Economic Outline

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 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) that have been 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. According to the latest IMF estimates, after growing by 3.3% one year earlier, the country’s GDP contracted by 8.7% in 2022 when a shortage of dollars caused a halt in essential imports in the first part of the year. The Census and Statistics Department said that the agriculture sector shrank by 4.6% year-on-year, while industries contracted by 16% and services by 2%. In the July-September quarter, Sri Lanka's economy shrank 11.8% year-on-year, the second-worst quarterly contraction ever recorded. Prospects are not positive for the upcoming future, with the IMF forecasting a GDP contraction of 3% in 2023, followed by a return to growth in 2024 (+1.5%), although risks remain tilted to the downside.

In May 2022, a 30-day grace period to come up with USD 78 million of unpaid debt interest payments expired, resulting in Sri Lanka’s first-ever default on its debt. In March 2023, the IMF Board approved a 48-month extended arrangement under the Extended Fund Facility (EFF) of SDR 2.286 billion (about USD 3 billion) in an effort to restore macroeconomic stability and debt sustainability, safeguard financial stability, and step up structural reforms. The central government balance recorded double-digit defaults in recent years (-11.6% and -10.4% of GDP in 2021 and 2022, respectively), and is expected to remain negative this year (-8%) and in 2024 (-6.4%). The historically high debt-to-GDP ratio reached 128.1% in 2022, from 114.3% one year earlier, but is expected to follow a downward trend over the forecast horizon (111.2% in 2023 and 108.5% the following year – IMF). For the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management, and energy pricing are crucial. Meanwhile, inflation skyrocketed to 46.4% in 2022 (from 6% one year earlier) and continued growing in early 2023 (51.7% in January and 50.6% in February). For the year as a whole, the IMF expects the inflation rate to average around 28.5%. Among the recommendations of the IMF to ensure the stability of the financial sector, there are the implementation of a bank recapitalization plan and the strengthening of financial supervision and crisis management frameworks.

The country has been classified as a middle-income economy by the IMF since 2010. According to the latest figures from the Department of Census and Statistics, the estimated labour force participation rate was 48.9% and the unemployment rate was 4.8% for the fourth quarter of 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 6.9% in 2019 (Asia Development Bank, latest data available). 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. To this extent, the IMF advised strengthening social safety nets, which should be better targeted to the poor. Sri Lanka’s GDP per capita (PPP) was estimated at USD 14,223 in 2023 by the IMF. Nevertheless, the World Bank noted that Sri Lanka’s ongoing financial crisis may increase poverty from 13.1% in 2021 to 25.6% in 2022, which is equivalent to over 2.5 million people falling into poverty during the period.

 
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 (%) n/a0.00.00.00.0
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 MUR 4.104.424.795.034.72

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

Useful Resources
Ministry of Finance & Planning
Ministry of Agriculture
Ministry of Urban Development and Housing
Central Bank
 
 

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Latest Update: November 2023