1.2 Economic context

1.2 Economic context

The economy that evolved under British rule was oriented towards plantation agriculture. As such, at Independence, Sri Lanka inherited an agriculturebased export economy, deriving more than a third of its income from the export of tea, rubber and coconut. Favourable export incomes supported the pursuit of a welfare economy focused on equity, which paid dividends in the form of significant improvements in the area of human development. The high consumption, low investment in economic development, declining commodity prices and failure to diversify led to a decline in the economy. Plantations, the petroleum industry, the port and omnibus companies were nationalized by a socialist regime. The change of government in 1977 brought a change in policies that introduced a free-market economy, which promoted privatization, deregulation and promotion of private enterprise (Indraratna, 1998) (Table 1.5).

Table 1.5 Macroeconomic indicators, 1970–2018

Indicators

1970 1980 1990 2000 2010 2016 2017 2018

GDP (local current US$) in billions 2.3 4.0 8.0 16.6 56.7 82.4 88.0 88.9 GDP, PPP (current US$) in billions .. .. 40.5 82.5 168.8 261.7 276.2 291.5 GDP per capita (current US$) in thousands 183.9 267.7 463.5 869.5 2808.4 3886.3 4104.6 4102.5 GDP average annual growth rate for the past 10 years (%) 3.8 5.8 6.4 6.0 8.0 4.5 3.4 3.2 Public expenditure (% of GDP)/ gross national expenditure (% of GDP) 103.1 122.6 107.9 110.6 107.3 107.3 107.2 107.3 Current account balance (% of GDP) .. -16.3 -3.7 -6.4 -1.9 -2.1 -2.6 -3.2 Tax burden (% of GDP)–tax revenue (% of GDP) .. .. 19.0 14.5 11.3 12.2 12.4 .. Public debt (% of GDP)–Central Government debt .. .. 96.6 96.9 71.6 .. .. .. Value added in industry (% of GDP) 24.2 29.9 26.3 27.3 26.6 27.3 27.3 27.0 Value added in agriculture (% of GDP) 28.8 27.8 26.7 19.9 8.5 7.5 7.8 7.9 Value added in services (% of GDP) 47.1 42.3 47.0 52.8 54.6 56.9 55.7 56.8 Labour force (total) in millions .. .. 7.4 7.8 8.2 8.5 8.5 8.6 Unemployment, total (% of labour force) .. .. 15.9 7.7 4.9 4.4 4.2 4.4 Poverty rate (poverty headcount ratio %) .. .. .. .. .. 4.1 .. .. Income or wealth inequality (income share held by lowest 20%) .. .. 8.7 .. .. 7.0 .. .. Real interest rate .. .. .. .. -10.2 6.2 .. .. Official exchange rate (US$) 6.0 16.5 40.1 77.0 113.1 146.5 152.4 162.5 GDP: gross domestic product; PPP: purchasing power parity Source: World Bank, 2020