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Economic Indicators

Sri Lanka has experienced strong and sustained growth since the end of the conflict between the government and the Tamil Tigers in 2009. Nevertheless, in recent years, a catastrophic economic and humanitarian crisis has struck the country, with the economy grappling with significant challenges: a severe recession amid high inflation, depleted reserves, and an unsustainable public debt, exacerbated by a series of external shocks. The crisis can be traced back to pre-existing vulnerabilities and policy missteps that occurred prior to its onset. Following the loss of access to international financial markets in 2020, official reserves sharply declined, leading to a forex liquidity constraint and severe shortages of essential goods. In April 2022, the country declared an external debt service suspension pending debt restructuring. The economy experienced a total contraction of 9.5% during 2022 and 2023, while public and publicly guaranteed debt surged to 119.2% of GDP in 2022 amidst high inflation (46.4% annual average in 2022) and a steep currency depreciation (81.2% year-on-year, 2022). In 2023, the economy shrank by 2.3%, despite growth in the third and fourth quarters at 1.6% and 4.5% year-on-year respectively, marking the end of six consecutive quarters of contraction. This decline was primarily due to reductions in construction, mining, financial and IT services, and textile manufacturing, driven by weak demand, limited private credit availability, and input shortages. However, growth was observed in transportation, accommodation, food, and beverage services, fueled by a resurgence in tourism. Future growth hinges on progress in debt restructuring and ongoing structural reforms. Fiscal adjustments, mainly reliant on revenue, may further reduce disposable incomes, dampen demand, and hinder short-term growth. Despite a modest recovery, it is unlikely to offset welfare losses from the crisis, and poverty rates are expected to remain above 22% until 2026.

Recent structural reforms, such as implementing cost-reflective utility pricing and introducing new revenue measures, contributed to macroeconomic stability but put pressure on household budgets. Domestic debt restructuring concluded in September 2023, and negotiations with external creditors are ongoing. In March 2024, a Staff Level Agreement was reached between authorities and International Monetary Fund staff for the second review of the Extended Fund Facility program, for a total amount of about USD 3 billion. Key reforms targeting debt, fiscal management, trade, investment, and State-Owned Enterprises (SOEs) are making progress. In 2023, the current account posted its first surplus since 1977, fueled by a sharp rebound in remittances and tourism, coupled with restrained imports. Despite a positive primary balance resulting from increased revenue and SOE repayments, a significant surge in interest payments led to a considerable fiscal deficit. Interest payments accounted for roughly three-quarters of total revenue collected. Additionally, the continued external debt service suspension, inflows from development partners, significant foreign exchange purchases, and deferred repayments on existing credit lines bolstered usable official reserves to around two months of imports. While the primary deficit is anticipated to decrease further, the overall fiscal balance is forecasted to remain elevated in 2024, primarily due to the substantial interest payments. Debt restructuring efforts and ongoing fiscal consolidation are expected to gradually reduce the overall fiscal balance in the medium term. Inflation remained mild, stabilizing at single-digit levels by July 2023, buoyed by currency appreciation and enhanced supply. However, it is expected to increase moderately in the short term, driven by new revenue measures and diminishing favorable base effects, yet maintaining a benign outlook in the medium term due to subdued demand.

The country has been classified as a middle-income economy by the IMF since 2010. According to the latest figures from the World Bank, labor force participation dropped from 49.8% to 48.8% between 2022 and the third quarter of 2023, notably in urban regions. Facing reduced incomes and price pressures, households resorted to risky coping methods, such as dipping into savings, increasing debt, and cutting back on food consumption. Food insecurity escalated in the latter half of 2023, affecting 24% of households. In recent years, food insecurity and malnutrition have surged, with poverty doubling and inequality widening. Around 60% of households saw income declines as a result of reduced work hours or job losses, and poverty is estimated to remain above 22% until 2026. In 2023, the unemployment rate increased to 6.6% (from 6.2% one year earlier), whereas the GDP per capita (PPP) stood at USD 14,410 (data World Bank).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 74.850.000.000.000.00
GDP (Constant Prices, Annual % Change) -7.80.00.00.00.0
GDP per Capita (USD) 3,3420000
General Government Gross Debt (in % of GDP) 115.50.00.00.00.0
Inflation Rate (%) 45.20.00.00.00.0
Current Account (billions USD) -0.740.000.000.000.00
Current Account (in % of GDP) -1.00.00.00.00.0

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 EUR 154.87172.21191.69200.79211.90

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) 25.7 27.9 46.4
Value Added (in % of GDP) 8.7 30.3 56.1
Value Added (Annual % Change) -4.6 -16.0 -2.0

Source: World Bank - Latest available data.

 
Socio-Demographic Indicators 2024 (e)2025 (e)2026 (e)
Unemployment Rate (%) 0.00.00.0

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

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Sources of General Economic Information

Main Online Newspapers and Portals
Sri Lankan Newspapers online
Sri Lanka News
Economy Next Sri Lanka
Daily News Sri Lanka
Useful Resources
Ministry of Finance & Planning
Ministry of Agriculture
Ministry of Urban Development and Housing
Central Bank
 
 

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Latest Update: May 2024

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