Business
Charting Sri Lanka’s economic future: Current challenges and strategies for resilient growth
By Rasith Wickremasinghe COYLE Chairman
The Sri Lankan economy currently grapples with the significant challenges presented by a complex financial situation unfolding in unprecedented ways. As the country tackles the intricacies of this economic turmoil to overcome fiscal obstacles, there is a prevailing sense of concern among the populace. Against this backdrop, the nation contends with politically motivated decision-making that bears the marks of a presidential election at the end of 2024.
Despite these existing realities, we remain optimistic about the rising potential through collective efforts and shared objectives driven by the nation’s private sector, aiming to revitalize the economy. In the present circumstances, positive indicators emerge as macroeconomic policy reforms start showing concrete outcomes, signalling a promising phase of stabilization in Sri Lanka’s economic landscape. Nonetheless, the path to recovery and inclusive growth relies on maintaining the ongoing momentum of these reforms.
Looking at the recent upgrade of Sri Lanka’s local currency rating from selective default (SD) to CCC+/C by S&P Global Ratings, there is a reflection of a more optimistic view of the country’s solvency. This upgrade follows the finalization of a domestic debt restructure, including collaboration with superannuation funds (EPF/ETF) and the Central Bank. https://www.fitchratings.com/research/sovereigns/fitch-upgrades-sri-lanka-long-term-local-currency-idr-to-ccc-28-09-2023
The completion of the first IMF review under the 48-month Extended Fund Facility marks a significant milestone, unlocking access to SDR 254 million (about US$337 million) to support the country’s economic policies and reforms. Notably, Sri Lanka’s performance under the program has been deemed satisfactory, with the majority of performance criteria and indicative targets met by the end of June.
The publication of the Governance Diagnostic Report showcases a pioneering step, positioning Sri Lanka as the first country in Asia to undergo this IMF exercise. The commendable progress made by the authorities in restoring debt sustainability, raising revenue, and ensuring financial stability reflects a positive trajectory. Moving forward, a strong commitment to improving governance and protecting the welfare of the vulnerable will be crucial, laying the foundation for a resilient and prosperous economic future.
Examining Sri Lanka’s net general government debt, which currently exceeds 100% of GDP and is projected to persist until at least 2028, there are challenges ahead. Addressing concerns about long-term sustainability, potential positive shifts can be driven by factors such as nominal GDP growth, successful fiscal consolidation, increased revenue generation, current interest rates, and the positive impacts of future restructuring efforts. By navigating these aspects effectively, Sri Lanka has the potential to enhance its fiscal outlook and achieve more favourable outcomes in the coming years. https://www.fitchratings.com/research/sovereigns/fitch-upgrades-sri-lanka-long-term-local-currency-idr-to-ccc-28-09-2023
It’s noteworthy that Sri Lanka’s Budget for 2024 presents ambitious targets, though they pose challenges, particularly with the projected wider fiscal deficit of 9.1% of GDP. The government’s focus on achieving a primary surplus, excluding bank recapitalization, aligns with the IMF’s projections. However, the expenditure target of 22.2% of GDP exceeds the IMF’s envisioned 19.7%. While this discrepancy may raise questions, it also reflects a commitment to ambitious goals, and successful implementation could enhance the budget’s long-term viability and effectiveness. https://island.lk/sri-lankas-ambitious-budget-agenda-faces-high-implementation-risks-fitch-ratings/
Fitch Ratings has already expressed concerns about the government’s plan to reach its revenue target by 2024. Sri Lanka has a history of not meeting fiscal goals, with revenue collection falling short by 29% in the first nine months of 2023. Recently, the government has planned a revenue increase of nearly 45% in 2024, with a confirmed 3-percentage-point rise in the value-added tax to 18%.
We believe as far as tax revenue is concerned, widening the tax net or the number of taxpayers in the country is more critical than raising the percentage values. Only as little as 2.6% of Sri Lanka’s total workforce of 4.64 million is subjected to the PAYE income tax. Nearly half of the labour force receives less than Rs.30,000 monthly salary, while 3.91 million families, out of 5.8 million families, are seeking state assistance to continue their livelihoods. In 2021, there were about 105,000 registered companies, and 60,721 had income tax files, from which 82 per cent of the corporate income taxes were paid by 342 companies. https://economynext.com/sri-lanka-only-has-137-persons-who-paid-income-taxes-of-rs5mn-or-more-legislator-100108/#:~:text=Sri%20Lanka%20in%202021%20had,were%20paid%20by%20342%20companies
What baffles us mostly is the number of tax files reported by the inland revenue which is recorded to be only 500,000 as per the Commissioner Association Inland Revenue department. https://www.newsfirst.lk/2023/07/27/tott-only-500-000-tax-files-in-sri-lanka-president-commissioner-association-27-07-2023/ . If the recorded number of tax files is only 500,000 out of the 5.8 Million families in Sri Lanka, we must ask the question of what has happened to the rest of the taxpayers.
