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Why is Singapore dollar strong and SL rupee weak?

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by Jayampathy Molligoda

Inflation is too high in Sri Lanka; people are finding it unbearable. How can we control the inflation from further slipping?

Singapore experience and structure of our CBSL:

 Singapore has the Monetary Authority Singapore (‘MAS’) as their Central Bank, where in Sri Lanka, we have the Central Bank of Sri Lanka (which is not a body corporate in legal terms) and within the CBSL, they have the ‘Monetary Board’. Basically, the Singapore Central Bank (MAS) has managed to keep the inflation under control even during this period of global economic recession, where most of the other countries have not been able to contain the inflation. The Singapore used the exchange rate to influence inflation, not the other way around.

 Our view is that there must be a sound, practical and legal mechanism guaranteeing the independence of the CB whilst making the CBSL accountable and transparent as in the case of MAS. John Exter, the founding Governor of the Central Bank of Ceylon, in his report stated that Governor of the Central Bank should be of unquestioned integrity and responsibility. This is very critical because an independent CB is essential for maintaining price stability, meaning containing inflationary pressure.

 As for maintaining the price stability objective, the simplest test is whether CB can continue to resist demands from the government of the day to print money and/or continue to maintain low interest rate regime when a higher interest rate is necessary to maintain price stability. This is because the government of the day would naturally tend to push economic growth rates to run at a faster rate than its capacity limit permits and their desire to incur budget deficits try to secure funds by borrowing from CB. Ours is somewhat politicized.

 However, the reality is most of the economic activities will come to a grinding halt if CBSL doesn’t print new money for the government. Besides the suffering of the people on the road, non- repatriation, avoiding sovereign breaches, not letting money market domino effect failure, payment to foreign parties, all of these have to be considered. No salary payments to government servants for a particular month if money printing is stopped.

Why can’t our CB do the same thing as MAS?

 Sri Lankan situation is totally different because it has a persistently high ‘twin deficits’ meaning (1) government budget deficits since independence and (2) BOP current account deficit with rest of the world. And CB has been compelled to resort to ‘money printing’ more that the required/ desired level and continue to borrow, thus increasing foreign debt service beyond unsustainable levels.

 The real issue has been that our Exports as a % of GDP has come down from closer to 28% in four to five decades to 12% especially since 2014 to date. Now GDP real per capita is coming down. We were boosting US $ 25 billion has increased to US $ 75 billion within 10 years, but it was through services and high spending on infrastructure development without corresponding increases in return on such investments by way of increased exports.

CBSL policy towards curbing inflation:

 Since August 21, CB has been trying to control inflation by way of increasing bank interest rates through increasing CB rates and Statutory reserve ratios (tightening the monetary policy accelerated wef March 22, however. this badly affects SMEs – the micro and small and medium enterprises have serious issues in the area of access to financial facilities or in simple terms, borrowing costs are so high that they cannot afford to borrow any more. Depending on whether the marketable – products of these businesses are in the “buyers; market’ or “sellers’ market” they could either survive or eventually collapse- only the ‘rich’ become richer (only in certain sectors) because they are in possession of own surplus money – they earn a substantial amount as interest income at current deposit rates and also have the option of keeping dollars without repatriation as stipulated in the relevant directives issued under Monetary Law Act of 1949. This is despite the rupee exchange rate was allowed to be flexible and floated from Rs 203/ per $ and now it’s Rs 368/.

  Further, during the period 2019 till august 2021, the private sector was benefited under low tax rates and low bank interest regime, where they borrowed rupee loans at 4-6 %, otherwise the exporters were compelled to go for $$ packing credit for financing export orders. In my view, our private sector is smarter than the government policy makers and some top officials in the financial/banking sector. It was the private sector who insisted that SL rupee should be floated not even a “managed float currency policy. Are we now getting the export proceeds according to the applicable regulations and if not, does the CB strictly enforce penalties for non- compliance?

