Business

Is Sri Lanka heading for authoritarian statism?

Published

4 years ago

2022/08/30

Sahan Weerasooriya

Two affected sections in SL’s economic crisis: consumers and small traders. (File pic)

by Seneka Abeyratne

The immediate future of Sri Lanka is extremely bleak as the economic and political crises are continuing to reinforce each other in a synergistic manner. Because the government is totally bankrupt and unable to meet its external debt-service obligations, it is having difficulty securing bridging loans to finance imports of essential goods. Hence, a viable alternative to bridging finance should be found as soon as possible.

Since foreign currency reserves are negligible, government should seriously consider debt to equity swaps with bilateral donors (such as China, India and Japan) as well as bona fide private creditors to boost external reserves and enable the private sector to restore the supply-chain for essential goods and services. Desperate times call for desperate solutions. Government should seek to obtain a minimum of $ 25 billion through quick debt to equity swaps. Top contenders in this regard are ports, airports, Sri Lankan Airlines, large state-owned plantations, and other state-owned facilities or lands which could be utilized by foreign investors for a variety of productive economic activities. As the old saying goes, “We can’t have our cake and eat it.”

Large fiscal deficits create

macroeconomic instability

The fiscal deficit in Sri Lanka increased from 11.1% in 2020 to 12.2% in 2021, largely due to a decrease in the revenue + grants to GDP ratio from 9.1% to 8.7% and an increase in the expenditure to GDP ratio from 20.2% to 20.1% over the same period. This is not a sustainable fiscal path, which is why government is resorting to excessive money printing, thereby adding fuel to the fire of galloping inflation. The last time Sri Lanka registered a fiscal deficit of under 5% was in 1977. Large fiscal deficits create macroeconomic instability and discourage foreign direct investment (FDI). No country in Asia has prospered without a stable macroeconomic climate and substantial FDI inflows on a sustained basis.

Key elements of a macroeconomic

stabilization program

Both a stable and consistent macroeconomic policy framework and a robust business climate are necessary for attracting significant inflows of export-oriented FDI on a sustained basis. In this regard, transaction costs should be eliminated wherever possible. A macroeconomic stabilization program should focus on fiscal consolidation in the medium term. This will include (a) a substantial increase in direct and indirect tax revenue; (b) rationalization of recurrent and capital expenditures; and (c) the exercise of fiscal discipline in all public institutions. The program should be accompanied by a comprehensive external debt-restructuring exercise with a view towards attaining debt sustainability in the medium term. The relevance of debt to equity swaps should be critically assessed in this context.

On the revenue side, key policy reforms would include restoration of VAT and income tax to their pre-2019 levels and measures for achieving a substantial increase in the income tax to GDP ratio, which was only 1.8% in 2021. On the recurrent expenditure side, downsizing of the public service (including the military), restructuring/privatization of loss-making state-owned business enterprises (in all sectors of the economy), and a significant reduction of government subsidies could be viewed as three critical policy reforms. In respect of capital expenditure, the need for focusing future expenditures on infrastructure for supporting significant improvements in education, health, and export performance is critical.

On the monetary side, maintaining a flexible, market-float policy for the exchange rate is vital for stimulating exports, enhancing FDI inflows and foreign remittances, and promoting tourism. These are the main avenues for boosting foreign currency reserves in the medium to long term. Maintaining a tight monetary policy vis-à-vis high interest rates is also vital for reducing inflation and enhancing foreign capital inflows.

Market distortions retard

economic growth

Removal of market distortions is critical for stimulating increased private-sector development and for achieving a rapid and sustainable economic recovery. At present, imports are heavily controlled and regulated by the state due to the severe dollar crisis. However, without a liberal trade and investment policy, the economy is likely to remain stagnant as a wide range of imported intermediate goods are required by entrepreneurs in the manufacturing, processing and service sectors. Imports of intermediate goods (including fuel, fertilizer and agrochemicals) as well as consumer goods linked to tourism should hence be liberalized.

Import bans are tantamount to protectionism, which tends to drastically inhibit GDP growth. Protectionism discourages FDI inflows as well as foreign remittances through the banking system. Protectionism does not stimulate economic growth. On the contrary, it creates economic stagnation and widespread poverty and underemployment.

