SRI LANKA

BACKGROUND 

United Nations seven years later. The country is a member of the Commonwealth
and the South Asian Association for Regional Cooperation. 

Sri Lanka is an island country in the Indian Ocean. It lies just 30 kilometres south-

east of India. It has mountains in the south-central region. Elsewhere it is mainly low lying with flat co
astal plains. (G, 2021) 

ECONOMY 

Sri Lanka’s economic freedom score is 57.4, making its economy the 112th freest in the 2020 Index. It
s overall score has increased by 1.0 point due to a higher fiscal health score. Sri
Lanka is ranked 24th among 42 countries in the Asia–Pacific region,
and its overall score is well below the regional and world averages,  

Nine of Sri Lanka’s 12 Index indicators are below global average levels. For economic freedom to exp
and, the government will need to prioritize anticorruption efforts, reduce debt,
and reform the judiciary to improve its independence and integrity. (Indez Of Economic Freedom,
2020) 

OPEN MARKETS 

Goods and services account for 52.9% of GDP, which are equivalent to exports and imports, one of th
e problems of the banking system is arrears, but despite this, loans continue to be granted. Sri
Lanka is densely populated. The majority of its people are poor, live in rural areas,
and depend on agriculture for their livelihood. A physical environment of wide-
ranging diversity makes Sri Lanka one of the world’s most scenic countries.
As the home of several ethnic groups, each with its own cultural heritage, Sri Lanka also has
a highly varied cultural landscape. 

  
TRADE POLICIES OF SRI LANKA: 

Sri Lanka's trade policy continues to have as its main objective greater integration into the world
economy. In particular, Sri Lanka seeks to promote direct foreign investment in the country to boost
production and employment, and improve access to foreign markets for your products. With your
sights set on these goals has held negotiations multilateral, regional and bilateral, has established an
incentive scheme designed to stimulate exports and investments, and has implemented several
development to increase productivity and improve infrastructure. 

IS SRI LANKA PART OF A FREE TRADE OR PROTECTIONISM TREATY? 

Sri Lanka is free trade as it is party to two regional trade agreements: the South Asia Free Trade Area
Agreement (SAFTA) and the Asia-Pacific Trade Agreement (APTA); and in two bilateral agreements. 

Sri Lanka introduced its trade liberalization policies in
1977, well ahead the rest of South Asian countries. Since then Sri
Lanka implemented series of unilateral measures to simplify country’s tariff structure to a large exten
t. 

The foreign trade policy, which continues with the process of further liberalization of the country’s cu
rrent trade regime, aims at integrating Sri Lanka with the global economy. 
 
The tariff policy of the government aims at providing a transparent and predictable frame work for al
l stake holders in the foreign trade sector. 
 
Based on product categories, Sri Lanka maintains a four band tariff structure at present: 

 Basic Raw materials and Machinery 0% 
 Intermediate Products 15% 

 Finished Products 30% 
 Semi Processed goods 5% 
 Sri Lanka
has granted preferential tariff benefits to a wide range of products imported under the following trad
e agreements/arrangements: 

 The Generalized System of preferences (GSP) 

 Indo – Sri Lanka Free Trade Agreement (ISFTA) 

 Pakistan – Sri Lanka Free Trade Agreement (PSFTA) 

 SAARC Preferential Trading Arrangement (SAPTA) 
 South Asian Free Trade Area (SAFTA) 
 Asia Pacific Trade Agreement (APTA) 

As a founding member of the GATT, Sri
Lanka remains fully committed to the WTO by pursuing an outward-oriented multilateral trade syste
m. 

Notwithstanding the important domestic and external challenges, Sri Lanka continues to be

a land of opportunity with great potential for trade and investment. 

 [ CITATION Esc21 \l 3082 ]

ECONOMIC INTEGRATION INDICATORS: 

1. Develop a metric that provides indicators of the level and evolution of international
economic integration that measure progress in the degree of openness and in the degree of
connection between economies. 

2. To synthetically capture the complexity represented by the multiplicity of flows with which
the countries are connected, in all directions and by direct and indirect paths. 

3. To satisfactorily add the different levels of integration of the countries in regional and world
indicators of globalization, based on the size of the economies. 

4. Apply the methodology developed to international trade, both to its aggregated and sectoral
flows, differentiating those of export and import. 
 5. Evaluate the levels of integration achieved by economies, regions and the world, and analyze
the sensitivity of these results to the recognition, or not, of the role of distance.  

COMERCE 

Rice production is the most important economic activity of Sri Lanka’s peasantry. Since independenc
e there has been an impressive increase of paddy production. The factors that contributed to this we
re, first, the opening of 248,000 acres for paddy in the colonization schemes of the Dry
Zone (including those of the Mahaweli Development Program launched in the early 1970s)
and, second, the adoption of yield-increasing technology. 

