EXECUTIVE SUMMARY

Democratic Socialist Republic of Sri Lanka is an island positioned at the south

of the Indian subcontinent. They acquired independence from the United Kingdom i
n1948, and then it was known as Ceylon. However, in 1972 the nation’s name chang
ed to Sri Lanka. The country is administered by an executive president and legis
lative authorities that are existing in the unicameral parliament. The current p
resident today is Mahinda Rajapaksa of the center-left Sri Lanka Freedom Party (
Datamonitor, 2007).
Another well- known group is the center-right United National Party. Sri Lanka w
as a victim of an inexcusable cultural discrepancy that transpired in 1983 and p
ersists till times. The slaughters are escorted by the Tamil-separatists Liberat
ion Tigers of TamilEelam (LTTE). They endure on having a separate state for the
Tamil marginal within the nation in the northern and eastern sectors of Sri Lank
a (Datamonitor, 2007).
International finance and export support were provided influence by succeeding g
overnments in the 90s. The tea production is defined as a leading export-earner.
The fast promising services area, which comprises tourism industry, is in recen
t times the largest contributor to Gross Domestic Product (GDP). Sri Lanka depen
ds extensively on its textile, garments and tea exports for foreign-exchange (Da
tamonitor, 2007).

COUNTRY OVERVIEW
Historical Overview:
The explicit sources of the Sinhalese are cloaked in legend. Most believe they a
rrived to Sri Lanka from northern India during the 6th century BC. Buddhism was
known from the subcontinent 300 years later and augmented profusely. Buddhism an
d a fashionable method of irrigation became the potency of classical Sinhalese c
ivilization (200 BC-1200 AD) that flourished in the north-central part of the is
land.
Starting in 1505, Portuguese dealers, in chase of cinnamon and other spices, inc
arcerated the island s coastal regions and broadened Catholicism. The Dutch exil
ed the Portuguese in 1658. Although the British debarred the Dutch in 1796, Dutc
h law ruins as an essential part of Sri Lankan jurisprudence. In 1815, the Briti
sh conquered the king of Kandy, and produced the Crown Colony of Ceylon. They ac
knowledged a refined area formatted on tea, rubber, and coconuts. In 1931, the B
ritish accepted Ceylon restricted self-rule and a universal endorsement. Ceylon
became independent on February 4, 1948 (U.S. Department of State, 2009).
Geographical Overview:
Area: 65,610 sq. km. (25,332 sq. mi.)
Cities: Capital--Colombo (pop. est. 1.3 million--urban area) Other cities--Kandy
(150,000), Galle (110,000), Jaffna (100,000).
Terrain: Coastal plains in the northern third of state; hills and mountains in s
outh-central Sri Lanka ascend to further than 2,133 meters (7,000 ft.).
Climate: Tropical. Rainy seasons--light in northeast, fall and winter (U.S. Depa
rtment of State, 2009).
Demographical Overview:
Nationality: Sri Lankan(s).
Population: 20.2 million.
Annual growth rate: 1.1%.
Ethnic groups (2002): Sinhalese (74%), Tamils (18%), Muslims (7%), others (1%).
Religions: Buddhism, Hinduism, Islam, and Christianity.
Languages: Sinhala and Tamil (official), English.
Education: Primary school attendance--96.5%. Literacy--91%.
Health: Infant mortality rate--14/1,000. Life expectancy--72 yrs. (male); 77 yrs
. (female).
Work force: 7.1 million
(U.S. Department of State, 2009).
Government & Political Structure:
Type: Republic.
Independence: February 4, 1948.
Constitution: August 31, 1978.
Branches: Executive--president, chief of state and head of government, designate
d for a 6-year stretch. Legislative--unicameral 225-member Parliament. Judicial-
-Supreme Court, Court of Appeal, High Court, subordinate courts.
Administrative subdivisions: Nine prefectures and 25 administrative districts.
Political parties: Janatha Vimukthi Peramuna, National Freedom Front, Jathika He
la Urumaya, Sri Lanka Freedom Party, Tamil National Alliance, United National Pa
rty, Tamileela Makkal Viduthalai Pulikal, Sri Lankan Muslim Congress, National U
nity Alliance, Ceylon Workers Congress, Up-Country People s Front, abundant min
ute Tamil and Muslim parties, Marxists, and others.
(U.S. Department of State, 2009).
Economic Overview (as of 2008):
GDP: $40.7 billion.
Annual growth rate: 6%.
Natural resources: Limestone, graphite, mineral sands, gems, and phosphate.
Agriculture (12% of GDP): Major products--rice, tea, rubber, coconut, and spices
.
