Sri Lanka

Sri Lanka ranks 59th and 61st on Economic Competitiveness and Comparative Liveability respectively, which translates to 60th overall. Sri Lanka has relatively good levels of mass education and a warm climate, but its ranking is pulled down by a lack of innovation and low levels of invested capital.

For three decades after independence in 1948, Sri Lanka followed a socialist vision of economic development aimed at dismantling the colonial plantation system. Since 1977, Sri Lanka has incrementally developed its economy, followed import-substitution with export-promotion policies, and now boasts one of the most open trading regimes in South Asia. Nevertheless, this success has not been translated into effectiveness in governance, which remains weak.

More positively, mass education levels are high, and over time this has the potential to turn around Sri Lanka’s poor innovation score, particularly in the number of researchers produced, which should lead to greater economic development.

Sri Lanka’s textile manufacturers have retained a competitive niche in high-quality garments since the expiration of the WTO Agreement on Textiles and Clothing. However, the Sri Lankan government hopes to diversify away from light manufacturing and into IT services, such as call centres, drawing on relatively high levels of English proficiency and good levels of entrepreneurship.

However, Sri Lanka will need to raise currently low levels of capital investment in order to achieve this goal. Moreover, the long-term success of the economy remains dependent on the security situation. A permanent truce with the secessionist Liberation Tigers of Tamil Eelam remains elusive, and the security situation has deterred foreign investment.

Although poor compared to the world average, Sri Lanka has relatively high income levels by the standards of its South Asian neighbours. Based on IMF figures, per capita income is about 50% greater than in India. However, almost a quarter of Sri Lankans live in poverty. These problems are particularly acute in the countryside: and although two-thirds of the population live in rural areas, agriculture directly contributes only 15% of GDP. With approximately 85% of tax revenue coming from indirect taxes, Sri Lanka’s poor labour under a regressive tax system that makes their situation all the more difficult.

Despite these statistics, there is considerable optimism in Sri Lanka. According to the Gallup World Poll, 96%^g of people there believe that it is possible to get ahead by hard work. Nonetheless, many Sri Lankans have chosen to pursue these opportunities abroad: 800,000 Sri Lankans live and work overseas, and contribute approximately $1 billion in remittances.

Even given these high levels of emigration, Sri Lankans enjoy a strong family life, as represented by the low levels of widowhood (2.5%^g) and divorce (0.4%^g). The country’s warm climate relieves Sri Lankans of the burdens associated with cold weather, such as the need to pay for heating.