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Budget to allocate Rs. 1.35 trillion as government investment capital expenditure – President

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President Anura Kumara Disanayake stated that the upcoming budget is expected to allocate Rs. 1.35 trillion as government investment capital expenditure, marking the highest amount spent on capital expenditure by a government in recent times.

The President made this statement while addressing the Sri Lanka Economic Summit 2025 held on Tuesday (28) at Shangri-La Hotel, Colombo.

The Sri Lanka Economic Summit 2025, organized by the Ceylon Chamber of Commerce, under the theme “Shaping Sri Lanka’s Future: Transformational Growth Rooted in Sound Economic Policies” aims to prepare Sri Lanka for a transformative shift in South Asia, built on political stability, debt restructuring, and improving sovereign credit ratings. Additionally, the summit envisions achieving overall economic growth in 2025, ensuring the nation’s readiness for a brighter and more stable future.

During his address, President Disanayake further stated that the government anticipates an economic growth rate exceeding 4% this year. He also noted that achieving this target would require providing the necessary facilities to attract and sustain foreign direct investments.

President Disanayake elaborated on the importance of creating an environment conducive to investment and highlighted the critical role of stable economic policies in driving Sri Lanka’s progress.

“We represent a political movement that has not previously held power. If there were doubts about us among business groups, investors, and certain members of the international community, we have been able to dispel those concerns and build confidence in the government’s plans and future direction. This achievement over the past two months is a significant milestone for us.

The government anticipates an economic growth rate exceeding 4% this year. While this is a challenging target in the face of recent economic downturns, we view it as an achievable challenge. We are prioritizing several key sectors to ensure success in this endeavour.

Notably, the upcoming budget plans to allocate Rs. 1.35 trillion for capital expenditure in government investments. This will mark the largest allocation for capital expenditure by any government in recent times.

In the past, due to inefficiencies, previous governments failed to fully utilize such allocations, with only 75% to 80% of the funds being spent. However, we are establishing the necessary mechanisms to ensure that the entire allocation is effectively utilized for its intended purposes.

We recently held an in-depth discussion with Ministry Secretaries and government officials from institutions related to investments. During this meeting, it was revealed that securing approval for an investment in Sri Lanka requires clearance from 82 different institutions. According to the report, obtaining these approvals currently takes over two and a half years.

For environmental approvals alone, there are 11 institutions involved, and the process takes approximately 269 days. In practical terms, this exceeds two years. The government plans to reduce this timeline to less than 82 days.

Similarly, an investment project requires approvals from eight additional institutions, which currently takes around 184 weeks. We aim to reduce this to 102 days.

For evaluating and making decisions on a project, the Board of Investment (BOI) currently takes around 80 days. Our goal is to streamline this process to less than two weeks.

If we expect a higher rate of economic growth, we must ensure that all necessary facilities and processes for attracting foreign direct investment are efficient and investor-friendly.

We also have a significant opportunity to achieve rapid growth in the tourism sector. This year, we aim to attract over 03 million tourists to Sri Lanka.

In addition, there is potential for substantial growth in the information technology and maritime sectors. Operations at the Western Terminal are set to commence this March, and by July, operations at the Eastern Terminal are expected to begin. This will contribute to notable economic progress in the maritime sector. We have identified several key sectors that must be prioritized to achieve our desired economic growth, and we are confident in our ability to meet these goals.

We have also reached an agreement regarding the Sampur Power Plant and are preparing to quickly initiate operations at the supply hub, which has been stalled for a long time at the port. Furthermore, several projects under the BOI have been delayed, and we are actively working to expedite approvals and permits needed to move these projects forward efficiently.

Additionally, we are in discussions with India and China regarding major projects, which we believe will bring in a significant volume of foreign investment. With this confidence, we are moving forward to attract these investments to Sri Lanka.

Previous governments have failed to attract investments effectively, and the Board of Investment (BOI) has not operated efficiently. To address these issues, a new structure has been proposed through the Economic Transformation Act. However, this Act currently lacks a comprehensive implementation mechanism. The present government intends to move forward with the Act, incorporating necessary amendments.

In the past, decisions made by political authorities faced resistance when implementing those decisions by the state mechanism. The state mechanism always assumed that political authority was trying to enforce hidden agendas. However, we have now proven that there are no concealed motives within political authority. Therefore, we believe the state mechanism will cooperate with us. In this process, even the state mechanism’s attitudes must change. If decisions are not made within a specified timeframe, the expected outcomes cannot be achieved. Digital transformation is essential—not only to improve efficiency and convenience but also to elevate the country to a new level. Therefore, digitizing government services is a priority at this stage. The implementation of a Electronic National Identity Card, despite previous misconceptions, presents an opportunity to create a globally relevant identity system. The Indian government has already pledged Rs. 10 billion to support this initiative.

