by Gomi Senadhira

During the presidential election campaign, the importance of trade, particularly exports, to Sri Lanka’s was emphasised by President Anura Kumara Dissanayake (AKD) and the other two main contenders in the fray, namely Sajith Premadasa (SP) and Ranil Wickremesinghe (RW) in their manifestos. These three candidates together polled more than 90 percent of the votes at the presidential elections. During the parliamentary elections the political parties which based their campaign on these manifestos – Jathika Jana Balawegaya (NPP), Samagi Jana Balawegaya (SJB) and New Democratic Front (NDF) together polled more than 83%. Therefore, the electoral support for these pro-trade policies is undisputed. For the Sri Lankan export community this should be a superb development, as for many years, the trade policy had been, one of the more contentious areas of island’s politics. Our main trading partners and the foreign investors would also welcome this policy convergence.

Pro- trade policies in the policy statements of RW and SJ were not unexpected. But the pro-trade approach in the AKD’s manifesto surprised many, mainly because all other parties had repeatedly warned the people against voting for AKD as he would turn Sri Lanka into another North Korea or Cuba.

For example, during the election campaign, at a conference organised by the National Bankers Association, RW stated, “On September 4th, MP Anura Kumara Dissanayake emphasised the importance of focusing on exports for our country’s businessmen and industrialists. While this principle is commendable, there is a concern. Their policy statement suggests that Sri Lanka plans to cancel its free trade agreements.

This raises a significant question: how can we develop an export industry without these agreements? Such contradictions pose challenges.” Since then, he had repeated these comments at several other meetings.  In the same way, SP’s trade policy wonks also had spread similar misinformation on NPP policies.  However, the NPP policy statement clearly states its position on Free Trade Agreements, that is “… updating of existing free trade agreements and negotiating new free trade agreements.” The updating of the trade agreements certainly does mean cancelling of these agreements. All FTAs need to be reviewed and updated periodically.

During the election seasons, politicians sometimes manipulate public opinion about the crucial issues by arousing fear. But this is not the time to deliberately mislead the public in general and, more particularly, the business community and our trading partners with false information on trade policy. At this juncture, what we need are facts. Not scare tactics and false information. So, let’s hope our politicians would avoid such scare tactics in the future and join together to strengthen this consensus on export-oriented, outward-looking trade policy.

To those who are familiar with the way the NPP policies evolved in the recent past, their shift towards pro-trade policies is not a surprise. After all, if the NPP and AKD want a socialist model to emulate, they have many examples of socialist governments, other than North Korea and Cuba, to draw lessons from. For example, the success story of the Socialist Republic of Vietnam. While cautiously staying away from the labels AKD’s policy statement refers to Vietnam, Bangladesh, and South Korea (and not North Korea) as export success stories, Sri Lanka can acquire lessons from. More importantly, Vietnam’s success story was also highlighted at the top of RW’s policy statement and by the trade experts in the SJB as a success story to follow. What is needed now is to strengthen this consensus further and develop a pro-export national trade strategy approved by the parliament. That would help to attract much-needed foreign investments and export orders.

If we already have a general consensus on pro-trade and pro-export policies, then why do we need to rethink trade policies now?

From export-oriented economy to import dependent economy

Sri Lanka was the first country in South Asia to liberalise trade policies with the ‘open’ economy introduced in the late 1970s. However, the open economy introduced then was not fully open. It had a strong focus on the expansion of the export of goods while discouraging imports, particularly nonessential imports. A special cess was imposed on the nonessential imports to protect local farmers and manufacturers and to collect funds for export development.

The main thrust of the trade policy was exports. During that period, the government proactively managed to get an adequate level of market access to Sri Lankan exports through multilateral trade rules (GATT/WTO rules) as well as the distortions to those rules (textile quotas). These policies worked well, and during the 1980s and 90s, Sri Lanka’s exports registered almost a fivefold increase, from US$1.35 billion in 1981 to US$6.37 billion by the year 2000. The exports-to-GDP ratio increased from 30.46% in 1981 to 39.02% in 2000. During the period, Sri Lanka was slowly but surely progressing into an export-oriented economy.

Unfortunately, during the next two decades, the export growth slowed down and only increased from US$6.37 billion (in 2000) to US$13.03 billion (in 2020). The exports-to-GDP ratio also declined substantially during this period. At 15.46% in 2020, it was the lowest ever recorded. More alarmingly, the growth of exports during the last decade was almost stagnant, and it increased only from US$ 10 billion in 2013 to US$ 12 billion in 2023. During the same period, Vietnam’s exports increased from US$132 billion in 2013 to US$370 billion in 2023.

