Features
2025 Budget: Challenges, hopes and concerns
Sri Lanka’s recent government budget has sparked both hope and concern. While some see it as a positive step toward improving the country’s economy, others worry about whether the government’s proposals can be successfully implemented. This analysis explores the budget’s approach and what it could mean for the country’s financial future.
Credit Rating Improvement and What It Means
Fitch Ratings recently upgraded Sri Lanka’s credit rating, moving it from a risky “Restricted Default” (RD) to a “CCC+” rating. This shows that the country’s financial situation is improving, though it still faces a high risk of default. The government aims to increase its revenue, especially through trade taxes and income tax, but experts warn that the success of these plans is uncertain, particularly when it comes to lifting restrictions on imports.
Economic Democracy and Market Regulation
The government claims that this budget is based on the idea of “economic democracy,” aiming to balance market forces with government control. While it promises fairer distribution of wealth, critics argue that it still relies on market-driven policies that may not bring the desired changes. The budget seems to follow similar strategies to past administrations, despite the government’s claim of pursuing a new direction.
The current government, led by a Marxist-influenced party, has shifted its approach by aligning with global economic institutions like the International Monetary Fund (IMF). This represents a departure from its previous, more radical stance. The government’s vision focuses on rural development, support for small businesses, and an export-driven economy, continuing strategies from previous administrations rather than implementing drastic changes.
Stability and Continuity in Policy
One of the more positive aspects of the budget is its consistency with the fiscal policies of the past government. Sri Lanka’s economy has suffered from sudden policy changes in the past, often triggered by political transitions. By maintaining a steady course, the current government seeks to ensure stability in the recovery process, despite criticisms from political opponents.
Sri Lanka continues to face significant financial challenges, including a large budget deficit. The government’s spending in 2025 is expected to exceed its revenue by about LKR 2.2 trillion, leading to a deficit of around 6.7% of GDP. To cover this gap, the government plans to borrow both locally and internationally. However, debt repayment remains a major concern, with billions needed to settle existing obligations.
Tax Revenue and Public Spending Issues
Sri Lanka’s tax collection remains critically low, which worsens the country’s financial troubles. Tax evasion, exemptions, and inefficient administration make it hard to collect sufficient revenue. The government has raised VAT to 18% to boost income, but this could increase inflation, further harming families’ ability to afford basic goods. Additionally, corruption in public institutions continues to drain state resources, preventing effective use of funds for national development.
The Auditor General’s Department recently uncovered financial irregularities in several ministries, reinforcing concerns over systemic corruption.
Sectoral Allocations, Budget Inequities and Falures
Despite claims of prioritizing social welfare, the government’s budget allocation for key sectors remains insufficient. For example, while the government allocated LKR 500 million to improve 379 childcare centers nationwide, this amount pales in comparison to regional standards. In neighboring Bangladesh, the government spends around USD 60 per child annually, while Sri Lanka spends less than USD 25. It’s unclear whether this allocation represents an increase in funding or just a reshuffling of existing resources.
One of the biggest criticisms of the budget is its failure to address the high cost of essential goods, going against promises made during the election. Prices for basic items like rice and coconut are still high, due to supply chain issues, rising fuel costs, and tax policies. The absence of targeted subsidies or price controls has led to growing public dissatisfaction.
Public sector salary adjustments are also a point of contention. The government plans to introduce salary increases in three phases, with the full benefits expected by 2027. However, much of this increase was already granted in previous years through allowances, meaning the adjustment is more about restructuring existing funds than providing real pay increases. This slow approach raises concerns about whether employees’ purchasing power will improve, especially with inflation still a pressing issue.
The government has also urged the private sector to raise wages, but past experiences suggest that private companies often resist such requests. Without formal agreements or laws to enforce wage hikes, there is uncertainty over whether employees will see real wage growth that matches the rising cost of living.
Neglecting Vulnerable Workers and Obstinate Behaviour
Another group left out of the budget’s plans is casual and contract workers, who were expecting improvements in job security and wages, particularly those earning below LKR 1,800 per day. Despite promises made during the election, these workers have not seen any significant changes, which raises doubts about the government’s commitment to improving labor rights and income equality.
The government’s handling of private sector wage increases has also been criticized for a lack of transparency. In a televised discussion, A government representative became visibly agitated when questioned about the date of the agreement with employers, displaying obstinate behavior and refusing to answer the opposition MP’s inquiry.
