Sri Lanka has maintained its position as the most economically free nation in South Asia, according to the 2014 Index of Economic Freedom. The country has a sustained annual growth rate of 6 percent since 2010 and continues to pursue economic reforms and liberalization.

Despite a dip in its global ranking in the 2014 Index (published jointly by The Heritage Foundation and The Wall Street Journal), since the end of its civil war in 2009, Sri Lanka has been on an upward economic trajectory.

Read more about Sri Lanka Economy.
See more from the 2014 Index.

At a recent Heritage roundtable discussion, the governor of the Central Bank of Sri Lanka, Ajith Navard Cabraal, noted that Sri Lanka has reduced inflation from 15 percent in 2009 to roughly 4 percent in 2014. The country has also raised per capita income from $1,000 per person in 2004 to $3,300 per person today.

Anthony Kim, Heritage’s senior policy analyst for economic freedom, says that “further carrying on structural reforms with persistence will be critical to sustaining this positive momentum and ensuring long-term economic development in Sri Lanka.”

Experts agree that Sri Lanka will have to overcome the middle-income trap and avert economic stagnation. According to Cabraal, Sri Lanka has increased commercial activity and energy development and pursued greater investment in the aviation, maritime, tourism, and information technology industries to ensure that Sri Lanka is positioned for long-term growth.

Cabraal further noted that Sri Lanka is on track to be a $100 billion economy by 2016 and seeks to join the ranks of the upper-middle-income nations by 2020.

While Sri Lanka’s economic trends offer promise, there remains concern about lackluster efforts to bring political reconciliation to the ethnically divided nation.

The holding of provincial council elections in the war-torn north in September represented a potentially important step toward political reconciliation between the Sinhala majority and Tamil minority communities. But the government should follow up the elections by working directly with the newly elected council to address Tamil grievances.

Heritage senior fellow for South Asia Lisa Curtis noted shortly after the Northern Provincial Council elections that:

There are increasing geostrategic reasons to care about Sri Lanka, particularly because the island nation is strategically located in the Indian Ocean and is increasingly being wooed by China. The U.S. should use the occasion of the historic elections in the Northern Province to foster goodwill with the government and encourage it to build a national consensus on reconciliation.

Sri Lanka should take pride in the steps it has taken to advance its economic freedom. However, the government must also work toward a genuine reconciliation process if it wants to maintain a political environment conducive to lasting economic growth and prosperity.