In terms of product value, contribution to export earnings, and the size of the work
force, plantation agriculture has continued to figure prominently in the economy of Sri
Lanka; however, its long-term trend has been one of relative decline. 

Tea, the preeminent crop of the plantation sector, grows in many parts of the Wet Zone. Crops that a
re concentrated at higher altitudes supply some of the best-quality black teas to the world market. T
he main rubber-growing area is the ridge-and-valley country of the Wet
Zone interior. Coconut is grown mainly in the hinterland of the western seaboard. 

Plantations represent a segment of the economy that has failed to make significant advances since th
e time of independence. This is largely attributable to the persistently low rates of investment in this 
sector. Sri Lanka’s land reforms of 1972–
75, through which the government acquired the ownership of about 60 percent of the total
tea acreage and 30 percent of the rubber acreage, also contributed to the decline
in productivity and commercial viability of the plantation sector. 

Forestry and fishing are relatively insignificant components of the economy. Forests had been cleare
d for settlement and agriculture at an estimated rate of 104,000 acres annually between 1956 and
1981. Extraction of timber and fuelwood from forests is constrained by environmental conservation.
In fisheries, the resource potential is abundant, particularly on the north and northwest coasts. Const
raints on development are largely technological. Fishing, however, is an important occupation for the 
people living along the coastal fringe. 

  
Changes in agriculture and industry led to a decline in the relative importance of plantation products
among exports and food products among imports. However, this has not reduced the adverse
balance of foreign trade that the economy continues to suffer. Much of the trade deficit is due to
transactions with industrialized countries in Asia, including India, China and Japan, where imported
manufactured goods come from. Singapore and the United Arab Emirates are also important sources
of imports. The United States, the United Kingdom, Italy, and Germany are all major export
destinations. 

EXPORT AND IMPORT PATTERNS 

Exports: The top exports of Sri Lanka are Tea ($811M), Other Women's Undergarments ($711M), Knit

Women's Undergarments ($577M), Non-Knit Women's Suits ($537M), and Knit Women's
Suits ($512M), exporting mostly to United States ($2.82B), India ($974M), United
Kingdom ($850M), Germany ($839M), and Italy ($474M). 

In 2019, Sri Lanka was the world's biggest exporter of Used Rubber Tires($360M). 

Imports: The top imports of Sri Lanka are Refined Petroleum ($1.87B), Light Rubberized Knitted

Fabric ($815M), Gold ($617M), Cars ($555M), and Broadcasting
Equipment ($362M), importing mostly from India ($4.23B), China ($4.08B), Singapore ($1.18B), Unite
d Arab Emirates ($1.06B), and Malaysia ($851M). 

In 2019, Sri Lanka was the world's biggest importer of Other Locomotives($98M). 

Sri Lanka had a total export of 11,741,036.79 in thousands of US$ and total imports of 21,316,199.95

in thousands of US$ leading to a negative trade balance of -9,575,163.16
in thousands of US$ The Effectively Applied Tariff Weighted Average (customs duty) for Sri
Lanka is 8.72% and the Most Favored Nation (MFN) Weighted Average tariff is 9.16%. The trade
growth is 3.72% compared to a world growth of 5.68%. GDP of Sri Lanka is 88,900,770,858
in current US$. Sri Lanka services export is 8,374,158,443.80 in BoP, current US$ and services
import is 4,607,860,000 in Bop, current US$.Sri Lanka exports of goods and services as percentage of
GDP is 22.79% and imports of goods and services as percentage of GDP is 30.13%. 

 
TRADE AGREEMENTS: 

Sri Lanka has signed free trade agreements (FTAs) with India, Pakistan, and Singapore,

and is currently negotiating an FTA with the PRC.   

The FTAs with India and Pakistan cover only trade in goods.  The agreements provide for duty-
free entry as well as duty preferences for manufactured and agricultural goods.  Domestic value addi
tion of 35 percent is required to qualify for concessions granted under the agreements.  

The Singapore-Sri Lanka FTA came into force on May 1,

2018.  The FTA covers: investment, goods, services, trade facilitation, government procurement, tele
communications, e-commerce, and dispute settlement.  Sri Lanka
has eliminated customs duties on 50 percent of tariff lines (including tariff lines already with zero dut
y), which will progressively increase to 80 percent over 14 years.  Sri
Lanka will not reduce or eliminate duties on the remaining 20 percent of tariff lines.  

Sri Lanka is a member of the South Asian Free Trade Area (SAFTA) and the Asia-

Pacific Trade Agreement (APTA).