Sri Lankan economy
Posted on August 29th, 2024
Lucky Sydney
Sri Lanka’s economy relies heavily on various sectors to generate foreign exchange, with key earners including workers’ remittances, tourism, the tea industry, and the apparel and textile industry. Notably, remittances stand out as the sole category with no import content, making it a significant contributor to the country’s foreign income. In contrast, sectors like tourism and the apparel industry require substantial foreign expenditure for imports such as food and beverage, transportation facilities, and materials needed to produce and export their goods.
However, despite the import expenses associated with sectors like tourism and apparel, the foreign income generated from remittances remains a crucial source of net foreign income for the country. This distinction underscores the importance of remittances in bolstering Sri Lanka’s economic stability and resilience.
| Year | Amount in US$ Billions | ||||||||
| Sri Lanka | Bangladesh | Vietnam | Pakistan | ||||||
| 2000 | 1.15 | 1.97 | 1.34 | 1.07 | |||||
| 2001 | 1.17 | 2.1 | 1.1 | 1.46 | |||||
| 2002 | 1.3 | 2.86 | 1.77 | 3.55 | |||||
| 2003 | 1.42 | 3.17 | 2.1 | 3.96 | |||||
| 2004 | 1.57 | 3.58 | 2.31 | 3.94 | |||||
| 2005 | 1.98 | 4.31 | 3.15 | 4.28 | |||||
| 2006 | 2.17 | 5.43 | 3.8 | 5.12 | |||||
| 2007 | 2.51 | 6.56 | 6.18 | 6 | |||||
| 2008 | 2.92 | 8.94 | 6.8 | 7.04 | |||||
| 2009 | 3.34 | 10.52 | 6.02 | 8.72 | |||||
| 2010 | 4.12 | 10.85 | 7.57 | 9.69 | |||||
| 2011 | 5.15 | 12.07 | 8.33 | 12.26 | |||||
| 2012 | 6 | 14.12 | 7.91 | 14.01 | |||||
| 2013 | 6.42 | 13.87 | 8.43 | 14.63 | |||||
| 2014 | 7.04 | 14.99 | 9.79 | 17.24 | |||||
| 2015 | 7 | 15.3 | 7.91 | 19.31 | |||||
| 2016 | 7.26 | 13.57 | 8.41 | 19.82 | |||||
| 2017 | 7.19 | 13.5 | 9.24 | 19.86 | |||||
| 2018 | 7.04 | 15.57 | 10.01 | 21.19 | |||||
| 2019 | 6.75 | 18.36 | 10.7 | 22.25 | |||||
| 2020 | 7.14 | 21.75 | 10.53 | 26.09 | |||||
| 2021 | 5.52 | 22.21 | 12.71 | 31.31 | |||||
| 2022 | 3.82 | 21.5 | 13.2 | 30.18 | |||||
| 2023 | 5.4 | 23.00 | 14.00 | 26.56 | |||||
The remittance statistics extracted from the World Bank site for the period 2000 to 2023 are provided in the attached table, comparing the remittance income of Sri Lanka, Bangladesh, Vietnam, and Pakistan. Notably, Sri Lanka was the only country experiencing a downward trajectory from 2020 onwards. This prompts the question: was this decline due to the pandemic in 2020?
While the pandemic likely played a role, its impact varied among the countries. Sri Lanka’s decline from 2020 might have been exacerbated by unique factors. Although Pakistan and Bangladesh also experienced declines from 2021 onwards, the severity of their downturns may differ due to various economic factors.
Between 2015 and 2020, Sri Lanka earned approximately US $7 billion in remittances, a sum significant enough to offset the country’s trade deficit during that period. Had Sri Lanka maintained this level of income in 2021 and 2023, it could have avoided financial distress (Bankruptcy). The absence of US $3 billion in remittances exacerbated the crisis.
Several factors may have contributed to this loss:
- Pandemic Impact: The pandemic likely disrupted global remittance flows, affecting Sri Lanka disproportionately.
- Currency Devaluation: Devaluation of the Sri Lankan rupee could have reduced the value of remittances, impacting overall income.
- Management Issues: Poor governance or mismanagement may have hindered efforts to maintain remittance inflows.
- Black Market Economy: The promotion of black market exchanges by powerful politicians during 2021 and 2022 could have diverted remittance flows away from official channels.
In summary, if Sri Lanka can regain its previous remittance income of US $7 billion or more annually, it has the potential to overcome its current financial crisis without external assistance. However, addressing the underlying factors contributing to the decline in remittances is essential for sustainable economic recovery.
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