Sri Lanka Economic Overview

Sri Lanka endures to pursue moderately open, transparent, competitive and liberalized trade policy regime since 1970. It focuses on extensive economic reforms, long term strategies, liberalised measures and structural developments towards global economic integration.

The macro-economic policy of Sri Lanka endeavours to become an upper-middle-income country while strives to create naval, aviation, commercial, energy and knowledge hub in the region due to the strategic location in the centre of Indian Ocean. There are also broad mandates for trade and investment policies, that include persuade more foreign direct investment, diversifying traditional export basket, adhere to innovate export promotion strategies which use local abundant natural & human resources, review and renegotiate existing trade agreements for broader coverage, engage and pursuing more preferential and free trade negotiations with the countries to enter global value chain.

The Sri Lankan economy represents diversified service sector which has accounted 57.4% GDP in 2019 as a key driver to the recent economic growth as the full foreign ownership permitted in banking, insurance, telecommunication and more other sectors. Main services include wholesale & retails sales, transportation and accommodation (tourism), financial & Insurance and professional services. The tourism sector has shown a substantial growth during 2018 but faced a slight decrease in 2019.

Manufacturing and Industry sector contributed 26.4% in 2019 to the national GDP as the second driving factor of the economy. Sri Lanka continues to develop and encourage this sector through economic policies targeting to promote value- added goods, higher electronic and engineering goods, light machineries etc. The key Industry sectors are represented by Food and Beverages and Garments & Apparel sub sectors as it accounts for over 50% of total exports in 2018.

The agriculture sector in Sri Lanka remains as a leading contributor to the Economy accounting 7.0% to the National GDP in 2019. The main commercial plantation crops include Tea, Rubber and Coconut as minor export crops represented by cinnamon, pepper, other spices and fruits & vegetables. Rice is largely cultivating for domestic consumption. Taxes less subsidies on products is recorded as 9.2% on National GDP in 2019.

Sri Lanka implements simplified tariff structure and other border levies to regulate foreign trade, while facilitating predictable business environment for all stakeholders in International trade.  There are very limited restrictions such as licensing requirements on imports and exports.

The New Government Economic Policies: Vision 2020-2025

Aligning with the 17 sustainable development goals of the United Nation, the New Government´s policies mainly focus on,

“ Develop a national economic policy for the benefit of the present and future generations whereby the people will be the owners of the country’s economic resources, local enterprise will be strengthened and vital national assets would not be sold´´.

Among other things, major policies are cantered on,

  1. Productive Citizenry and Vibrant Human Resource: Developing knowledge, skills and competencies to challenge with the global competition
  2. People Centric Economic: Development focuses on infusing new Technologies to enhance production and productivity where every citizen could be a part of the development
  3. Technology based Society: Creating the environment required to develop IT competencies and language skills of future generations, in order to enable them to conquer global markets
  4. Development of Physical Resources: Utilizing resources in a productive manner while ensuring to eliminate regional infrastructural gaps
  5. Sustainable Environment Management: Environment protection in all development plans guaranteeing unpolluted country for future generation.

Taking into consideration global conditions and current socio -economic sectors in Sri Lanka, the new Government has set Macroeconomic goals for 2020-2025 while identifying essential structural changes needed to implement in key sectors.

  • Achieve an average rate of economic growth of 6.5% or higher.
  • Per capita income exceeding USD 6500.
  • The rate of unemployment at less than 4%.
  • The rate of annual inflation not exceeding 5%
  • Budget deficit at less than 4% percent of GDP
  • A single digit rate of interest
  • To maintain the exchange value of the rupee at a stable level.

The new Government targets to focus on  Reforms on Tax and Capital Market, Agricultural Development through advanced Technologies targeting agriculture, milk production, fisheries and minor crop production, a Banking system that encourage economic fields such as import-export trade, construction industry, small and medium scale enterprises, Innovative measures to establish Sri Lanka as a Global Innovation Hub via Internet of Things (IoT), Artificial Intelligence (AI), Biotechnology, Robotics, Promotion of the Business Process Outsourcing (BPO) industry and the Knowledge Process Outsourcing (KPO) industry etc.