Two News items published on 29/07/22:

“Earnings from merchandise exports increased by 20% Y-o-Y to USD 1,208.2 Mn in June 2022 as per data released by Sri Lanka Customs, mainly due to increase in earnings from export of Apparel & Textiles (1/2)”

  “World Bank does not plan to offer new financing to Sri Lanka until an adequate macroeconomic policy framework is in place – WB”

 Sri Lankan Export industries such as textile and apparel, tea sub sector, minor export crops, etc., should be able to be more competitive in the global market place due to the policy of currency depreciation wef 7 March 22 from Rs 203/-  to around Rs 368 (at present), but the associated local costs including the import content of the export value chain and the additional costs due to difficulties in ‘doing business’ under current conditions tend to move up sharply in the near future, thus eroding the cost competitiveness enjoyed by our exporters. As for doing business, one of the most critical current issues has been the shortage of fuel. It is in that context only the importance of making available sufficient FOREX income, be set aside for importation of fuel on a monthly basis, say US$ 300 million, should be viewed. Now that the backlog of LCs being cleared and most of the payments have been made and the incoming $$$ are now being reserved, it is important to set aside a part of export proceeds towards meeting fuel bills on a monthly basis.

Vital information on ‘FOREX’ monitoring not made available yet:

Stemming from the above argument, the CB’s priority number one should be to ensure whether export proceeds in dollars are received within the stipulated timeframes and in accordance with the directives issued under Monetary Law Act of 1949. In fact, the CB mandate by law is ensuring price stability and financial system stability and management of FOREX is the critical success factor here.

In August 21, then Governor Prof WDL appointed a working committee and liaised with customs and started putting in place the EPMS. (As far as direct documentation of export (‘cusdecs’) is concerned, the commercial banks do not receive those docs and what they can monitor is what they actually receive as proceeds only, that’s why this ICT system is needed.)

 It seems that export proceeds monitoring system (EPMS) is still not functioning at CB level. Also, CB doesn’t provide the information on actual amounts of foreign exchange proceeds received on a monthly basis.

According to the Governor, CB, only about 20% of the FOREX is getting converted in to the banking system out of US$ 1,000 million export proceeds per month. It is not clear how much has actually received within the ‘180 day rule’ on a monthly basis AND how much converted.

The present Governor, CB is now making an appeal to exporters to remit all export proceeds and convert at least 50% of the proceeds after keeping $$ for ‘eligible expenditure’. It is expedient for the CB to advise the government to set aside (out of monthly export+ direct remittances) at least US$ 300 million per month for petroleum product imports and only the deficit if any, be funded through credit lines. In the meantime, our renewable energy sources must be explored with a view to reducing dependence on diesel and petroleum inputs.

 Apparently, the Strategy adopted by the Ministry of Finance on 12 April 22 by pre-emptive debt defaults announcement has created some negative sentiments as well. Fuel imports can only be done through advance payments. LCs cannot be opened without paying an advance as most of our banks are considered untrustworthy customers in the international trading operations.

Light at the end of the tunnel: 

We are into a vicious economic cycle. What is really worrisome is that there seems to be no serious process of problem identification by following a more scientific ‘research methodology’. First and foremost, we need to find out what went wrong? Some kind of a truth commission is needed. Our policymakers together with the private sector, the government and Opposition politicians all must get together to find out what went wrong without ‘blame assigning game’. Our policymakers must learn to admit that we don’t know fully the reasons, until a detailed analysis is done. No sustainable solutions can be expected in a situation where we all have full of ‘beliefs’ -some may be true others false, therefore the real facts need to be separated out from mere opinions based on beliefs although belief is the starting point of any intellectual thought process as claimed by world renowned philosopher, Bertrand Russell. No point in blaming politicians only – maybe as national leaders they have failed to provide transformational leadership and inspire other stakeholders to drive the economy. Also, successive governments have not created conducive environment for private sector to do business and improve economic welfare of the people, otherwise, it is the private sector that is managing the economy; at least 70% of the economic activities are undertaken by the private sector. Our private sector is capable of driving the businesses as ‘engine of growth’ for national economic development.

 What can the government do under the current circumstances?

The solution is for the government authorities to follow one important process, undertake some research using scientific methods to ascertain why we have failed. It is suggested the government appoint an ‘expert panel’. It should come out with immediate, short and medium- term strategic plan based on a long-term vision. But who is going to appoint this expert panel and who are the members? Ideally, it has to be a Presidential commission.

