Sri Lanka continues to experience strong economic growth following the end of the 26-year conflict with the Liberation Tigers of Tamil Eelam (LTTE).
The government has been pursuing large-scale reconstruction and development projects in its efforts to spur growth in war-torn and disadvantaged areas, develop small and medium enterprises and increase agricultural productivity.
The government's high debt payments and bloated civil service have contributed to historically high budget deficits, but fiscal consolidation efforts and strong GDP growth in recent years have helped bring down the government's fiscal deficit.
However, low tax revenues are a major concern. The 2008-09 global financial crisis and recession exposed Sri Lanka's economic vulnerabilities and nearly caused a balance of payments crisis. Growth slowed to 3.5% in 2009.
Economic activity rebounded with the end of the war and an IMF agreement, resulting in two straight years of 8% growth in 2010-11.
Growth moderated to about 6% in 2012. Agriculture slowed due to a drought and weak global demand affected exports and trade.
In early 2012, Sri Lanka floated the rupee, resulting in a sharp depreciation, and took steps to curb imports. A large trade deficit remains a concern.
Strong remittances from Sri Lankan workers abroad have helped to offset the trade deficit.