A combination of local and global terrorism, political turmoil and natural disaster saw the local, as well as the global economy, slowing down compared to the year 2018. Sri Lanka registered a GDP growth of 2.8% during the last year against 3.3% recorded in 2018, while the global GDP also grew at a subdued rate of 2.5%, mainly due to Chinese and the USA trade tension and low growth recorded in the EU and Japan.
Sri Lanka recorded a total value of USD 16.4 Billion of exports during the year of 2019, with the apparel sector recording a USD 5.3 Billion, a 5.1 per cent year on year (YoY) increase despite a slight decline in the figures in December. Although its growth was marred by a series of trade union action and the decline of tea prices, Sri Lanka’s tea industry also recorded a USD 1.24 Billion worth of exports.(1)
On a macroeconomic perspective, Sri Lanka’s agriculture, forestry and fishing sectors registered a growth of 2.1% by the mid 4th quarter of the year 2019, against the 4.3% growth in the same period of 2018. Service sectors of Sri Lanka registered a 2.8% growth last year against 4.4% recorded in 2018. However, the country’s industry sector marked a higher growth, registering 2.6% against 1.4% in the year 2018.
The country’s exports registered a growth of 1.44% by the end of 2019 compared to 4.1% registered at the end of the year 2018.
As per the Sri Lanka Export Development Board, provisional data the merchandise exports were USD 11.9 billion, up 0.13% and service exports were USD 4.2 billion, up by 5.3% from 2018.
As usual, Sri Lanka’s Apparel and textile industry was the top exporter product for the year 2019 with a USD 5.3 Billion worth of exports made mainly to the USA and EU. The USA was the main trade destination of Sri Lankan textile and apparel exports receiving a lion's share of 44.58% The sector’s growth was mainly supported by the benefits arising from the restoration of the EU's Generalized System of Preferences Plus (EU - GSP+) facility in spite of the trade diversion caused by the US-China trade tensions.(2)
Moreover, the increased production of printing of fabrics mainly contributed to the positive developments in the textile industry while the manufacture of wearing apparel subsector also registered a satisfactory growth.
Ceylon Tea was the second-highest export earner for the year 2019. The country exported just over 300 million kg of tea to the global market earning revenue of USD 1.24 Billion, with major importers being Turkey, Iraq, Russia and Iran. In addition, destinations such as the USA, Germany, India and Saudi Arabia have shown significant growth in demand for Ceylon Tea during the year 2019 compared to 2018.
In the services sector, the tourism industry of Sri Lanka closed 2019 with total revenue of USD 3.6 Billion. According to the Central Bank of Sri Lanka, revenue from tourism slipped by 18% following the Easter Sunday attack and the tourist arrival was at 1.9 million last year, against the 2.3 million arrivals and USD 4.4 Billion revenue recorded last year.(3)Sri Lanka’s ICT, BPM and Telecommunication service sectors also recorded an estimated export revenue just above USD 1 Billion while also recording a workforce growth of 50% since 2014.(4)
In addition to the top performers, Rubber & Rubber-based products, Coconut & Coconut Based Products, Engineering Products and services, Petroleum-based Products, Food & Beverage products, Spices & Essential Oils, Gems & Jewellery including Diamond faceting recorded a significant export value in 2019.
In the backdrop of recent developments in global trade, social and political stages, the International Monetary Fund (IMF) downward revised its global growth prediction to 3.7% in 2020. While IMF attributed its revision mostly to the slow growth predicted in India, the third-largest economy in Asia, the organisation has also predicted a better growth for some of Sri Lanka’s leading trade partners including the EU, China and the USA.(5)
With fairly favourable predictions from the global arena, Sri Lankan industries and service providers also have expressed optimism for the year 2020. According to the MTI Business Review of 2019 and Outlook for 2020, over 50% of the surveyed CEOs and business leaders from Sri Lanka predicted the economy to stabilize in the year 2020.(6)
The same optimism has been conveyed by the IMF in projecting a real GDP of 3.7% for Sri Lanka for the year 2020. (7) During its sixth review of Sri Lanka’s economic performance under the program supported by an extended arrangement under the Extended Fund Facility (EFF), IMF observed that “The Sri Lankan economy is gradually recovering from the impact of the Easter Sunday terrorist attacks. Growth is projected to strengthen to 3.5 per cent in 2020, from 2.7 per cent in 2019, as tourist arrivals and related activities gradually recover.”