Hijacking of trade policy by importers and profiteers

The main reason for this decline was the absence of interest in export development by the successive governments and the influence of the importers, the profiteers and perhaps even hawaladars on trade policy formulations. If one analyses the trade policy formulation in the recent years, it is easy to understand how trade policies and even free trade agreements were directed towards import promotion at the expense of export development. After signing Sri Lanka’s first bilateral FTA with India in December 1998 and second with Pakistan in August 2002, and the enhanced GSP arrangement in the EU, no new tangible initiatives were taken by the government to develop market access for Sri Lankan exports.

During the last decade the situation deteriorated further and even the free trade agreements, which countries normally negotiate at the request and on behalf of their exporters to get better levels of market access for them in other countries, were negotiated at the request of the exporters of other countries to provide them with enhanced market access into Sri Lanka without reciprocal concessions for Sri Lankan exporters. The free trade agreements Sri Lanka signed with Singapore and Thailand are clear examples of this approach.

These agreements were negotiated under RW’s leadership, first as the prime minister and then as the president. Despite his rhetoric about the critical need to swiftly transform Sri Lanka into an export-oriented economy, as stabilising the economy alone would not solve Sri Lanka’s problems due to the country’s heavy dependence on imports, it was under RW’s leadership that the trade policy got blatantly hijacked by the importers mafia and profiteers.

Another adverse development during the last two decades was the relaxation of foreign exchange regulations. Due to this Sri Lanka also does not fully benefit even from the limited amount of exports, as a substantial portion of the export proceeds are not repatriated. In July 2022 the Central Bank revealed that less than 20% of export proceeds are being repatriated by the exporters. Though this may have improved since then, the conversion rate remains below accepted levels. In addition to that, a significant amount of money is transferred out through trade misinvoicing by the exporters and importers.

As the elections are over now it is the time for a new beginning. It is the time to intensify analysis and advocacy regarding the numerous ways that trade agreements and po8licies must be reformed and strengthen the consensus on trade policies and adjust them to undo decades of capture by the importers’ mafia, profiteers, and hawaladars.

(The writer, a retired public servant and diplomat, can be reached at senadhiragomi@gmail.com)

by Prof. Chanaka Jayawardhena,
Professor of Marketing, University of Surrey, UK.
Chanaka.j@gmail.com

Sri Lanka finds itself at a crossroads. The devastation caused by Cyclone Fengal, which displaced over half a million people, destroyed critical infrastructure, and claimed numerous lives, highlights the country’s vulnerability to natural disasters. At the same time, the nation is tentatively emerging from its first-ever sovereign debt default, buoyed by a $12.5 billion bond swap and an IMF bailout. Together, these events pose an urgent question: Can Sri Lanka navigate the treacherous path of recovery without derailing its fragile economic stability?

The answer lies in the delicate balance the government must strike. Cyclone Fengal is more than just a natural disaster—it is a stress test for the economic goodwill painstakingly built up over the past year. How Sri Lanka’s policymakers respond could define the trajectory of its recovery for years to come. This is not just about reconstruction; it is about rethinking priorities, leveraging the current crisis as an opportunity to build resilience, and ensuring the hard-won economic gains are not squandered in the process.

Cyclone Fengal: A Catalyst for Change or a Step Backward?

The immediate economic impact of Cyclone Fengal is staggering. Agriculture, one of the backbones of Sri Lanka’s economy, has suffered significant losses, with thousands of acres of paddy fields and tea plantations—critical export sectors—being submerged. Damaged transport networks have disrupted supply chains, delaying the movement of goods and escalating costs for businesses and consumers alike. The government now faces the twin challenges of financing disaster relief and rebuilding vital infrastructure, all within the constraints of a tight fiscal envelope.

The human cost is equally dire. Families have lost homes, livelihoods, and loved ones. The socio-economic fallout of such displacement is long-lasting, with vulnerable communities pushed further into poverty. Moreover, the environmental damage, including soil erosion and the destruction of ecosystems, adds another layer of complexity to recovery efforts.

Yet, there is an opportunity amidst this tragedy. Disasters often serve as catalysts for long-overdue reforms. Cyclone Fengal could prompt Sri Lanka to implement policies aimed at climate resilience, investing in infrastructure that can withstand future storms and floods. Such investments would not only protect lives and livelihoods but also reduce the economic disruptions caused by such events. However, realising this opportunity requires vision, coordination, and a clear commitment to long-term planning—qualities that have not always been hallmarks of Sri Lankan governance.

The risks, however, are equally pronounced. With limited fiscal space and the need to adhere to IMF conditionalities, there is a real danger that recovery efforts might siphon funds away from critical economic reforms. If mismanaged, this could erode investor confidence, putting at risk the progress made in stabilising the economy. The government must guard against the temptation to prioritise short-term relief over the long-term restructuring that is vital for sustainable growth.

