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Spending smarter to boost growth, lessons for Sri Lanka

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Sri Lanka stands at a critical juncture. After decades of ambitious infrastructure projects, expanding public sector employment, and rising debt burdens, the nation’s 2022 economic crisis exposed fundamental weaknesses in how public resources are managed. As the country implements IMF-supported reforms, a crucial question emerges: Can Sri Lanka achieve robust growth not by spending more, but by spending smarter? Recent International Monetary Fund research analysing 174 economies offers compelling insights.

The Efficiency Paradox: Rwanda’s Success Story

Rwanda’s remarkable transformation over two decades, achieving near-universal mobile phone access, doubling electricity coverage, and adding 20 years to life expectancy, was accomplished with relatively modest spending increases from $150 to $420 per person, still below the sub-Saharan African average. The critical factor was not the quantum of spending, but its efficiency.

This stands in stark contrast to Sri Lanka’s experience. Despite significantly higher per capita spending, Sri Lanka’s development outcomes have been inconsistent, with persistent inefficiencies in public investment and service delivery.

Sri Lanka’s Spending Dilemma: Contradictions and Consequences

The Asian Development Bank (2022) notes that Sri Lanka’s public sector employment as a percentage of total employment stands at approximately 13.5 percent, significantly higher than comparable economies like Vietnam (7 percent) or Malaysia (9 percent). This allocation crowds out productive spending on infrastructure and human capital development.

The Public Wage Bill Conundrum

Sri Lanka’s most glaring fiscal contradiction lies in its bloated public sector. While the IMF analysis shows that public wage bills account for about a quarter of total expenditure in most countries, Sri Lanka’s public wage bill has historically consumed nearly 30 percent of government revenue, far exceeding regional comparators.

Infrastructure Investment: Quantity Without Quality

The IMF research indicates that in most countries, public investment has declined by 2 percentage points of total expenditure over the past two decades. Sri Lanka has moved in the opposite direction, yet with troubling outcomes.

Between 2005 and 2019, Sri Lanka embarked on an infrastructure spending spree, with public investment averaging 6-7 percent of GDP. The Hambantota Port, Mattala Airport, and the Lotus Tower became symbols of this era, projects financed largely through commercial borrowing from China, with minimal economic returns.

While Sri Lanka’s infrastructure stock increased substantially, the productivity gains were negligible due to poor project selection, location inefficiencies, and limited integration with economic clusters. The public investment efficiency index, developed by the IMF, places Sri Lanka significantly below best-practice frontiers, suggesting that approximately 40 percent of potential infrastructure value is lost to inefficiencies (Figure 1).

Score Range

: 0–100, with concentric circles at 25-point intervals.

Figure 1: Multi-dimensional Efficiency Scorecard

The post-2022 reform period shows a sharp contraction in public investment, from 6.5 percent of GDP in 2019 to barely 2 percent in 2023, reflecting fiscal constraints rather than strategic reallocation. This reactionary approach risks undermining long-term growth prospects.

Education and Human Capital: Underinvestment in the Future

Education spending has remained modest at about 11 percent of total spending in most countries, and Sri Lanka follows this pattern, but with concerning qualitative outcomes. However, education spending as a percentage of GDP, Sri Lanka’s reported figure was about 1.83 percent in 2023, which is very low compared to the world average of around 4.4 percent, and well below the UNESCO-recommended 4-6 percent and significantly lower than regional leaders like Vietnam (5.7 percent) and Malaysia (4.8 percent).

Moreover, despite achieving impressive literacy rates (92 percent) and near-universal primary enrollment, Sri Lanka’s education system suffers from significant inefficiencies. More critically, learning outcomes have stagnated. The World Bank’s (2021) Human Capital Index reveals that a child born in Sri Lanka today will be only 60 percent as productive as they could be with complete education and full health, below Vietnam (69 percent) and Thailand (61 percent). This suggests that both the quantum and quality of education spending require urgent attention. The system suffers from misallocation.

