Despite its troubled past and population of consumers earning a modest income, the Sri Lankan economy remains on track. With its picturesque shores and abundance of trading opportunities, business organisations are bullish about the country’s future.
“The country has just gone through a political crisis on top of the weakening rupee,” says Muhammed Riza, Chairman, Sri Lankan Business Council in Dubai and northern emirates. “But Sri Lanka has always shown the ability to bounce back from such setbacks and we are confident of the overall performance in the months ahead. With the current approach of the administration, people are feeling the benefit of the drop in oil prices. This has an impact on the prices of other essential commodities.”
With a presidential election set for this year and parliamentary elections next year, this could result in a positive impact.
“The general mood and expectation in the country is that the elections will bring in political stability and that it will sustain and improve economic growth,” says Riza. “It is also common to see people-friendly initiatives during an election year, so we can expect the living conditions to get relatively better during the year. We are likely to see government expenditure to increase on development as well as other subsidies. Whether this will deliver a positive or negative outcome overall will depend on the extent the government will be willing to borrow as well as spend.”
Mainstays of the economy
Today, there are many thriving industries in Sri Lanka. Construction, along with emerging markets such as technology and IT, have all performed. Apparel has also fared well with the Joint Apparel Association Forum expecting exports in 2018 to surpass $5 billion (Dh18.3 billion).
Tourism also had a good year. According to the World Travel and Tourism Council Economic Impact 2018 World report, travel and tourism contributed $4.46 billion, amounting to 5.3 per cent of the total GDP.
“Digital marketing campaigns and an increasing number of flights to Asia-Pacific nations supported robust growth in inbound arrivals to Sri Lanka in 2018,” says research analyst Samuel Huynh at Euromonitor. “India, China and the UK were the largest source markets for inbound arrivals; among these three markets, India and China grew fastest in terms of the number of trips.” The future of tourism inbound arrivals to Sri Lanka is expected to record a compound annual growth rate of 8 per cent over the forecast period to reach 3.2 million trips in 2023.”
While Sri Lanka continues to lure tourists, tea, a major agricultural product, is heading for other shores. Sri Lanka is the world’s fourth-largest tea producer, with an annual production of 300 million kilograms, accounting for about 5 per cent of the global production, says Premala Srikantha, Minister (Tea Promotion) at the Consulate General of Sri Lanka in Dubai. “The Sri Lankan tea industry generates an annual export earning averaging around $1.5 billion, contributing 14 per cent of the foreign exchange revenue to the nation. With 55 per cent of the export agricultural income, the tea industry contributes approximately 2 per cent to the island’s GDP, while around 2 million people are employed directly and indirectly in the industry, which results in 10 per cent of the population of Sri Lanka depending on Ceylon Tea for its livelihood.”
Srikantha adds that Sri Lanka exports almost all of its tea, making it the world’s third-largest exporter of the commodity. “The annual tea export volume is more than 280 million kg, accounting for 15 per cent of the global tea export market.”
Remittances contribute to 10 per cent of Sri Lanka’s overall GDP. According to Tradingeconomics.com, remittances in Sri Lanka averaged $501.42 million from 2009 until 2018, reaching an all-time high of $729.35 million in January of 2018. These figures are expected to grow to $680 million by the end of this quarter. In the long term, the website says, it is projected to reach as much as $750 million in 2020.
Indeed, export of goods is essential for Sri Lanka, but there is still room for expansion if the country is to grow at a faster rate. With a domestic market of only 20 million consumers with a modest per capita income, the World Bank suggests that the country needs to look beyond its borders and increase global competitiveness in order to sustain high and long-term growth.
“Sri Lanka is brimming with possibilities for greater regional integration,” says Dr Idah Pswarayi-Riddihough, World Bank Country Director for Sri Lanka and the Maldives. “Trade barriers and insufficient connectivity to the region are preventing Sri Lanka from maximising the benefits of its proximity to South Asia.”
However, a relatively new economic policy reform is aiming to increase trade. With the help of the EU, the Sri Lankan government launched its National Export Strategy last year. If it succeeds, it could result in the country’s exports reaching $28 billion by 2022. Included in such export progression are sectors such as information technology, electronics, spices and concentrates and business process management, says Euromonitor.
It seems, ultimately, that 2019 will be a year to watch for Sri Lanka, as Indira Kithsiri, World Economic Forum, Community Specialist, India and South Asia, says, “2019 will be a critical year for Sri Lanka given its high debt burden, heavy government interest payments and upcoming elections. This challenging situation creates a narrow space for crucial economic reforms necessary to deliver growth.
“Sri Lanka’s economic growth is projected to remain between 4 and 4.5 per in the near term supported by robust domestic demand and investment boosted by infrastructure projects. Given the challenging external environment, a depreciating currency and at least two elections in 2019, the government will be hard-pressed to continue with reforms over the next 12 months.
“It will be important to find a middle ground where realistic goals are established and achieved with clear timelines.”