Business
Sri Lanka’s economy at a crossroads: Fiscal improvement amid trade and demand woes
Sri Lanka’s fiscal health showed signs of improvement in early 2025, with the budget deficit narrowing to Rs. 86.6 billion in the first two months of the year, down from Rs. 129.3 billion in the same period last year. This was supported by a rise in government revenue and a decline in domestic borrowing, signaling cautious optimism in the country’s economic recovery.
Net domestic financing dropped to Rs. 96.8 billion, a significant reduction from Rs. 144.8 billion in early 2024, while foreign debt repayments continued, albeit at a slower pace. The Treasury bill and bond markets remained stable, with strong investor interest auctions were oversubscribed by 2 to 3 times. Foreign holdings of government securities also saw a slight uptick, reflecting cautious confidence in Sri Lanka’s debt instruments.
Meanwhile, lending rates edged lower, with the Weekly Average Weighted Prime Lending Rate (AWPR) dipping to 8.36%, supporting hopes of easier credit conditions. The stock market also saw modest gains, with the All Share Price Index (ASPI) rising 0.7% by early May.
Deflation persisted but softened in April 2025, with prices declining by 2.0% year-on-year – a slight improvement from previous months.
Food prices rose by 1.3%, while non-food categories continued to see deflation (-3.6%). Core inflation, which excludes volatile items, remained low at 0.8%, suggesting weak underlying demand.
Global oil prices fell amid concerns over slowing growth, particularly due to US trade policies, with Brent crude dropping by over $4 per barrel. However, Sri Lanka’s import costs for crude oil in March 2025 were slightly higher than the previous year, posing a challenge for energy-dependent sectors.
Export earnings grew by 5.3% in the first quarter of 2025, driven by strong performances in textiles, spices, and tea. However, import expenditure surged by 11.1%, led by machinery, oils, and dairy products, widening the trade deficit to $1.54 billion.
The Sri Lankan rupee depreciated by 2.3% against the US dollar this year, though the Central Bank bolstered reserves with 160.8 million in net foreign exchange purchases in April.
Gross official reserves stood at 6.53 billion by end-March, including funds from the PBOC swap arrangement.
While fiscal consolidation and stable debt markets provide some relief, Sri Lanka’s economy faces headwinds from global uncertainties and domestic demand weakness. The easing deflation trend and lower interest rates may support recovery but managing the trade deficit and sustaining export growth remain key challenges. In a broader context, the Central Bank figures depict neither a recession nor a boom. These figures suggest instead an economy grappling with persistent challenges and lacking clear momentum in either direction,” a source told The Island on condition of anonymity.
Reported using data from Central Bank.
By Sanath Nanayakkare
By Sanath Nanayakkare
In a major boost to bilateral economic ties, the Chamber of Construction Industry of Sri Lanka (CCISL) and the Indo–Sri Lanka Chamber of Commerce & Industry (ISCCI) have signed a strategic Memorandum of Understanding (MoU) to deepen cooperation in real estate, infrastructure, and urban development.
The agreement establishes a formal framework for both institutions to drive collaborative initiatives, including business delegations, high-level conferences, workshops, B2B matchmaking sessions, and technical site visits. Designed to bridge businesses, government institutions, and project stakeholders across the Palk Strait, the partnership aims to unlock new avenues for cross-border joint ventures and technology transfers.
A focal point of this newly minted partnership is the facilitation of an upcoming trade delegation from the National Real Estate Development Council (NAREDCO) of India. Comprising major Indian players in the real estate and infrastructure sectors, the visiting delegation will engage in targeted business meetings, workshops, and inspection tours of prominent construction projects in Sri Lanka.
Under the terms of the MoU, CCISL will serve as the principal host coordinator in Sri Lanka. In close consultation with ISCCI, the apex construction body will curate itineraries, identify viable projects for engagement, and facilitate high-level dialogues with key government agencies, regulatory bodies, and industry leaders.
With both nations prioritizing sustainable urban growth, modern construction technologies, and infrastructure expansion, industry leaders view the partnership as a timely catalyst for economic rejuvenation. The collaboration is anticipated to accelerate market access, knowledge exchange, and foreign direct investment into Sri Lanka’s burgeoning property and development sectors.
To ensure the success of the upcoming NAREDCO delegation, CCISL has issued an urgent appeal to statutory authorities and relevant project owners to come forward with viable investment proposals. Stakeholders holding projects seeking foreign investment or technical partnerships are invited to submit comprehensive details to the Secretary General and CEO of CCISL via email at secyces@gmail.com.
Both chambers emphasize that translating this foundational agreement into tangible partnerships and robust capital flows will significantly strengthen bilateral connectivity between the construction and real estate sectors of India and Sri Lanka.
Hettich, the globally renowned German manufacturer of furniture fittings and architectural hardware known for its state-of-the-art manufacturing plants and magical interior solutions across the world celebrated a significant milestone in Sri Lanka, marking 10 years of presence in the country with its inaugural Partner Meet in Colombo.
The landmark event brought together Hettich’s key partners, stakeholders and industry leaders to celebrate a decade of growth, collaboration and shared success, while reaffirming the company’s long-term commitment to the Sri Lankan market.
Over the past decade, Hettich has strengthened its presence in Sri Lanka through its focus on German engineering, innovation, quality and functionality, contributing to the creation of contemporary and intelligently designed living and working spaces across the country.
The gala evening was graced by a distinguished delegation of senior leaders, including Dr. Andreas Hettich, Chairman, Hettich Group Advisory Board; S. K. Poddar, Chairman, Hettich India & Adventz Group; Mr. Akshay Poddar, Director, Hettich India; Andre Eckholt, Managing Director, Hettich India, SAARC, Middle East & Africa; Rahul Thakkar, Director – Sales, Hettich India & SAARC; and Dinusha Bhaskaran, Managing Director, Vallibel One PLC.
GS Evo Motors Limited, the authorized distributor of JMEV electric vehicles in Sri Lanka, has officially launched the JMEV EWIND, a next-generation compact electric SUV. The vehicle is designed to offer strong performance, intelligent technology, premium comfort, and high safety standards, marking another milestone in Sri Lanka’s growing electric mobility sector.
The EWIND features a sleek, aerodynamic exterior with penetrating LED daytime running lights, trapezoidal chain-inspired LED tail lamps, 19-inch alloy wheels, and a bold silhouette. Inside, it offers a spacious cabin with a panoramic moonroof and retractable curtain, an ultra-thin suspended instrument panel, a D-shaped multifunction steering wheel, multi-colour ambient lighting, premium finishes, and electrically adjustable front seats.
The SUV is available in single-motor front-wheel drive configurations, producing up to 108 kW and 210 Nm, with 0–100 km/h acceleration in 8.9 seconds.
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