Healthcare Efficiency: A Mixed Legacy

Sri Lanka’s healthcare system has historically been celebrated as a development success, achieving middle-income health outcomes with lower-middle-income resources. However, recent trends reveal emerging contradictions.

Public health expenditure remains around 1.7 percent of GDP, among the lowest in Asia. The system increasingly suffers from resource constraints, with frequent medicine shortages, deteriorating infrastructure, and so-called brain-drain of medical professionals. Meanwhile, out-of-pocket health expenditures have risen sharply, indicating declining efficiency and equity in service delivery.

The Path Forward: Evidence-Based Reform

Without reinventing the wheel, many frontier countries have already shown that smart spending hinges on three key strategies: merit-based recruitment, performance-linked compensation, and the strategic redeployment of public servants—from overstaffed administrative roles to critical service delivery functions in education, healthcare, and agricultural extension.

Rebalancing the Expenditure Mix

IMF analysis demonstrates that shifting 1 percent of GDP from lower-impact government consumption into infrastructure investment raises output by about 1.5 percent in advanced economies and 3.5 percent in emerging markets over approximately 25 years. Redirecting the same amount toward human capital investment can yield gains of around 3 to 6 percent, respectively.

For Sri Lanka, this implies a fundamental reorientation: gradually reducing the public sector wage bill while simultaneously increasing productive spending on physical and human capital. The political economy challenge is formidable, civil service reform threatens entrenched interests, but unavoidable for fiscal sustainability.

Improving Investment Efficiency

The research shows that improving investment efficiency by 10 percentage points can boost output gains by 1.4 percent, with faster closure of these gaps yielding greater and quicker payoffs. Sri Lanka requires comprehensive public investment management reforms, including:

Rigorous project appraisal

: Implementing cost-benefit analysis for all major projects, with independent technical reviews before approval. The current practice of approving mega-projects through Cabinet decisions, without transparent feasibility studies, must end.

Competitive procurement:

Strengthening procurement frameworks to ensure value for money. The prevalence of single-source, government-to-government contracts, particularly with Chinese state enterprises, has contributed to inflated costs and poor quality.

Effective project management

: Establishing dedicated project management units with technical expertise, clear accountability structures, and real-time monitoring systems. The recent Public Investment Management Assessment (PIMA) by the IMF identified critical weaknesses in project implementation capacity.

Strategic prioritisation

: Focusing on high-return investments in economic corridors, export-oriented infrastructure, and climate-resilient projects rather than politically motivated white elephants.

Enhancing Human Capital Investment

Complementary policies matter significantly, in emerging and developing economies, combining infrastructure spending with education spending balances near-term and longer-term gains, as physical capital boosts output quickly while human capital builds future productivity.

Therefore, Sri Lanka must urgently:

Increase education spending

to at least 4 percent of GDP, with particular focus on STEM (Science, Technology, Engineering and Mathematics) and education, vocational training aligned with labour market demands, and digital literacy. The Skills Sector Development Programme, supported by the World Bank, provides a useful framework.

Reform education quality:

Move beyond enrollment metrics to learning outcomes. This requires comprehensive curriculum reform, improved teacher training and retention (possibly through performance-based incentives), investment in educational technology, and strengthened school-industry linkages.

Expand healthcare financing:

Gradually increase public health expenditure toward 3 percent of GDP while simultaneously improving efficiency through digital health systems, preventive care strengthening, and strategic purchasing mechanisms.

Leverage technology:

Digital platforms can dramatically improve service delivery efficiency, from online education resources to telemedicine to e-government services. Estonia’s digital transformation, achieved despite limited resources, provides an instructive model.

Political Economy Realities

The technical solutions are well understood; implementation is where Sri Lanka consistently falters. The fundamental obstacle is political, short electoral cycles incentivise visible consumption spending over long-gestation investments in efficiency and human capital.

Breaking this cycle requires institutional reforms: strengthening fiscal rules, enhancing transparency in budget formulation, empowering independent fiscal councils, and building cross-party consensus on development. Appointments such as Duminda Hulangamuwa and Professor Anil Fernando as senior economic advisors on an honourary basis to assist on economic and financial matters by President Anura Kumara Dissanayake, in late 2024, represent a small step in this direction, but much stronger institutional safeguards are needed.

