Today, Sri Lanka is ranked as the most liberalized economy in South Asia. Investors are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100% repatriation of profits.
Total foreign ownership is welcome in almost all areas of the economy, with only a few areas limited or restricted to foreigners.
Sri Lanka vis-à-vis the World
Quality of Life- Economic Freedom- Business Environment
Quality of Life
Sri Lanka leads the South Asian region in terms of human development indicators, with its high literacy rate of 91% placing it way ahead of other South Asian nations & on par with those of south east Asia. Its national health indicators are comparable with those of the developed world.
This is underscored by the relatively high ranking the country has received in terms of GDP p.c. (PPP), which at US$3,530 is higher than that of India (US$ 2,358), Pakistan (US$ 1,928) & Bangladesh (US$ 1,602).
Sri Lanka was placed 89th (Medium Human Development Category) out of 173 countries in the Human Development Indicators constructed in 2002, ahead of China (96th), Vietnam (109th), Indonesia (110th), India (124th), Pakistan (138th) & Bangladesh (145th).
The Human Development Index (HDI) measures a country's achievements in three areas of human development viz: longevity, knowledge & a decent standard of living. Longevity is measured by life expectancy at birth. A combination of adult literacy & the combined primary, secondary & tertiary gross enrolment ratio is used as a measure of knowledge while GDP per capita (PPP) is used to measure the standard of living.
Human Development Index of some selected countries
| Country |
HDI Rank |
GDP Per Capita(PPP US$) 2000 |
Life Expectancy at Birth(Years) 2000 |
Adult Literacy Rate (%) 2000 |
| Malaysia |
59 |
9,068 |
72.5 |
87.5 |
| Thailand |
70 |
6,402 |
70.2 |
95.5 |
| Philippines |
77 |
3,971 |
69.3 |
95.3 |
| Sri Lanka |
89 |
3,530 |
72.1 |
91.6 |
| China |
96 |
3,976 |
70.5 |
84.1 |
| Vietnam |
109 |
1,996 |
68.2 |
93.4 |
| Indonesia |
110 |
3,043 |
66.2 |
86.9 |
| India |
124 |
2,358 |
63.3 |
57.2 |
| Pakistan |
138 |
1,928 |
60.0 |
43.2 |
| Bangladesh |
145 |
1,602 |
59.4 |
41.3 |
Economic Freedom
The 2004 Index of Economic Freedom published by the Heritage Foundation has ranked Sri Lanka 76th out of 155 developed & developing countries, in terms of its “economic freedom” & the quality of its overall policy environment.
Index of Economic Freedom Rankings – South & South East Asia –2004 (Selected Countries)
| Country |
World Ranking |
| Singapore |
2 |
| Korea, South |
46 |
| Thailand |
60 |
| Philippines |
74 |
| Sri Lanka |
76 |
| Malaysia |
87 |
| Pakistan |
109 |
| India |
121 |
| China |
128 |
| Bangladesh |
131 |
| Indonesia |
136 |
| Vietnam |
141 |
Source: 2004 Index of Economic Freedom
The Index, published since 1995, includes a broad spectrum of institutional factors that determine the extent of economic freedom in a country.
The economic variables used to measure the level of economic freedom are grouped into 10 broad categories viz:-
- Trade policy,
- Fiscal burden of government,
- Government intervention in the economy,
- Monetary policy,
- Capital flows and foreign investment,
- Banking & finance
- Wages and prices
- Property rights,
- Regulation, and
- Informal Market
Business Environment
In the EIU's country forecast, Sri Lanka's overall score in the business environment rankings improves from 4.99 for the historical period (1997-2001) to 6.03 for the forecast period (2002-2006). The country's global ranking improves from 49th to 45th and its regional ranking moves from 14th to 13th in comparison to the historical period.
The higher rankings are indicative of the more attractive investment climate in the country, with Sri Lanka's score in most of the categories used to evaluate the business environment improving significantly. For instance, Sri Lanka is ranked highly for its liberal approach to foreign investment, with its global & regional rankings moving from 36th to 27th (out of 60 countries) and 8th to 4th (out of 16 countries) respectively. From a regional perspective, the country's main advantages centre on its open foreign investment regime, its commitment to private enterprise & competition & its liberalized trading environment (where it is ranked 5th).
The Sri Lanka Country Guide provides additional information on the country's economy |
