2013 Index of Economic Freedom

Sri Lanka

overall score60.7
world rank81
Rule of Law

Property Rights40.0

Freedom From Corruption33.0

Limited Government

Government Spending86.5

Fiscal Freedom84.7

Regulatory Efficiency

Business Freedom77.0

Labor Freedom60.8

Monetary Freedom69.1

Open Markets

Trade Freedom76.2

Investment Freedom40.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 20.5 million
  • GDP (PPP):
    • $116.5 billion
    • 8.2% growth
    • 6.5% 5-year compound annual growth
    • $5,674 per capita
  • Unemployment:
    • 4.2%
  • Inflation (CPI):
    • 6.7%
  • FDI Inflow:
    • $300.0 million
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Sri Lanka’s economic freedom score is 60.7, making its economy the 81st freest in the 2013 Index. Its score is 2.4 points higher than last year, reflecting improvements in half of the 10 economic freedoms including fiscal freedom, investment freedom, and the control of government spending. Sri Lanka is ranked 13th out of 41 countries in the Asia–Pacific region, and its score is above the world and regional averages.

Recording significant score gains for the third consecutive year, and with the third largest score improvement in the 2013 Index, Sri Lanka has regained the rank of “moderately free” that it last held in 2005. Notable reforms have eased foreign exchange controls and reduced both individual and corporate marginal income tax rates to below 30 percent.

Substantial challenges remain in the struggle to promote stable long-term economic development, and lingering institutional weaknesses call for much greater commitment to reform, particularly in two areas. Sri Lanka continues to score below the world average in freedom from corruption and the protection of property rights, and marginal reforms in these critical areas have failed to generate much improvement.

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Background

President Mahinda Rajapakse’s April 2010 re-election is attributed to his success in defeating the terrorist Liberation Tigers of Tamil Eelam and eliminating its top leadership. In November 2011, the government released the findings and recommendations of the Lessons Learnt and Reconciliation Commission (LLRC), but the United Nations Human Rights Council still passed a resolution in March 2012 calling on Sri Lanka to address alleged violations of international humanitarian law and explain how it would implement the LLRC recommendations. The level of state intervention in the economy is high. Sri Lanka depends heavily on foreign assistance, and China has become a significant lender for infrastructure projects.

Rule of LawView Methodology

Property Rights 40.0 Create a Graph using this measurement

Freedom From Corruption 33.0 Create a Graph using this measurement

The judicial system is weak and vulnerable to political interference. Extensive delays in the commercial court system often prompt out-of-court settlements. A fairly reliable registration system exists for private property, but fraud and forged documents are problems. Property disputes plague the recently freed northern and eastern regions of the country. Mistrust of government is considerable due to widespread public-sector corruption.

Limited GovernmentView Methodology

The top income tax rate is 24 percent, and the top corporate tax rate is 28 percent. Other taxes include a value-added tax (VAT). The overall tax burden equals 12.9 percent of total domestic income. Government spending is equivalent to 21.2 percent of GDP. The budget deficit continues to be over 5 percent of GDP, but public debt has declined to below 80 percent of GDP.

Regulatory EfficiencyView Methodology

The business start-up process has been streamlined, and the number of licensing requirements has been reduced. With no minimum capital required, launching a business takes five procedures. The cost of completing licensing requirements is now significantly lower, but obtaining necessary licenses still takes more than 200 days. Inefficiency in the labor market causes an imbalance between labor supply and demand. Inflation has been high.

Open MarketsView Methodology

The trade-weighted average tariff rate is 6.9 percent, and non-tariff barriers further constrain trade freedom. Inadequate infrastructure and burdensome bureaucracy hinder much-needed dynamic growth in private investment, but controls on foreign exchange transactions have been relaxed in recent years. Non-performing loans in the banking system remain a problem, and the state continues to influence the allocation of credit.

Country's Score Over Time

Bar Graph of Sri Lanka Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Sri Lanka to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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