Additionally, Dr. Hans Wijayasuriya was appointed Chief Advisor to the President on Digital Economy, in October 2024, which is a specific advisory role within the presidential secretariat framework rather than a separate office.

Civil society engagement is equally crucial. Public expenditure tracking initiatives, community scorecards for service delivery, and transparent disclosure of project details can create accountability pressures that complement formal institutional reforms.

Conclusion: Efficiency as Economic Strategy

The nation can no longer afford the luxury of inefficient spending, neither fiscally nor economically. The evidence is clear: spending smarter, not necessarily more, is the pathway to sustainable growth and improved living standards. Importantly, smarter spending allocation can also reduce income inequality, a critical consideration for Sri Lanka, where rising inequality threatens social cohesion.

The question is whether Sri Lanka’s political leadership possesses the courage and the will to choose long-term national interest over short-term political expediency. The answer will determine whether the current crisis becomes a catalyst for transformation or merely another missed opportunity in the nation’s troubled economic history.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT, Malabe. The views and opinions expressed in this article are personal.)



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Coercive laws recipe for future misrule

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by Jehan Perera

The NPP government is going after powerful figures from the past and present who have engaged in corruption, fraud and criminal activity in a way that no previous government in Sri Lanka has done. Former ministers, politicians and senior state officials are among those facing investigations and legal proceedings. The government has placed before Parliament a document listing 50 cases involving corruption, fraud and other crimes. These include not only financial offences but also cases relating to the Easter Sunday attacks, the killings of Lasantha Wickrematunge and Wasim Thajudeen, the disappearance of Prageeth Ekneligoda and attacks on journalists Keith Noyahr and Upali Tennakoon.

The significance of this effort is that it can demonstrate that nobody is above the law, regardless of political connections or social standing, which will help restore public confidence in institutions that have long been distrusted. It could also recover public resources, improve the investment climate and strengthen the foundations for a more prosperous and just Sri Lanka. When criticised for focusing on the past and not the present, the government position is that these investigations were initiated under earlier governments, particularly between 2015 and 2019, and that it is now allowing investigators to proceed to deal with the backlog without political interference.

But there is an aspect of the government’s approach that is less justifiable. While pursuing past wrongdoing by powerful individuals, it is also advancing a triumvirate of draft laws that could give the state sweeping powers over citizens, organisations and dissent in the present and future. The draft Prevention of Terrorism legislation, the Prevention of Organised Crimes Bill and the NGO Registration and Supervision Bill raise serious questions about the over-centralisation of power. Each of these laws strengthens the powers of the state while weakening the rights and safeguards that protect people from their misuse and thus questions the basic rights of people in democracy where ‘the power of the people is vested in the government’. This is a recipe for future misrule rather than the rule of law. As the well-known saying goes, power corrupts and absolute power corrupts absolutely.

Proposed Laws

The real test of system change, for which the government obtained an overwhelming mandate, requires not only a government willing to hold others accountable, but one prepared to subject itself to the same principles of legality, transparency and restraint. The three proposed laws that are particularly important in this regard are the Protection of the State from Terrorism Bill, the Prevention of Organised Crimes Bill and the NGO Registration and Supervision Bill. Each of these draft laws has been presented as serving a legitimate purpose. Preventing terrorism, combating organised crime and ensuring that NGOs do not facilitate money laundering or terrorist financing are proper responsibilities of the state. Sri Lanka has international obligations in these areas, and no responsible government can disregard them. However, the existence of a legitimate objective does not justify every means adopted to achieve it.

The proposed Protection of the State from Terrorism Bill illustrates the problem. Although its definition of terrorism draws on a model developed by a former United Nations Special Rapporteur, the Human Rights Commission of Sri Lanka has warned that the definition of terrorism extends beyond the model and could bring legitimate political protest, trade union action and civil disobedience within the scope of counter-terrorism legislation. Its concerns also include prolonged detention, inadequate judicial oversight and restrictions on access to legal counsel. These are objections that go to the heart of the relationship between the citizen and the state. The government cannot credibly promise to protect democratic freedoms while creating powers that could be used to restrict them. It is necessary for the government to reassess the draft through transparent consultation and revise provisions that could criminalise legitimate dissent.