Services (60% of GDP): Major types: tourism, wholesale and retail trade, transpo
rt, telecom, financial services.
Industry (28% of GDP): Major types: garments and leather goods, rubber products,
food processing, chemicals, polished petroleum, gems and jewellery, non-metalli
c mineral-based products, and construction.
Trade: Exports: $8.1 billion: garments, tea, rubber products, jewellery and gems
, refined petroleum, and coconuts. Major markets: U.S. ($2 billion), U.K., India
. Imports--$14 billion. Major suppliers: India, Singapore, Hong Kong, China, Ira
n, Malaysia, Japan, U.K., U.A.E., Belgium, Indonesia, South Korea, U.S. ($283 mi
llion).
(U.S. Department of State, 2009).
GLOBALIZATION
Globalization engages the allocation of new-fangled technologies and machinery t
hat have spectacular outcomes on the economy, civilization, customs, and everyda
y life. Sri Lankans are yet in existence in the dark-age where they lack suffici
ent acquaintance to cybercafés. The government’s troubles to commence the scient
ific insurgence amongst the teachers, students and citizens are far below the re
quired level (Kumaaran, 2008).
Globalization has had both a beneficial and risky impact on the present world. S
ri Lankans have survived independently on their food production leaving certain
items. Consequential to globalisation Sri Lanka has augmented its importation of
rice and other fundamental products. Adjoining India has always been challengin
g to locate foot in the name of modernizing Sri Lankan trade region. Through glo
balization India and other countries keep an eye on overbearing Sri Lankan lives
 (Kumaaran, 2008).
Sri Lanka is a nation with a thousand years of history pertaining to textile ind
ustry (TI). In 1977 Sri Lanka unperturbed financial policies to illustrate forei
gn investments in order to widen communications, resolve un-employment devastati
on and come across globalization. The predominance workers who are affianced in
TI are women. Even though Sri Lanka has accepted about 40 International Labour L
aw Conventions, labour law contravention in TI is a crucial distress predominant
ly in free trade zones (FTZ). In certainty, employees are proscribed from organi
zation of trade unions and controlled from association in trade union conducts.
FTZ women employees are asked to give up their legal rights and social benefits
in order to save their job. (Perera & Chandima, 2007).

EXPORTS
Sri Lanka s exports (majorly apparel, tea, rubber, gems and jewellery) are docum
ented at $8.1 billion and imports (mainly oil, textiles, food, and machinery) we
re traced at $14 billion for 2008. The substantial trade deficit was devoted pri
ncipally by disbursements from Sri Lankan expatriate workers, foreign aid, and c
ommercial borrowings. Sri Lanka must enlarge its exports exterior to garments an
d tea. Sri Lanka s exports to the European Union (EU) lofted precipitously in 20
06-2008 due to duty-free entry of goods under the EU GSP Plus program, allowed i
n 2005 to support Sri Lanka restructure after the 2004 tsunami. The tea industry
is challenged by an insufficiency of plantation workers and by escalating compe
tition.
Exports to the United States, Sri Lanka s critical single-country market, were r
ecorded to be nearly $2 billion for 2008, or 25% of complete exports. As an effe
ct of the GSP Plus program, the EU as a whole is Sri Lanka s major export market
. For a number of years, the U.S. has been Sri Lanka s largest bazaar for garmen
ts, having almost 50% of total garment exports. India is Sri Lanka s key provide
r, reading about 20% of imports. United States exports to Sri Lanka were said to
be approximately $280 million for 2008, encompassing mostly of wheat, electrica
l apparatus, textiles and specialized fabrics, medical and scientific equipment,
plastics, and paper (U.S. Department of State, 2007).
Exports Profile (See tables 1 and 3):
In 2008, exports improved by 37.2% largely by food, beverages and tobacco (SITC
0+1): exports of food, beverages and tobacco (SITC 0+1) mounted by 66% and showe
d 24% of exported goods. Various feigned articles (SITC 8); read 44.7% of export
ed goods in 2008. Other main merchandise group for exports included manufactured
goods characterized by material (SITC 6). The USA, the U.K and Germany were the
three largest markets for exports. Over the last three years, top exported prod
ucts were tea, women s or girl s suits, ensembles, jackets, blazers, dresses, sk
irts and diamonds (Sri Lanka, 2009).
(Sri Lanka, 2009).