Several businesses in Sri Lanka, whether small, medium, or large, conduct their transactions mainly through cash. Despite how much they earn, there can be several loopholes they can harness for tax evasion. Even though it is apparent in many ways, there is little to no step taken forward to curb the issue owing to political gains or the mass displeasures that could arise curbing the future of many political affiliates in the decision-making process.
Concurrently, the growing wealth gap between the affluent and less privileged segments of the population is reaching alarming levels, compelling numerous skilled professionals to seek better opportunities abroad.
It’s not just the taxation system; the government’s inability to overhaul unprofitable state-owned enterprises (SOEs) adds to the discontent. The weight of these financially struggling entities falls disproportionately on a limited number of taxpayers, causing widespread chaos that ripples through the entire system. This, in turn, has a cascading impact on the economy and Sri Lankan society. An aspect often overlooked by many governing parties owing to their political future. Given that a significant portion of those affected by these restructuring efforts comprises a substantial voter base and influential circles in the country, there appears to be a reluctance among decision-makers to take the necessary corrective actions.
One of the contributing factors for the IMF to provide the second tranche was the promise to reduce the commercial bank interest rates to single digits, which is yet to be done. Even though the president and the CBSL have requested the above, several parties have been insensitive about the situation and requests. As COYLE, we emphasize the importance of expanding the tax potential net and then further tracking the registered yet inactive member mass. However, we can observe, that the government is now distracted to a path more concerned with securing votes for the upcoming elections as opposed to the earlier economic revival path, which has diminished its momentum from the critical pace of decision-making on SOE restructuring.
This will bring us to COYLE’s point of view on how we can set further to solve the foreign currency deficit by adopting different and dynamic strategies. At COYLE, we believe Sri Lanka must look at foreign direct investments with changing state policy decisions to have a more attractive and investor-friendly outlook to attract numerous investors from booming industries. We urge the Parliamentary Select Committee on Ease of Doing Business to reactivate and pursue proactive steps towards ensuring FDIs are secure in the country without further delay.
Global stocks have sunk, a day after President Donald Trump announced sweeping new tariffs that are forecast to raise prices and weigh on growth in the US and abroad.
Stock markets in the Asia-Pacific region fell for a second day, hot on the heels of the US S&P 500, which had its worst day since Covid crashed the economy in 2020.
Nike, Apple and Target were among big consumer names worst hit, all of them sinking by more than 9%.
At the White House, Trump told reporters the US economy would “boom” thanks to the minimum 10% tariff he plans to slap on imports in the hope of boosting federal revenues and bringing American manufacturing home.
The Republican president plans to hit products from dozens of other countries with far higher levies, including trade partners such as China and the European Union. China, which is facing an aggregate 54% tariff, and the EU, which faces duties of 20%, both vowed retaliation on Thursday.
Tariffs are taxes on goods imported from other countries, and Trump’s plan that he announced on Wednesday would hike such duties to some of the highest levels in more than 100 years.
The World Trade Organization said it was “deeply concerned”, estimating trade volumes could shrink as a result by 1% this year.
Traders expressed concern that the tariffs could stoke inflation and stall growth.
In early trading on Friday, Japan’s benchmark Nikkei 225 index fell by 1.8%, the Kospi in South Korea was around 1% lower and Australia’s ASX 200 dipped by 1.4%.
On Thursday, the S&P 500 – which tracks 500 of the biggest American firms – plunged 4.8%, shedding roughly $2tn in value.
The Dow Jones closed about 4% lower, while the Nasdaq tumbled roughly 6%. The US shares sell-off has been going on since mid-February amid trade war fears.
Earlier, the UK’s FTSE 100 share index dropped 1.5% and other European markets also fell, echoing declines from Japan to Hong Kong.
On Thursday at the White House, Trump doubled down on a high-stakes gambit aimed at reversing decades of US-led liberalisation that shaped the global trade order.
“I think it’s going very well,” he said. “It was an operation like when a patient gets operated on, and it’s a big thing. I said this would exactly be the way it is.”
He added: “The markets are going to boom. The stock is going to boom. The country is going to boom.”
Trump also said he was open to negotiating with trade partners on the tariffs “if somebody said we’re going to give you something that’s so phenomenal”.
On Thursday, Canada’s Prime Minister Mark Carney said that country would retaliate with a 25% levy on vehicles imported from the US.
Trump last month imposed tariffs of 25% on Canada and Mexico, though he did not announce any new duties on Wednesday against the North American trade partners.
Firms now face a choice of swallowing the tariff cost, working with partners to share that burden, or passing it on to consumers – and risking a drop in sales.
That could have a major impact as US consumer spending amounts to about 10% – 15% of the world economy, according to some estimates.
While stocks fell on Thursday, the price of gold, which is seen as a safer asset in times of turbulence, touched a record high of $3,167.57 an ounce at one point on Thursday, before falling back.
The dollar also weakened against many other currencies.
In Europe, the tariffs could drag down growth by nearly a percentage point, with a further hit if the bloc retaliates, according to analysts at Principal Asset Management.
In the US, a recession is likely to materialise without other changes, such as big tax cuts, which Trump has also promised, warned Seema Shah, chief global strategist at the firm.
She said Trump’s goals of boosting manufacturing would be a years-long process “if it happens at all”.