The Prevention of Organised Crimes Bill raises similar concerns. It is presented as giving effect to the United Nations Convention against Transnational Organised Crime, which Sri Lanka ratified in 2006. The Centre for Policy Alternatives (CPA) has argued that the convention does not require many of the bill’s provisions. The proposed law extends to a broad range of offences, permits detention orders lasting up to a year, makes confessions to police admissible for purposes of legal evidence, and introduces extensive surveillance powers. A law intended to dismantle criminal networks should not create a parallel system of exceptional powers that could be applied far beyond organised crime. Nor should safeguards developed through years of experience with abuses under the Prevention of Terrorism Act be weakened through legislation bearing a different name. The government should review whether or not existing laws could be used effectively to control these crimes or whether each exceptional power is necessary.

Civil Society

The proposed NGO Registration and Supervision Bill presents another test of the government’s intentions. The government may reasonably seek transparency in the finances of organisations receiving public or foreign funds, including measures to prevent money laundering and terrorist financing. It seeks to justify its overreach on the grounds of meeting the internationally mandated requirements of the Financial Action Task Force (FATF) for the Asia-Pacific region. But these objectives do not justify placing civil society and NGOs under excessive administrative control when even the FATF ranks them as low to medium risks. The draft bill would require registration and renewal, impose extensive obligations on organisations and empower authorities to suspend or deregister them on broadly framed grounds. It is important to redraft provisions that confer excessive discretion over registration, renewal, suspension and deregistration of NGOs.

Among the concerns raised by United Nations human rights special rapporteurs with regard to the draft NGO law are provisions requiring organisations to align with government policies and restrictions that could affect advocacy, dissent and freedom of association. The implications extend well beyond organisations that engage directly with the government. Community groups, human rights organisations, independent researchers and organisations working on reconciliation or accountability could find their activities constrained by uncertainty over how these provisions might be interpreted. Organisations that criticise government policies are not thereby working against the country. Their freedom to do so is part of what distinguishes a democracy from a system in which the government determines which opinions and activities are acceptable.

The government has generated considerable public goodwill through its pursuit of corruption and criminality. It should not assume that this goodwill gives it an unlimited mandate to strengthen the coercive powers of the state. The NPP knows from its own history that governments can treat dissent as a threat and use the machinery of the state against their opponents. There is still time to correct the drafts through transparent public consultation, narrow definitions of offences, meaningful judicial control over detention and surveillance, and effective remedies against arbitrary decisions. A government that pursues corruption while weakening safeguards against state abuse risks undermining its own achievements. Besides bringing to light the abuse of power by previous governments, the NPP government needs to build a system in which no future government can abuse power in the belief they can get away with it.

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Quality assurance without quality enhancement: The irony of university QA

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By Ramya Kumar

According to the Quality Assurance Council (QAC) of the University Grants Commission (UGC), quality assurance (QA) refers to “the means (i.e. the policies, attitudes, actions, procedures, etc.), by which an institution can guarantee with confidence and certainty, that the standards and quality of its educational provision are being maintained and enhanced”.

An expansive structure has been in place since 2005 to govern and implement QA processes within the state university system. The QAC is the focal point at the UGC that implements external reviews of state universities and institutes. Each university has its own Centre for Quality Assurance (CQA) tasked with performing QA in line with QAC directives. Faculties, in turn, have Internal Quality Assurance Cells (IQAC) performing their own QA; they are answerable to the CQA.

The big question is whether this all-encompassing top-down QA system, that in many ways undermines the internal dynamics of university governance, actually supports universities to enhance the quality of education. This article highlights some concerns.