Review of the Banking Sector’s Role in Govt. Revenue and Economic Growth
The banking sector helps generate national revenue through taxes such as corporate income tax, value-added tax (VAT), and financial transaction levies. However, the claim that it contributed 10% to government revenue in 2024 needs to be understood in context. Past figures have shown fluctuations in financial sector taxes, influenced by economic conditions and fiscal policies. The government’s growing reliance on the banking sector for tax revenue could signal financial stress, and this situation warrants further analysis to understand its long-term sustainability.
While the Sri Lanka Bankers Association (SLBA) emphasizes banks’ support for implementing the government’s budget proposals, their ability to do so effectively depends on broader economic conditions, regulations, and financial stability. Sri Lanka has faced persistent economic issues like high public debt and inflation, which could hamper the ability of banks to help implement fiscal policies effectively. The real impact of the banking sector in driving economic growth remains uncertain, especially given factors like currency instability and a lack of foreign investment.
Digitization and Financial Transparency
The proposal to introduce Point-of-Sale (POS) machines at VAT-registered businesses aligns with global trends in digital financial integration. This move is expected to improve transparency, reduce tax evasion, and increase banking efficiency. Research has shown that digital payments can boost financial inclusion and reduce informal economic activities. However, Sri Lanka faces challenges such as limited digital infrastructure, cybersecurity concerns, and resistance from businesses that still prefer cash transactions.
More digital services could strengthen anti-money laundering (AML) controls, improve transaction monitoring, and reduce cyber threats. However, shifting to a fully digital banking system requires substantial investments in technology, regulatory alignment, and digital literacy among consumers.
Support for SMEs and Development Banking Initiatives
The creation of a Credit Guarantee Institute for SMEs is a significant step. Research shows that credit guarantees can reduce lending risks and improve SME access to financing. However, past state-managed financial programs in Sri Lanka have been inefficient, often involving politicized lending practices.
For these new initiatives to succeed, they will need transparent governance, careful credit risk management, and strong regulations….
Conclusion
Sri Lanka’s banking sector is crucial for economic stability and revenue generation, but the increasing fiscal demands and the push for digital transformation present both significant opportunities and risks. Policymakers need to avoid over-taxation that could stifle credit expansion and investment while addressing digital finance challenges like cybersecurity and infrastructure gaps. The 2025 budget underscores the nation’s vulnerable fiscal situation, where efforts for economic stabilization are hampered by public debt, corruption, and welfare constraints. Achieving sustainability requires comprehensive tax reforms, better public expenditure management, and stronger anti-corruption measures. Without these reforms, Sri Lanka faces prolonged economic hardship, rising inequalities, and diminishing trust in governance. The budget also reflects a blend of ideological transformation and economic pragmatism, with policies largely aligning with past approaches. Fitch Ratings’ cautious optimism signals the potential for recovery, contingent on successful policy implementation. Ultimately, policy continuity is seen as Sri Lanka’s best bet for navigating fiscal uncertainty and achieving economic stability.
(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@slit.lk and www.researcher.com)
Features
The challenge of being positive about SAARC
It was a few years back that a former President of Sri Lanka took it on himself to pronounce SAARC ‘dead’. Since then there have been other sections of Sri Lankan opinion that have joined the critics of SAARC and taken the solemn stance that SAARC has indeed died what may be called a natural death.
Their fatalism is understandable. SAARC has failed to meet at heads of government or state level for the past several years to take the SAARC process notably forward. Regional cooperation has more or less been only an appealing idea. No substantive concrete projects have taken off to make the idea a hard reality. ‘Inner paralysis’ seems to be SAARC’s lot. Hence the fatalism in these circles.
However, being one of the worst cash-strapped regions of the world and a teemingly populated one with people virtually left to their devices, what choices do the ‘SAARC Eight’ have other than to try their best to band together and continue with their cooperation efforts, however small they may be?
There is no escaping the mounting debt trap for many of these countries and bankrupt Sri Lanka is a glaring example, but ‘throwing in the towel’ and abandoning themselves entirely to the diktats of the strongest economies and their agencies will prove a ‘living death’ for many countries in the SAARC fold.
The gains may be meagre but giving-up on SAARC cooperation in full would prove self-defeating for the organization and South Asia. Right now, the collective intention ought to be to salvage what the region could from the tenuous cooperative efforts. Moreover, such initiatives could go some distance to generate a degree of goodwill among the Eight and help in sustaining a dialogue process.
