Business

COVID-19 and the Sri Lankan economy: Policy choices and trade-offs

Published

4 years ago

2021/10/16

By Chathurrdhika Yogarajah

Sri Lanka’s macro-economic outlook amidst the COVID-19 pandemic came under the spotlight at a webinar panel discussion held on October 11, to mark the release of IPS’ flagship report, ‘Sri Lanka: State of the Economy 2021’. The event featured presentations by Dr Dushni Weerakoon and Dr Asanka Wijesinghe from IPS with expert insights from Dr Missaka Warusawitharana, Financial Economist, Johns Hopkins University, USA. Tharindu Udayanga from IPS moderated the discussion.

Prospects and Possibilities Dr Dushni Weerakoon, Executive Director, IPS

A V-shaped recovery is likely to take shape, but Sri Lanka faces a relatively weak output growth. A critical challenge is to lift the growth rate to, at least, 5-6% and maintain that momentum in the medium term. How investments perform will be a crucial determinant, as the dip in investment was a major driver of output contraction in 2020. With little fiscal space, Sri Lanka relied mostly on monetary policy. There was a surge in direct financing of fiscal spending, and there were efforts to ensure that borrowing costs were kept low via yield-control measures.

Sri Lanka is not so fortunately placed when considering the risks related to large-scale debt monetisation programmes due to high debt levels, elevated exposure to foreign debt with repayments of sizeable amounts in the medium term, and the low reserve stockpiles. With such weak fundamentals, the backbone of debt monetisation programmes is policy credibility. But for the last 18 months, there has been no notable effort to curtail discretionary spending and anchor fiscal plans. Thus, Sri Lanka is reluctant to deal with IMF conditionalities.

Policy measures must address fiscal imbalances through cuts in national spending or raising national income. As the latter takes time, the governments tend to focus on a policy mix to cut national spending that includes tighter budgets allowing interest rates to move with market fundamentals and implementing more flexible exchange rates. The downside is that the growth suffers in the short term with worsening debt ratios. These are politically difficult choices when economic conditions are tight as they are now.

Sri Lanka must firm up its access to foreign capital markets to balance the risks. If Sri Lanka comes to an adjustment on the fiscal front and improves access to capital markets, this will free up the space for a more orderly macroeconomic adjustment. Though the exchange rate may initially overshoot, it can be stabilised over time. This will allow the Central Bank to reverse its debt monetisation and focus on price stability, as that will be an area of concern in the coming months. A policy framework along these lines will provide a more robust environment to support investment and sustain Sri Lanka’s recovery.

Opportunities and Costs Dr Asanka Wijesinghe, Research Economist, IPS

During the pre-pandemic period, there was stabilisation in the rate of globalisation, but Sri Lanka’s openness has continuously declined especially after 2005 due to GDP growth in nontradeable sectors. However, Bangladesh, India, and South Asia, in general, show an increasing trend of openness. COVID-19 led to a deep plunge in the world’s industrial production and trade in 2019. But even after this collapse, it recovered by the beginning of 2021. There is no evidence to show deglobalisation effects due to the pandemic.

When the world trade outlook is taken into consideration, the WTO predicts a pickup in global trade volumes for the year 2022. An IMF database that uses signals emitted by sea vessels also showed an uptick in world trade from the beginning of 2021. Sri Lanka should ready itself to take advantage of trade diversion and investments opportunities the tariffs imposed on China’s textiles by the US, for instance. At present, its global value chain (GVC) participation is low and in fact declined from 2009 to 2019. In contrast countries like Bangladesh, Viet Nam, India and Pakistan showed an increasing trend. He pointed out that the US-China trade war presents opportunities for Sri Lanka to increase both forward and backward GVC participation.

A key challenge is the costly policy of import substitution, resulting in resource misallocation, reduced competitiveness, and possible retaliation from trade partners. Another challenge for Sri Lanka is the potential withdrawal of GSP+ which will be a hard hit on the seafood and textile industries. Sri Lanka should work to secure GSP+, disengage from the ‘anti-trade’ bias, integrate with GVCs, and restructure existing regional trade agreements.

Roads to Recovery

Dr Missaka Warusawitharana, Financial Economist, Johns Hopkins University, USA

Sri Lanka’s growth trajectory has not been in line with its true potential, adversely impacting the well-being of the people. This can be attributed to the low level of productivity growth. Although the manufacturing sector has contributed to growth, it has not demonstrated sufficient productivity that would enable the country to achieve a better output.