It is clear that a new administrative framework is needed. The existing state administration has proven to be ineffective and corrupt. Additionally, accessing public services comes with a significant financial burden. Some institutions no longer serve a necessary function. While they may have been established to meet past needs, there is currently no proper plan to utilize them effectively. There are multiple state institutions operating within the same sector, which leads to inefficiency. Therefore, these institutions must be consolidated to ensure better management and resource allocation.

Around 90% of Sri Lanka’s export revenue is generated by just a few organizations. Similarly, 69% of customs revenue comes from only 621 files. Furthermore, while the Western Province contributes 37% to the national economy, the Uva Province contributes only 5%. Concentrating the economy in the hands of small groups will not allow for sustainable economic expansion.

The “Aswesuma” program benefits 1.8 million individuals, but there are still more groups that require support. To eliminate rural poverty, it is essential to create new economic opportunities. The current government aims to introduce new sources of economic growth at the village level. When this happens, economic benefits will flow to rural areas, and by increasing the productivity and capacity of the people, rural poverty can be alleviated.

Until now, Sri Lanka’s approach has largely been focused on providing aid to individuals. For example, targeting a single person by giving them a cow or a few chickens as assistance. If such methods had been effective, Sri Lanka would now have numerous large-scale farms. Recognizing this limitation, the government is now planning to empower communities by creating new economic opportunities that focus on sustainable growth.

Within the framework of the International Monetary Fund’s (IMF) criteria, the government is strengthening support programs for those in genuine need. A targeted plan is also in place to stimulate financial growth. Previously, welfare mechanisms in Sri Lanka were heavily politicized. The current administration has ended this practice and established a system to ensure that aid reaches only those who genuinely need it.

Although the term “free market” is often used, the global market is not entirely free. It is divided into different segments, and the government is working to secure a share for our country in this fragmented global market. One of the key strategies being studied is expanding into the global market by leveraging our proximity to India, which is one of our closest markets. The government is reviewing the previous trade agreement with India, considering its advantages and disadvantages, and aims to establish a new trade agreement to better position Sri Lanka in the global market.

The world doesn’t stop based on statements. Currently, declarations made by the United States may lead to conflicting or alarming situations, but the world continues to move forward despite such statements.

To build the country, we must all unite. Providing government services comes at a significant cost. The government workforce stands at 1.3 million, and while there is an excess of lower-level employees, there is a substantial shortage of mid-level staff. If exams were conducted, even individuals employed in the private sector would be interested in government positions. Therefore, a dialogue is needed to transform the private sector into an attractive place of employment as well.

In 1991, the government provided companies with certain benefits, but even after 32 years, a plantation worker still doesn’t earn more than Rs.1,700 daily. This raises questions about the success of those companies. Recently, customs officials opened containers that had been brought in illegally. However, there was no one present to claim responsibility for them. Upon inspection, the containers were found to have labels from a well-known company. This highlights the need for a shift in public perception. While we have introduced good governance practices, the country cannot move forward without a fundamental transformation in mind-set.”

 

Minister of Labour and Deputy Minister Economic Development Dr. Anil Jayanth Fernando, Central Bank Governor Dr. Nandalal Weerasinghe, Deputy Minister of Industries and Entrepreneurship Development Chathuranga Abeysinghe, and Senior Presidential Advisor on Economic Affairs Duminda Hulangamuwa, along with officials from Ceylon Chamber of Commerce, participated in this event.

[PMD]



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Domestic microfinance conditions strengthen in 2025

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Domestic macrofinancial conditions strengthened further in 2025, supporting continued credit expansion, although external vulnerabilities remained a concern. Credit growth accelerated markedly, with total credit extended by banks and Finance Companies (FCs) rising by end-2025. The financial sector’s exposure shifted further toward the private sector, driven by strong private sector credit growth, while exposure to the public sector contracted reflecting ongoing fiscal consolidation.

Despite the decline, government-related exposure remains sizeable. Financial intermediation improved, as reflected by the continued rise in the banking sector’s credit-to-deposits ratio. However, the credit-to-GDP gap widened further into the positive territory of the credit cycle, underscoring the importance of maintaining vigilance over the potential build-up of systemic risk within the financial sector. Global uncertainties, including geopolitical conflict in the Middle East, volatility in commodity prices, and adverse weather conditions, could pose downside risks to credit quality of the financial sector. Against this backdrop, sustained fiscal consolidation and the strengthening of external sector buffers will remain essential to safeguarding macrofinancial stability.

Credit growth in the banking sector accelerated significantly by end-2025, supported by accommodative monetary policy, improved macroeconomic conditions, and strong credit demand. Gross loans and receivables expanded by 21.4% year-on-year, a substantial increase compared to the 4.1% growth recorded at end-2024. This expansion was broad-based, driven by multiple economic sectors including financial services, trade, consumption, lending to overseas entities, construction, and manufacturing. A notable development was the sharp rise in outstanding credit to the financial services sector, which grew by 148.0% year-on-year, reflecting increased funding requirements of the FCs sector amid heightened credit demand. Alongside this expansion, the quality of loan portfolios improved, with the stage 3 loans ratio declining to 9.7% at end-2025 from 12.3% at end-2024, marking the first return to single digits since the second quarter of 2022.

