• Sri Lanka:
• Economy

Sri Lanka - Economy

Overview: While agriculture is central to Sri Lanka’s economy (accounting for nearly one-fifth of GDP), manufacturing and services (including banking and financial services) are of increasing importance, with exports of textiles and clothing now well ahead of the traditional agricultural exports as foreign exchange earners. Since 1989 the former policies of nationalisation have been superseded by widescale liberalisation, which has led to extensive privatisation of the formerly largely centralised economy. Privatisation is under way in agricultural enterprises, banking, transport services and utilities.

Sri Lanka had been aiming at achieving newly industrialised country status by the year 2000, but the ethnic conflict that continued until 2002 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 investment in manufacturing and infrastructure also generally rose in the 1990s, and manufacturing output grew by 6.3% p.a. 1980–90 and 6.6% p.a. 1990–2004.

Thus, despite the disruption caused by the hostilities and relatively high spending on defence, the economy grew well throughout the 1990s, continuing with 6% growth in 2000, but plunged into recession in 2001 when it shrank by 1.5%, as export markets for clothing weakened sharply, recovering to grow by 4% in 2002.

In December 2004, a major tsunami claimed approximately 31,000 lives, displaced more than 400,000 and destroyed an estimated US$1.5 billion worth of property. Despite the devastation of the economic infrastructure of the coastal areas in the south and east of the country by the massive tsunami, economic growth continued steadily, partly spurred by reconstruction, reaching 6% in 2005 and more than 7% in 2006.

Trade: Exports of goods and services account for 36% of GDP and manufactured exports for around 74% of total merchandise exports (2004). Sri Lanka’s main exports are textiles, clothing, tea (world’s number two exporter), machinery and equipment, cut diamonds, jewellery, rubber and rubber products, coconut products, gemstones, and leather and footwear. Its main imports are cotton and textiles (for the clothing industry), machinery, transport equipment, petroleum, chemicals, building materials, fertilisers, manufactured goods and food. Its main trading partners are the USA (31%), the UK and India (exports); and India, China and Singapore (imports).