Further, the current fiscal difficulties can be pinned to structural imbalances in the country’s budgets that have spanned decades along with different administrations that have been unwilling to make hard choices. In the longer term, budgets must be structured to bring the debt down to a manageable level.

The world economy is moving away from physical goods to a digital-based economy, requiring greater provision of services. Sri Lanka scores well on the Human Development Index with its knowledgeable workforce. The need is to increase productivity by investing more in education and service-producing industries and improve the business environment by reducing institutional barriers.

Link to blog: https://www.ips.lk/talkingeconomics/2021/10/15/covid-19-and-the-sri-lankan-economy-policy-choices-and-trade-offs/

Chathurrdhika Yogarajah is a Research Assistant at IPS with research interests in macroeconomics and trade policy. She holds a BSc (Hons) in Agricultural Technology and Management, specialised in Applied Economics and Business Management from the University of Peradeniya with First Class Honours. She is currently reading for her Master’s in Agricultural Economics at the Postgraduate Institute of Agriculture, Peradeniya. (Talk with Chathurrdhika: chathurrdhika@ips.lk)

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Business

ADB announces financial support package to help Asia and Pacific

Published

18 hours ago

2026/03/27

Thilina Walpola

The Asian Development Bank (ADB) has announced a financial support package to help its developing member countries (DMCs) mitigate the economic and financial impacts resulting from the conflict in the Middle East.

“ADB will deliver rapid, flexible, and scalable assistance to help countries manage immediate pressures and strengthen long-term resilience, notably fast-disbursing budget support and trade and supply chain finance to secure the import of essential goods, now including oil,” said ADB President Masato Kanda. “This builds on our strong track record of supporting Asia and the Pacific through periods of global uncertainty.”

ADB has ample resources to safeguard existing and planned operations, while expanding emergency support in line with DMC needs, including utilizing its countercyclical lending buffer.

The bank is closely monitoring global market developments and their potential implications for economies across Asia and the Pacific, particularly regarding energy price volatility, inflationary pressures, and external account balances.

The latest ADB analysis indicates that disruptions to shipping routes have already increased costs and delivery times, while supply risks extend beyond energy to key industrial inputs such as petrochemicals and fertilizers, with serious implications for agriculture and food production. Tourism- and remittance-dependent economies face compounding vulnerabilities beyond these initial shocks. Furthermore, the conflict is increasing uncertainty and tightening financial conditions across the region, putting pressure on currencies and capital flows.

In response, ADB is ready to deploy timely financial and technical support to help DMCs manage risks, maintain macroeconomic stability, and protect vulnerable populations. There are two main components to ADB’s intervention. The first is fast-disbursing budget support to help DMCs facing heightened fiscal pressures, notably the use of the bank’s Countercyclical Support Facility to help governments stabilize their economies and mitigate the impact of shocks on the lives and livelihoods of those most at risk.

The second is ADB’s Trade and Supply Chain Finance Program (TSCFP), which supports the private sector to ensure critical imports, including energy and food, continue to flow. The bank has decided to reactivate support for oil imports under the program on an exceptional basis for this limited period. This decision acknowledges that economies and people across the region are being severely affected by the rapid surge in oil prices and supply chain disruptions.

ADB has begun discussions with all severely affected DMCs on possible immediate support and will continue to work closely with governments, development partners, and the private sector to ensure coordinated and effective responses to maintain economic stability and protect the poor and most vulnerable.

ADB is a leading multilateral development bank supporting sustainable, inclusive, and resilient growth across Asia and the Pacific. Working with its members and partners to solve complex challenges together, ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard our planet. Founded in 1966, ADB is owned by 69 members—50 from the region.

Business

Global GIS celebrates 12th anniversary with grand opening of new office building

Published

18 hours ago

2026/03/27

Thilina Walpola

Jeewan Suranga, Director (L), and Nishshanka De Silva, Managing Director of Global GIS (Pvt) Ltd (R), opening the new head office

Global GIS (Pvt) Ltd, the pioneer of geospatial positioning solutions in Sri Lanka, celebrated its 12th year of successful operations with the grand opening of its new spacious 3-story head office building at 6th Lane, Pagoda Road, Nugegoda. The grand opening was followed by a series of religious events held at the new premises.