Treasury does not have any money at all and when CPC is held up with no payment to banks. That is why our economists have been advocating stringent fiscal measures be enforced by the government so that the government expenditure could be drastically reduced. Most of the state- owned enterprises (SOEs) need to be restructured by liberalising the sectors and put in place a more transparent system to look for ‘PPP projects’ to drive economic activities using under- performed state assets. However, these measures need to be taken after a due process of obtaining the final recommendations of the Presidential commission.

Social unrest, achieving political stability and economic revival:

What we have discussed up to now pertains to our economic problems, but we have major issues in socio-political arena. We need to admit that there are a number of genuine grievances coming out from the ordinary people and also a mass uprising against corruption and mismanagement of the governments, although no concrete evidence is forthcoming to justify these claims, that’s why the truth commission findings are important. On the other hand, there is this conspiracy theory that some unexplained, hidden and most powerful forces operating outside Sri Lanka are at work -may be trying to weaken the “STATE” and portray Sri Lanka as a failed state as articulated by the Head of SIS at a high- level meeting chaired by the President Ranil Wickremesinghe. Surely, there must be some valid reasons for the government under President, GR to adopt a ‘soft’ policy. We don’t know the ‘real things’ yet.

We have been hearing as a slogan that political stability is a prerequisite for achieving much needed economic growth and revival. However, the writer is of the view that in today’s context, it should be other way around. If the government of the day cannot provide basic needs of the people, at least fuel without people waiting in long queues, it will not be possible to restore political stability, and social unrest could further accelerate. That’s why some kind of economic revival is needed to fulfil ‘basic needs’ of the people to restore some kind of ‘political stability’. Otherwise this so-called ‘political stability’ becomes a mere superficial phrase.

In the meantime, it is the responsibility of the government of the day to uphold the constitutional provisions to the letter and spirit as stipulated in the Constitution of the Democratic Socialist Republic of Sri Lanka.

The authorities need to respect the different views of the people without resorting to suppress people’s non-violent socio-political movements, whilst maintaining law and order to safeguard the peoples’ sovereign rights guaranteed under our Constitution.



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Opinion

Can a punishment-free child become a threat to Sri Lankan society?

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Children are the future of every nation, and the values they learn during childhood shape the society they will eventually lead. In Sri Lanka, where family traditions, respect for elders, and social responsibility have long been important cultural values, the way children are raised remains a topic of great interest. In recent years, many parents and educators have moved away from traditional forms of punishment and embraced more child-friendly approaches to discipline. While protecting children from physical and emotional harm is essential, an important question arises: can a child who grows up without any form of punishment or consequences become a threat to Sri Lankan society?

To answer this question, it is necessary to understand the difference between punishment and discipline. Punishment is often associated with penalties imposed for wrongdoing, while discipline refers to teaching children self-control, responsibility, and respect for rules. Modern child psychology generally discourages harsh physical punishment because it can cause fear, anxiety, and resentment. However, completely removing consequences for inappropriate behavior may create a different set of problems.

Sri Lankan society has traditionally emphasized discipline within the family. Parents, grandparents, and teachers have often played active roles in guiding children’s behavior. Respect for elders, obedience, and good manners have been considered important virtues. While some traditional disciplinary methods may no longer be acceptable, the underlying principle of teaching accountability remains relevant.

A child who never faces consequences for wrongdoing may struggle to understand the boundaries that exist in society. For example, if a child is allowed to insult others, damage property, or ignore rules without correction, they may develop the belief that their actions have no consequences. Such attitudes can become problematic when the child enters school, the workplace, or the wider community.

Sri Lankan schools already face challenges related to student discipline. Teachers often report difficulties in managing classrooms where some students refuse to follow instructions or respect school regulations. When children are not taught accountability at home, educational institutions may find it harder to maintain a productive learning environment. This can affect not only the individual student but also classmates whose education is disrupted.

Another concern is the development of entitlement. A child who is never told “no” may come to believe that personal desires should always be fulfilled. In a society where cooperation and mutual respect are essential, such attitudes can lead to conflicts with peers, teachers, employers, and even family members. Sri Lanka’s social fabric depends heavily on community relationships, and individuals who fail to respect others can weaken these bonds.

The influence of social media and modern technology has added another dimension to this issue. Today’s children have access to information and entertainment on an unprecedented scale. Without proper guidance and consequences, some may misuse technology, engage in cyberbullying, spread misinformation, or develop unhealthy habits. Parents who avoid setting limits may unintentionally expose children to risks that affect both personal development and social well-being.

