The Economy of Sri Lanka

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• published: 21 Aug 2015
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According to the International Monetary Fund, Sri Lanka's GDP in terms of purchasing power parity is second only to the Maldives in the South Asian region in terms of per capita income. Sri Lanka recorded a GDP growth of 8.3% in 2011. In the 19th and 20th centuries, Sri Lanka became a plantation economy, famous for its production and export of cinnamon, rubber and Ceylon tea, which remains a trademark national export. The development of modern ports under British rule raised the strategic importance of the island as a centre of trade. From 1948 to 1977 socialism strongly influenced the government's economic policies. Colonial plantations were dismantled, industries were nationalised and a welfare state established. In 1977 the Free market economy was introduced to the country, incorporating privatisation, deregulation and the promotion of private enterprise. While the production and export of tea, rubber, coffee, sugar and other commodities remain important, industrialisation has increased the importance of food processing, textiles, telecommunications and finance. The country's main economic sectors are tourism, tea export, clothing, rice production and other agricultural products. In addition to these economic sectors, overseas employment, especially in the Middle East, contributes substantially in foreign exchange. As of 2010, the service sector makes up 60% of GDP, the industrial sector 28%, and the agriculture sector 12%. The private sector accounts for 85% of the economy. India is Sri Lanka's largest trading partner. Economic disparities exist between the provinces, with the Western province contributing 45.1% of the GDP and the Southern province and the Central province contributing 10.7% and 10%, respectively. With the end of the war, the Northern province reported a record 22.9% GDP growth in 2010. The per capita income of Sri Lanka has doubled since 2005. During the same period, poverty has dropped from 15.2% to 7.6%, unemployment rate has dropped from 7.2% to 4.9%, market capitalisation of Colombo Stock Exchange has quadrupled and budget deficit has doubled. Over 90% of the households in Sri Lanka are electrified. 87.3% of the population have access to safe drinking water and 39% have access to pipe-borne water. Income inequality has also dropped in recent years, indicated by a gini coefficient of 0.36 in 2010. Sri Lanka's cellular subscriber base has shown a staggering 550% growth, from 2005 to 2010. Sri Lanka was the first country in the South Asian region to introduce 3G, 3.5G HSDPA, 3.75G HSUPA and 4G LTE mobile broadband Internet technologies. The Global Competitiveness Report, published by the World Economic Forum, has described Sri Lanka's economy as transitioning from the factor-driven stage to the efficiency-driven stage, and that it ranks 52nd in global competitiveness. Also, out of the 142 countries surveyed, Sri Lanka ranked 45th in health and primary education, 32nd in business sophistication, 42nd in innovation, and 41st in goods market efficiency. Sri Lanka ranks 8th in the World Giving Index, registering high levels of contentment and charitable behaviour in its society. In 2010, The New York Times placed Sri Lanka at the top of its list of 31 places to visit. The Dow Jones classified Sri Lanka as an emerging market in 2010, and Citigroup classified it as a 3G country in February 2011. Sri Lanka ranks well above other South Asian countries in the Human Development Index (HDI) with 0.750 points.