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A low productivity trap? Strengthening skills, jobs and public sector efficiency in Sri Lanka

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1 year ago

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Himani Vithanage is a Research Assistant working on health, education, and labour policy at IPS. She received the IPS’ Saman Kelegama Memorial Research Grant for 2021. Himani holds a BA in Economics with First Class Honours from the University of Colombo. Himani also holds a BSc in Economics and Finance with First Class Honours from the London School of Economics and Political Science (LSE).

By Himani Vithanage

Sri Lanka experienced six consecutive quarters of negative economic growth up to the third quarter of 2023. This downturn has had a direct impact on the labour market, leading to lower wage rates and discouraging workforce participation and skill development. As a result, productivity levels continue to fall, creating a vicious cycle known as the “low productivity trap”, which hampers further economic recovery.

Against this backdrop, the second session of the IPS annual flagship publication launch, Sri Lanka: State of the Economy 2024, Economic Scars of Multiple Crises: From Data to Policy, focused on issues within three key aspects of Sri Lanka’s economy: the education sector, labour market, and public sector. The session themed ‘Skills, Jobs & Wages: A Low Productivity Trap?’ chaired by Dr Bilesha Weeraratne, Research Fellow at IPS, brought together experts from the government sector, private sector, and donor agencies to explore solutions to these pressing issues.

Bridging Education Gaps: A Catalyst for Progress

Education equips individuals with the knowledge and skills necessary for a productive and competitive workforce. It fosters creativity and problem-solving abilities essential for driving innovation and technological advancements. A well-educated population can contribute to higher productivity levels and higher economic growth. Dr Nisha Arunatilake, Director of Research at IPS, emphasised that education “is a catalyst for skills, jobs, wages, and overall development,” yet Sri Lanka’s education sector faces several critical challenges.

For one, there are glaring disparities in access to education. While 97% of children at the compulsory school age (5-14) are enrolled, “around 25% of the disabled children aged 5-14 are not in education” Dr Arunatilake noted. Gaps in access also exist for children in rural areas and low socio-economic backgrounds. The discussion highlighted potential solutions, such as leveraging the innovative utilisation of EdTech (Education Technology) highlighting several successful models from other South Asian countries, such as Pakistan’s WonderTree programme and India’s OLabs. Additionally, strengthening school nutrition and welfare programmes and improving disaster risk management capability were several other solutions highlighted by Dr Arunatilake.

Education participation drops off significantly beyond the compulsory age (15-19) and among the youth (20-24). “As many as 65.1% of the youth are not in any form of education, with only 7.5% participating in vocational training and 11.4% in university.” Importantly, the discussion brought to light that although students are in school, their learning outcomes, especially in the English language and Mathematics, fall below international standards.

Inconsistent policymaking and implementation are another major obstacle. “There have been eight Ministers of Education over the past eight years, leading to stop-go policymaking,” Dr Arunatilake pointed out, resulting in incomplete reforms, disparities in resource allocation, insufficient fund allocation, and issues with the flow of funds, among others. For instance, in the Q&A session, a topic that received attention was the inequitable distribution of resources, particularly the allocation of trained teachers among schools. The need for legal reforms and proper data collection to support evidence-based policies rather than stop-go policymaking was stressed, with the education ordinance of 1939 yet to be modernised.

Labour Market Woes Amidst Multiple Crises

“Between 2018 and 2023, the Labour Force Participation Rate fell from 51.8% to 48.6%, while the employment-to-population ratio dropped from 49.5% to 46.3%.” In his discussion, Suresh Ranasinghe, Research Officer at IPS, focused on the impacts of multiple crises on the labour market from 2018 to 2023 and their effects on quality employment and decent work. Some of the main issues within Sri Lanka’s labour market include rising labour market inactivity, declining labour productivity and employment growth, and declining high-skilled employment.

The rise in inactivity, particularly among youth, is likely linked to education disruptions. To tackle this, the session highlighted the importance of promoting and improving the quality of Technical and Vocational Education and Training (TVET), focusing on access for vulnerable youth and improving public perceptions, as well as supporting entrepreneurship initiatives to create sustainable employment opportunities.

While all three sectors – agriculture, industry, and services – observed negative average labour productivity from 2018 to 2023, the ICT sector stands out, with the highest output per worker. The discussion underscored the need to invest in technology, infrastructure, and skill development, particularly within the agriculture sector. Given the ICT sector’s high productivity, recommendations included offering VAT exemptions and bridging the existing skill gap within the sector through targeted interventions.