(Sri Lanka, 2009).

Total Exports of Sri Lanka:
The figure of Total Exports of Sri Lanka during 2007 was (7675.2) million US$ wi
th a mount of (845.7) million US$ (12.4%) from the preceding year. The export co
st of
2006 was (6829.5) million US$ with a rise of (664.1) million US$ (10.8%) from th
e year 2005 (Kumara, 2008).
(Kumara, 2008).
(Kumara, 2008).

Imports:
Sri Lanka imports merchandise such as, textile fabrics, mineral products, petrol
eum, foodstuffs, machinery and transport equipments (index mundi, 2009). Notice
that, Sri Lanka imports by product region on a fiscal basis; value given in US D
ollars (see Appendix B).
Imports Profile (See table 2):
In 2008, imports augmented by 64.1% driven by mineral fuels, lubricants and asso
ciated materials (SITC 3): imports went up by 180.9 % in 2008 and they totaled f
or 23% of imported goods. Manufactured goods defined by material (SITC 6), the l
eading commodity group for imports were seen to be 27.4 % of imports. Other grou
ps incorporated machinery and transport equipment (SITC 7). Petroleum oils, alon
g with wheat and meslin were the three main imported products over the last thre
e years (Srilanka, 2009).
(Sri Lanka, 2009).
The value of Total Imports of Sri Lanka through 2007 was (11401.0) million US$ w
ith an addition of (1533.3) million US$ (15.5%) since previously. The import val
ue of
2006 was (9867.7) million US$ with an addition of (1552.5) million US$ (18.7%) s
ince 2005 (Kumara, 2008).
(Kumara, 2008).
(Kumara, 2008).
BALANCE OF TRADE
Import tariffs are the chief trade policy for Sri Lanka and are moderately low.
In 2005, Sri Lanka’s mean on non-agricultural tariff was 8.3%. The average appli
ed-agricultural tariff was way elevated at 22.5%. Textiles, pharmaceuticals and
medical equipments can be sent complimentary and vital raw materials are known a
t a 2.5% tariff. Tariffs on tobacco and cigarettes are higher varying from 75% t
o 250%.
Sri Lanka has endorsed bilateral venture contracts with 24 nations. The total va
lue of exports was $6.3 billion in 2005, up by 10.2% over 2004. Tea ($810 millio
n) and textile and garments ($2.9 billion) made up 58.4% of the total value of e
xports. The total value of imports was $8.9 billion in 2005, up by 10.8% over 20
04. Petroleum ($1.7 billion), machinery ($ 860 million) and transport equipments
($325 million) clarifies for over 30% of the total value of imports. The trade
deficit increased to $2.6 billion, compared to $2.2 billion previously. However,
the existing account deficit falls from 3.2% to 2.8% of GDP (Datamontior, 2007)
.
The Most imperative Definitions and Terminology Used in Imports’
Value of Imports & Exports
The value of imports is calculated on C.I.F. basis. The outline shows the expens
e,
Insurance, freight and other overheads sustained until delivery of goods to the
port of entry, besides the customs dues (Kumara, 2008).

