Sustained export growth is crucial for the development of Sri Lanka, particularly given the relatively small size of its domestic economy. Relying on the domestic economy is not sufficient to enhance growth. Sri Lanka was ahead of its regional peers in liberalizing its Page 4 of 17  economy in 1977. The adoption of liberal economic policies, such as private sector development, export networks and encouragement of FDI led to immediate improvements in the foreign trade openness of the country. Trade Openness which was 36.4% in 1977, nearly doubled to 72.2% by 1979 while exports which were 18.7% of GDP in 1977, increased significantly to 29.2% by 1979, just two years after opening of the economy. Despite the turn-around in the immediate aftermath of the adoption of liberal policies, Sri Lanka’s international trade performance has been lackluster since then, regressing to levels that were seen during the pre-liberalization era. In 2015, Sri Lanka’s Trade Openness was 36.5% - it was 36.4% in 1977. While exports,  relative to GDP, declined to 12.7% in 2015, having increased to 29.2% in 1979, and it rose as high as 32% in 2000. So we’ve gone backwards. And we have gone back to almost where we were in 1977, in terms of trade performance. Although the common notion is that there is a by-directional relationship between export and economic growth, this relationship has not been seen in relation to Sri Lanka.
Why exports and FDI are key pillars: when you have a domestic market of twenty-one million people and purchasing power of now Page 1 of 17  almost four-thousand US dollars, you simply cannot sustain the 6% or more growth that we need to achieve by just selling into this domestic market. It’s simply not possible. And why do we need 6% growth? We have a very aspirational  society now or more. It’s an educated society which is exposed to all the latest communication technologies so people know what is available around the world and they aspire to achieve a lot of material benefits for their families. So if one cannot deliver that, clearly there could be tensions in terms of our social and political stability. So it has to be growth in exports that drives our growth process to the point where we can achieve 6% plus growth to meet the aspirations of our people. And FDI, if you look around Asia, which has been the most successful continent in terms of growth and export performance, whether it is a country as large as China or one as small as Singapore, FDI has played a key role in the export transformation that has driven those economies. So that’s the model that the government is trying to put in place. It is doing a number of things to sustain that model in terms of the macro-economic policy making. have been put in place.