Among their recommendations for recovery, the IMF had included: sustained efforts to mobilize revenues in 2020 to reduce public debt, while preserving space for critical social and investment spending; establishment of an independent public debt management agency over the medium term to sustainably anchor and manage public debt, and the advancement state-owned enterprise reforms in the electricity sector to reduce fiscal risks.(8)
Meanwhile, the Sri Lanka government and the EDB have set new investment and export targets for the year 2020, eyeing USD 2.5 Billion in foreign direct investments and USD 18.5 Billion in export revenue.
Having expressed the desire to continue export development based on the National Export Strategy (NES) developed for key sectors, to maintain policy consistency, the Minister of Industrial Export and Investment Promotion had revealed that the Sri Lankan government would continue to promote agri-based value-added exports and the boat and shipbuilding industries in the year 2020 as these industries have shown much promise in the global arena.
In addition, the Sri Lanka EDB Chairman Prabhash Subasinghe has revealed plans to diversify the country’s export basket through diversification and implementation of short to mid-term strategies to empower exporters and to bolster export revenue.
According to the ADB’s Country Operations Business Plan (COBP) for the years 2020-22, the proposed lending program for Sri Lanka for the 3-years period is estimated at USD 2.46 Billion. The program is expected to focus on the development of transport infrastructure focus on, followed by water and other urban infrastructure and services (16%); agriculture, natural resources, and rural development (14%); energy (12%); education (8%); multisector (6%); and finance (5%). Projects implemented under the program will include railways, roads, secondary education, power system reliability, irrigation, water supply, urban development, and rural livelihoods.(9)
Investments on the country’s transport infrastructure, finances and energy sector are expected to bring industrial development through diversification of the SMEs in the country. In addition, Sri Lanka is expected to push for expansions in the logistics sector and mineral excavation industries through private-public partnerships, presenting more possibilities for industry expansion.
SRI LANKA TEA PRODUCTION – JANUARY TO DECEMBER 2019, Tea Exporters Association (TEA), January, 2020,http://teasrilanka.org/market-reports
TEXTILE AND APPAREL EXPORTS IN US$ MN, Sri Lanka Apparel, January 2020, http://www.srilankaapparel.com/data-center/yearly-performance/
External Sector- Export, Imports and Trade, Central Bank of Sri Lanka, January 2020, https://www.cbsl.gov.lk/en/statistics/statistical-tables/external-sector
NATIONAL IT-BPM WORKFORCE SURVEY 2019, Information and Communication Technology Agency of Sri Lanka, 2019, https://www.icta.lk/projects/national-it-bpm-workforce-survey-2019/#1447655280990-9ce25279-b1279073-b290
Tentative Stabilization, Sluggish Recovery?, World Economic Outlook, January 2020, https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020
MTI’s Business Review of 2019 & Outlook for 2020, MTI Consulting, 2020, http://www.mtiworldwide.com/wp-content/uploads/2016/06/MTI%E2%80%99s-Business-Review-of-2019-Outlook-for-2020.pdf
IMF Staff Concludes Visit to Sri Lanka, Press Release No 20/42, International Monetary Fund, February 7, 2020, https://www.imf.org/en/News/Articles/2020/02/07/pr2042-sri-lanka-imf-staff-concludes-visit-to-sri-lanka
IMF Executive Board Completes the Sixth Review of Sri Lanka’s Extended Arrangement under the Extended Fund Facility, Press Release N0. 19/390, International Monetary Fund, November 1, 2019, https://www.imf.org/en/News/Articles/2019/11/01/pr19390-sri-lanka-imf-executive-board-completes-6th-review-extended-arrangement-eff
Sri Lanka: Country Operations Business Plan, Institutional Document, Asian Development Bank, July 2019, https://www.adb.org/documents/sri-lanka-country-operations-business-plan-2020-2022