Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements.
Last Published: 10/10/2018
Sri Lanka is a lower middle-income country with a population of 21.4 million.  In 2017, Sri Lanka’s Gross Domestic Product (GDP) reached $87 billion with the GDP per capita of $4,065.  Due to decreased agricultural output resulting from droughts and flooding in some areas, the Sri Lankan economy grew by only 3.1 percent in 2017, as opposed to the 4.5 percent  growth recorded the previous year.  The International Monetary Fund (IMF) expects Sri Lanka’s GDP to grow by approximately four percent in 2018 supported by a recovery in agriculture, industry, and robust service growth.  Inflation on a year-to-year basis was 7.1 percent in December 2017 before moderating to 4.4 percent in June 2018.  With signs of a rebound in agricultural production, inflation is projected to remain below five percent in 2018 as per IMF projections.  Sri Lanka suffers from a large foreign debt burden estimated at approximately 60 percent of its GDP in 2017.  The government faces large amortization payments in the next few years.  The strengthening U.S. dollar has led to a sharp depreciation of the rupee.

Total annual imports are approximately $21 billion, mainly from India, China, UAE, and Singapore.  U.S. exports of goods to Sri Lanka were $336 million in 2017.  Total U.S.-Sri Lanka bilateral trade of goods and services in 2017 was $3.2 billion.  The United States is the largest single market for Sri Lankan exports, receiving about  $2.9 billion of the $11 billion total exports from Sri Lanka in 2017.  Sri Lanka’s free trade agreements (FTA) with India and Pakistan offer preferential access to trade with these countries.  The Government of Sri Lanka (GSL) expects the Sri Lanka-Singapore FTA, signed in January 2018, to integrate Sri Lanka into regional and global value chains.  As of July 2018, Sri Lanka was negotiating an Economic and Technology Agreement (ETCA) with India and an FTA with China.

Compared to other South Asian countries, Sri Lanka is relatively open to foreign investment.  It offers an open financial system, moderately stable monetary policy, improving infrastructure, and experienced local companies.  

Sri Lanka is focusing on long-term strategic and structural development challenges as it strives to transition to an upper middle-income country.  Key challenges include boosting foreign investment, realigning public spending and policy with the needs of a middle-income country, enhancing the role of the private sector, including the provision of an appropriate environment for increasing productivity and exports, and ensuring growth is inclusive.  The bloated civil service and losses at state-owned enterprises are significant challenges for the Government of Sri Lanka.  Future growth will also require deregulation of land and labor markets.  Political uncertainty in the run-up to Presidential and Parliament elections scheduled in 2020 could affect economic growth and the investment climate.

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Sri Lanka Trade Development and Promotion