“In the meantime, the steep tariffs on imports are likely to be an immediate drag on the economy, with limited short-term benefit,” she said.
On Thursday, Stellantis, which makes Jeep, Fiat and other brands, said it was temporarily halting production at a factory in Toluca, Mexico and Windsor, Canada.
It said the move, a response to Trump’s 25% tax on car imports, would also lead to temporary layoffs of 900 people at five plants in the US that supply those factories.
On the stock market, Nike, which makes much of its sportswear in Asia, was among the hardest hit on the S&P, with shares down 14%.
Shares in Apple, which relies heavily on China and Taiwan, tumbled 9%.
Other retailers also fell, with Target down roughly 10%.
Motorbike maker Harley-Davidson – which was subject of retaliatory tariffs by the EU during Trump’s first term as president – fell 10%.
In Europe, shares in sportswear firm Adidas fell more than 10%, while stocks in rival Puma tumbled more than 9%.
Among luxury goods firms, jewellery maker Pandora fell more than 10%, and LVMH (Louis Vuitton Moet Hennessy) dropped more than 3% after tariffs were imposed on the European Union and Switzerland.
“You’re seeing retailers get destroyed right now because tariffs extended to countries we did not expect,” said Jay Woods, chief global strategy at Freedom Capital Markets, adding that he expected more turbulence ahead.
[BBC]
The long-anticipated Sampur solar energy project is finally set to break ground, marking a significant leap in Sri Lanka’s renewable energy ambitions. After years of delays and negotiations, the Power Purchase Agreement (PPA) for the Surya Danavi 120 MW Solar Farm in Santhosapuram, Trincomalee District, was officially signed on April 1st between the National Thermal Power Corporation of India (NTPC) and the Ceylon Electricity Board (CEB).
This initiative, spearheaded by Trincomalee Power Company Limited (TPCL), a 50:50 joint venture between NTPC and CEB, is expected to be a game-changer in the country’s energy landscape.
The project will be implemented in two phases. Phase 1 involves the installation of a 50 MW solar plant along with the construction of 37 km of 220 kV transmission lines connecting Sampur to Kappalthurai. In Phase 2, an additional 70 MW capacity will be added, complemented by 77 km of transmission lines extending from Kappalthurai to New Habarana.
President Anura Kumara Dissanayake played a crucial role in renegotiating the unit tariff to 5.97 US Cents, which includes a battery storage system to mitigate fluctuations in solar power generation.
According to Ministry of Energy Director General Eng. Pubudu Niroshan Hedigallage, this project is a testament to Sri Lanka’s commitment to renewable energy and energy security.
“For years, Sampur has been at the center of numerous energy debates. This project not only signifies the shift from fossil fuels to cleaner alternatives but also strengthens our grid resilience. The inclusion of battery storage makes this project particularly promising, said Hedigallage.
He further emphasized the importance of strategic partnerships in achieving energy sustainability. “Collaborations like the one between NTPC and CEB show the potential of cross-border energy projects. With India’s vast experience in solar energy, Sri Lanka can benefit immensely in terms of both technology transfer and cost efficiency.”
The Sampur region has long been embroiled in energy-related controversies. Previously earmarked for a coal power plant, the area saw fierce opposition from environmental activists and policy shifts that led to its cancellation. The transition from coal to solar in Sampur is seen as a redemption of sorts, aligning with global climate goals and Sri Lanka’s own commitment to increasing renewable energy in its power mix.
by Ifham Nizam
SriLankan Airlines is amplifying its commitment to nurturing Sri Lanka’s performing arts scene, leveraging classical Western music and homegrown talent to position the island as a hub for culturally discerning travelers.
The national carrier partnered with the Gustav Mahler Society of Colombo (GMSC) to support the 2025 Spring Concert at Colombo’s Lionel Wendt Theatre on March 29.
The event showcased Sri Lankan classical guitarist Jude Peiris alongside Japanese artists Hiroshi Kogure (violin) and Miyuki Funatsu (soprano), blending local and global artistry. This marks the airline’s sixth collaboration with GMSC, reinforcing its three-year role as the society’s Official Airline Partner.
Dimuthu Tennakoon, Head of Commercial at SriLankan Airlines, emphasised the strategic value of performing arts saying: “World-class cultural productions can transform Sri Lanka into a magnet for travelers seeking immersive experiences. By honing local talent, we unlock immense potential in the growing cultural tourism sector.”
Deepal Perera, Manager of Corporate Communications, highlighted the airline’s dual role: “We’re not just bridging geographies—we’re fostering global exchanges of music and tradition. Sri Lankan artists deserve platforms to shine internationally, and partnerships like this propel them forward.”
GMSC’s Music Director, Srimal Weerasinghe, praised the airline’s impact: “SriLankan Airlines has been instrumental in developing Western classical music here, sponsoring visiting professionals and helping build Sri Lanka’s first professional orchestra. Their support has elevated our global reputation.”
Beyond GMSC, SriLankan Airlines continues to partner with local arts groups and diplomatic missions, cementing its role as a cultural ambassador.
By Sanath Nanayakkare
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