Business

Charting Sri Lanka’s economic future: Current challenges and strategies for resilient growth

Published

3 years ago

2023/12/27

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.

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IMF talks conclude without staff-level agreement as Sri Lanka prepares November Budget

Published

8 hours ago

2026/09/24

Sahan Weerasooriya

Fund says discussions will continue on policies and parameters needed to complete the Seventh Review

By Sanath Nanayakkare

Sri Lanka’s latest talks with the International Monetary Fund (IMF) have concluded without a staff-level agreement on the policies and parameters required to complete the Seventh Review of its Extended Fund Facility (EFF), leaving further discussions ahead as the government prepares its next Budget.

An IMF team led by Mission Chief Evan Papageorgiou visited Sri Lanka from September 10 to 23 for discussions on the Seventh Review and the 2026 Article IV Consultation.

The Fund said the discussions with Sri Lankan authorities had been productive, but would continue in the near term towards reaching agreement on the parameters and policies needed to complete the Seventh Review.

The outcome therefore represents a delay in reaching the formal staff-level milestone rather than a breakdown in negotiations.

The latest mission comes as Sri Lanka moves from economic stabilisation towards longer-term structural transformation, while continuing to face external shocks and domestic fiscal pressures.

The IMF said economic activity expanded by 4.2 percent in the second quarter of 2026, marking the 11th consecutive quarter of growth. At the same time, the Fund cautioned that downside risks remained, particularly amid an uncertain external environment.

Gross official reserves had risen to US$6.9 billion by the end of August, while the banking sector remained well capitalised and profitable, providing some buffers against external pressures.

A major focus of the IMF’s latest assessment was Sri Lanka’s revenue position.

The Fund said developing and implementing a strong medium-term revenue strategy would be critical to sustaining revenue mobilisation and strengthening fiscal resilience.

It stressed the need to broaden the tax base, rationalise tax exemptions and incentives, and strengthen revenue administration and compliance.

The IMF also emphasised the importance of maintaining cost-recovery energy pricing and improving the efficiency and fairness of the tax system in order to reduce fiscal vulnerabilities.

These issues assume particular significance as the government prepares its next Budget, with the authorities seeking to balance revenue mobilisation and fiscal consolidation against the need to sustain economic recovery.

The Fund’s latest position does not indicate that negotiations have broken down. Rather, the IMF has said that discussions will continue towards reaching agreement on the remaining policies and parameters required to conclude the Seventh Review.

The latest talks follow the combined Fifth and Sixth Reviews, for which IMF staff and Sri Lankan authorities reached a staff-level agreement in April, subject to completion of the remaining requirements before consideration by the IMF Executive Board.

For Sri Lanka, the immediate challenge is therefore to preserve the gains made in macroeconomic stabilisation while addressing the remaining issues under the IMF programme and preparing a Budget capable of supporting longer-term fiscal and economic resilience.

With further discussions expected in the near term, the Seventh Review remains a work in progress as Sri Lanka enters another critical stage of its economic reform programme.

Notably, the IMF has yet to publicly specify the outstanding issues that remain to be resolved.

Business

UK digital expertise and Sri Lankan business leaders unite to explore growth through technology

Published

8 hours ago

2026/09/24

Sahan Weerasooriya

British High Commissioner Andrew Patrick

British High Commissioner Andrew Patrick hosted UK digital product consultancy Apadmi at Westminster House, his official residence in Colombo, for an invite-only forum bringing together senior business leaders from across Sri Lanka’s retail, banking, telecommunications, hospitality and public sectors.

The event, “Turning Digital Assets into Growth Engines”, marked Apadmi’s first official event in Sri Lanka since establishing its Colombo office in 2025, and was delivered in partnership with the British High Commission as part of ongoing efforts to strengthen UK and Sri Lanka commercial and technology ties.

Guests were welcomed by High Commissioner Andrew Patrick, followed by a keynote from Niresh Muthuratnanandan, Head of Omni Commerce, Digital & Loyalty at Keells Supermarkets, who spoke about the launch of the Keells Nexus app and the modernisation of a loyalty programme serving 2.9 million members.

A panel discussion followed, hosted by Mark Collin, Chief Growth Officer at Apadmi, and featuring Malik Induruwana, Chief Information Officer at HSBC Sri Lanka & Maldives; Jiffry Zulfer, Founder and CEO of PickMe; Uthpala Pinnaduwahewa of Hatton National Bank; and Marcus Hadfield, Chief Strategy Officer at Apadmi.