Given this backdrop it proved ‘a stich in time’ for the Regional Centre for Strategic Studies (RCSS), Colombo, to recently host the SAARC Secretary General Ambassador Md. Golam Sarwar to a round table discussion on the unifying potential of SAARC and its future possibilities, besides other related issue areas.
Held on June 24th and moderated by RCSS Executive Director and former ambassador Ravinatha Aryasinha, the forum brought together a vibrant, wide ranging audience comprising academicians, diplomats, senior public servants, civil society activists and many others. Following the presentation by Ambassador Golam Sarwar titled, ‘Reigniting SAARC: Achievements, Challenges and the Way Ahead’, a lively Q&A followed.
The above forum could be described as an act of lighting the proverbial ‘candle’ rather than ‘cursing the darkness.’ It surely is a ‘darkness’ that could be seen as daunting considering that the region’s pivotal powers, India and Pakistan, are failing to act in a spirit of accord but are engaged in bitter finger-pointing on a number of questions of vital importance to SAARC.
On the other hand, what is the rest of the region doing to bring the above sides together? It is disappointing that to date the rest of SAARC has failed to launch a major diplomatic drive to bring peace between the feuding regional heavyweights. It needs to act without delay and establish its earnestness and this effort would need to prove SAARC’s staying power in the unfolding months and even years.
In assessing SAARC’s seeming failure local opinion in particular has failed to factor in what could be described as weak leadership. Since Sheikh Mujibur Rahman of Bangladesh, the founding father of SAARC, the region has failed to produce a visionary leader who could advance the SAARC cause with charisma and drive.
Among other reasons, weak leadership accounts considerably for the faltering and stuttering status, as it were, of SAARC. Badly needed are leaders who could go the extra mile, think less of narrow national interests and work diligently towards the collective well being of the region but SAARC’s millions of ordinary people have been made to wait in vain for leaders of such stature. Instead, they have been burdened with politicians who seem to be relishing the apparently moribund state of SAARC.
Looking back, it could be said that it was the dynamic leadership factor that led to the launching of the Non-Aligned Movement and for its sustenance for a few decades. True, it could be seen in some quarters that NAM is no more, but as in the case of SAARC, the former too has been unfortunate to be burdened over the years with politicians who lack the vision and drive to unflaggingly advance the fortunes of the South. NAM and SAARC lack the dynamism and vision of leaders of the stature of Jawaharlal Nehru, for example, to give them the required guidance and intellectual depth.
The reasons are complex for there not being among us currently political leaders with the vision and the steadfast commitment to advance the legitimate interests of the South. However, it could be stated with conviction that the majority of Southern leaders have too easily caved in to the demands of the global North and its financial agencies.
These leaders have failed to see, for instance, that the largely market economy oriented Northern governments would not view with favour a centrist economic model that attaches priority to the interests of the dis-empowered publics of the South. This realization ought to have dawned on the current government in Sri Lanka, for instance, some while ago but it has no choice but to abide by IMF dictates since economic survival at present is unthinkable without the latter’s succour.
Accordingly for SAARC this should be the time for some soul-searching. Priority needs to be attached to ending the feuding between India and Pakistan since at present the material fortunes of the region hinge largely on these regional giants giving peaceful relations among them a try. This is no easy challenge to meet but some daring, visionary diplomacy needs to take hold among the rest of SAARC.
There is some sense in SAARC bringing the peoples of the region together through programs that address their best collective interests. A meeting of minds among SAARC nations could enable SAARC and its agencies to build a region-wide people’s movement for progressive political and economic change that could in turn lead to the region’s political leaders sensitizing themselves more to the neglected needs of their publics.
However, the time is ‘now’ for the initiation of these progressive changes and the voice of SAARC well wishers would need to drown out those of their critics.
Features
OPA seminar examines Sri Lanka’s economic recovery, resilience and growth pathways
A seminar, “Sri Lanka’s Economic Crossroads: Navigating Recovery, Resilience and Growth” was recently held by the Organisation of Professional Associations of Sri Lanka (OPA) at the OPA Auditorium, bringing together economists, OPA members, and professionals from diverse fields for an insightful discussion on Sri Lanka’s economic recovery and future growth prospects.
The event was held under the patronage of Jayantha Gallehewa, President of the OPA, and was jointly organised by the National Issues Committee (NIC) and the Seminars, Workshops and Programmes Committee of the OPA. The event reaffirmed the organisation’s commitment to advancing professional excellence, fostering insightful intellectual engagement, facilitating interdisciplinary knowledge exchange and creating a constructive platform for informed dialogue on issues of national importance.
