Sri Lanka Post Independence

During the first decade after independence in 1948, Sri Lanka (commonly called Ceylon until 1972) continued as an open trading nation with only relatively minor trade and exchange rate restrictions. From the late 1950s, a combination of the influence of the state of development thinking at the time, change in political leadership and balance of payments difficulties led to the adoption of a state-led import substitution development strategy. By the mid-1970s the Sri Lankan economy was one of the most inward-oriented and regulated outside the communist bloc, characterized by stringent trade and exchange controls and pervasive state interventions in all areas of economic activity.2

At the time of independence Sri Lanka was regarded by many as one of Asia’s most promising new nations. It was favoured with many early advantages which were not shared by most other Asian countries: a vibrant export sector, relatively high level of education, good physical infrastructure, and a broad-based and efficient administrative apparatus. However, this early promise was not sustained. Until about the late 1960s Sri Lanka’s per

2Sri Lanka’s post-independence policy history has been well documented: Rajapatirana (1989), Athukorala and Jayasuriya (1994), More (1997), Dunham and Kelegama (1997), Snodgrass (1998) and Athukorala and Rajapatirana (2000). For a review of the Sri Lankan experience with trade policy reforms from a comparative South Asian perspective, see Panagariya (2002).

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capita income (purchasing power adjusted) was much higher than those of Thailand and South Korea, and only marginally lower than that of Malaysia (Athukorala and Rajapatirana 2000, Table 1). From then on Sri Lanka slipped below these and many other countries, rapidly co...

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...gy emphasised the role of the state in

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‘guiding the markets’ in redressing untoward effects of economic globalisation and effectively ruled out privatisation of the key remaining state enterprises, while conspicuously avoiding any reference to further trade liberalisation.

The country returned to a state of normalcy at the end of the 30-decade old civil war in May 2009. On the back of the military victory, President Rajapakse consolidated power by calling fresh presidential and parliamentary elections in 2010 and winning both decisively. Immediately after the elections, the constitution was amended removing the two-term limit on the tenure of the president. One of the main arguments advanced in defense of this legislation was that the country needed a strong executive to facilitate the development of the economy under the new state-led approach (Uyangoada 2010).