International Trade in Sri Lanka

News Related to International Trade in Sri Lanka

Business outline for Sri Lanka

Economic Overview

Even though the economic growth of Sri Lanka has been showing a steady rhythm during these last years (more than 6%), the global economic crisis combined with the impact of the latest conflicts between the government and the Tamil separatist forces, have caused an evident economic slowdown in 2009 (3.5%).  In 2010, the growth rebounded attaining 7% thanks to the revival in exports, the regain of investors' confidence and the dynamics of the agricultural and tourism services sectors. 

The financial difficulties affronted by Sri Lanka due to the global economic slowdown, led the authorities to sign a stand-by agreement with the IMF in July 2009. The objectives of the program are to reinforce competitiveness in the export sectors and to improve the financial system. In regards of public finances, the objective for 2011 is to bring down the deficit to 6.8%. The control of the public debt, which makes the country very vulnerable to international shocks, is also a priority. The ten-year development program presented by the government emphasises the urgency of updating public infrastructures in order to reach a growth level higher than 10% by 2020. 

A market-oriented banking system, a skilled labor force, a restored political stability and the remittances from the Sri Lankan diaspora (mainly from the Middle East) are positive factors to the country's economic growth. However, high poverty levels, low agricultural productivity, poor infrastructure facilities and inefficient public companies are obstacles that the country has to confront.

FDI in Figures

FDI inflows in Sri Lanka have been in a constant increase during the last recent years. After a slowdown provoked by the global recession, the flows have restarted to increase in 2010, stimulated by the end of the civil conflict and the economy revival.

For many years, the civil war had been a significant hindrance to the development of FDI. But, since the peace has been restored, the country offers many positive features that can attract FDI such as: the measures taken by  the government  (creation of free-zones, reduction of food subsidies and other consumption goods), the geographical strategic location of the country near two regions of high growth (India and Southeast Asia), and the tourism potential, which is yet to be fully exploited.

Electricity, textiles and telecommunications are the sectors that attract most of the foreign investments from countries like Japan, Australia and Germany, which are the main investor countries.

Foreign Trade Overview

Sri Lanka is open to foreign trade, which represented almost 60% of the country's GDP in the 2007-2009 period.  The country's trade policy aims at moving towards a trade system based on exchanges, with the objective of strengthening and increasing international market access for Sri Lankan products. In view of this, the government has signed several bilateral and multilateral trade agreements, especially at a regional level.

Customs duties are not very high and the country is easily accessible.  Nevertheless, there are some non-tariff trade barriers restricting speculative trading by commercial banks, a VAT on profits before taxes and salaries and the inadmissibility of electronic documents in courts. 

After having been reduced under the effects of the global economic crisis, the trade deficit became larger again in 2010 and it is estimated that trade will remain unfavorable during the next coming years.

Sri Lanka exports textiles and clothes, tea, spices, precious stones, coconut derivatives, rubber products and fish to the United States, the United Kingdom, India, Germany, Belgium and Italy.  It imports textiles, mining products, fuels, food, machinery and transport equipment from India, China, Iran, Singapore and South Korea.