Economy of Sri Lanka

Economy of Sri Lanka

Sri Lanka has enjoyed both subsistence and commercial agriculture for centuries. Most of agricultural products were exchanged in trades with India, its closest neighboring country and European countries when the Portuguese and the Dutch dominated the maritime trade those times.

However, Sri Lanka's economy evolved in earnest under the British rule. The agricultural sector has benefited its efficiency in productivity from the foundation of plantation agriculture by the British during their occupation on the Island. Tea plantation was spread over the areas of Central Highlands, making it the most important cash crop of Sri Lanka. Apart from tea, rubber and coconut were encouraged to grow according to the plantation system, bringing about a mass amount income from exportation which enabled Sri Lanka to import food, textiles, and other consumer goods in the first half of the twentieth century.

After Sri Lanka shifted to the republican regime in 1977, economic sectors were privatized and opened to international market. Exportation of food and textiles became the vanguard product alongside agricultural ones, followed by tourism which gained dramatic revenue. But the political challenges inevitably made the Sri Lanka's economic growth uneven, particularly the ethnic disputes which became strained in 1983. As a result, a large amount of an annual budget was flowed into the defense expenditure for national security. The capital expenditure was accordingly reduced, marking a slowdown in economic diversification and liberalization.

The most important market of Sri Lanka's exports is the United States which demands a large portion of garments while the largest supplier of the country is Japan. India is the second-largest source of Sri Lanka imports. Other leading suppliers of Sri Lanka are Hong Kong, Singapore, Taiwan, and South Korea.

Nonetheless, with its vicissitudes of economic growth, Sri Lanka is still considerably dependent on foreign aid and assistance in recent years, with Japan the biggest donor. Foreign financial aids mostly focus on education, health, legal reform, environment, privatization, and other infrastructure developments.