Top-down check-box activities

The QAC conducts external reviews of universities and degree programmes. A review team appointed by the UGC (who may or may not have experience in the institution/programme in question) examines the self-evaluation report submitted by the said institution/programme. The team then conducts a site visit to verify the claims made in the university’s self-evaluation report, clarify issues identified during the desk review, and examine how QA procedures operate in practice. The team holds meetings with the university administration, members of the Council and Senate, Deans, Heads of Departments, academic and non-academic staff, students, and others. Following the visit, a draft report is submitted to the relevant institution/programme for comment before final publication. The reviewed institution/programme then prepares and publishes an action plan addressing the recommendations, with subsequent monitoring of progress.

There are some worthy QA initiatives under implementation, such as improving facilities for students with disabilities and strengthening mechanisms to address sexual- and gender-based violence. However, for the most part, QA activities have little to do with improving the quality of education. They are mostly preoccupied with monitoring faculty and department websites, digital transformation, student feedback, subject evaluation, course evaluation, peer evaluation, and, more recently, staff appraisal. These activities, which consume an inordinate amount of time—so precious at understaffed universities—have become check-box activities completed to generate evidence for the next review. Below is an excerpt of a conversation between two academics (1 and 2) that conveys how QA plays out at universities (reproduced with permission).

1: … .it’s like social media you know, like posting things on Facebook or twitter or Instagram. When people do a lot of social media, everything they do, they do thinking, “okay I’m going to post it in this way… this I have to put on my Instagram.” QA is a little like that… everything is considered in light of, “ah we can use this for the review, as evidence… for example very recently we were encouraged to have all the things that we do in our department in the faculty newsletter so then they can put in the review. Every little thing has to be noted down….

2: And with pictures and all…

1: At the very least it has to be written so that you have written evidence .. you can’t be doing something for the sake of doing something or because it is good for the department … and sometimes people tell me “oh yea that’s a good idea we can fit that under this x, y section of the review..”

2: Yea, and nobody really thinks about the actual outcome… whether it’s actually helping anyone..

1: I also find that a lot of the words that we used in different ways have now been co-opted to the QA discourse ..including quality.. I can’t actually say what I want as an “outcome”, for example, that the outcome of this workshop is that my students “think about” … then I am told “ah but no that’s not one of the Bloom’s taxonomy words, “think about”.…

2: And the worst part is these medical and agriculture people, these types of people go around spreading it like some kind of gospel!

1: Yea, this cookie cutter way of doing things, they think is the height of innovativeness or creativity, when actually it is so mundane … for me the most awful thing about it is like some fungus of mundanity has taken over through QA reviews.

2: yea, when you say QA, my mind closes off immediately and I stop listening…

Auditing everything but power

QA leaves out crucial aspects of university governance. For instance, there is no review or assessment of the “quality” of university administrations under Criterion 1 or the integrity of procedures governing the promotion of academic staff under Criterion 6 of the institutional reviews.

The majority in the Council—the university’s executive and governing body, which is responsible for selecting the Vice-Chancellor (VC)—are appointed in ad hoc fashion. Apart from the Ex-Officio members in the Council (VC, Deans, etc.), and the two members elected by the Senate, the remainder are appointed by the UGC with no formal consultation or vetting procedure. The VC appointment process described in UGC Circular No. 03/2023 exemplifies how an ostensibly technical process can become entangled in political sycophancy. The Registrar invites applications for the position of VC through advertisement. Applicants must submit a curriculum vitae, a statement of vision for the university and supporting documents. The University Council appoints a three-member Search Committee of senior academics to encourage “eminent persons” to apply, while the UGC appoints a former VC from another university to “observe” the selection process.

A Special Meeting of the University Council is convened. Candidates are interviewed and must make a presentation to the Council Members, followed by questions. Each Council member “gives marks” for seven prescribed criteria: strategic focus (20%), effective leadership (20%), holistic thinking/conceptual skills (10%), academic and research excellence (15%), personal integrity (10%), professional communication (10%) and managerial competence (15%). Marks are averaged, and the Council recommends three candidates to the UGC in rank order. The UGC-appointed observer separately submits a confidential report on the selection process.