The panel of speakers comprised Dr. Harsha Aturupane, Lead Economist and Programme Leader for Human Development at the World Bank for Sri Lanka and the Maldives; Dr. Achinthya Koswatta, Senior Lecturer in Economics at the Open University of Sri Lanka, and Anushan Kapilan, Lead Economist at Verité Research.
In his welcome address, the President of the OPA emphasised that Sri Lanka was at a critical juncture in its economic recovery journey where sustained reforms, effective implementation, and collective national commitment are essential to achieving long-term stability, resilience and inclusive growth. He noted that the country had experienced one of the most severe economic crises in its history with the economy contracting by 7.8 percent in 2022 and a further 11.5 percent in 2023, resulting in significant economic and social challenges.
Delivering his introductory remarks Bhanu Wijeyaratne, Vice President of the OPA and Chairman of the National Issues Committee, underscored the need to move beyond short-term economic stabilisation towards a comprehensive agenda of structural transformation. He observed that the economic crisis had revealed deep-rooted weaknesses within the economy, including persistent fiscal pressures, rising public debt, foreign exchange limitations, and insufficient diversification of the export base. He stressed that addressing these challenges through strategic reforms, institutional strengthening and long-term economic planning would be essential to establishing a more resilient and competitive economy.
While acknowledging recent positive developments, including improved inflation management, tourism recovery and signs of economic stabilisation, Wijeyaratne stressed the need to advance reforms aimed at strengthening fiscal discipline, enhancing productivity, improving competitiveness, developing human capital and reinforcing governance and institutional effectiveness.
He further highlighted the important role of professionals, businesses, academia and other stakeholders in contributing to evidence-based dialogue and supporting Sri Lanka’s journey towards a resilient, inclusive and sustainable economic future.
Delivering the keynote presentation, Dr. Harsha Aturupane provided a comprehensive assessment of Sri Lanka’s economic prospects within the broader context of global economic transformation. He argued that Sri Lanka functioned as a small open economy whose performance is significantly influenced by developments in the global marketplace. External factors could not be controlled, and the country must strengthen its domestic capacity and resilience to respond effectively to international economic shifts, he noted.
Tracing the evolution of global economic systems, Dr. Aturupane highlighted the transition from ideological divisions between state-controlled and market-oriented economies towards increasingly pragmatic approaches focused on growth, competitiveness and development. He noted that Sri Lanka’s own economic journey reflects a similar evolution, with contemporary policy debates now centred on practical solutions for sustainable economic progress.
The presentation also examined the transformative impact of globalisation. Dr. Aturupane observed that global economic integration had enabled several East Asian economies, including South Korea, Singapore, Taiwan and Hong Kong, to achieve remarkable economic advancement through export-led growth strategies. Sri Lanka similarly benefited from this process through the expansion of its apparel industry and increased integration into global value chains.
Turning to Sri Lanka’s recovery programme, Dr. Aturupane emphasised that the ongoing stabilisation process should be viewed as a national programme supported by the International Monetary Fund rather than solely as an IMF initiative. He observed that strong worker remittances, improved tourism earnings, enhanced government revenue mobilisation and prudent import management have contributed significantly to economic stabilisation.
Despite this progress, he cautioned that rebuilding foreign exchange reserves and meeting future debt obligations remain major challenges. He underscored the need to strengthen export performance, attract investment and generate sustainable foreign exchange earnings to ensure long-term economic resilience.
The discussion also focused on monetary stability, inflation management and exchange-rate policy. Dr. Aturupane stressed that maintaining price stability was fundamental to sustainable growth and household welfare, while sound monetary policy remains essential for preserving economic confidence.
Looking beyond stabilisation, he argued that Sri Lanka must transition towards a broader economic transformation agenda. Sustainable growth, he noted, will depend on expanding productive capacity through investment, technological advancement, innovation, skills development and structural reforms.
Among the key constraints identified was the high cost of energy, which continues to affect competitiveness and investment attractiveness. Dr. Aturupane emphasised the importance of improving efficiency and affordability within the energy sector to enhance Sri Lanka’s business environment.
He further highlighted the social dimensions of the crisis, noting the rise in poverty and economic vulnerability among households. Strengthening social protection systems and ensuring inclusive growth, he argued, must remain central components of the national development agenda.