The workplace offers another example of why accountability is important. Sri Lanka’s economic development depends on a workforce that is disciplined, responsible, and capable of working with others. Employers value punctuality, respect, and professionalism. Individuals who grow up without learning responsibility may find it difficult to meet these expectations, affecting both their personal success and the productivity of organizations.

However, it is equally important not to interpret this argument as support for harsh punishment. Research has shown that excessive physical or emotional punishment can have serious negative effects on children. Fear-based parenting may produce obedience in the short term but can damage confidence, trust, and mental health in the long term. Therefore, the solution is not stricter punishment but more effective discipline.

Positive discipline provides a balanced alternative. It involves setting clear rules, explaining expectations, and applying fair consequences when those rules are broken. For instance, if a child neglects schoolwork, they may lose certain privileges until responsibilities are fulfilled. If they damage property, they can be required to help repair or replace it. Such consequences teach accountability while preserving the child’s dignity.

Sri Lankan parents, teachers, and community leaders all have a role to play in nurturing responsible citizens. Families should create environments where children feel loved and supported but also understand that actions have consequences. Schools should encourage character development alongside academic achievement. Religious and community organizations can reinforce values such as honesty, compassion, and respect for others.

A balanced approach is especially important in a rapidly changing society. As Sri Lanka continues to modernize and integrate with the global community, young people must learn not only their rights but also their responsibilities. Freedom without responsibility can lead to selfishness, while discipline without compassion can lead to fear. The challenge is to find the middle ground.

A punishment-free child can become a concern for Sri Lankan society if the absence of punishment also means the absence of discipline and accountability. Children who never learn consequences may struggle to respect rules, authority, and the rights of others. However, harsh punishment is not the answer. The most effective approach combines love, guidance, clear boundaries, and fair consequences. By raising children who understand both freedom and responsibility, Sri Lanka can build a future generation that strengthens society rather than threatens it.

Saumya Aloysius

(An essayist, children’s writer and freelance writer who holds a Master’s Degree in Sociology from the University of Kelaniya)

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Opinion

SriLankan Airbus struck by lightning

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A representational image

On Friday 12 June, 2026, a SriLankan Airlines Airbus 330 was en route from Colombo to Sydney, Australia was about 45 minutes into its flight when a loud bang was heard, accompanied by a blinding flash. In what was assumed to be a lightning strike, the airplane’s left (No. 1) engine was damaged, forcing the aircraft to return to BIA-Katunayake, where it landed safely.

Lightning travels from cloud to cloud or cloud to ground. Because the aircraft is not electrically ‘grounded’, or ‘earthed’, it must have been in the path of the thunder bolt purely by chance. There is also a phenomenon whereby the aircraft may travel through an electrically charged atmosphere (for example a cloud) where an electrical charge could build up and strike, or be emitted, as lightning. In such an instance, pilots hear electrical static in their headsets before the strike. Usually, when lightning strikes an aircraft in flight, the electrical charges remain on the outside, as on a ‘Faraday’s Cage’ apparatus, and the passengers and crew are perfectly safe.

To help the efficient and safe discharge of static electricity from the airplane’s structure, static wicks, or static dischargers, are fitted at the trailing (rearmost) edges of the wings and tail surfaces. When an airplane has landed after a lightning strike, ground engineers count the number of wicks that may have been burnt out to ensure that a minimum (recommended) number is available for a subsequent flight. Sometimes, there is minor damage, like pitting of the paintwork at the points where the charges left the aircraft.

The last instance in the USA of an airplane believed to have been lost due to a lightning strike was on December 8, 1963, when a Pan Am Boeing 707-121, en route from Baltimore, Maryland to Philadelphia, Pennsylvania, suffered a fuel tank explosion, later determined to have been the result of a lightning strike. Since then, aircraft have been rendered immune from lightning damage thanks to extensive research conducted by manufacturers using high-voltage currents.

Interestingly, modern airliners have electronic instrument displays which don’t even flicker when the aircraft is struck by lightning. By a process of connecting all the metallic parts, known as ‘bonding’, the entire fuselage effectively becomes a protective cocoon, so electrical charges caused by lightning will always reside on the outside of the aircraft.

What is unusual in the recent SriLankan Airlines incident is the extent of damage to the left engine. Did it encounter hail or ingest something?