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SMEs reel under global shockwaves as US-Iran tensions threaten fragile recovery

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A local enterprise in operation.

Sri Lanka’s small and medium enterprise (SME) sector, already grappling with post-crisis fragility, is facing a fresh wave of uncertainty as escalating tensions linked to a US-led conflict involving Iran begin to ripple through the global economy.

Industry analysts warn that the fallout—primarily driven by rising global oil prices, supply chain disruptions, and currency pressures—could severely strain the backbone of Sri Lanka’s domestic economy.

Energy sector experts say the most immediate impact is being felt through fuel price volatility. With Sri Lanka heavily dependent on imported petroleum, any disruption in Middle Eastern oil flows has a direct bearing on local costs.

“Even a marginal increase in global crude prices translates into a significant burden for Sri Lanka,” an energy sector analyst said. “For SMEs, this is critical because energy and transport costs form a large share of their operating expenses.”

Small-scale manufacturers, transport operators, and food producers are among the hardest hit. Rising diesel and petrol prices have already pushed up distribution costs, while electricity tariffs are expected to come under pressure if the crisis persists.

Economists also point to the risk of renewed instability in the power sector. Higher fuel costs could increase generation expenses, potentially leading to tariff hikes or supply constraints—both of which disproportionately affect smaller businesses.

“SMEs do not have the financial buffers that larger corporates possess,” an economist noted. “Any disruption in power supply or sudden increase in tariffs directly erodes their profitability.”

Meanwhile, inflationary pressures are beginning to dampen consumer demand. As the cost of living rises, households are cutting back on discretionary spending—dealing a blow to retailers, small restaurants, and service providers.

“Demand contraction is a silent killer for SMEs,” a market analyst explained. “When consumers tighten their belts, it is the small businesses that feel it first and most severely.”

Compounding the situation are disruptions in global shipping and logistics. Heightened tensions in key maritime routes have led to increased freight charges and delays, affecting import-dependent industries.

Construction-related SMEs and small manufacturers reliant on imported raw materials are particularly vulnerable, with many reporting rising input costs and uncertain delivery timelines.

At the same time, pressure on the Sri Lankan rupee is adding to the strain. Global uncertainty has strengthened the US dollar, making imports more expensive and increasing the cost of servicing foreign currency-denominated loans.

“Currency depreciation is a double blow,” an economic policy expert said. “It raises input costs while also tightening liquidity conditions for businesses.”

Tourism, another critical sector supporting thousands of SMEs, is also at risk. Any escalation in Middle Eastern tensions tends to undermine global travel confidence, potentially slowing arrivals to Sri Lanka.

By Ifham Nizam

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Automobile Association of Ceylon joins Asia-Pacific road safety leaders in Manila

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The Federation Internationale de [Automobile (FIA), the global governing body for motor sport and the federation for mobility organisations worldwide, together with FIA Region II (Asia-Pacific) and the Automobile Association Philippines (AAP), hosted road safety leaders from across Asia-Pacific in Manila the second seminar of the FIA Safe Mobility 4 All & 4 Life programme.

According to the World Health Organization, road traffic injuries remain a major challenge across Asia-Pacific, with the South-East Asia and Western Pacific regions accounting for more than half of global road traffic fatalities,’ highlighting the urgent need for coordinated action.

Developed by the FIA, in collaboration with the United Nations Institute for Training and Research (UNITAR) and with the support of the FIA Foundation, the FIA Safe Mobility 4 All and 4 Life programme aims to support local authorities and organisations with training, mentorship, and evidence-based actions to improve road safety for all users.

Delivered through a mix of in-person seminars, online learning and mentorship, this FIA University initiative brings FIA Member Clubs and government authorities together to build capacity, learn side by side, and develop practical road safety projects that drive meaningful change with guidance from international experts.

Sessions explored how youth engagement, urban development and innovation support the Sustainable Development Goals and the Decade of Action for Road Safety, while encouraging participants to apply data-driven strategies and share knowledge and expertise across the FIA network.

Delegates from 16 FIA Region II (Asia-Pacific) Member Clubs and government representatives from across 15 countries in the region took part in the seminar, including Australia, Bangladesh, Cambodia, India, Indonesia, Japan, Kyrgyzstan, Mongolia, Nepal, the Philippines, Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam.

Devapriya Hettiarachchi, Secretary, Automobile Association of Ceylon invited K Chandrakumara, Deputy Director /General (IRSTM), Road Development Authority (RDA) to take part in the programme, highlighting the strengthened partnership between the Club and the Philippine government to launch initiatives aimed at saving lives on the road.

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