Economy of Sri Lanka



GNI:  US$79.6 billion

GNI p.c.: US$3,800

GDP growth: 4.8% p.a. 2011–15

Inflation:  0.9% p.a. 2011–15

While agriculture is central to Sri Lanka’s economy – and tea, rubber and coconut continue to be important exports – manufacturing and services (including banking and financial services) are of increasing importance, especially textiles and clothing which are major exports. Since 1989 the former policies of nationalisation have been superseded by extensive liberalisation, which has led to large-scale privatisation of the formerly mostly centralised economy, including agricultural enterprises, banking, transport services and utilities.

Sri Lanka had been aiming at achieving newly industrialised country status by the year 2000, but ethnic conflict adversely affected the economy, notably in the spheres of foreign investment and tourism, and particularly in the north and east of the country. Despite the conflict, tourism earnings generally held up in the 1990s and into the 2000s, though attacks on tourist areas such as the international airport in 2001 caused sharp falls. Foreign investments in manufacturing and infrastructure were maintained and manufacturing output grew by 6.3 per cent p.a. 1980–90, 8.1 per cent p.a. 1990–2000, 4.5 per cent p.a. 2000–10 and 6.8 per cent p.a. 2010–12.

Thus, despite the disruption caused by the hostilities and relatively high spending on defence, the economy grew well throughout the 1990s, but plunged into recession in 2001 when it shrank by 1.5 per cent, as export markets for clothing weakened sharply, recovering in 2002.

The massive tsunami of December 2004 that swamped the east and south coasts of Sri Lanka, causing approximately 31,000 deaths and devastating the coastal area, displaced more than 400,000 people and destroyed property valued at an estimated US$1.5 billion. Despite this devastation of the economic infrastructure of the coastal areas in the south and east of the country, economic growth continued steadily, partly spurred by reconstruction, averaging 6.4 per cent p.a. from 2004–08.

Then the economy slowed in 2008–09 as the world economic downturn depressed demand for Sri Lanka’s exports, causing GDP growth to moderate to 3.5 per cent in 2009, but in that year there was a compensatory surge of economic activity following the cessation of civil strife in May 2009, yielding strong growth of at least six to eight per cent p.a. in 2010–15.