Sri Lanka - Market Overview Sri Lanka - Market Overview
The Sri Lankan economy grew by 3.2 percent in 2018 amid external shocks and domestic political uncertainty. Prior to the April 21 attacks, GDP growth was expected to improve to about 3.5 percent in 2019, and over 4 percent in the medium term. Inflation was projected to reach 4.5 percent by end 2019. The Sri Lanka rupee depreciated over 16 percent, one of the largest for emerging markets, in 2018 due to a surge in foreign exchange outflows precipitated by the 2018 constitutional crisis. Remittances from migrant workers, approximately $7.0 billion per year, are a significant source of foreign exchange. Tourism is a $4.4 billion industry with 2.3 million tourist arrivals in 2018. Lonely Planet named Sri Lanka its top travel destination in 2019, prior to the April 21 terrorist attacks.
Foreign direct investment (FDI), including loans, into Sri Lanka increased to approximately $2.3 billion in 2018, compared to $1.7 billion in 2017. Recent FDI was concentrated in the real estate, mixed development projects, ports and telecommunications sectors. The tourism sector, with over two million tourists per year and a variety of cultural, wildlife, and outdoor offerings, is a priority sector for investors. The business process outsourcing sector is also growing and has strong involvement from U.S. firms. With a growing middle class, investors also see opportunities in franchising, retail and services as well as light manufacturing.
Terrorist attacks on April 21 and ongoing political uncertainty will likely curtail tourism growth and foreign direct investment and weigh on the overall macroeconomic outlook in 2019. A 2-day constitutional crisis in October 2018 precipitated by the extralegal removal of the Sri Lankan Prime Minister by the President of Sri Lanka decreased confidence in the government and increased barriers to economic and political reforms. National elections are expected at the end of 2019 and will likely limit the potential for major economic reforms.
Looming debt service payments will be another challenge in 2019. The Government’s foreign debt payments presently amount to $5.9 billion and the 2018 constitutional crisis resulted in three major credit rating agencies downgrading the country’s rating. The government, under a three-year Extended Fund Facility (EFF) with the International Monetary Fund (IMF), committed to a program of fiscal consolidation, rebuilding foreign exchange reserves, state owned enterprise reform, and reforms to the trade and investment regime.
The United States is the largest single market for Sri Lankan exports, importing $2.7 billion, while U.S. exports to Sri Lanka were $373 million in 2018. Total exports from Sri Lanka increased 4.7 percent to $11.9 billion in 2018 while imports are approximately $22 billion. Sri Lanka’s trade deficit was an all-time high of $10 billion in 2018. Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.