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Economic crisis will reverse Sri Lanka’s gains in economic freedom

03 Nov 2022

  • Sri Lanka ranks 89 among 165 jurisdictions on the Economic Freedom of the World index 
  By Advocata Institute 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. Hong Kong and Singapore top the index, continuing their streak as first and second respectively. New Zealand, Switzerland, Denmark, Australia, the US, 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, nations in the top quartile of the economic freedom index had an average per-capita gross domestic product (GDP) of $ 48,251 in 2020, compared to $ 6,542 for nations in the bottom quartile (Purchasing Power Parity [PPP] constant 2017, international US dollar). In the top quartile, the average income of the poorest 10% was $14,204, compared to $1,736 in the bottom quartile (PPP constant 2017, international US dollar). The average income of the poorest 10% in the most economically free nations is more than twice the average per-capita income in the least free nations.   Sri Lanka’s ranking for economic freedom   The report, which is based on 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 ranking is due to a decrease in economic freedom in other countries.  Sri Lanka’s score in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom). “Improvement of Sri Lanka’s ranking on the Economic Freedom index is welcome, but we have to note the data is based on upto 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 Dhananath Fernando, CEO of Advocata Institute. “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 2021 data, the access to sound money has fallen.  “In the process towards economic recovery, economic freedom is the best framework to structure our reforms, especially on reforms that target economic freedom; it will not only provide stability, but also ensure economic growth and higher quality of life for our citizens,“ Fernando further stated. The Fraser Institute produces the annual “Economic Freedom of the World” report in co-operation with the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 countries and territories. It’s the world’s premier measurement of economic freedom, measuring and ranking countries in five areas – size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally and regulation of credit, labour and business. This year’s publication ranks 165 countries and territories. The report also updates data in earlier reports where data has been revised.     Advocata is an independent policy think tank based in Colombo, Sri Lanka that conducts research, provides commentary, and holds events to promote sound policy ideas compatible with a free society in Sri Lanka.  


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