Sri Lanka is a low middle income country with a per capita income of nearly US $ 3638 in 2016. The economy has achieved an average annual economic growth rate of 5 per cent during the period 2010-2015. Since the end of the war in 2009, the country has reached a high growth rate of 8 per cent in 2010, 8.4 per cent in 2011, 9.1 per cent in 2012, but declined to 3.4 per cent in 2013, 4.9 per cent in 2014, and 4.8 per cent in 2015. The Sri Lankan economy is expected to grow by 5 per cent this year. The country has achieved a growth rate of 3.9 during the first half of 2016.
The Sri Lankan economy is now more diversified than in the past. In 2015, the Services sector was the largest contributor to the country’s GDP accounting for 56.3 per cent, while Industrial sector was the second largest with a contribution of 28.5 per cent. Though Agricultural sector employs around a third of Sri Lanka’s labour force, its contribution was only 8.1 per cent to GDP.
In 2015, unemployment had fallen below 5 per cent and the poverty headcount index during 2012/13 is 6.7. In 2014, Sri Lanka was 0.757 in the Human Development Index, ranking 73rd in the world. Life expectancy was 74.9 years in 2014 and the infant mortality rate was as low as 8.2 per thousand live births in 2013. In 2014, the adult literacy rate was 93.3 per cent with primary school enrolment at 98.5 per cent.
The Sri Lankan economy has grown by an annual average of 4.5 per cent during the sixty-five years following independence. The average annual growth rate is 5 per cent during the first decade of the 21st century. Economic growth has however been inconsistent over various periods. Economic policies of the country changed with the governments in power, and shifted between market-oriented policies and those which had much state intervention in the economy.
The slow economic growth rates in 2012 and after are due to the global economic downturn which caused a decline in Sri Lanka’s exports, the withdrawal of the GSP plus concession by the European Union and due to unfavourable weather conditions. Nevertheless, the main sources of economic growth during the post-war years are Services, mainly: Construction, Tourism, Telecommunications, Banking and Finance.
The structural transformation of the economy is reflected in the country’s export-import dependence. Even though Sri Lanka was heavily dependent on primary agricultural commodity exports to import food during the initial decades following independence, manufactured exports play the key role at present. We export manufactured exports like garments, ceramics, rubber manufactures and leather goods to import items like petroleum, equipment, raw materials and machinery. The country is more or less self-sufficient in rice.
Despite the positive economic growth rates achieved by Sri Lanka during recent years, there are several issues in the economy. Widening budget deficit, massive public debt, large trade deficit and increasing foreign debt are only a few serious concerns. As at 2015, Sri Lanka’s public debt stands at 76 per cent of GDP. While the foreign debt is nearly 32 per cent, the domestic debt is around 44 per cent. The budget deficit of 7.4 in 2015 is considerably high and the accumulated debt adds to the already high debt servicing costs which in turn eat up the government revenue.
Large recurrent public expenses, losses of public enterprises, wasteful expenses and inadequate revenues have made it difficult to narrow down the budget deficit further. On the other hand, the large trade deficit of US $ 8430 million in 2015 is evidence of the continuous decline in exports and increase in import expenditure.
It is not the growth rate by itself that should be important for Sri Lanka, but the quality and the sources of economic growth and its sustainability. One key suggestion is to increase investments, and create economic as well as social, legal and administrative infrastructure. The country’s physical infrastructure is in the process of improving. We should also focus on the quality of education and health services, rule of law in society, improvement of scientific and technological education, and enhancement of managerial skills and administrative capacity of the government institutions. Achieving a high rate of economic growth in a single year may be easy, but sustaining that in the long-term requires policymakers to take into account many non-economic factors.