Ranasinghe also highlighted a concerning trend: “Only 20% of the total workers held high-skilled jobs in 2023, a decline from 23% in 2018, mainly due to a decrease in the share of Managers, Senior Officials, and Legislators.” One potential reason for this decline was the emigration of high-skilled workers during the pandemic and economic crisis, as they sought better wages abroad due to declining real wages in Sri Lanka. To retain the remaining high-skilled workers, the importance of providing competitive salaries and benefits was pointed out. In the long term, expanding knowledge-based industries, supporting persistent professional development, and revising public sector policies are important to foster high-skilled employment.

Sri Lanka’s public sector accounts for 15% of total employment and 35% of formal employment, while it consumes 26% of public expenditure and 5% of GDP. Notably, public sector employment has increased by about 60% since 2005. However, “Sri Lanka’s government performance is considered ‘poor’ as per the Worldwide Governance Index (WGI), with the government effectiveness being negative 0.65.”

In light of this, Dr Lakmini Fernando, Research Fellow at IPS, outlined the importance of improving public sector efficiency. She noted how government expenditure has a declining trend (47% decline from 1990 to 2023) while spending on wages remains stable (5%). While high government expenditure crowds out investments, it lowers prospects for growth. Therefore, Dr Fernando recommended introducing a new public management approach, which provides an immediate pay rise while ensuring the right size of the public sector. Importantly, an effective public sector is essential for improving education planning and enabling strategic interventions in the labour market.

Overall, she noted that improving administrative operations, downsizing the sector, and addressing barriers that lead to policy failures were important. There was also a debate during the Q&A session on downsizing the sector and whether or not the public sector deserves a pay rise. “The minimum monthly wages of all types of public employee levels are below the expenditure benchmark of LKR 68,056,” Dr Fernando pointed out, suggesting that to ensure successful policy implementation, the government needs to create an environment that supports adopting changes.

The IPS report is available for sale at IPS, No. 100/20, Independence Avenue, Colombo 07, and at leading bookshops island-wide. For more details, visit: https://www.ips.lk/sri-lanka-state-of-the-economy-2024-economic-scars-of-multiple-crises-from-data-to-policy/

 


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Cargills adopts Crow Island Beach in partnership with Clean Ocean Force Lanka

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15 hours ago

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2026/03/26

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Cargills Food and Beverage Ltd. through its brands KIST and Knuckles, has signed a Memorandum of Understanding (MoU) with Clean Ocean Force Lanka (COF) to adopt Crow Island Beach for one year, reinforcing its commitment to long-term coastal conservation in Sri Lanka.

This pioneering initiative is designed to protect and preserve the coastal environment through several key measures, including the removal of plastic and other pollutants from the beach and surrounding coastal area. As part of the adoption programme, the beach will be maintained daily with the support of dedicated beach caretakers, while also supporting their livelihoods by providing meaningful income opportunities.

Marking the partnership and in celebration of World Recycling Day, a coastal clean-up programme was conducted at Crow Island Beach to remove plastic and other manmade pollutants. Volunteers from Cargills, Clean Ocean Force Lanka, the Interact Club of Colombo, the Colombo Municipal Council and the Women’s Force of COF Negombo (Sri Vimukthi Association) participated in the clean-up with support from the Marine Environment Protection Authority (MEPA), the Sri Lanka Police Environmental Division and the Ministry of Local Government and Environment as well as the Crow Island Beach Park Society.

Jerome Fernando, Chairman & Co-founder of Clean Ocean Force Lanka said that, “Marine & Coast Conservation demands a unified front. Our unique Public-Private-People Partnership model is the cornerstone of our mission, and today, we are thrilled to welcome Cargills (Ceylon) PLC as a vital partner in this journey adopting the Crow Island Beach for the next one year. This collaboration will not only amplify our efforts to eliminate plastic and manmade pollutants from our beaches, but also reinforce our commitment to empowering marginalized communities through sustainable livelihood opportunities. Cargills’ deep-rooted dedication to environmental sustainability and community wellbeing perfectly aligns with our vision.”

Jagath Gunasekara, General Manager of MEPA added, “The Marine Environment Protection Authority consistently promotes active private sector engagement in marine and coastal conservation, as well as pollution control initiatives. This approach aligns closely with our Beach Caretaker Programme. We are pleased to collaborate with Cargills (Ceylon) PLC in the adoption of Crow Island Beach through our long-standing partnership with Clean Ocean Force Lanka.”

During the event, Knuckles also launched Sri Lanka’s first tethered bottle cap, introducing a packaging innovation aimed at improving plastic waste management and supporting recycling efforts. The tethered cap is designed to remain attached to the bottle after opening, reducing the likelihood of caps being discarded separately. Bottle caps are among the most commonly littered plastic items globally and frequently enter landfills and waterways due to their small size and low collection rates.

