Sri Lanka proved to be ‘the best bet in Asia’ in early 50’s with its economic stability and well structured infrastructure. To prove that, when Former Prime Minister of Singapore, Lee Kuan Yew visited in Sri Lanka in mid 50’s, stated that Singapore would like to imitate Sri Lanka. Since gaining the independence in 1948, the progression of development in Sri Lanka has captured the thoughts of a mixture of economists and politicians. The ruling governments changed constantly and none of them could implement a national standpoint in the development of economy. 30 years on, the island country faced an unsullied problem in terrorism. The country’s economic development brought to a standstill since then. In addition to that, on 26th of December 2004, over one million citizens were exiled in a matter of hours as the Tsunami flowed across Sri Lanka’s shores. 34,000 died. 97,000 residences were either destroyed or damaged. Thousands of enterprises, including in the economically vital tourism sector, were destroyed. The desolation that swallowed up the country in those unpleasant days was difficult to describe.

In this research, the aim of the author is to find methods to develop the economy of Sri Lanka which has been brought to a standstill by the terrorist activities in the island country. The liberation Tamil tigers of eelaam, commonly known as LTTE, were seeking a separate country and they had carried out several terror activities in the country since early 80’s. The LTTE was mainly based in north and eastern parts of the island though they were active in the other areas and especially in the capital, Colombo. It made a huge impact on country’s economy in numerous ways such as downfall in tourism industry, agriculture industry, fisheries industry and foreign investments. Sri Lanka suffered huge set back in terms of economic development ever since. In this research, the author expect to locate that how terrorism had effected in Sri Lankan economy in the past 3 decades and which sectors had effected mainly and how Sri Lanka can recover and develop its economy with the end of the war. Collapse in agriculture sector in north and eastern parts of the country, which is one third of the land directly affected the agricultural economy. Being a cultivated friendly soil and climate helped the northern and eastern part of the country to contribute to the economy but with the start of the war farmers