flag Sri Lanka Sri Lanka: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Sri Lanka has experienced strong and sustained growth in recent years since the end of the conflict between the government and the Tamil Tigers in 2009. After growing 2.3% in 2019, the country’s GDP contracted by an estimated 3.6% in 2020 due to the global COVID-19-induced crisis (IMF and the Department of Census and Statistics), which prompted a decline in both external and internal demand, as well as in tourism activities (the sector accounts for one-tenth of GDP and had already suffered after the Easter 2019 terrorist attacks). As the situation stabilized in 2021, the IMF forecast of a rebound of 3.6% verified itself. Growth should reach 3.3% in 2022 and 3.9% in 2023 subject to the post-pandemic global economic recovery.

With a wide deficit, Sri Lanka’s public finances should remain weak and, thus, face tighter external financing conditions. Public debt is sky high and weighs on the budget: over 70% of government revenues were spent on interest payments in the first half of 2021 (Coface, 2022). The adverse situation caused public finances to further deteriorate in 2020, bringing the budget deficit to an estimated 8.8% (from 6.9% one year earlier), despite a USD 800 million (1% of GDP) grant received from the IMF under the Rapid Credit Facility. The reforms implemented by the government in recent years to improve public accounts are expected to be postponed temporarily because of the ongoing crisis. Presenting Sri Lanka's 2022 budget in November 2021, the country's Finance minister announced that the government would cut its budget deficit to around 8.8% of gross domestic product in 2022. The deficit target for 2021 was revised to 11.1% (Reuters, 2021).

Debt-to-GDP ratio increased to 100.1% in 2020, from 86.8% in 2019. Half of it is denominated in foreign currencies and therefore exposes the country to the risk of depreciation, with the IMF forecasting an increase to 107.7% by 2022. Inflation – at 4.6% in 2020 - reached 5.1% in 2021 and is expected to remain high (6.3% in 2022 and 6.5% in 2023) due to rising demand and import controls, which reduce competition in the domestic market (IMF, 2022). The political situation is still very unstable: nationalist Gotabaya Rajapaksa won the November 2019 presidential elections, and his party also obtained the majority in the parliamentary elections of August 2020. In October, the parliament approved a reform strengthening most of the constitutional powers of the president, which caused concerns among ethnic minorities.

The country has been classified as a middle-income economy by the IMF since 2010. The COVID-19 crisis caused a spike in unemployment, with the rate going up to 8.4% in 2020 from 4.8% one year earlier. Unemployment remained high in 2021 and weighted on household consumption (70% of GDP). Youth Unemployment rate in Sri Lanka increased to 30% in the second quarter of 2021 from 28.10% in the first quarter of 2021 (Department of Census and Statistics - Sri Lanka, 2022). In recent years, Sri Lanka’s record of poverty reduction has been encouraging. The poverty headcount rate fell from about 22.7% in 2002 to 4.1% in 2016 (Asia Development Bank, latest data available). The country’s poverty - at $3.20 per day poverty line - was projected to reach 10.9% in 2021, which was still significantly above the 2019 level of 9.2 percent (World Bank, 2021). However, living standards remain low and pockets of severe poverty persist. Additionally, poverty rates are disproportionately high for vulnerable groups such as youth and ethnic minorities; and unemployment is high for youth and women. Still, the country’s 21.9 million inhabitants have achieved some of the best human development results in South Asia. The literacy rate in 2019 was close to 100% and the country’s life expectancy is the highest in the region. Low mortality rates and the steadily declining population growth, reflect the country’s progress in the sphere of social development. However, the social and economic situation of the Tamil community remains largely unequal to that of the Sinhalese, and ethnic tensions have been on the rise in recent years.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 83.98e80.7080.7983.3288.91
GDP (Constant Prices, Annual % Change) 2.3-3.6e3.63.33.9
GDP per Capita (USD) 3,852e3,682e3,6663,7603,991
General Government Gross Debt (in % of GDP) 86.8101.2e109.3111.4111.9
Inflation Rate (%) 4.34.66.017.612.9
Current Account (billions USD) -1.85-1.08e-2.56-2.43-2.19
Current Account (in % of GDP) -2.2-1.3e-3.2-2.9-2.5

Source: IMF – World Economic Outlook Database - October 2021.

Note: (e) Estimated Data


 
Monetary Indicators 20162017201820192020
Sri Lanka Rupee (LKR) - Average Annual Exchange Rate For 1 GHS 36.4935.0435.4334.3733.15

Source: World Bank - Latest available data.

 

Main Sectors of Industry

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 25.0 27.9 47.2
Value Added (in % of GDP) 8.4 26.2 59.7
Value Added (Annual % Change) -2.4 -6.9 -1.5

Source: World Bank - Latest available data.

 
Socio-Demographic Indicators 20212022 (e)2023 (e)
Unemployment Rate (%) 5.35.15.0

Source: IMF – World Economic Outlook Database - Latest available data

 

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The Active Population in Figures

201820192020
Labour Force 8,696,1948,704,3818,552,779

Source: International Labour Organization, ILOSTAT database

 
201720182019
Total activity rate 59.90%57.93%57.52%
Men activity rate 80.58%79.83%79.13%
Women activity rate 40.76%37.70%37.58%

Source: International Labour Organization, ILOSTAT database

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
55,7/100
World Rank:
131
Regional Rank:
28

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.26/10
World Rank:
66/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Partly Free
Political Freedom:
4/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
127/180

Source: World Press Freedom Index, Reporters Without Borders

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Sources of General Economic Information

Main Online Newspapers and Portals
Sri Lankan Newspapers online
Sri Lanka News
Sri Lanka Newspapers and News Sites
Daily News Sri Lanka
Useful Resources
Ministry of Finance & Planning
Central Bank
 
 

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Latest Update: May 2022