Sri Lanka has predominantly been a plantation economy from as early as the nineteeth century. However, from 1948 to 1977 socialism stongly influcenced the government’s economic policies and colonial plantations began to be dimantled. Together with this, industries were nationalized and the establishment of a welfare state was established.

From 1977, the goverment started promoting privatisation, deregulation and the promotion of private enterprise. Owing to this movement, while the production and export of tea, rubber, coffee, sugar and other agricultural commodities remain important, the country has been able to move steadily towards and industiral economy. Steady development of food processing, telecommunications and finance could be observed with the GDP growing at an average annual rate of 5.5% during the early 1990s. Despite the drawback suffered owing to a drought and an adverse security situation in 1996 and then a recession in 2001, you will find when you travel to Sri Lanka the Sri Lankan economy has rebounded, recording an average growth of 5.3%. In 1997 and the Colombo Stock Exchange recording the highest growth in the world for 2003. Your travel to Sri Lanka will show you that today Sri Lanka boasts of the highest per capita income in South Asia.

April 2004 saw a sharp reversal in economic policy after the government headed by Ranil Wickremesinghe of the United National Party was defeated by a coalition made up of Sri Lanka Freedom Party and the leftist-nationalist Janatha Vimukthi Peramuna called the United People's Freedom Alliance. The new government put a stop to the trend of privatization of state enterprises and reforms of state utilities such as power and petroleum, and embarked on a subsidy program called the Rata Perata economic program. Its main theme to support the rural and suburban SMEs and protect the domestic economy from external influences, such as oil prices, the World Bank and the International Monetary Fund.

Although the Sri Lankan income per head is $1,350, when you travel to Sri Lanka you will witness that the country is still behind some of its neighbors such as Maldives and Mauritius but is ahead of its giant neighbor India. Its economy grew by an average of 5% during the 1990s during the 'War for Peace' era. According to the Sri Lankan central bank statistics, the economy was estimated to have grown by 7% in 2007, although inflation had reached 20%.

Parts of Sri Lanka, particularly the South and East coast, were devastated by the 2004 Asian Tsunami. The economy was briefly buoyed by an influx of foreign aid and tourists, but this was disrupted with the reemergence of the civil war resulting in increased lawlessness in the country and a sharp decline in tourism.