The Daily Mirror of July 26th reported that government may restrict fuel imports for the next 12 months due to the foreign exchange crisis. This will do more harm than good as it will worsen macroeconomic imbalances. A far better option is to liberalize fuel imports so as to create space for the private sector to supply the markets.

Generally speaking, with a few exceptions, the market, not the state, should determine the prices of goods and services available to consumers. A significant number of public enterprises and services would become profitable if they were exempted from price controls and permitted to adopt a cost-reflective pricing mechanism.

Authoritarian statism

What we are currently witnessing in Sri Lanka is the rise of authoritarian statism – a protectionist, state-dominated economic growth model similar to the one introduced by the Sirimavo Bandaranaike regime of the 1970s. The experiment proved to be a colossal failure, which is why this inward-looking, statist regime got booted out of power in 1977.

The private sector is the engine of growth, not the state. The shackling of the private sector is not the solution to the current economic crisis. What is needed at this time are deep structural and market reforms aimed at promoting private sector development as well as improved productivity across all spheres of economic activity so that Sri Lanka could become globally competitive in a wide range of exports.

The author is a retired economist/international consultant to ADB MANILA. He can be contacted at snabeyratne@gmail.com

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Business

Sri Lanka pitches Saudi investors for new investment partnerships

Published

13 hours ago

2026/09/29

Sahan Weerasooriya

Saudi and Sri Lankan dignitaries at the National Day reception.

By Ifham Nizam

Sri Lanka is pitching Saudi Arabia for greater investment and deeper trade ties, seeking to attract Saudi capital into new development opportunities while aligning bilateral economic cooperation with the Kingdom’s ambitious Vision 2030 agenda, Ports and Civil Aviation Minister Anura Karunathilaka, chief guest at Saudi Arabia’s 96th National Day celebrations in Colombo, said.

Addressing the National Day reception at ITC Ratnadipa, Karunathilaka said Sri Lanka was keen to identify new areas of economic cooperation with the Kingdom and create fresh opportunities for Saudi investors and businesses.

‘We look forward to creating new opportunities for the people of both countries by working in cooperation with Saudi Arabia’s Vision 2030 and its broader development initiatives, he said.

The minister said Sri Lanka wanted to move beyond its existing development cooperation with Saudi Arabia and build a broader economic partnership encompassing investment, trade and new development projects.

He noted that Saudi Arabia had already made a substantial contribution to Sri Lanka’s development. Since 1981, the Kingdom has provided concessional financing amounting to around Saudi Riyals 1.5 billion for 13 projects in Sri Lanka, supporting key sectors including energy, healthcare, education, drinking water and infrastructure.

Karunathilaka said Sri Lanka appreciated this support and was keen to build on the foundation created by those projects by opening further avenues for Saudi investment.

The minister’s investment pitch comes as Saudi Arabia advances its Vision 2030 programme, with the Kingdom seeking to diversify its economy and develop new international partnerships. Sri Lanka, meanwhile, is seeking to attract investment and expand economic opportunities through closer engagement with international partners.

Karunathilaka also highlighted the strong people-to-people links between the two countries, noting that nearly 250,000 Sri Lankans currently work and reside in Saudi Arabia.

‘They serve as an important bridge between our two countries and contribute significantly to strengthening the people-to-people ties between Sri Lanka and Saudi Arabia, he said.

He expressed appreciation for Saudi Arabia’s continued assistance to Sri Lanka and thanked the Saudi government for the facilities extended to Sri Lankan Muslims undertaking Hajj and Umrah pilgrimages.

Karunathilaka said Sri Lanka looked forward to working more closely with Saudi Arabia to strengthen political relations, broaden investment opportunities and enhance development cooperation.

Yaser Abdulrahman Al-Hazme, Chargé d’Affaires of the Royal Embassy of Saudi Arabia to Sri Lanka, said the embassy remained committed to strengthening bilateral relations by promoting political, economic and cultural communication between the two countries.

‘The embassy of the Kingdom of Saudi Arabia in Colombo has been keen during the past period to strengthen bilateral relations between the two countries by playing its role in supporting political, economic, and cultural communication, Al-Hazme said.

Al-Hazme also highlighted the embassy’s role in strengthening communication between Saudi and Sri Lankan institutions and following up on the interests of Saudi citizens in Sri Lanka.

