Sri Lanka’s Economy
Sri Lanka is one of the largest economies in South Asia, thanks to its diverse natural resources, competitive labor and thriving service industry. The country’s GDP for 2019 was estimated to be about $87.4 billion and per capita GDP was around $3,700. The Sri Lankan economy has grown at a healthy rate of 6.3% over the past five years, with a growth projection of 3.8% for 2020. Sri Lanka has undergone a successful transition from a developing to an emerging market, and achieved middle income status in 2019.
Sri Lanka’s Economy Structure
Sri Lanka’s economy is heavily reliant on its services and agricultural sectors, which each account for around 40% of its overall GDP. The industrial sector is the third most important and the remaining 20% of the economy is supported by other sectors. Agriculture is a major contributor to employment in the country, with a quarter of the population working in the sector. While plantations account for the largest share of output in agriculture, other crops like rice, coconut, rubber, tea and tobacco are also important.
The service sector accounts for the largest share of the economy and is the largest source of employment. It includes tourism, finance, banking, transport, communications, government services and retail. Tourism is an important contributor and accounted for 4.9% of the country’s GDP in 2019.
The industrial sector is the smallest in the Sri Lankan economy, with the state-owned sector accounting for the majority of industrial activity. It includes manufacturing, construction and mining. Manufacturing is the largest sub-sector, which has traditionally been focused on textiles and garments.
Sri Lanka’s Economic Growth
Sri Lanka’s economy has grown steadily in recent years, thanks to a number of reforms, including a relaxation in foreign investment and trade policies, a reform of the banking system, and improved infrastructure. This has allowed the country to achieve middle income status by World Bank classification.
The Sri Lankan economy has achieved an average GDP growth rate of 5.6% in the past five years, helped by the expansion of its services industry. Inflation has remained relatively low in recent years and was 5.6% in 2019. Despite the recent challenges posed by the impacts of the COVID-19 pandemic, the Sri Lankan economy is expected to recover in 2021.
Sri Lanka’s Economic Challenges
Despite steady growth in the recent years, Sri Lanka’s economy faces a number of challenges. These include a weak financial sector, a large public debt and declining growth in exports. The country’s high levels of public debt, estimated to be around 72% of GDP in 2019, are a considerable challenge for Sri Lanka’s economy. Its decline in exports have been driven by a sluggish global economy and lack of competitiveness of Sri Lankan exports in the international market.
Government Initiatives to Boost the Economy
The Sri Lankan government has taken a number of measures to address the challenges faced by the country’s economy. These include reducing the budget deficit, implementing a number of reforms to strengthen the banking sector, and introducing investment-friendly tax policies. The government is also investing in infrastructure development, to reduce poverty levels and to promote economic growth.
In August 2019, Sri Lanka secured an IMF Stand-By Arrangement (SBA) of US$1.5 billion, to help the country manage its debt crisis and stabilize its economy. The IMF program has allowed the government to make the necessary reforms to its economy, including implementing macroeconomic and structural policies to strengthen the financial sector and to reduce the budget deficit.
Sri Lanka’s Economic Relations with Other Countries
Sri Lanka has a number of trading partners, including India, China, Japan, South Korea and the United States. India is Sri Lanka’s largest trading partner, accounting for 23% of Sri Lanka’s total exports in 2019. China is the second largest trading partner and accounted for 19% of the country’s exports in 2019. Japan, South Korea and the United States were the third, fourth and fifth largest trading partners in 2019.
Sri Lanka has a Free Trade Agreement (FTA) with India, which has boosted bilateral trade between the two countries. The FTA includes a tariff reduction program for goods imported from India and preferential access for Indian businesses to the Sri Lankan market.
Latest News and Analysis on Sri Lanka’s Economy
The IMF recently released its World Economic Outlook, which projected a contraction of 6.9% in Sri Lanka’s economy in 2020. The contraction is mainly attributed to the impact of the COVID-19 pandemic and disruptions to the export and services sectors. The IMF also predicted a growth of 4.7% for 2021, which is expected to be driven by strong domestic consumption, investment and private sector credit.
The World Bank has also released its South Asia Economic Focus report, which forecasts a slower than expected growth rate of 1.9% in 2020. This is primarily attributed to the impact of the pandemic, as well as disruptions in supply chains and rising borrowing costs. However, the World Bank expects a recovery to take place in 2021, with growth forecasted at 3.6%.
Sri Lanka’s economy has grown steadily in the past few years, with a healthy growth rate of 6.3% over the past five years. Despite the current challenges posed by the impacts of the COVID-19 pandemic, the country is expected to recover in 2021. The government is taking a number of measures to support the economy, including reducing the budget deficit and implementing investment-friendly policies. Sri Lanka has good trade relations with several countries, including India, China and the United States, which have contributed to its overall economic growth.
