Sri Lanka – Trade Policy

MACROECONOMIC ENVIRONMENT AND ECONOMIC PERFORMANCE

Sri Lanka was able to maintain its economic growth at an average rate of 6.4% over the course of 2010 to 2015 despite the external pressure arising from global economic slowdown and the domestic economic challenges. The resilience of the economy to these challenges by maintaining overall growth and relatively stable macroeconomic environment reflects a peace dividend and a determined policy thrust towards reconstruction and growth. The per capita income has increased from US$2,744 in the year 2010 to US$3,924 in 2015 arising from an economic strategy of promoting inclusive growth with underlying macroeconomic foundation for financial and economic stability and robust economic performance.

The real GDP growth of 4.8% reported in 2015 was mainly attributable to the increase in consumption demand and the modest growth in investment related activities particularly on infrastructure development. All three sectors of the GDP reflected moderate average annual growth rates reflecting the pro-growth economic policies followed by the Government. This has also improved the labour force participation rate of the country which reported the highest percentage in 2013 and 2015 at 53.8.

a.    Provisional.

b.   As reported by the Registrar General's Department.

c.    Mid-year population estimates in 2000 were prepared based on the Census of the Population and Housing - 1981 and thereafter until 2011 were prepared based on the Census of the Population and Housing - 2001. Mid-year population estimates in 2012 onwards were prepared based on the final report of the Census of Population and Housing – 2012.

d.   Data up to 2011 for household population aged 10 and above while that of 2012 onwards for those aged 15 and above.

e.   For 2000, data excludes both Northern and Eastern Provinces. For 2010, data excludes Northern Province. From 2011 onwards, data covers the entire Island.

f.    Rebased GDP estimates (base year 2010) of the Department of Census and Statistics have been used from 2010 onwards.

g.   Revised.

h.   Estimates updated with latest population figures.

i.     Data is under the 2002 base year.

k.   Excludes re-exports and re-imports from 2007 onwards.

p.  Special Drawing Rights (SDR), the unit of account of the IMF.

q.  Exchange rates have been defined in the terms of indices so that the appreciation/deprecation of the rupee relative to other currencies is directly reflected by a rise/fall in the values of the effective exchange rate indices.

r.  CCPI is used for the computation of the Real Effective Exchange Rate (REER). The REER is computed by the adjusting Nominal Effective Exchange Rate (NEER) for inflation differentials with the countries whose currencies are included in the basket.

Agriculture sector on average grew by 4.5 during the reference period. The sector reported 5.5% growth in 2015 contributing to 7.9% of the GDP. Factors such as favourable weather conditions, increased prices of agriculture products and value addition in several other key subsectors i.e. coconut, fruits and vegetables have been the key contributors for this improved performance.

The average growth rate of the industry sector reported for the reference period was 6.2%. Having contributed to 26.2% of the GDP, the sectoral growth indicated 3.0% in 2015 in comparison to 3.5% recorded in 2014. The slow growth was largely attributed to lower performance in construction and mining and quarrying activities. The manufacturing sector has been the key contributor to the growth in the industry sector. The Government continued its technical assistance, infrastructure upgrading and promoting regional industrialization etc. for the development of the industry sector.

The services sector accounting 56.6% of GDP expanded by 5.3% in 2015 in comparison to 5.2% in 2014. This was largely attributed to the growth in financial services by 15.8%, while real estate activities, transport activities and wholesale and retail sale also accounted for significant contribution to maintain the growth momentum in the services sector.

Inflation remained below mid-single digit levels throughout the reference period reflecting prudential demand management policies followed by the Central Bank of Sri Lanka and favourable supply side developments in the domestic and international markets. Notably, inflation reported the lowest annual average at 0.9 in 2015 while the 3rd quarter of 2015 reported negative figure, after 20 years.

The floating exchange rate system was administered ensuring an adequate level of liquidity in the system thereby strengthening the stability of the foreign exchange market and the external competitiveness. In 2015, Sri Lanka permitted greater flexibility in the determination of the exchange rate. The volatility in the domestic foreign exchange market resulting from high volume of foreign exchange outflows on account of increased imports, debt service payments, reversal of foreign investments from government securities market and lower than expected foreign currency inflows was appropriately managed by the timely intervention of the Central Bank of Sri Lanka.