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ECONOMIC PROFILE
The country context has changed dramatically in recent years. A 26-year conflict ended in May 2009, and the macroeconomic situation is much improved. Sri Lanka has become a middle-income country, and its credit-worthiness has increased.


The post-conflict rebound helped all sectors both on the supply side and the demand side: Agricultural land in conflict-affected areas could once again be cultivated; double shifts in manufacturing became possible as workers no longer had to worry about security restrictions; domestic consumers’ and investors’ confidence revived; and services related to tourism picked up as tourist arrivals surged after the end of the war.

A look back at growth performances of other comparable economies, post-Global Financial Crisis, shows Sri Lanka maintaining relatively stronger growth of over 8% in both 2010 and 2011, largely spurred by private-sector demand. Sri Lanka posted the fastest growth in South Asia in 2011 and is expected to achieve a slower 6.5% in 2012.

The government strategic vision is laid out in the Mahinda Chintana document of 2010. The strategy describes three clear goals:

1. Doubling of per capita income to $4,000 by 2016. This goal is to be achieved through sustained high economic growth (8% per year), which is in turn to be achieved through high investment rate. Of the targeted investment rate (33%-35% of GDP per year), 6%-7% of GDP per year is expected to come from public investment, with the remainder coming from the private sector. Private-sector investment fell far short of the target in 2010-2011, so efforts to improve the investment climate will need to be expanded.

 

2. Shifting the structure of the economy. The second goal is shifting the structure of the economy to be more knowledge-based, globally integrated and competitive, environmentally friendly, internally integrated, and increasingly urban. Sri Lanka has a solid base for achieving this goal, with a well-educated population and a wealth of environmental assets.