Only a thorough, independent inquiry by aviation safety investigators will reveal the cause.

GUWAN SEEYA

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Opinion

Beyond diagnosis: A strategic design for 7% growth by 2029 (Part I)

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“Vision without execution is hallucination.” – Thomas Edison

Introduction: Stabilisation Is Not Transformation

Sri Lanka has come a long way since the economic collapse of 2022. Inflation has been brought under control. Foreign reserves have improved. Debt restructuring has advanced. Government revenue has increased significantly through taxation reforms. The exchange rate has stabilised, and confidence has gradually returned to financial markets.

These achievements deserve recognition.

However, stabilisation should not be confused with economic transformation. A patient discharged from intensive care is not necessarily healthy. Likewise, an economy that has escaped collapse has not necessarily achieved sustainable prosperity.

The central economic question facing Sri Lanka today is no longer how to avoid another crisis. Rather, it is how to achieve sustained economic growth of at least 7% per annum by 2029.

Unfortunately, much of the current policy debate remains trapped in economic diagnosis. Policymakers, economists, and commentators repeatedly identify familiar problems: (i) low productivity, (ii) weak exports, i(iii) Inadequate innovation, (iv) poor competitiveness, and (v) insufficient investment. While these diagnoses are correct, they are not new.

Sri Lanka now needs economic engineering.

The country requires a clear, measurable, and actionable National Growth Strategy for 2026-2029 that identifies (i) where growth will come from,(ii) what investments are required,(iii) which institutions will lead implementation, and (iv) how success will be measured.

The difference between diagnosis and engineering is the difference between describing a problem and solving it.

The Missing National Growth Target

One of the most striking weaknesses in Sri Lanka’s economic discourse is the absence of a publicly articulated growth target supported by a detailed implementation framework.

Successful economies establish measurable objectives.

Sri Lanka should adopt the following growth trajectory:

2026 – 4%

2027 – 5%

2028 – 6%

2029 – 7%

Such targets would provide direction to investors, public institutions, universities, exporters, and development partners. Without a destination, even the best policies risk becoming disconnected initiatives.

Today, many policy interventions appear fragmented—valuable in isolation but lacking integration into a broader national growth framework.

Growth Will Not Come From Consumption

For decades Sri Lanka relied heavily on consumption, imports, remittances, tourism, and external borrowing.

That model has reached its limits.

No country has achieved sustained prosperity through consumption-led growth alone.

The countries that transformed themselves—Singapore, South Korea, Ireland, Vietnam, and China—generated growth through productive investment, exports, industrialisation, and integration into global markets.

Sri Lanka’s future growth must therefore be driven by investment and exports rather than domestic consumption.

The challenge is not increasing spending but increasing productive capacity.

Export-Led Growth: The First Pillar of Transformation

Every successful Asian growth story has one characteristic in common: exports.

Exports generate foreign exchange, create jobs, attract investment, encourage innovation, and improve productivity.

Sri Lanka should establish an ambitious target of doubling export earnings within the next decade.

This requires moving beyond traditional exports and expanding into:

High-value agriculture

Food processing

Information technology services

Logistics services

Advanced manufacturing

Professional services

Export growth must become a national mission comparable to post-war reconstruction efforts seen elsewhere in Asia.

Without a major expansion of exports, sustained 7% growth will remain elusive.

Manufacturing: The Forgotten Growth Engine

Manufacturing remains the single most important source of rapid economic transformation worldwide. Vietnam provides perhaps the best recent example.

Through (i) industrial zones, (ii) trade agreements, (iii) infrastructure development, and (iv) targeted investment attraction, Vietnam became deeply integrated into Asian production networks.

Sri Lanka possesses strategic advantages:

A prime Indian Ocean location

Strong port infrastructure

Educated labour force

Proximity to India

The country should establish specialised manufacturing clusters focusing on:

Electronics assembly

Medical devices

Processed food products

Boat building

Rubber-based products

Engineering components

Rather than attempting to compete with every country, Sri Lanka should specialise in selected niches where competitive advantages can be developed.

RCEP: The Strategic Door to Asia

Sri Lanka’s future lies increasingly in Asia.

The Regional Comprehensive Economic Partnership (RCEP) represents the largest trading bloc in the world and includes many of the fastest-growing economies.

