Economic Analysis of Sri Lanka

The latest financial and economic performance of Sri Lanka is mixed. The island-nation is currently facing a development problem. While the economy has continued to grow, growth in latest years has been small and declining. The nation requires critical structural and other policy reforms to unleash its actual development peripherals. To minimise the current budget deficit, Sri Lanka would require more significant development. In the current development setting, the amount of public debt is substantial and unsustainable.

Further deterioration of the fiscal balance could result in more government borrowing and more debt piling up. Improving the balance of trade and the deficit in the balance of payments also requires increased development. Sri Lanka recently reached the upper-middle-income stage. Higher and sustained development will be needed to maintain this high-income status. With viable assumptions concerning the development growth, Sri Lanka will need about 20 years of annual growth at 5% and around 15 years of development and economic growth of 6% to be classified as a high-income economy.

In terms of general financial development, Sri Lanka has reported average annual growth of 5.4% in actual terms over the previous ten years (2009-2018). This period consisted of two distinct development phases: the economy rose at an annual average rate of 6.5 per cent in the five years 2009-2013, which was the period instantly following the end of a 20-year civil war in May 2009. In the three years following the end of the war, where growth was 8.0 per cent in 2010, 8.4 per cent in 2011, and 9.1 per cent in 2012, the more significant development was particularly spectacular, showing continuing growth momentum.

However, this momentum broke with development dropping significantly to 3.4 per cent in 2013, and the average annual growth dropped to 4.2 per cent in the last five-year period of 2014-2018, which is more than a two percentage point fall compared to the past five-year era.

Besides, growth has shown steady decreases since 2015, with a growth rate of 3.2 per cent in 2018 is the highest in 16 years. Concerning the sectoral structure of the economy, the services sector is the most crucial sector of the economy, contributing 57% of the actual gross national product in 2018, followed by industry (27%) and agriculture (8%). Hence, it is proven that the sectoral composition of the economy has barely changed over the previous five years.

Concerning sectoral development, over the previous five years, the agricultural industry has risen at an average pace of 2.1%. With the exclusion of adverse event in 2016 and 2017, this industry showed at most an increase of around 5 per cent. With a significant variation from 0.9 per cent in 2018 to 5.8 per cent in 2016, the industry sector reported an average development of 3.3 per cent. The services industry showed constant growth of around 5 per cent on average.

VBS/AT/16102019/Z_TB1

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