The discussion centred on the commercial opportunity created by Sri Lanka’s rapid mobile adoption. According to [source], mobile data usage in the country reached 1.03 million terabytes in Q2 2026, a 31% increase year on year, against 29.4 million mobile subscriptions. With 71% of devices now smartphones or tablets, speakers discussed how Sri Lankan businesses could convert growing digital engagement into customer loyalty, new revenue and operational efficiency.

British High Commissioner Andrew Patrick said:

“It was a pleasure to welcome Apadmi and such a strong group of business leaders to Westminster House for this event. The UK and Sri Lanka have a longstanding partnership, and digital innovation is an increasingly important part of that relationship. Apadmi’s decision to establish a base in Colombo reflects the confidence that UK companies have in Sri Lanka’s digital economy, and I look forward to seeing this partnership continue to grow to the benefit of both our countries.”

Mark Collin, Chief Growth Officer at Apadmi, said:

“Being hosted by the British High Commission was a real privilege, and a fitting way to mark the next stage of our commitment to Sri Lanka. To bring leaders from Keells, HSBC, PickMe and Hatton National Bank into the same room says a great deal about the ambition here. We opened our Colombo office because we believe Sri Lanka is at a genuine turning point; the talent is exceptional, and we are proud to be building here for the long term.”

Business

Planters’ Association Chairman proposes 5-point plan for industry revival at 172nd AGM

Published

8 hours ago

2026/09/24

Sahan Weerasooriya

Seated from left to right: newly elected Deputy Chairman of the Planters’ Association of Ceylon (PAC), Binesh Pananwala; Secretary General, Lalith Obeyesekere; newly elected Chairman, Shanaka Samaradiwakara; Governor of the Central Bank of Sri Lanka, Dr. Nandalal Weerasinghe; and Chairman of the Sri Lanka Tea Board, Raj Obeyesekere.

Malwatte Valley Plantations PLC Director / CEO, Shanaka Samaradiwakara was appointed as Chairman of the Planters’ Association of Ceylon (PAC), while Kahawatte Plantations PLC Director / CEO Binesh Pananwala, was appointed as Deputy Chairman at the Association’s 172nd Annual General Meeting (AGM) on 19 September at the Cinnamon Grand.

The event was graced by Central Bank of Sri Lanka Governor, Dr. Nandalal Weerasinghe and Sri Lanka Tea Board Chairman, Raj Obeyesekere as Chief Guest and Guest of Honour respectively.

In his inaugural address, Samaradiwakara outlined a five-point vision for the plantation sector, focusing on value addition, research and development, land-use and productivity, irrigation and long-term security of tenure. He emphasised that the future of commercial agriculture in Sri Lanka would hinge on how effectively all industry stakeholders could work together, while maintaining clear understanding of the ground realities faced by producers.

Value-added tea accounted for more than 50% of total tea export volumes in 2025. Samaradiwakara noted Regional Plantation Companies (RPCs) have accounted for the majority of that volume through continuous investments, including most recently in matcha, green tea and artisanal teas.

In that context, he sought the support of the Sri Lanka Tea Board and the export sector to protect this emerging high value segment, given that significant quantities of green tea and other high-value teas remain unsold at auction while similar products continue to enter the country. “We respectfully request the authorities to review this matter and introduce appropriate measures to support domestic production and value addition,” he stated.

On research and development, he observed that commercially viable alternatives to several essential crop protection products remain limited. Accordingly, he called on the Tea, Rubber and Coconut Research Institutes to lead the development of practical, scientifically proven alternatives, while stressing that disease threatening the rubber industry requires immediate attention. “We cannot afford to repeat the experience of the coffee industry, where coffee blight devastated the sector,” he added.

Turning to issues around land-use policies and productivity, he noted that RPCs have diversified for over two decades in response to changing rainfall patterns, introducing crops such as oil palm, pepper and avocado. He warned that these investments are increasingly threatened by unsupportive policy, agricultural theft and crop damage by wild animals, costing companies millions of rupees each month in security. “It is imperative that these investments are protected through strong enforcement, appropriate regulatory reforms, and effective measures to address both agricultural theft and crop damage,” he noted. On irrigation, he appealed to the Government to relax archaic restrictions on groundwater use and simplify approvals for drilling tube wells in order to enhance climate resilience.

Addressing security of tenure, he highlighted that replanting often takes more than a decade to generate meaningful revenue, and that uncertainty over lease extensions is making it harder for RPCs to attract foreign direct investment and long-term financing. “If we are to attract fresh capital, accelerate replanting, modernise our plantations and improve productivity, security and certainty of tenure are mandatory,” he added.