With an economy of $27.4 billion  ($95.5 billion PPP estimate), and a per capita GDP of about $4,700 (PPP), Sri Lanka has mostly enjoyed strong growth rates in recent years.
The main economic sectors of the country are tourism, tea export, apparel, textile, rice production and other agricultural products. In addition to these economic sectors overseas employment contributes highly in foreign exchange, most of them from middle-east.
After getting political independence from British colonialism in February 1948, the economy of the country has been affected by Tsunami and a couple of insurrections such as the 1971, the 1987-89 and the ongoing civil war. The parties which ruled the country after 1948 did not implement any national plan or policy on the economy, veering between left and right wing economic practices. The government during 1970-77 period applied pro-left economic policies and practices then after 1977 to 1994 UNP rule and 1994-2004 SLFP rule applied pro-right policies. In 2001, Sri Lanka faced bankruptcy with debt reaching 101% of GDP. The impending currency crisis was averted after the country reached a hasty ceasefire agreement with the LTTE and brokered substantial foreign loans. After 2004 the UPFA government is highly concentrating on mass production of domestic consumption such as rice, grain and other agricultural products.
Sri Lanka began to shift away from a socialist orientation in 1977. Since then, the government has been deregulating, privatizing, and opening the economy to international competition. Twenty years of civil war has no doubt slowed economic growth, diversification and liberalization, and the leftist Janatha Vimukthi Peramuna (JVP) uprisings, especially the second in the late 1980s, also caused extensive upheavals.
Following the quelling of the JVP, increased privatization, reform, and a stress on export-oriented growth helped revive the economy's performance, taking GDP growth to 7% in 1993. Economic growth has been uneven in the ensuing years as the economy faced a multitude of global and domestic economic and political challenges. Overall, average annual GDP growth was 5.2% over 1991-2000. In 2001, however, GDP growth was negative 1.4%--the first contraction since independence. The economy was hit by a series of global and domestic economic problems and affected by terrorist attacks in Sri Lanka and the United States. The crises exposed the fundamental policy failures and structural imbalances in the economy and the need for bold reforms. The year ended in parliamentary elections in December, which saw the election of a more pro-capitalism party to Parliament (while the socialist leaning Sri Lanka Freedom Party retained the Presidency).
The government of Prime Minister Ranil Wickremasinghe of the United National Party has indicated a strong commitment to economic and social sector reforms, deregulation, and private sector development. In 2002, Sri Lanka commenced a gradual recovery. Early signs of a peace dividend were visible throughout the economy--Sri Lanka has been able to reduce defense expenditures and begin to focus on getting its large, public sector debt under control. In addition, the economy has benefited from lower interest rates, a recovery in domestic demand, increased tourist arrivals, a revival of the stock exchange, and increased foreign direct investment (FDI). In 2002, economic growth bounced up to 4%, helped by strong service sector growth. Agriculture staged a partial recovery. At present Agriculture in Sri Lanka needs keen attention as it directed towards
disastrous situation. Industrial sector growth, however, faltered for the second consecutive year due to weak demand and lower prices for Sri Lanka's exports. The government was able to exert fiscal control, and inflation trended down. Total FDI inflows during 2002 were about $246 million and are expected to exceed $300 million in 2003. The largest share of FDI has been in the services sector. Good progress was made under the Stand By Arrangement, which was resumed by the International Monetary Fund (IMF). These measures, together with peaceful conditions in the country, have helped restore investor confidence and created conditions for the government to embark on extensive economic and fiscal reforms and seek donor support for a poverty reduction and growth strategy. However, the resumption of the civil-war in 2005 led to a steep increase
defense expenditures. The increased violence and lawlessness also prompted some donor countries to cut back on aid to the country.. Sri Lanka has also accumulated a 9.2 % deficit and the central bank has not intervened since late 2006 to print more currency. A sharp rise in world petroleum prices combined with fallout from the civil war has led to inflation hitting 20%.
Global economic relations
Exports to the United States, Sri Lanka's most important market, were valued at $1.8 billion in 2002, or 38% of total exports. For many years, the United States has been Sri Lanka's biggest market for garments, taking more than 63% of the country's total garment exports. India is Sri Lanka's largest supplier, with exports of $835 million in 2002. Japan, traditionally Sri Lanka's largest supplier, was its fourth-largest in 2002 with exports of $355 million. Other leading suppliers include Hong Kong, Singapore, Taiwan, and South Korea. The United States is the 10th-largest supplier to Sri Lanka; U.S. exports amounted to $218 million in 2002, according to Central Bank trade data--U.S. Customs data places U.S. exports to Sri Lanka at $166 million in 2002. Wheat accounted for 14% of U.S. exports to Sri Lanka in 2002, down from the previous year.
Credit Rating and Commercial Borrowing
Sri Lanka had applied for credit ratings from international agencies in its efforts to apply for loans from international markets in 2005 after the election of Mahinda Rajapakse as president. Standard and Poor's has rated Sri Lanka a "B+" speculative ("junk") rating, four grades below investment grade. Fitch has rated Sri Lanka with "BB-" which is three grades below investment grade. Standard and Poor's maintains Sri Lanka is constrained by providing widespread subsidies, a bloated public sector, transfers to loss-making state enterprises, and high interest local and international burdens. Standard and Poor's estimates public sector debt has reached 95 % of GDP, in comparison to CIA estimates of 89 % of GDP. Sri Lanka in mid-2007 sought to borrow $500 million from international markets to shore up the deteriorating exchange rate and reduce pressure on repayment of the domestic debt market. The head of the opposition UNP, Ranil Wickremasinghe has warned that such intense borrowing is unsustainable and will not repay these loans once elected to power.
Sri Lanka is highly dependent on foreign assistance, and several high-profile assistance projects were launched in 2003. The most significant of these resulted from an aid conference in Tokyo in June 2003; pledges at the summit, which included representatives from the IMF, World Bank, Asian Development Bank, Japan, the European Union and the United States totaled $4.5 billion.