Business

Sri Lanka Development Update 2021 – World Bank Report

Published

5 years ago

2021/04/28

(Select extracts)

Amid the COVID-19 pandemic, Sri Lanka’s economy contracted by 3.6 per cent in 2020, the worst growth performance on record, as is the case in many countries fighting the pandemic. Swift measures enacted by the government in the second quarter helped contain the first wave of COVID-19 successfully, but these measures hit sectors like tourism, construction, and transport especially hard, while collapsing global demand impacted the textile industry.

Job and earning losses disrupted private consumption and uncertainty impeded investment. As a result, the economy contracted by 16.4 per cent (y-o-y) in the second quarter. The economy began to recover in the third quarter as the first wave was brought under control and containment measures were relaxed. The momentum continued in the fourth quarter as the economy was broadly kept open despite a second wave of COVID-19 infections.

The government took proactive measures to mitigate the impact of the pandemic. Despite limited fiscal space, resources were allocated (approximately 0.7 per cent of GDP) for health measures, cash transfers, and postponed tax payments. While public expenditures increased, revenues declined, resulting in a widening of the fiscal deficit in 2020. Due to the economic contraction and the elevated fiscal deficit amid COVID-19, public and publicly guaranteed debt is estimated to have increased to 109.7 percent of GDP. In line with the government strategy to reduce external debt over the medi- um-term, debt financing relied increasingly on domestic sources.

The Central Bank of Sri Lanka (CBSL) significantly contributed to the crisis response. It undertook considerable monetary policy easing, for which there was room given benign inflation, and additional measures to increase liquidity in the market and support businesses. It also introduced financial sector regulatory measures, like a debt moratorium for COVID-19 affected businesses and individuals.

However, despite these efforts, bank lending to the private sector remained low. By contrast, credit to the government and state-owned enterprises surged and accounted for 80 per cent of the total credit in 2020.

The pandemic likely exacerbated pre-existing financial sector vulnerabilities, although the full impact of COVID-19 cannot yet be observed. An improved trade balance and strong remittance inflows narrowed the current account deficit. A sharp drop in imports in 2020 more than offset the decline in exports. However, with financial inflows insufficient to meet external liabilities, reserves declined to an 11-year low in February 2021, before a currency swap worth US$ 1.5 billion with the People’s Bank of China was approved in March 2021. Due to a shortage of foreign currency, the exchange rate depreciated by 6.5 per cent from January through March 17, 2021.

The CBSL took several measures to preserve foreign exchange reserves and reduce pressures on the exchange rate. Growth is expected to recover to 3.4 per cent in 2021, mainly reflecting a base effect and FDI inflows. Gradually normalizing tourism and other economic activities as well as already signed investments will support growth. However, the subdued global recovery may dampen export demand. Over the medium-term, continued trade restrictions, economic scarring from the slowdown and the high debt burden may weigh on growth prospects.

Through an enhanced focus on an export-oriented growth model that taps the full potential of private investment, the country could realize its ambitions to increase its competitiveness and raise growth in a sustainable manner. The forecast is subject to both upside and downside risks. If the global economy recovers faster than expected and the global tourism industry rebounds more quickly with the progress on vaccination programs, the growth outlook could become more favorable.

On the other hand, downward risks persist, pertaining to debt and external sustainability given high debt and low external buffers, especially because the repayment profile requires accessing financial markets frequently. Given large refinancing requirements, constrained market access amid rating downgrades is a challenge. Thus, striking a balance between supporting the economy amid COVID-19 and ensuring fiscal sustainability is key. A reform program to provide a fiscal anchor could help Sri Lanka to reduce debt vulnerabilities and lower sovereign risk.

The COVID-19 impact on employment and poverty

The economic contraction in the wake of COVID-19 has reversed past progress, at least temporarily. Poverty is expected to have risen since the onset of the pandemic mostly due to widespread job and earning losses. Simulations suggest that job losses were more likely to occur in urban areas and among private sector and own-account workers. Job losses were concentrated in the lower-middle of the income distribution: workers most vulnerable to job loss are located between the 20th and 40th percentiles of the pre-pandemic earnings distribution.

Temporary absence from work and job losses occurred less frequently than declines in earnings. While informal workers are more likely to suffer earnings losses, formal workers have been affected as well, for example in the export-oriented apparel industry. With jobs lost and earnings reduced, the $3.20 poverty rate is projected to have increased from 9.2 per cent in 2019 to 11.7 per cent in 2020.

The poorest experienced the largest proportionate earnings shock while the smallest proportionate income losses were suffered by the richest. The latter tend to have formal, secure jobs and better access to digital technology that allows them to conduct wage work or business operations remotely. To mitigate the impact of the economic hardship on the poor and vulnerable, the government implemented several livelihood support programs, which helped to soften the labor market shock and the impact on poverty.

