Visvalingam Muralithas
After experiencing its most severe economic contraction in decades, Sri Lanka’s economy is gradually turning a corner. Between 2022 and 2023, the country underwent a painful but necessary period of adjustment following a debt-fueled crisis. The latest projections for 2024–2027 suggest a modest but sustained recovery, with signs of improving investor confidence, rising consumption, and renewed capital formation.
In 2022, Sri Lanka’s economy contracted by 7.3%, marking the peak of its financial crisis—triggered by unsustainable external debt, a collapse in foreign reserves, and severe governance failures. The impact was widespread, affecting households, businesses, and government operations alike. Although the contraction moderated to -2.3% in 2023, the economy remained in a fragile state, with private consumption and investment still subdued.
The economy is forecast to rebound strongly in 2024 with real GDP growth of 5.0%, before settling into a more moderate pace of 3.1–3.5% annually from 2025 onward.
GDP Growth
The sharp recovery projected for 2024 reflects base effects and a normalization of economic activity post-crisis. Beyond 2025, growth is expected to stabilize.
Export & Import Trends
After a strong rebound in 2022 and 2023, exports of goods and services are expected to moderate to 5.6% in 2024, before contracting slightly in 2025. Imports, which dropped sharply in 2022, are forecast to rebound by 11.1% in 2024, potentially putting pressure on the trade balance.
Import Composition
Sri Lanka’s total imports have followed a steep upward trajectory over the past decade. From Rs 2.54 trillion in 2014, imports more than doubled to Rs 5.74 trillion by 2022. Although 2023 saw a slight decline, provisional figures for 2024 indicate a rebound to Rs 5.69 trillion.
Screenshot
The post-2020 surge is largely attributed to:
* Currency depreciation
* Global commodity price hikes
* Post-pandemic demand recovery
Import Trends by Category
Food and Live Animals
2014: Rs 290.2 Bn → 2024: Rs 721.7 Bn
Despite being an agricultural country, Sri Lanka increasingly relies on food imports—particularly cereals, dairy, and processed items. Rising food imports highlight a gap in local agricultural productivity.
Beverages and Tobacco
2014: Rs 15.2 Bn → 2024: Rs 37.0 Bn
Steady growth, driven by premium alcohol, branded tobacco, and shifting consumer preferences.
Crude Materials (excluding fuel)
2014: Rs 52.1 Bn → 2024: Rs 138.2 Bn
Reflects rising industrial demand for timber, ores, and non-food agricultural inputs.
Mineral Fuels & Lubricants
2014: Rs 600.2 Bn → 2022: Rs 1.55 Trn (peak) → 2024: Rs 1.32 Trn
One of the most volatile categories. Heavy reliance on imported fuel exposes Sri Lanka to global oil price shocks.
Animal & Vegetable Oils, Fats, and Waxes
2014: Rs 20.2 Bn → 2024: Rs 85.9 Bn
Growth driven by rising edible oil prices, especially during 2021–2022.
Chemicals and Related Products
2014: Rs 269.3 Bn → 2024: Rs 702.7 Bn
Increased demand for fertilizers, pharmaceuticals, and industrial inputs highlights critical external dependencies.
Manufactured Goods (by material)
2014: Rs 643.1 Bn → 2024: Rs 1.54 Trn
Includes imports of steel, rubber, plastics, and cement—key for construction and industry.
Machinery and Transport Equipment
2014: Rs 523.6 Bn → 2024: Rs 876.8 Bn
A proxy for capital investment and infrastructure development.
Miscellaneous Manufactured Articles
2014: Rs 116.9 Bn → 2024: Rs 262.0 Bn
Reflects changes in consumer behavior and rising demand for electronics, apparel, and household goods.
Other / Not Classified Elsewhere
Remains marginal at less than Rs 5 billion annually—includes diplomatic goods and special transactions.
Trade Balance
Sri Lanka’s trade deficit is structural, not cyclical—driven by essential imports such as fuel, machinery, food, and chemicals.
Policy Recommendations
Strengths:
* High capital imports reflect development momentum.
* Broad import base supports multi-sector growth.
Concerns:
* Rising food and fuel bills put pressure on foreign reserves.
* Persistent trade deficits risk external sector instability.
Strategic Path Forward:
1. Accelerate Renewable Energy
→ Reduce oil dependency via solar, wind, and hydro expansion.
2. Boost Agricultural Self-Sufficiency
→ Prioritize local production of cereals, dairy, and oilseeds.
3. Localize Fertilizer and Agro-Chemical Production
→ Enhance input security and reduce external dependence.
4. Promote Import Substitution
→ Focus on domestic production of packaging, plastics, processed food.
5. Export Diversification
→ Expand non-traditional exports to reduce trade pressure.
Export Composition Highlights
* Top performers: Tea, coconut, spices, garments, petroleum re-exports
* Emerging sectors: Machinery components, chemicals
* Risks: High concentration in garments; vulnerable to global demand shocks
Export Policy Suggestions
1. Climb the Manufacturing Value Chain
→ Invest in electronics, green technologies, and engineering.
2. Enhance Agro Export Branding
→ Position Sri Lankan tea, spices, and coconut as global premium brands.
3. Support SME Exporters in Regions
→ Empower SMEs in Eastern and Northern provinces for balanced growth.
4. Diversify Export Markets
→ Expand into ASEAN, Middle Eastern, and African markets.
5. Invest in R&D and Industrial Clusters
→ Especially in chemicals, machinery, and agri-tech sectors.
Conclusion
Sri Lanka’s trade dynamics highlight both the promise of industrial expansion and the challenge of import dependency. To ensure sustainable recovery and long-term economic stability, the country must:
* Strengthen domestic production in import-heavy sectors
* Enhance export resilience through value-added goods
* Tackle structural trade imbalances with innovation, energy transition, and smart trade policy
With disciplined reform and strategic investment, Sri Lanka can chart a more balanced and resilient economic future.
*Visvalingam Muralithas is a researcher in the legislative sector, specializing in policy analysis and economic research. He is currently pursuing a PhD in Economics at the University of Colombo