(Kumara, 2008).
(Kumara, 2008).
BALANCE OF PAYMENTS
Sri Lanka s balance-of-payments position is tremendously receptive to cost fluct
uations in the world market as it is dependent on minor export harvests to pay f
or its imports. Since 1983, abruptly rising defense costs, a diminution in touri
sm followed by continuous civil violence, and meandering world tea and coconut p
rices united to pertain pressure on the balance of payments. The discrepancy has
also been partially equalized by substantial foreign exchange proceeds from tou
rism and from payments by Sri Lankans working abroad. The current account defici
t has fallen each year since 1994 when it stood at $860 million. Export growth i
n 1999, however, condensed to 2% and earnings from tea exports had further reduc
ed 40% due to the result of the Russian economic crises in 1998. In 2000, export
s increased by 20% to $5.5 billion, and exports of garments and tea performed tr
emendously. Other exports, such as food, rubber products, machinery, and develop
ed diamond exports, also executed fine that year. The country s external liabili
ty was at $9.9 billion at the end of 2000, equal to 60% of GDP. The US Central I
ntelligence Agency (CIA) depicts that in 2001 the purchasing power parity (PPP)
of Sri Lanka s exports was $4.9 billion while imports were $6 billion following
a trade deficit of $1.1 billion. The International Monetary Fund (IMF) records t
hat in 2001 Sri Lanka had exports of goods totaling $4.82 billion and imports to
taling $5.38 billion. The following table depicts Sri Lanka s balance of payment
s as reported by the IMF for 2001 in millions of US dollars (Encyclopaedia of th
e Nations, 2007).
Current Account -265
Balance on goods -554
Balance on services -390
Balance on income -281
Current transfers 959
Capital Account 49
Financial Account 380
Direct investment abroad …
Direct investment in Sri Lanka 172
Portfolio investment assets 24
Portfolio investment liabilities -35
Other investment assets 13
Other investment liabilities 207
Net Errors and Omissions 165
Reserves and Related Items -329
(Encyclopaedia of the Nations, 2007).

External Balance of Payments:

The external balance-of-payments (BoP) arrived at a devastation state by end 200
0 when both the current account and the complete balance (current plus capital a
ccount) were in the red. That is, the current account balance was (-) USD.1,066
million and the overall balance was (-) USD.522 million in 2000 (see Graph below
). With the IMF lifeline the BoP improved a lot through 2001-2003, that is, decl
ining deficit in the current account in conjunction with mounting excess in the
overall account. Thus, while the current account deficit was condensed to (-) US
D.71 million, the overall balance elevated to USD.502 million in 2003 (see Graph
) (Sarvananthan, 2009).
(Sarvananthan, 2009).

FOREIGN DIRECT INVESTMENT (FDI)