Further progress in restoring livelihoods and making them more resilient could help Sri Lanka to continue its path of poverty reduction and shared prosperity. The current social protection system could support the reintegration of those who lost their jobs. In the medium term, social safety nets could be better targeted toward the poor and vulnerable, and adjusted to allow for support to be scaled up quickly and effectively in times of crises. Unequal opportunities to work from home have introduced new economic and spatial divides as working remotely is nearly exclusively an option for high income earners, and small and medium-sized enterprises were unlikely to adopt digital technologies.

In the medium to long-term, digital technologies could become an important engine for job growth. However, despite wide scale ownership of cellphones in Sri Lanka, the digital revolution will fall short of expectations without expansion of high-speed networks and accessible data on the whole island. Sri Lanka could provide new opportunities for economic mobility through policies that expand or universalize access to digital infrastructure.

Investments in digital literacy are a prerequisite for widely shared benefits from these new opportunities.

Growth should recover gradually in 2021. The economy is expected to grow by 3.4 per cent in 2021, from a low base, as vaccination programs progress in Sri Lanka and its major trading partners.

Already-signed investments into the Colombo Port City and Hambantota Industrial Zone and gradually normalizing domestic economic activities should provide an impetus to growth. However, the momentum of the recovery is expected to be constrained due to: (i) subdued export demand and tourism, as well as lower remittances growth amidst the sluggish global recovery; and (ii) the challenging domestic macroeconomic situation. Continued import restrictions and the high debt bur- den will adversely affect growth and poverty reduction over the medium-term. Inflationary pressure is expected to materialize in 2021-2023 due to the partial monetization of large fiscal deficits. External buffers are expected to remain low, with subdued financial inflows and significant financing needs. The current account deficit is projected to remain low in 2021, with strict import restrictions largely offsetting relatively low garment exports and tourism receipts.

Courtesy – Sri Lanka

Financial Chronicle

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Business

India–Sri Lanka Business Forum highlights new momentum in trade, investment and connectivity

Published

7 hours ago

2026/05/23

Thilina Walpola

Dignitaries at the India-Sri Lanka Business Forum

The Ceylon Chamber of Commerce, in partnership with the Confederation of Indian Industry (CII), organised the India–Sri Lanka Business Forum: Partnering in Sri Lanka’s Growth and Investment and the CII – Ceylon Chamber CEOs Interaction in Mumbai on 13 May 2026. The events brought together senior government representatives, industry leaders, policymakers, and business delegates from India and Sri Lanka to deepen economic engagement and explore new avenues for cooperation across priority sectors.

The discussions reflected growing optimism about India-Sri Lanka economic relations and focused on expanding collaboration in trade, investments, connectivity, tourism, renewable energy, logistics, digital transformation, infrastructure, healthcare, education, manufacturing, and technology.

Participants included Mahishini Colonne, High Commissioner of Sri Lanka to India; Duminda Hulangamuwa, Senior Economic Advisor to the President of Sri Lanka; Dr Rajesh Ravindra Gawande, Secretary (Protocol, FDI, Diaspora & Outreach) and Chief of Protocol, Government of Maharashtra; Ms Priyanga Wickramasinghe, Consul General of Sri Lanka in Mumbai; Krishan Balendra, Chairperson, The Ceylon Chamber of Commerce and Chairperson, John Keells Holdings PLC; Anurag Agarwal, Co-chairman, CII Western Region Sub-committee on International Trade & Investment and Chief Executive Officer, Polycab India Ltd; Vishal Kamat, Chairman, CII Western Region Sub-Committee on Tourism and Hospitality and Executive Director, Kamat Hotels India Ltd; Bingumal Thewarathanthti, Vice Chairperson of the Ceylon Chamber and CEO Standard Chartered Bank Sri Lanka, Vinod Hirdaramani – Deputy Vice Chairperson of the Ceylon Chamber and Chairman Hirdaramani Group, and Shiran Fernando, Secretary General & CEO of the Ceylon Chamber.

Welcoming the delegates, Anurag Agarwal, highlighted the growing momentum in India–Sri Lanka economic relations and the emergence of future-oriented sectors driving bilateral cooperation.

He noted that India and Sri Lanka are at an important phase of economic collaboration, where connectivity, investments, innovation, and sustainable partnerships are creating new opportunities for shared growth. He further emphasised the significant potential for deeper engagement in sectors such as renewable energy, tourism, ICT, logistics, digital services, healthcare, manufacturing, education, and infrastructure.

Business

Proposed oil palm expansion sparks economic and environmental debate

Published

7 hours ago

2026/05/23

Thilina Walpola

Withanage and Kariyawasam speaking to journalists

Move to reconsider the ban on oil palm cultivation has triggered a heated debate among environmentalists, economists and plantation sector stakeholders, with critics warning that replacing rubber plantations with oil palm could weaken one of the country’s most valuable export industries while exposing the nation to long-term environmental and trade risks.

Environmental groups argue that the issue is no longer purely ecological, but a major economic policy question with implications for exports, foreign exchange earnings, rural livelihoods and Sri Lanka’s standing in international markets.

Sri Lanka banned oil palm cultivation in April 2021 through Extraordinary Gazette No. 2222/13 issued by former President Gotabaya Rajapaksa, citing environmental degradation, biodiversity loss, soil erosion and threats to water resources.

