Three major factors have shaped Sri Lanka’s modestly successful post-independence socio-economic development. First, by and large there were favourable ‘initial conditions’ at the time of independence. Second, there was a comprehensive ‘big bang’ liberalisation in 1977 that quickly resulted in accelerated employment and economic growth. Third, a bitter civil war developed in 1983, which persisted until 2009 when the government crushed the separatist forces and achieved a decisive military victory. Although extremely costly in terms of casualties and financial resources, growth momentum was maintained for most of the conflict period. The main explanation for this lies in the first two factors, particularly the 1977 liberalisations. Our thesis is therefore that, even in these extremely adverse circumstances, policy reform is both feasible and effective. This proposition is relevant for other conflict-affected countries. Of course, the Sri Lankan reforms would have been much more successful in the absence of civil war.