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Sri Lankan Economy

In 1977, Colombo abandoned statist- and import substitution-policies for more market- and export-oriented policies, including encouragement of foreign investment. Although suffering a brutal civil war that began in 1983, Sri Lanka saw GDP growth average nearly 4.5% in the last 10 years. Government spending on development and fighting the LTTE drove GDP growth to about 7% per year in 2006-07. Sri Lanka's most dynamic sectors are now food processing, textiles and apparel, food and beverages, port construction, telecommunications, and insurance and banking. About 1.5 million Sri Lankans work abroad, 90% of them in the Middle East. They send home more than $2.5 billion a year. Recent changes in government, however, have brought some retrenchment in economic policies. The current ruling party, United People's Freedom Alliance has a more statist economic approach, and seeks to reduce poverty by steering investment to disadvantaged areas, developing small and medium enterprises, promoting agriculture, and expanding the already enormous civil service. The end of the 30-year conflict with the LTTE has opened the door for reconstruction and development projects in the north and east. Funding these projects will be difficult, as the government aleady is faced with high debt interest payments, a bloated civil service, and high budget deficits. The 2008-09 global financial crisis and recession exposed Sri Lanka's economic vulnerabilities and nearly caused a balance of payments crisis, which was alleviated by a $2.6 billion IMF standby agreement in July 2009. But the end of the civil war and the IMF loan restored investors' confidence. The Sri Lankan stock market gained almost 100% during in 2009, one of the best performing markets in the world.