Sri Lanka has met dynamic growth rates since the early 90s. The government’s FDI
-friendly policy accounted in rolling foreign capital inflows. The global decele
ration aroused a sharp reduction of expenditure in economic activity in 2001(Dat
amonitor, 2007). Despite ethnic disagreements, Sri Lanka depicted resolute econo
mic growth throughout the 1990s averaging 5.2% annually. The government’s econom
ic liberalization agenda, which provided authority to foreign investment and tra
de liberalization, concluded in net FDI inflows rising from just $48 million in
1991 to $430 million by 1997 (Datamonitor, 2007).
Between 1997 and 2001, the amount of net FDI inflows dropped by 60%. As a result
, it developed by an average of 9.8% annually. However, at $272.3 million in 200
5, net FDI inflows are low. Despite convention supporting overseas investors, Sr
i Lanka was ineffective in assembling sufficient foreign capital because of the
uneven political circumstance. The current center left government’s ban on priva
tization has also inflated the investment condition since privatization has pred
ictably been a principal resource of FDI for Sri Lanka.
(Datamonitor, 2007).
(Datamonitor, 2007).
GROSS DOMESTIC PRODUCT (GDP)
Private consumption demand augmented by an average pace of 13.6% over 1992-2000
and accounted for about three-quarters of GDP over this episode. Between 1991 an
d 2000, textile and garment manufacturing increased by a yearly average rate of
over 23% and read about 50% of total exports. The leather products, tobacco and
beverage businesses were financers to the GDP. Development in the agricultural r
egion was characterized by tea making with Sri Lanka becoming the third largest
producer and the leading exporter of tea by the end of the 90s (Datamonitor, 200
7).
The international economic reduction in 2001 portrayed a major deceleration in e
conomic functions. Real GDP condensed by 1.4% with agriculture, industry and ser
vices depicting plunges of 3.4%, 2.1% and 0.5% respectively. Exports dropped to
$4.8 billion from $5.5 billion in the previous year. The industrial sector remai
ned irregular with a growth rate of just 1%. (Datamonitor, 2007). The expansion
of industries and services demonstrated real GDP growth to an elevation of 6.2%
in 2005. The financial system declined to 4.4% in 2006, due to minute production
. Sri Lanka portrays a high fiscal deficit, even though it has gradually reduced
over current years. Government earnings account to just 17% of GDP with tax rev
enues contributing practically 90% of it. Overall, the tax-to-GDP ratio is a low
15.3%. The fiscal deficit in 2006 was 8.4% of GDP, down from 8.7% of GDP in the
previous year. As of 2006, the cumulative public liability was an immense 93%
of GDP, with domestic debt reading for nearly 53% of this. Moreover, Sri Lanka a
lso utilizes a huge quantity of foreign loans and supplies to connect its fiscal
deficit. Public investment interpreted to just 6.3% of GDP in 2006, same as in
2005. The Fiscal Management (Responsibility) Act, accepted in January 2003, sanc
tions the government to reduce the fiscal deficit and public debt to 5% and 85%
of GDP correspondingly (Datamonitor, 2007).
At 55.3%, the services sector is the biggest donor to GDP. Tourism is a major se
rvice industry and generates efficient amount of revenues. The industrial and ag
ricultural areas provide 27.3% and 17.3% of GDP respectively (Datamonitor, 2007)
. The endowment made by the agricultural region to GDP depends on three plantati
on crops — tea, rubber and coconut — with tea being the imperative foreign excha
nge earner. In 2005, tea exports depicted $810 million, the second most followin
g textile and garment exports (Datamonitor, 2007).
(Datamonitor, 2007).
CONCLUSION
As a result of the analyzed country report; it clearly seen that the Sri Lankan
economy is depicting tremendous resilience to the long-term simultaneous rivalry
with an approximate GDP augment of 6%. Nevertheless, feeble public finances and
a declining external balance, arouse severe oppositions in the recent global mo
netary and credit circumstances (Nordgren, 2008).
Overall observation on the country’s economy portrays, firstly an elevated but g
radual growth. The market is seen to rise steadily by 6.8% in 2007, but obviousl
y way lower than 7.7% in 2006. Growth in this nation is a result of public deman
d, comprising of both consumption and finances. However, exports seem to be opti
mistic. Since the global economy conditions have been worsened in the recently,
a decline in economic activity is gradually rising. This also shows negativity a
nd deterioration in the tourism industry and FDI sectors (Nordgren, 2008). Secon
dly, inflation rises and remains augmented. Since the second half of 2007, infla
tion rose as a consequence of an increase in international food prices. Moreover
, the inflation rates touched the summit in June 2008 at 28%, and keeping in min
d the current situation, economists assume it will remain high. Despite all this
, the Central Bank has left interest rates unaltered since February 2007, which
now resulted in negative real interest rates (Nordgren, 2008). However, Sri Lank
a’s social statistics are fine. Over the past years, there is an expansion of re
asonable state-run healthcare services right through the nation that has been as
sisted by consecutive governments. The appropriate accomplishment of forward-loo
king educational strategies has furthermore resulted in high literacy rates.

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