Another critical challenge identified was Sri Lanka’s demographic transition. With an ageing population, outward migration and evolving labour market dynamics, the country is increasingly confronting labour shortages in several sectors. Dr. Aturupane suggested that greater automation, increased labour-force participation and strategic workforce planning would be necessary to address these emerging realities.
Concluding his presentation, he emphasised the need to improve governance, strengthen institutions, enhance competitiveness and create an enabling environment for private sector investment. Sri Lanka’s future success, he noted, will depend on its ability to move decisively beyond crisis management towards a development model founded on resilience, innovation, productivity and inclusive growth.
Dr. Achinthya Koswatta reiterated the importance of policy consistency and predictability in fostering investment and industrial development. She observed that frequent policy changes create uncertainty and discourage long-term investment decisions, whereas stable and coherent policy frameworks build confidence and support sustainable economic transformation.
Meanwhile, Anushan Kapilan highlighted the substantial progress achieved in restoring macroeconomic stability following the recent crisis. He noted significant improvements in fiscal performance, including increased government revenue, reduced reliance on debt financing and a historically low fiscal deficit.
He further observed that public debt levels are declining faster than anticipated, economic growth has exceeded expectations and inflation has been brought under control more rapidly than forecast. Nevertheless, he cautioned that the recovery remains uneven, particularly within the industrial sector and that many households have yet to experience a meaningful improvement in living standards.
The seminar was expertly coordinated by Eng. Chamil Edirimuni, Vice President of the OPA and Chairman of the Seminars, Workshops and Programmes Committee, while the technical moderation and interactive discussion session were facilitated by Bhanu Wijeyaratne, Vice President of the OPA and Chairman of the National Issues Committee.
The event was attended by Tisara De Silva, President-Elect of the OPA, Eng. Ravi Rupasinghe, General Secretary, Past Presidents, members of the Executive Council, representatives of the General Forum and professionals representing a wide range of disciplines.
The seminar concluded with a vibrant exchange of ideas and perspectives, reaffirming the importance of evidence-based policy dialogue, institutional collaboration and collective national commitment in advancing Sri Lanka’s economic recovery, resilience and sustainable growth.
Features
Her roots run deep in Sri Lanka
Yes, for UK-based presenter and artiste Samantha Kay, home is where the heart – and the roots – are. And her roots run deep in Sri Lanka.
In an exclusive interview with The Island, Samantha says “I’m proud to be Sri Lankan. My mum is from Kandy and my dad is from Colombo, so Sri Lanka has always held a very special place in my heart.
“Whenever I visit Sri Lanka, I love spending time on the beautiful south coast, especially Hikkaduwa and Mirissa. It’s somewhere I always feel connected to my roots and completely at peace.”
Now living in Bournemouth, on the south coast of England, where, she says, she is lucky to be close to some of the UK’s most beautiful beaches, including the iconic Sandbanks, Samantha has built a career that refuses to fit into one box.
She is a radio presenter, podcast host, singer-songwriter, personal trainer and life coach.
“I genuinely love the variety because every role allows me to connect with people and, hopefully, make a positive difference in someone’s day.”
Of course, music has taken her far.
One of her proudest achievements, she says, was releasing a song with 90s music icon Angie Brown, which reached No. 9 in the UK Club Charts.
She also reached the final stages of The X Factor and performed at Wembley Stadium in front of thousands.
Beyond music, Samantha competed in bikini bodybuilding across the UK, winning several titles. “It taught me discipline, resilience and self-belief,” she recalls.
Today, her focus is on radio, podcasting and coaching women. Her podcast encourages people to live life on their own terms rather than feeling pressured to follow society’s expectations.
Says Samantha: “Whether someone is single, changing careers, travelling solo or simply trying to find their purpose, I want them to know that it’s never too late to create a life that feels authentic. If you’ve ever felt like you don’t fit into the box, maybe you were never meant to.”
Samantha Kay also spent a year in Dubai, performing at five-star hotels, including FIVE, and coaching at the iconic outdoor gym on Palm Jumeirah.
“I taught strength and conditioning classes, and hosted wellness retreats, combining my passion for music, health and inspiring others.”
However, with family matters calling her back to the UK, she made the choice to return. “Family comes first,” she says.
Looking ahead, Samantha plans to grow her radio and podcast work, release more music, and expand her wellness retreats.
“My biggest passion is helping people, especially women, build confidence and believe in themselves,” she says.
“Wherever my career takes me, I hope to continue inspiring others to live with courage, kindness and authenticity, while never forgetting my Sri Lankan roots.”
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