Membership or closer integration with RCEP supply chains could provide Sri Lankan exporters with access to markets, investment, technology, and production networks that are currently beyond reach.

Unfortunately, discussion on RCEP remains limited compared with its strategic significance.

A dedicated national roadmap for RCEP engagement should become a top economic priority.

The question is not whether Sri Lanka can afford to integrate more deeply into Asia.

The question is whether Sri Lanka can afford not to.

Knowledge Economy: Turning Universities Into Growth Institutions

Sri Lanka’s universities produce thousands of graduates annually, yet their contribution to commercial innovation remains limited.

Globally, universities have become engines of economic development.

Research institutions should not merely produce graduates; they should produce patents, technologies, startups, and commercial solutions.

A national innovation framework should:

Link universities with industry

Encourage commercialisation of research

Support technology transfer

Expand startup financing

Reward innovation and entrepreneurship

Knowledge must become an economic asset rather than an academic exercise.

Dairy, Agriculture, And Import Substitution

Export growth alone is insufficient.

Sri Lanka must also reduce unnecessary import dependence.

The dairy sector offers a compelling example.

For decades, billions of rupees have left the country through dairy imports despite favourable climatic conditions and substantial agricultural potential.

A comprehensive dairy development strategy should focus on:

Improved genetics

Feed production

Commercial farming

Processing investment

Farmer productivity

The objective should be import substitution combined with rural income growth.

The same principle can be applied selectively to other sectors where domestic production is economically viable.

Creating A National Investment Targeting Agency

Sri Lanka does not need another bureaucracy.

It needs a professional institution dedicated exclusively to investment targeting.

Instead of passively waiting for investors, this agency would actively identify and attract strategic investments aligned with national priorities.

Its mandate would include:

Identifying priority sectors

Marketing opportunities globally

Coordinating approvals

Monitoring outcomes

Facilitating technology transfer

Singapore’s Economic Development Board and Ireland’s Industrial Development Agency demonstrate how targeted investment institutions can transform national economies.

Sri Lanka requires a similar mechanism adapted to local realities.

From Economic Diagnosis To Economic Engineering

The next stage of Sri Lanka’s recovery requires a fundamental shift in thinking.

The policy debate must move beyond identifying problems. The country already knows its problems.The challenge is implementation.Every policy proposal should be evaluated against a simple question:

Will this contribute to achieving 7% growth by 2029?

If the answer is no, resources should be redirected.

Economic engineering requires focus, prioritisation, accountability, and measurable outcomes. The era of fragmented initiatives must give way to a coherent national growth strategy.

Summary

Sri Lanka has achieved significant macroeconomic stabilisation, but stabilisation is only the first step toward sustainable prosperity.

To move from recovery to transformation, Sri Lanka should adopt a National Growth Strategy for 2026-2029 built around five pillars:

Export-led growth

Investment-led growth

Manufacturing expansion

Knowledge-economy development

Regional integration through RCEP and Asian supply chains

Supporting sectors such as dairy, tourism, logistics, and information technology should be strategically developed within this framework.

Most importantly, investment must be targeted rather than scattered, supported by specialised institutions and measurable performance indicators.

Conclusion

History demonstrates that no nation has become prosperous by accident. Economic success is rarely the product of isolated policies or short-term political initiatives. It is the outcome of a deliberate strategy pursued consistently over many years.

Sri Lanka stands at a crossroads.

One path leads to modest growth, periodic crises, recurring debt challenges, and continued vulnerability. The other leads to transformation through investment, exports, innovation, manufacturing, and regional integration.

The choice is ultimately strategic.

The time has come for Sri Lanka to move from economic diagnosis to economic engineering.

The future will not be determined by how successfully the country stabilised after the crisis. It will be determined by how effectively it builds the foundations for sustained growth thereafter. If Sri Lanka can articulate and execute a coherent investment-led growth strategy today, achieving 7% growth by 2029 need not be an aspiration.

It can become a national objective—and a national achievement, economic Engineering

The writer, among many, served as the Special Advisor to the Office of the President of Namibia from 2006 to 2012 and was a Senior Consultant with the UNDP for 20 years. He was a Senior Economist with the Central Bank of Sri Lanka (1972-1993). He can be reached via asoka.seneviratne@gmail.com

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