Speaking on the initiative, Arjuna Kumarasinghe, Managing Director of Cargills Food & Beverage Ltd., said, “Cargills has always believed in taking responsibility for the communities and environments around us. By adopting Crow Island Beach, we’re able to work closely with our partners and local volunteers to protect this part of our coastline. Launching the tethered bottle cap is another way we’re addressing plastic waste and making recycling easier for everyone.”

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CBSL adopts cautious stance in the face of economic uncertainties

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15 hours ago

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2026/03/26

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Dr. Nandalal Weerasinghe; focus on inflation stabilization

The Central Bank is keeping its overnight policy rates unchanged, adopting a cautious stance amid uncertainty over the inflationary impact of energy prices due to the Middle East crisis.

‘We maintained the overnight policy rate at 7.75 percent, considering low inflation and a restrained approach on the fallout of the US-Israeli war on Iran, Central Bank Governor Dr Nandalal Weerasinghe said.

The Governor made these remarks yesterday at a press briefing held at the Central Bank head office in Colombo to announce the monthly monetary policy stance.

Dr Weerasinghe added: ‘Inflation is now expected to reach the Central Bank’s target of 5 percent in the second quarter of 2026, after Sri Lanka raised fuel prices by about 35 percent this month.

‘However, spillovers from the ongoing conflict could weigh on domestic economic activity in the period ahead should the conflict be prolonged.

‘The rates were steady since last May as the nation recovers from a 2022 financial crisis driven by a severe dollar shortage.

‘Supported by a US$ 2.9 billion programme with the IMF, Sri Lanka posted a strong economic recovery last year, growing by 5 percent and now targeting growth between 4 percent and 5 per cent in 2026.

‘What stands out is that they see space for inflation to rise because of energy prices but still stay contained.

‘From now to June, underlying economic momentum has the space to keep pace despite the disruption because domestic liquidity and credit has been quite substantial as well.

‘An IMF team will arrive in Colombo on Friday for the combined fifth and sixth reviews of the bailout.

‘Furthermore, Gross Official Reserves increased to US$ 7.3 billion at end February 2026 and the Central Bank purchased a substantial amount of foreign exchange from the market in the first two months of the year.

‘However, the ongoing conflict in the Middle East poses risks to Sri Lanka’s external sector outlook, particularly through energy, tourism, trade and remittance flows, although the overall magnitude of the impact remains uncertain.

‘While the Sri Lanka rupee remained relatively stable in early 2026, some depreciation pressures were observed following the onset of the Middle East conflict, similar to the exchange rates of regional peers.

‘Meanwhile, the Monetary Policy Board remains prepared to implement appropriate policy measures to ensure that inflation stabilizes around the target, while supporting the economy to reach its potential.’

By Hiran H Senewiratne

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Dialog Unveils Dialog Play Mini with Netflix and Apple TV

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15 hours ago

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2026/03/26

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Dialog Television, Sri Lanka’s #1 Pay-TV service provider, has announced the latest upgrade to its smart entertainment lineup with the Dialog Play Mini, featuring seamless access to global streaming platforms including Netflix, Apple TV and YouTube, alongside the Dialog Play entertainment ecosystem for a unified viewing experience. Previously known as the ViU Mini, the device has now been reintroduced as the Dialog Play Mini, reflecting the evolution of Dialog’s digital entertainment platform under the Dialog Play brand.

The Dialog Play Mini transforms any television into a smart 4K entertainment hub by enabling hybrid multi-platform streaming across leading global and local content platforms, delivering a smoother, more intuitive viewing experience. Whether enjoying Netflix originals, Apple TV exclusives, or local favorites, households can now experience world-class entertainment in one compact device.

The Dialog Play Mini brings a streamlined, user-friendly experience to any home setup. Its single numeric-keypad remote controls both the TV and the device, offering simplicity and convenience for everyday viewing. With multiple connectivity options including Wi-Fi, hotspot, LAN, or wingle, the device ensures uninterrupted entertainment even in areas without smart TVs or advanced broadband setups.

Bridging the gap between entry-level set-top boxes and premium Android TV devices, the Dialog Play Mini offers a plug-and-play smart experience. Supported by Dialog’s nationwide service network, local warranty, and after-sales care, it delivers a reliable, feature-rich entertainment experience for Sri Lankan homes.

“With Dialog Play Mini, entertainment becomes more directly accessible for every Sri Lankan home – with or without a Smart TV,” said Lim Li San, Group Chief Operating Officer of Dialog Axiata PLC. “By bringing Netflix, Apple TV, YouTube, and Dialog Play together in one compact 4K-ready device, we’re redefining home entertainment through simplicity, innovation, and the power of connectivity.”

The Dialog Play Mini is now available at Dialog Experience Centers and authorized retailers islandwide. To purchase online, please visit

https://dialog.lk/dialog-play-mini

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