in Europe. [citation needed] There are
about 900 factories throughout country serving companies such as Victoria's Secret, Liz
Claiborne and Tommy Hilfiger.[34]

Agriculture[edit]
Main articles: Agriculture in Sri Lanka and Livestock in Sri Lanka

The agricultural sector of the country produces mainly rice, coconut and grain, largely for domestic
consumption and occasionally for export. The tea industry which has existed since 1867 is not
usually regarded as part of the agricultural sector, which is mainly focused on export rather than
domestic use in the country.[35]

Global economic relations[edit]

Exports to the United States, Sri Lanka's most important market, were valued at $1.8 billion in 2002,
or 38% of total exports. For many years, the United States has been Sri Lanka's biggest market for
garments, receiving more than 63% of the country's total garment exports. India is Sri Lanka's
largest supplier, with imports worth $835 million in 2002. Japan, traditionally Sri Lanka's largest
supplier, was its fourth-largest in 2002 with exports of $355 million. Other important suppliers include
Hong Kong, Singapore, Taiwan, and South Korea. The United States is the 10th-largest supplier to
Sri Lanka; U.S. imports amounted to $218 million in 2002, according to Central Bank trade data.
A new port is being built in [Hambantota] in Southern Sri Lanka, funded by the Chinese government
as a part of the Chinese aid to Sri Lanka. This will ease the congestion in Sri Lankan ports,
particularly in Colombo. In 2009, 4456 ships visited Sri Lankan ports.

Credit rating and commercial borrowing[edit]

Sri Lanka had applied for credit ratings from international agencies in its efforts to apply for loans
from international markets in 2005 after the election of Mahinda Rajapakse as president. Standard
and Poor's has rated Sri Lanka a "B+" speculative rating, four grades below investment grade. Fitch
has rated Sri Lanka with "BB-" which is three grades below investment grade. Standard and Poor's
maintains Sri Lanka is constrained by providing widespread subsidies, a bloated public sector,
transfers to loss-making state enterprises, and high interest local and international burdens [7].
Standard and Poor's estimates public sector debt has reached 95% of GDP [8], in comparison to
CIA estimates of 89% of GDP [9]. Sri Lanka in mid-2007 sought to borrow $500 million from
international markets to shore up the deteriorating exchange rate and reduce pressure on repayment
of the domestic debt market [10]. The head of the opposition UNP, Ranil Wickremasinghe has
warned that such intense borrowing is unsustainable and will not repay these loans if elected to
power [11].

Foreign assistance[edit]
Sri Lanka is highly dependent on foreign assistance, and several high-profile assistance projects
were launched in 2003. The most significant of these resulted from an aid conference in Tokyo in
June 2003; pledges at the summit, which included representatives from the International Monetary

Fund, World Bank, Asian Development Bank, Japan, the European Union and the United States,
totalled $4.5 billion.