2017 Index of Economic Freedom

Sri Lanka

overall score57.4
world rank112
Rule of Law

Property Rights48.0

Government Integrity30.0

Judicial Effectiveness48.3

Government Size

Government Spending90.2

Tax Burden85.3

Fiscal Health31.2

Regulatory Efficiency

Business Freedom72.8

Labor Freedom57.5

Monetary Freedom76.0

Open Markets

Trade Freedom74.5

Investment Freedom35.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 21.1 million
  • GDP (PPP):
    • $223.0 billion
    • 5.2% growth
    • 6.1% 5-year compound annual growth
    • $10,566 per capita
  • Unemployment:
    • 4.7%
  • Inflation (CPI):
    • 0.9%
  • FDI Inflow:
    • $681.2 million
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Sri Lanka’s economy has expanded at an average rate of about 6 percent over the past five years. The country has made a notable economic transition from fragility to relative stability. Political reconciliation and economic transformation have been strengthened by measures that support long-term development and competitiveness.

Economic reforms undertaken to improve Sri Lanka’s macroeconomic stability and potential for growth include strengthening the management of public finance and structural reforms to foster a more dynamic private sector. However, a weak judiciary continues to undermine property rights, and the perceived level of corruption is debilitating.



President Mahinda Rajapaksa was voted out of office in January 2015. Prime Minister Maithripala Sirisena, who ran against him on pledges to restore parliamentary democracy and rein in corruption, formed a coalition government with the opposition United National Party (UNP) and reinstated presidential term limits. Parliamentary elections in August 2015 brought UNP leader Ranil Wickremesinghe to power as the new prime minister. Sirisena and Wickremesinghe have pledged to work together for ethnic reconciliation and in September 2015 co-sponsored a U.N. Human Rights Council resolution acknowledging that war crimes were committed by both the government and the Liberation Tigers of Tamil Eelam during the civil war that ended in 2009.

Rule of LawView Methodology

Property Rights 48.0 Create a Graph using this measurement

Government Integrity 30.0 Create a Graph using this measurement

Judicial Effectiveness 48.3 Create a Graph using this measurement

Secured interests in property are generally recognized, and there is a fairly reliable registration system for recording private property, but many investors claim that protection can be flimsy. Judicial independence has improved under the new administration. Although corruption remains a concern, steps were taken in 2015 to strengthen enforcement of existing safeguards and uphold the current legal and administrative framework.

Government SizeView Methodology

The top personal income tax rate is 24 percent, and the top corporate tax rate is 28 percent. Other taxes include a value-added tax. The overall tax burden equals 10.7 percent of total domestic income. Government spending has amounted to 18.1 percent of total output (GDP) over the past three years, and budget deficits have averaged 6.0 percent of GDP. Public debt is equivalent to 74.4 percent of GDP.

Regulatory EfficiencyView Methodology

The business start-up process has been streamlined, and the number of licensing requirements has been reduced. Because the labor market lacks efficiency, there is an imbalance between labor supply and demand. In 2016, the IMF recommended that the government phase out some of its extensive system of price controls and subsidies that distort most sectors of the economy. The government’s plan to privatize some industries faces public opposition.

Open MarketsView Methodology

Trade is moderately important to Sri Lanka’s economy; the value of exports and imports taken together equals 48 percent of GDP. The average applied tariff rate is 5.3 percent. Investment in some sectors of the economy is restricted, and state-owned enterprises distort the economy. The financial sector remains underdeveloped. Nonperforming loans remain a problem in the banking system, and the allocation of credit is subject to state influence.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
3New Zealand83.72.1
6South Korea74.32.6
7Malaysia 73.82.3
9Brunei Darussalam69.82.5
13Thailand 66.22.3
19Kyrgyz Republic 61.11.5
25Sri Lanka57.4-2.5
27Solomon Islands558.0
28Bangladesh 551.7
32Pakistan 52.8-3.1
37Papua New Guinea50.9-2.3
43North Korea4.92.6
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