However, plantation companies are now reportedly lobbying for the reversal of the ban, arguing that oil palm offers higher short-term commercial returns compared to traditional plantation crops.

Environmentalists and policy analysts, however, caution that the long-term economic costs could outweigh the immediate profits.

Hemantha Withanage of the Environmental Justice Centre said Sri Lanka risks undermining a globally competitive rubber industry in pursuit of a commodity that generates comparatively limited national value.

“Rubber remains one of Sri Lanka’s strongest industrial export sectors. Replacing rubber with oil palm would be economically shortsighted because the downstream rubber manufacturing industry generates far greater export earnings, employment and industrial value addition, he said.

Industry statistics reveal a worrying decline in the rubber sector over the past four decades. Rubber cultivation has fallen from 171,126 hectares in 1982 to around 84,000 hectares in 2024, while production has dropped from 133,200 metric tons in 1980 to approximately 69,185 metric tons last year.

Despite shrinking cultivation, the rubber sector continues to deliver significant export revenue. Sri Lanka earned nearly USD 994 million from rubber exports in 2024, while rubber-based manufactured products generated more than USD 2.5 billion in export income.

The country also imports over USD million worth of raw and processed rubber annually to sustain domestic manufacturing demand, highlighting the strategic importance of maintaining local rubber production.

Analysts warn that further reductions in rubber cultivation could increase import dependency, weaken industrial supply chains and place additional pressure on foreign exchange reserves.

By contrast, Sri Lanka’s palm oil sector contributes relatively little to export earnings. In 2025, Sri Lanka imported 38,210 metric tons of palm oil and 33,696 metric tons of coconut oil, while the value of palm oil imports in 2023 stood at approximately USD 23 million.

Critics argue that oil palm cultivation mainly benefits plantation-level profitability rather than the broader national economy.

Thilak Kariyawasam of FIAN Sri Lanka said the environmental externalities associated with oil palm could eventually translate into significant economic costs.

“The industry’s impact on water resources, soil quality and ecosystems creates hidden financial burdens for the country. Pollution control, water management and biodiversity losses all carry long-term economic consequences that are often ignored in short-term investment calculations, he said.

Environmental groups also raised concerns that Sri Lanka could face reputational risks in export markets if environmentally controversial plantation policies are pursued.

The European Union, one of Sri Lanka’s most important export destinations and the provider of GSP+ trade concessions, has tightened regulations linked to deforestation and environmental sustainability.

By Ifham Nizam

Business

Talawakelle Tea Estates achieves International Organic Certification for Great Western and Logie Teas

Published

7 hours ago

2026/05/23

Thilina Walpola

(Up) The Logie Estate, factory is dedicated exclusively to organic tea production. (Down) Great Western Estate, certified for organic tea production under EU, USDA, and JAS standards

Talawakelle Tea Estates PLC has secured internationally recognised organic certification. A member of the Hayleys Plantations Sector and one of Sri Lanka’s premier Regional Plantation Companies, this milestone enables the Company to market certified organic teas under its renowned Great Western and Logie garden marks.

The certification spans three major global standards: the EU Organic Regulation of the European Union, the National Organic Program (NOP-US) of the United States Department of Agriculture, and the Japanese Agricultural Standards (JAS) for organic products. With this achievement, Talawakelle Tea Estates is now positioned to supply premium organic teas to international markets that demand the highest standards of certification, traceability, and product integrity.

“We are proud to reach this significant milestone after more than four years of dedicated effort to build a fully compliant organic cultivation and processing system that meets stringent international standards. This achievement shows the strength of our partnerships with the Tea Research Institute (TRI) and internationally qualified consultants and, most importantly, the commitment and collaboration of our estate and corporate teams. Together, we have established a robust and sustainable organic management framework that will support our long-term vision.” Talawakelle Tea Estates, Director / CEO, Nishantha Abeysinghe added.

To ensure consistent compliance with international standards, Talawakelle Tea Estates appointed dedicated full-time personnel from its estate teams and corporate sustainability division to oversee and manage every stage of the organic value chain – from cultivation to final manufacture.

The Company has also developed an end-to-end organic cultivation and processing management system covering the full value chain – from field-level practices to final manufacture – ensuring a structured and carefully monitored approach to organic tea production.

To safeguard product integrity and eliminate the risk of cross-contamination with conventional teas, the Company has designated low-risk fields exclusively for organic cultivation and dedicated the Logie factory entirely to organic tea production, minimising the risk of cross-contamination.

Following a series of rigorous audits, Talawakelle Tea Estates has secured full certification and is now set to launch its certified organic tea range globally under the prestigious Great Western and Logie garden marks names bringing together heritage and sustainability.

This achievement marks an important step in the Company’s broader journey to build a more sustainable, nature-based product portfolio in response to growing global demand. By combining strong garden identities with internationally recognised organic standards, Talawakelle Tea Estates continues to strengthen its position in the premium tea segment.