Sri Lanka

Sri Lanka became wealthy because it bet everything on three crops and a port—a strategy that made it one of Asia's richest economies by 1900 and left it structurally vulnerable to every shock that followed.

The island's potential was geographic. Positioned at the center of Indian Ocean trade routes, Ceylon (as the British called it) offered deep-water harbors, tropical climate suited to plantation agriculture, and proximity to the vast Indian labor market. The Dutch had controlled coastal trade; the British, arriving in 1796 and conquering the inland Kandyan kingdom in 1815, saw something more ambitious: industrial-scale export agriculture.

Coffee came first, expanding from the 1830s through mid-century as roads penetrated the hill country. British planters cleared jungle slopes, transforming highlands into estates. Then, in the 1870s, a leaf disease destroyed the coffee crop entirely. What might have been catastrophe became transformation. James Taylor had planted experimental tea at Loolecondera estate in 1867; by 1873, the first shipment—just 23 pounds—reached London. By 1885, Ceylon exported 4.3 million pounds. By 1900, 380,000 acres were under tea cultivation.

The labor came from South India. Unable to recruit sufficient local workers—or unwilling to pay wages that would compete with subsistence farming—planters imported Tamil laborers as indentured workers. They soon comprised 10% of the island's population, living on estates in conditions that remained among the nation's worst for generations. This demographic and economic stratification planted seeds of ethnic conflict that would erupt catastrophically a century later.

Infrastructure followed export agriculture. Colombo's harbor expanded to handle tea shipments. Railways connected hill-country estates to the coast. The first public tea auction opened in 1883 under the Ceylon Chamber of Commerce. Wealth creation was real: per-capita GDP more than doubled in the eighty years to 1900, placing Ceylon alongside Hong Kong, Singapore, and Japan as Asia's richest economies.

Independence in 1948 inherited this export-oriented structure. For decades, tea, rubber, and coconut generated foreign exchange, but the economy never diversified into manufacturing at scale. The ethnic tensions that colonial labor policy created exploded into civil war from 1983 to 2009, destroying tourism and investment for a generation. Post-war recovery brought debt-financed infrastructure—ports, highways, stadiums—much of it Chinese-funded and economically questionable.

The structural vulnerability culminated in 2022's sovereign default. Foreign exchange reserves collapsed as tourism evaporated during COVID, fuel import bills soared, and debt service came due. Sri Lanka became the first Asian country in decades to default on sovereign bonds. An IMF bailout followed in 2023, requiring austerity that the government only partly implemented.

Today, recovery is proceeding but constrained. Tourism is returning, tea exports continue, but the fundamental problem remains: an economy still dependent on commodities and visitors, with manufacturing representing only modest GDP share. Colombo's strategic position—which drew the Chinese to build Hambantota port—matters geopolitically but hasn't translated into the manufacturing diversification that Asian tiger economies achieved.

By 2026, Sri Lanka must demonstrate that post-default reforms can stick. The IMF program requires tax increases and subsidy cuts that provoke political resistance. Debt restructuring is incomplete. The question is whether the country that built Asia's first successful export economy can finally build its second act, or whether each recovery simply postpones the next crisis.