Sri Lanka Economy

Sri Lanka Economy

An eminently agricultural country, with a per capita income that, although higher than that of neighboring India, it is still very modest (US $ 1,972 in 2008), Sri Lanka ranks among the states that are struggling to get out of a centuries-old underdevelopment and whose backwardness is for the most part due to the persistence of a static economy based almost exclusively on structures of colonial origin and also aggravated by high unemployment; the gap between incomes has widened, so that an increasing number of families are below the poverty line. Despite the many plans launched, the government after independence had nationalized only the means of transport, the energy, steel and chemical sectors and the basic industry, which was, moreover, a minority compared to manufacturing, as well as having nationalized, in 1975, the English plantations (albeit with adequate compensation to the former owners) and instituted moderate customs protectionism. The failure to implement the land reform, which was also indicated as one of the cornerstones of the socialist-inspired governments, has meant that commercial agriculture, expressed by plantations extended even several hundred hectares, continued to oppose a stunted subsistence agriculture, insufficient for national needs, based on rice cultivation. However, this concerned the great majority of the active population, which operated on a myriad of poorly productive microfunds or who, often, did not even have their own, even the smallest piece of land.

The poor results obtained with the “socialist” experience facilitated a decisive shift in a liberal and private sense. The difficult economic situation worsened throughout the 1980s. for the persistence of the conflict between Muslim, Buddhist and Hindu minorities and for the simultaneous drop in the prices of its agricultural export goods (tea and rubber), which led to a sharp contraction in state investments. Agriculture has had some good seasons, but the plantation products sector, which was privatized in 1992, has not returned profitable. In the 1990s, inflation was still high and this led to a net cut in all public spending relating to the social and welfare sectors (including subsidies to the most needy, including the free distribution of rice), abandonment of controls on currency, prices and general market trends with consequent devaluation of 50% of the currency and total liberalization of imports, the increase in the role assigned to private industry, the adoption of the widest incentives for investments foreigners. The industry has then developed over time (especially the textile industry, in the main poles in Colombo and Pugoda), thanks to investments coming, in particular, from East and South East Asia. The most ambitious objectives of government policy were represented in those years by the achievement of self-sufficiency in the rice and energy sectors. Economic growth came to a halt in 2004 due to the aftermath of the tsunami.

The impact on economy was notable, first of all on fishing and tourism, then on manufacturing and commercial activities penalized by damage to infrastructures. The reconstruction plans attempted to keep the growth of public debt under control and to support the recovery of the productive sectors also thanks to international financing. This has enabled the country to achieve new GDP growth in just a few years, which amounted to US $ 39,604 million in 2008. Faced with a decline in yields from plantation products and an increase in income from agriculture and food processing, the textile, construction and tertiary sectors (tourism, banks, insurance, telecommunications), which went to replace the primary both in the incidence on GDP and in the employed workforce, the government planned and implemented a series of reforms aimed at addressing widespread poverty, which still affects a large part of the population, and regional disparities. In fact, the growth in recent years has mostly concerned the western regions while especially the northern and eastern regions, affected by conflicts between ethnic groups, have more difficulty in establishing a path of economic growth. These measures envisage strategies in favor of the public sector and, to a lesser extent, policies to support the private sector and attract foreign investors, involving all sectors. It is a policy, that of the government, excessively biased for the benefit of the public, according to International Monetary Fund, in a country where slowing elements persist: real growth rates, unlike what happens in other Asian countries, are due more to internal than to external demand, therefore too little interested in exports, remittances of emigrants still constitute an important voice of the revenue and internal conflicts and the episodes of violence that follow one another generate little confidence in possible foreign investors.

ECONOMY: TRADE, COMMUNICATIONS AND TOURISM

Foreign trade, which has been showing a heavy deficit for years, is essentially carried out with the United States, Great Britain and India (export) and with other Asian countries, in particular India, China, Singapore, Iran, Malaysia, Hong Kong and Japan (import); Sri Lanka exports finished textiles, tea, spices, then rubber, coconut palm derivatives and precious stones, while it mainly imports food and oil products, textiles, machinery and means of transport. Both road and rail communications are good overall; the city of Colombo is also home to the country’s largest international airport, as well as one of the main ports, alongside those of Trincomalee and Galle. Tourism had a moderate development until the mid-1980s, when the deterioration of the internal political situation caused a reduction in the flow of visitors. Visit insidewatch.net for Sri Lanka travel package.

Sri Lanka Economy