This procedure is expected to guarantee quality, but does it? Applications are submitted to the Council Members, who have been appointed on questionable bases, and who are expected to review the applications and give scores, based on objective assessments. But, in reality, most Council Members are manipulated by VC candidates, who often have personal ties with them. The UGC-appointed observer usually has no genuine interest in the outcome. And there is no way for anyone to actually question the Council’s decision once it is made. Although the highest-ranked candidate may ultimately be appointed, the selection remains a political decision made by the President, who retains the discretion to appoint any one of the three.

External reviews also do not look into the promotions of academic staff, except to scrutinise whether there are policies and procedures in place to govern promotion. Academic staff may apply for promotion to Professor once they satisfy the prescribed eligibility requirements, which typically include the period of service, academic qualifications, research and publication achievements, teaching experience, and contributions to the university and wider community. Applications are evaluated against specified criteria, with research output and academic contributions assessed through documentary evidence and expert evaluation. Under the UGC’s scheme for Professors, two experts from outside the applicant’s institution assess specified aspects of research and knowledge dissemination. Again, beneath this technical process, which is externally evaluated, lies a problematic points-based scheme that can be manipulated and abused with impunity.

Rethinking university QA

Like the VC election process and the schemes of promotion for academic staff, QA reviews are open to manipulation. Before a review, there is a chaotic rush to complete evidence gathering and reporting. Academics leave all other work aside, including at times their teaching, to focus on completing documentation and preparing reports. The standardised criteria in the review manuals and scoring sheets often do not reflect differences in disciplines and institutional contexts. But this does not really matter because any serious problems experienced by institutions or programmes are hastily brushed under the carpet to conceal any evidence that could taint the review. The goal is to obtain an A or at least a B grade at whatever cost.

QA may result in positive change if it moves beyond top-down check-box activities towards internally designed and owned processes encompassing all aspects of university governance, led by departments and faculties, and supported by adequate resources. The current QA system needs to be dismantled and replaced by procedures that are accountable, not to the UGC, but to our students and the communities we serve.

(Ramya Kumar is attached to the Department of Community and Family Medicine, Faculty of Medicine, University of Jaffna)

. Kuppi is a politics and pedagogy happening on the margins of the lecture hall that parodies, subverts, and simultaneously reaffirms social hierarchies.

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Down Memory Lane — the Grand 20th Edition!

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Down Memory Lane: Ready to sing again

Yes, Down Memory Lane, the beloved Sing-Along concert series that first struck a chord, way back in 1997, returns for its landmark 20th edition this Saturday, 17th October, at the beautiful Bolgoda Grand Resort, Moratuwa town centre.

Having celebrated its glorious 25th anniversary with the show in 2023, this milestone 20th concert promises to be even more special.

The organisers, the ever-popular Moratuwa Arts Forum, are pulling out all the stops to present yet another unforgettable evening, brimming with camaraderie, fellowship, and pure nostalgia.

Get ready for two-and-a-half hours of non-stop singing as veteran vocalists, from the Moratuwa Arts Forum, will take the stage to lead and inspire the happy audience to sing, sing and sing to their hearts’ content.

The repertoire? Absolutely magical, according to the organisers.

Veteran Arun Dias Bandaranaike: Will handle the evening’s proceedings / Priya Peiris: Event Conceptor

Around 40 golden oldies — from timeless English vintage evergreens and hits from the 50s to the 90s, to toe-tapping calypsos, soulful American plantation melodies, rousing cowboy and Dixieland favourites, aa well as cherished Sinhala standards. All to be sung with much gusto!

This year’s dedicated organising committee comprises Brian Coorey (Chairman), Priya Peiris (Event Conceptor), Hiran Fernando, Suranga Fernando, Viranjan Perera, Hemka Fernando and Neelesh Silva. Guidance and support comes from Moratuwa Arts Forum President Sarana Guneratne and Secretary Chandani Silva.

Adding his signature charm to the evening, as Master of Ceremonies, will be the veteran Arun Dias Bandaranaike.

Don’t miss this landmark celebration of music and memories!

For further details, contact Hiran Fernando on 0772636446 or WhatsApp 0783636446.

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