Economic crisis to reverse SL’s gains in economic freedom

3 November 2022 06:02 am

• Sri Lanka ranks 89 among 165 jurisdictions on latest Economic Freedom of the World index
• Index is based on data until 2020; SL’s improvement in ranking is due to decrease in economic freedom in other countries 
• Hong Kong and Singapore top index, continuing their streak as first and second

Sri Lanka ranks 89 out of 165 countries and territories included in the Economic Freedom of the World: 2022 Annual Report, released by the Fraser Institute in association with the Advocata Institute in Sri Lanka.

The report, which is based on the data until 2020, shows that Sri Lanka gained 11 places to be ranked 89th compared to the previous year, where the country was ranked 100. However, Sri Lanka’s overall score has remained the same (6.72), which suggests that the improvement in the ranking is due to a decrease in economic freedom in other countries.

However, the ongoing economic crisis, which began in earnest in March 2022, is expected to reverse whatever the gains the island nation has made in terms of economic freedom.

As per the latest Economic Freedom of the World report, Hong Kong and Singapore top the index, continuing their streak as first and second, respectively. New Zealand, Switzerland, Denmark, Australia, the United States, Estonia, Mauritius and Ireland round up the top 10.   Research shows that people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties and longer lives. For example, the nations in the top quartile of the economic freedom index had an average per capita GDP of US $ 48,251 in 2020, compared to US $ 6,542 for nations in the bottom quartile (PPP constant 2017, international US $).

In the top quartile, the average income of the poorest 10 percent was US $ 14,204, compared to US $ 1,736 in the bottom quartile (PPP constant 2017, international US $). The average income of the poorest 10 percent in the most economically free nations is more than twice the average per capita income in the least free nations. 

“Improvement in Sri Lanka’s ranking on the Economic Freedom index is welcome but we have to note the data is based on up to the year 2020 and the ground reality today is the economy has deteriorated further as Sri Lanka defaulted on its sovereign debt for the first time in history,” said Advocata Institute CEO Dhananath Fernando.

“Hence, it is quite evident that due to the ongoing economic crisis in Sri Lanka, several of these indicators, if measured now, are going to paint a different picture, especially in the areas of access to carryout international transactions unhindered and the freedom to trade.” Based on Advocata’s own calculations with the 2021 data, the access to sound money has fallen.

“In the process for economic recovery, economic freedom is the best framework to structure our reforms, especially on reforms that target economic freedom will not only provide stability but also ensures economic growth and higher quality of life for our citizens,” Fernando further stated.