Economy
In the 19th and 20th Centuries, Sri Lanka became a
plantation economy, famous for its production and export of
cinnamon,
rubber and
Ceylon tea, which remains a trademark national export. The development of modern ports under British rule raised the strategic importance of the island as a centre of trade. During
World War II, the island hosted important
military installations and Allied forces. However, the plantation economy aggravated poverty and
economic inequality. From 1948 to 1977
socialism strongly influenced the government's economic policies. Colonial plantations were dismantled, industries were nationalised and a
welfare state established. While the standard of living and literacy improved significantly, the nation's economy suffered from inefficiency,
slow growth and lack of foreign investment. From 1977 the UNP government began incorporating
privatisation, deregulation and promotion of
private enterprise. While the production and export of tea, rubber, coffee, sugar and other agricultural commodities remains important, the nation has moved steadily towards an industrialised economy with the development of
food processing,
textiles,
telecommunications and
finance. By 1996 plantation crops made up only 20% of export, and further declined to 16.8% in 2005 (compared with 93% in 1970), while textiles and garments have reached 63%. The
GDP grew at an average annual rate of 5.5% during the early 1990s, until a drought and a deteriorating security situation lowered growth to 3.8% in 1996. The economy rebounded in 1997–2000, with average growth of 5.3%. The year of 2001 saw the first
recession in the country's history, as a result of power shortages, budgetary problems, the global slowdown, and
continuing civil strife. Signs of recovery appeared after the 2002 ceasefire which died away following the beginning of war. Since the separatist war ended in May 2009 the Sri Lankan stock market has shown marked gains to be among the 3 best performing markets in the world
The Sri Lankan stock market has come into the first three best stock markets in the world. The
Colombo Stock Exchange reported the highest growth in the world for 2003, and today Sri Lanka has the highest
per capita income in South Asia.
The well known export of Sri Lanka, the
Ceylon tea.
In April 2004, there was a sharp reversal in economic policy after the government headed by Ranil Wickremesinghe of the
United National Party was defeated by a coalition made up of
Sri Lanka Freedom Party and the leftist-nationalist
Janatha Vimukthi Peramuna called the
United People's Freedom Alliance. The new government stopped the privatization of
state enterprises and reforms of state
utilities such as power and
petroleum, and embarked on a subsidy program called the Rata Perata economic program. Its main theme to support the rural and suburban SMEs and protect the domestic economy from external influences, such as oil prices, the
World Bank and the
International Monetary Fund. Sri Lanka, with an income per head of
US$1,400, still lags behind some of its neighbors including
Maldives and
Mauritius but is ahead of its giant neighbor
India. Its economy grew by an average of 5% during the 1990s during the 'War for Peace' era. According to the Sri Lankan central bank statistics, the economy was estimated to have grown by 7% last year, while inflation reached 20%. Parts of Sri Lanka, particularly the South and East coast, were devastated by the
2004 Asian Tsunami. The economy was briefly buoyed by an influx of foreign aid and tourists, but this was disrupted with the reemergence of the civil war resulting in increased lawlessness in the country
[29] and a sharp decline in tourism.
[30][31] But following the end of the 3 decade long separatist war in May 2009 tourism has seen a steep uptick. Also the end of war has ensured the rule of law in the whole of the island.
