Report

22 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
The GDP grew at an average annual rate of 5.5%
during the early 1990s, until drought and security
concerns lowered growth rate to 3.8% in 1996. The
economy rebounded in 1997–2000, with average
growth of 5.3%. The average GDP growth in 1999
was slightly lower, 4.3%, than the 4.7% in 1998 (Table
1.18). This growth was also below the average rate of
5.2% for the past 10 years (1990–99). The Sri Lankan
economy started to recover in the second half of 1999,
and the recovery accelerated in 2000. Sri Lanka has
experienced continuous acceleration in the growth rate
of GDP after the period of recession in 2001. The GDP
growth rate in 2006 stands at 7.7%, much higher than
the GDP growth rate in 1980s and 1990s. It now has highest
per capita income in South Asia, after Maldives.
Table 1.18 Growth Rate of GDP at 1998 Prices,
1998–2002 (%)
Years 1998 1999 2000 2001 2002 2003 2004 2005 2006
GDP 4.7 4.3 6 (1.4) 4 5.9 5.4 6.2 7.7
Source: Department of Census and Statistics, Sri Lanka
Sri Lanka began trade liberalisation policies in the
late 1970s following a period of import substitution in
the 1960s and 1970s. Since then Sri Lanka has operated
a unified exchange rate under a ‘managed float’ system
which became fully floated in January 2001. Most
quantitative restrictions were removed in the 1980s and
by the end of 1990s only a few remained on selected
agricultural and industrial commodities. However, these
were eventually removed in 1998 following a review
by WTO. Sri Lanka’s trade integration, measured by
the trade-GDP ratio stood at 82% of GDP in 2004.
Also, unilaterally Sri Lanka’s applied tariffs are relatively
low. This openness has resulted in the rapid
growth of both exports and imports in recent years.
Imports have increased at a faster rate than exports
resulting in widening trade deficit (Fig 1.12). A major
cause for the faster rate of import growth is the increase
in price and consumption of oil. Exports have grown
rapidly as well, led by apparel exports and a resurgence
of export earnings from agricultural agreements such
as tea, buoyed by commodity price booms in 2007.
The contribution of agriculture to GDP has reduced
from 12.7% in 2002 to 10.8% in 2007. The share of
manufacturing in GDP has remained more or less
between 17–18% during 2002–07 (Fig 1.11). However,
the major stimulus to growth has come from services
sector, with its share remaining above 55%.
Fig 1.12 Exports and Imports of Goods and Services in Sri
Lanka, 2003–06
Source: National Accounts of Sri Lanka, 2007
Fig 1.11 Share of Agriculture, manufacturing and Services in
GDP in Sri Lanka: 2002–07
Source: National Accounts of Sri Lanka, 2007.
Trade Policy Regime: Being a small island economy
with the limited domestic market, the role of international
trade has been significant. Sri Lanka’s trade policy
objectives include moving towards a more outward
oriented trade regime and improving market access for
its exports.
Over the past three decades, Sri Lanka has become
increasingly open to trade-undertaking unilateral,
multilateral and regional trade liberalisation. Sri Lanka
joined GATT in 1948 and the WTO at its inception in
1995. In more recent years, Sri Lanka has implemented
FTA with India and Pakistan and is party to the SAFTA
along with many other RTAs including BIMSTEC and
Asia Pacific Trade Agreement (APTA).
A major concern in the trade pattern is the limited
export diversification both geographically and in terms