Doing Business in Sri Lanka - High Commission of India, Colombo

Handbook for Indian Business
Inflation: The annual average rate of inflation reached 6.7% in December 2011 as compared to 5.9% in
December 2010, up from a 25 year low of end year annual average inflation of 3.4% in 2009.
Current Account Balance: The current account deficit increased substantially to US$ 4,615 million in 2011
from US$ 1,075 million in 2010. In terms of GDP, the current account deficit increased to 7.8% in 2011 as
compared to 2.2% in 2010.
Foreign Direct Investment (FDI): The FDI, including loans, during 2011 increased to US$ 1,066 million
compared to US$ 516 million in 2010. During the year, US$110 million of loans were received by the Board
of Investment (BOI) approved companies, compared to US$ 39 million in 2010. A noticeable change was
observed in sector-wise composition of FDI inflows: Hotel and restaurant sector (20%) and Telecommunication
sector (18%). Initiatives taken to streamline the approval process by establishing the ‘onestop-unit’ concept
and expedite development of prime infrastructure facilities resulted in higher FDI inflows of around US$390
million during the last quarters of 2011, compared to the average per quarter receipts of around US$ 225
million during the first three quarters of the year.
External Reserves: The gross official reserves (excluding ACU receipts) and commercial banks’ foreign
assets amounted to US$ 7,199 million by end 2011, compared to US$ 8,034 million by end 2010. The
decrease in total international reserves by US$ 836 million is attributed to the decline in gross official reserves
by US$ 653 million and a decline in commercial banks’ foreign reserves by US$ 183 million.
External Debt and Debt Service: The total external debt of the country decreased to 41.3 per cent of GDP
in 2011 from 43.3 per cent in 2010. However, in US dollar terms, the total external debt increased by 14.1 per
cent to US $ 24.5 billion in 2011 from US $ 21.4 billion in 2010.
Exchange Rate: Exchange rate policy in 2011 focused on preventing undue fluctuations in the exchange
rate and reducing pressure in the domestic foreign exchange market. The exchange rate in March 2012 was
Rs.128.91 against the US dollar compared to Rs.110.35 in March 2011.
Sectoral Composition of the Economy
The main sectors of the economy of Sri Lanka are Agriculture (11.2%); Industry (29.3%) and Services
(59.5%). The following table shows the distribution in greater detail:
Agriculture
Agriculture continues to play an important role in the economy and it is the major source of employment for
about 33% of the labour force. The agriculture sector recorded a moderate growth of 1.5 per cent due to
severe crop damage from the adverse weather conditions that prevailed during the first quarter of the year.
However, the Agriculture sector made a remarkable recovery during the second half of the 2011. The share
of the Agriculture sector in total GDP marginally declined from 11.9% in 2010 to 11.2% in 2011.
Industry
The Industry sector grew by 10.3 per cent supported by increased domestic and external demand with enhanced
investor and consumer confidence. Improved performance in industries, such as food and beverages, rubber
based products, textiles and garments coupled with increased performance in the construction sector and
increased hydropower generation contributed to this growth. The share of the Industry sector in total GDP
increased marginally from 28.7% in 2010 to 29.3% in 2011.
Service Sector
The Services Sector, which consists of the largest share of 59.5% of GDP, grew by 8.6% in 2011 compared
to 8.0% in 2010.
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