Sri Lanka





ECONOMY


At independence in 1948, plantations growing tea, rubber, or coconuts and paddies growing rice for subsistence dominated Sri Lanka's economy, and, as late as 1970, plantation crops accounted for 93% of exports. In 1977, Colombo abandoned statist economic policies and its import substitution trade policy for market-oriented policies and export-oriented trade. Sri Lanka's most dynamic industries now are food processing, textiles and apparel, food and beverages, telecommunications, and insurance and banking. By 1996 plantation crops made up only 20% of exports, while textiles and garments accounted for 63%. GDP grew at an annual average rate of 5.5% throughout the 1990s until a drought and a deteriorating security situation lowered growth to 3.8% in 1996. The economy rebounded in second half 1996, however, and continued to perform well in 1997 with growth of 6%. Sustained economic growth, coupled with population growth of only 1.1%, has pushed Sri Lanka from the ranks of the poorest countries in the world up to the threshold of the middle income countries. For the next round of reforms, the central bank of Sri Lanka recommends that Colombo expand market mechanisms in nonplantation agriculture, dismantle the government's monopoly on wheat imports, and promote more competition in the financial sector. A continuing cloud over the economy is the fighting between the Sinhalese and the minority Tamils, which has cost 50,000 lives in the past 14 years.

With an economy of about $11 billion a year, and per capita GDP of $600, Sri Lanka has been coping with a decade long civil insurgency. In 1989, GDP growth fell to a low of 2%, but recovered and hit a high of 7% in 1993. With several rounds of local and national elections in 1994, growth fell to about 5.2%. The forecast for 1995 is clouded, as the private sector awaits proof that the new government will deliver on its promises of creating an environment conducive to vigorous, private- sector growth.

The service sector is the largest component of GDP (50%), partly reflecting an extensive government apparatus and welfare state, but also including a rapidly growing tourism sector. The booming industrial sector now accounts for 20% of GDP. Garment manufacturing dominates

Industry. Agriculture, the traditional leading sector, contributes 20% of GDP and provides employment to about half the population. Rice, the staple cereal, is cultivated extensively. The plantation sector - tea, rubber, and coconut - also is a major employer and, until the recent growth of the textile industry, provided the bulk of export earnings.

Since 1990, a successful new stock exchange has been founded; all exchange controls on current account transactions have been eliminated; and more than 40 state firms have been privatized. Generous tax policies and other incentives have made Sri Lanka attractive to outside investors. Direct foreign investment inflows were about $200 million in 1994. The expectation is that investment inflows will continue to rise and that GDP growth should average 5% to 6% for the remainder of the decade.

Trade and Foreign Assistance. Exports to the United States - Sri Lanka's single most important export market - were valued at over $1 billion in 1994. The U.S. was Sri Lanka's largest market for textiles in 1994, followed by Germany, UK, and Japan. Japan was Sri Lanka's largest source of imports in 1994, followed by East and South Asian nations such as India and Hong Kong. Imports from the U.S. amounted to about $200 million in 1994.

Sri Lanka is highly dependent on foreign assistance and has received about $500 million a year since 1990. With the end of the JVP insurrection and a systematic decline in human rights abuses by the security forces, Western donor countries have increased support of Sri Lanka's economic liberalization programs. Foreign assistance has been critical in the successful development of the large Mahaweli River Basin Project, privatization of state-run industry, development of the stock exchange, and the building of infrastructure.

Labor. Perhaps one-quarter of Sri Lanka's 6.8 million labor force is unionized, with more than 1,300 registered unions and 10 federations. The largest labor group is the National Trade Union Conference. Many unions are affiliated with political parties. One of the largest unions is the Ceylon Workers Congress (CWC), which represents Indian Tamil workers on tea and rubber plantations. It claims a membership of 360,000. Its president, S. Thondaman, is Minister of Livestock Development and Rural Industries. The CWC's agenda includes political issues, such as citizenship status for stateless Indian Tamils.
GDP: purchasing power parity—$72.1 billion (1997 est.)
GDP—real growth rate: 6% (1997 est.)
GDP—per capita: purchasing power parity—$3,800 (1997 est.)
GDP—composition by sector:
agriculture: 18.4%
industry: 18%
services: 63.6% (1996)

Inflation rate—consumer price index: 9.6% (1997)

Labor force:
total: 6.2 million (1997)
by occupation: services 46%, agriculture 37%, industry 17% (1997 est.)

Unemployment rate: 11% (1997 est.)

Budget:
revenues: $3 billion
expenditures: $4.2 billion, including capital expenditures of $1 billion (1997 est.)

Industries: processing of rubber, tea, coconuts, and other agricultural commodities; clothing, cement, petroleum refining, textiles, tobacco

Industrial production growth rate: 6.5% (1996 est.)

Electricity—capacity: 1.557 million kW (1997 est.)

Electricity—production: 4.86 billion kWh (1997 est.)

Electricity—consumption per capita: 220 kWh (1997 est.)

Agriculture—products: rice, sugarcane, grains, pulses, oilseed, roots, spices, tea, rubber, coconuts; milk, eggs, hides, meat

Exports:
total value: $4.1 billion (f.o.b., 1996)
commodities: textiles and apparel, tea, diamonds and other gems, rubber products, petroleum products (1995) partners: US 34%, UK 9.5%, Japan 6.2%, Germany 5.8%, Belgium-Luxembourg 5.3% (1996)

Imports:
total value: $5.4 billion (c.i.f., 1996)
commodities: machinery and equipment, textiles, transport equipment, petroleum, building materials, sugar, wheat (1996) partners: India 10.4%, Japan 9.1%, South Korea 6.5%, Hong Kong 6.5%, Taiwan 5.3% (1996)

Debt—external: $9.4 billion (1996)

Economic aid:
recipient: ODA, $620 million (1996 est.)

Currency: 1 Sri Lankan rupee (SLRe) = 100 cents

Exchange rates: Sri Lankan rupees (SLRes) per US$1—61.479 (January 1998), 58.995 (1997), 55.271 (1996), 51.252 (1995), 49.415 (1994), 48.322 (1993)

Fiscal year: calendar year




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