‘On this precious national occasion, I extend my sincere thanks and appreciation to the government and people of the Democratic Socialist Republic of Sri Lanka for the attention and care given to relations between our two countries, and for the constructive cooperation that has contributed to strengthening the bonds of friendship and partnership between the Kingdom and Sri Lanka, he said.

Business

Sonali Rodrigo earns national recognition from Australia’s finance industry

Published

13 hours ago

2026/09/29

Sahan Weerasooriya

Sonali Rodrigo receiving the prestigious AFG Women on the Move Scholarship at the awarding ceremony held in Melbourne.

Australian finance professional Sonali Rodrigo has been recognised with the prestigious AFG Women on the Move Scholarship, presented by Australian Finance Group (AFG), in recognition of her leadership, industry contribution and impact spanning more than two decades in Australia’s finance industry.

The AFG Women on the Move program is dedicated to supporting and advancing women in the finance and mortgage broking industry, recognising individuals who demonstrate leadership, professional contribution, growth, impact and a commitment to empowering other women. The scholarship is supported by leading industry partners, including HSBC and Thinktank.

Sonali’s career spans more than 20 years in Australia’s finance industry, encompassing senior leadership, financial advisory and governance roles. Alongside her professional responsibilities, she has actively mentored and supported women in their career development, contributed to financial literacy, and helped individuals make more informed financial decisions. Her recognition reflects both her professional achievements and the broader impact of her leadership, particularly in creating opportunities and empowering the next generation of women in finance.

Business

Beyond the crisis: Sectoral paths to durable growth

Published

13 hours ago

2026/09/29

Sahan Weerasooriya

Institute of Policy Studies of Sri Lanka (IPS)

Continued From last Friday

Regional infrastructure improvements beyond the Western Province are essential to close market-access gaps and improve efficiency. The Western Province alone generates 42% of Sri Lanka’s GDP, but the dynamics of such agglomeration may also be highly underestimated. Officially, barely a fifth is deemed ‘urban’ in the province, but IPS re-estimates from the 2024 census using population density and infrastructure access, place the true figure at nearly 61%. The absence of strong secondary cities and industrial clusters outside the province reduces the potential gains from this agglomeration, thereby weakening incentives for firms to locate elsewhere or decentralise operations.

Fiscal incentives can promote decentralised corporate operations by offering tax rebates, lower property taxes, and land access in secondary cities like Kalutara and Gampaha, leveraging the connectivity of Southern and Colombo-Katunayake Expressways. The Hambantota seaport and airport, along with Koggala and Mirijjawela Export Processing Zones, can help develop the Southern Province through geography-based tax concessions.

Immediate measures, such as pricing vehicle entry into Colombo city will support regional agglomeration while tackling the acute problem of city congestion. Adopting a low-cost, technology-anchored free-flow method, similar to the Automated Number Plate Recognition (ANPR) currently used in commercial parking facilities for vehicles entering the city, is one such means. Installing high-mounted overhead ANPR gantries at key arterial entry points can operationalise congestion pricing without disrupting traffic speed. Fee collection can use a system like E-Tags electronic toll collection on expressways, integrated with digital payment gateways like GovPay and LankaQR for dynamic, time-of-day variable pricing.

The renewable energy transition is vital to drive competitiveness, external shock resilience, and green growth. Sri Lanka’s transition to renewable energy (RE) has advanced from a mere aspiration to tangible progress. Yet, the evidence suggests the transition is advancing faster on the generation side than the system built to absorb it. Transmission capacity, market design, financing channels, and digital infrastructure have not kept pace with capacity additions, and this gap is what will determine the pace of the transition through 2030.

Capital spending on transmission must be ring-fenced by legally, operationally, and financially separating the electricity grid (the transmission network) from the rest of the energy sector or by the broader government budget as a protected public investment within the medium-term budget framework. Funding should shift from general budget support to dedicated multilateral facilities, reinforced by sovereign guarantees for eligible borrowing. To safeguard public funds, this must be paired with a clear tariff pass-through mechanism that effectively limits open-ended Treasury exposure.

To build market trust, domestic budget funding should be earmarked for market-design technical assistance, signalling strong policy ownership rather than relying on external donors. Transparency too should be strengthened by publishing a firm implementation timeline in the Budget statement and fully disclosing long-term fiscal commitments from Power Purchase Agreements, capacity arrangements, and ancillary services.

(Concluded)