“As the pioneer in geospatial solutions in Sri Lanka, we are delighted to be celebrating this significant milestone in our journey by relocating to a more spacious premises warranted by the growth that we have been experiencing over the years. Furthermore, we have designed the new head office premises to add more value to our customers in terms of training, capacity building, and product demonstrations with a state-of-the-art auditorium,” stated Nishshanka De Silva, Registered Licensed Surveyor, Managing Director – Global GIS (Pvt) Ltd.

“This milestone serves as a testament to our dedication to innovation, leadership, and excellence. With our experience, our team of dedicated staff, and with the support of our long-standing partners, we are committed to providing our expertise in line with international best practices in the geospatial services industry,” he added.

“Global GIS operates a high-precision CORS (Continuously Operating Reference Stations) network that covers Sri Lanka, with strategically positioned GPS/GNSS receivers providing users with high-accuracy positioning data in real time”.

Business

NPCI International strengthens UPI Merchant Acceptance in Sri Lanka

Published

18 hours ago

2026/03/27

Thilina Walpola

Ritesh Shukla

For merchants:UPI provides access to a large, digitally savvy customer base, improves cash management, reduces dependence on physical currency and enhances operational efficiency

For travellers:UPI offers the convenience of real-time payments, transparent exchange rates, and a familiar, secure payment experience

NPCI International Payments Limited (NIPL), the international arm of the National Payments Corporation of India (NPCI), has reaffirmed its commitment to expanding Unified Payments Interface (UPI) merchant acceptance in Sri Lanka. The initiative aims to enhance cross-border payment experiences for Indian tourists, support Sri Lanka’s growing digital economy, and further strengthen the deep economic and cultural ties between India and Sri Lanka.

UPI, India’s real-time, account-to-account payment system, enables instant and secure transactions through mobile applications. Processing over 20 billion financial transactions monthly, it has emerged as one of the world’s most advanced digital payment infrastructures. With over 700 million UPI QR- touch points across India, its open, interoperable architecture and strong security framework allows it to integrate seamlessly with international payment ecosystems, including Sri Lanka’s LankaQR infrastructure.

India has consistently remained Sri Lanka’s leading source for tourism. Over 4,16,000 Indian tourists visited the island in 2024, and this number grew to 5,31,000 in 2025, accounting for the highest share of total international arrivals. With this year-on-year growth, the need for seamless and reliable payment solutions has become even more crucial. Indian visitors travel to Sri Lanka for leisure, weddings, shopping, and spiritual tourism, highlighting the importance of smooth, secure, and convenient payment options throughout their journey.

Through the collaboration between NPCI International and LankaPay, Indian tourists can make digital payments across Sri Lanka by simply scanning LankaQR using their preferred UPI-enabled mobile applications, minimising the need to carry or exchange physical cash. UPI payments are now enabled at leading establishments including Cinnamon Hotels, Taj Hotels, Barista, Keells Supermarket and Odel, amongst others.To support this growing corridor, NIPL has been actively engaging with key stakeholders in Sri Lanka, including the Central Bank of Sri Lanka, acquiring banks, and key merchants, to scale UPI acceptance in line with Sri Lanka’s domestic payment framework.

This integration has significant advantages for both merchants and customers. For travellers, UPI offers the convenience of real-time payments directly from their Indian bank accounts, transparent exchange rates, and a familiar, secure payment experience. For Sri Lankan merchants, it provides access to a large, digitally savvy customer base, improved cash management, and reduced reliance on physical currency, driving greater operational efficiency.

Ritesh Shukla, MD & CEO, NPCI International, said, “NPCI International is committed to building trusted, interoperable payment corridors that bring countries closer through technology. Our engagement in Sri Lanka reflects a shared vision to enhance digital payment acceptance, simplify travel and commerce for millions of people, and create value for local businesses and the wider economy. Through our partnership with LankaPay, we are advancing seamless, secure, and real-time transactions that strengthens the economic partnership between India and Sri Lanka.”

As UPI adoption progresses, NIPL will continue working closely with Sri Lankan regulators, ecosystem players, and merchants to extend acceptance across high-frequency sectors such as hospitality, retail, tourism, and essential services. Recognized by the IMF as the world’s largest real-time payment system, powering 49% of global instant payments, UPI presents a significant opportunity for Sri Lankan merchant to elevate the travel experience for Indian visitors, boosting economic activity and enhancing cross-border commerce between the two nations.