Debt Restructuring: The Elephant in the Room

Sri Lanka’s recent $12.5 billion bond swap was a bold move to address its debt crisis, but the relief it offers is conditional. Investors and international institutions are closely watching how the government navigates its commitments to fiscal discipline and structural reform. Cyclone Fengal has now added an unexpected layer of complexity to this equation.

The IMF bailout, which released $333 million in its latest tranche, demands not only fiscal prudence but also tangible progress in revenue generation and state enterprise restructuring. These measures, while necessary, are politically sensitive and require a stable economic environment to succeed. The cyclone’s aftermath threatens to upset this balance, with rising expenditure on disaster relief potentially crowding out these reforms.

Moreover, the bond swap itself is not without controversy. While it offers breathing room, it also raises questions about the sustainability of Sri Lanka’s debt strategy. With global interest rates on the rise, the cost of future borrowing could escalate, particularly if the government fails to demonstrate fiscal discipline. In this context, the pressure to deliver results has never been greater. Successfully managing this dual challenge of recovery and reform will be the ultimate test of Sri Lanka’s political and economic leadership.

Lessons from other economies

Sri Lanka is not the first country to face the dual challenge of disaster recovery and economic reform. Indonesia’s response to the 2004 tsunami offers valuable lessons. By channelling international aid into long-term development projects and maintaining fiscal discipline, Indonesia turned a crisis into an opportunity for economic transformation. Key to its success was the establishment of a dedicated reconstruction agency that ensured transparency and accountability in the use of funds.

Bangladesh, another country prone to natural disasters, has demonstrated how investing in disaster preparedness—through early warning systems, robust infrastructure, and community education—can mitigate economic losses. These measures have not only saved lives but also reduced the financial impact of natural disasters, enabling the economy to recover more quickly.

Sri Lanka would do well to follow these examples. The establishment of a specialised disaster management authority with a clear mandate and adequate funding could go a long way in ensuring a coordinated and effective response. Such an agency could also play a critical role in securing international aid, which is often contingent on transparent governance and accountability. Ensuring such mechanisms are in place will be crucial to sustaining international goodwill and ensuring long-term economic stability.

Investing in Resilience

The case for strategic investment in resilience is clear. Renewable energy projects, for instance, could reduce the country’s reliance on costly fuel imports while aligning with global sustainability trends. Sri Lanka’s abundant natural resources—sunlight, wind, and hydro potential—position it well to transition to a greener energy mix. Such investments would not only lower energy costs but also make the economy less vulnerable to global fuel price shocks.

Rebuilding transport and communication networks with a focus on durability would also yield significant benefits. Modern, resilient infrastructure is essential for economic growth, facilitating trade, tourism, and investment. Furthermore, the construction phase itself could create jobs, providing a much-needed stimulus to the domestic economy.

Public health must also be a priority. The cyclone has triggered a surge in dengue cases, exposing gaps in the healthcare system’s ability to respond to emergencies. Strengthening healthcare infrastructure and preventive measures could yield significant economic and social dividends. Healthier populations are more productive, and the costs of prevention are far lower than those of treatment and lost productivity.

Building on Goodwill

Sri Lanka enters this challenging phase with a degree of goodwill that is rare for a country emerging from economic collapse. The Central Bank’s policy rate reforms and the government’s efforts to stabilise public finances have been cautiously welcomed by investors. Moody’s recent decision to place Sri Lanka’s credit rating under review for a potential upgrade reflects this optimism.

However, goodwill is a finite resource. The government must tread carefully, avoiding populist measures that could derail its reform agenda. Transparency in disaster relief spending and clear communication about the trade-offs involved in balancing recovery with reform are essential. Failure to do so could erode the trust of both domestic and international stakeholders.

The risk of political complacency is real. The government’s recent electoral mandate, while overwhelming, should not be taken as a licence to abandon fiscal prudence. Populist policies, such as unsustainable subsidies or tax cuts, could undo the progress made and jeopardise long-term stability.

A Path Forward

Cyclone Fengal has exposed the vulnerabilities in Sri Lanka’s economic and social fabric, but it has also provided an opportunity to address them. The government’s response must be both immediate and strategic, balancing the urgency of disaster relief with the long-term necessity of economic reform.

First, the government must prioritise investments that yield both short-term relief and long-term benefits. For example, rebuilding flood-damaged roads and bridges with climate-resilient materials can create jobs today while reducing costs in the future. Second, it must strengthen institutions to ensure that recovery funds are used effectively and transparently. Third, it must actively engage with international partners, not only for financial support but also for technical expertise in disaster management and economic planning.

Sri Lanka’s recovery is not just a matter of economics; it is a test of governance, competence, and foresight. By investing in resilience, maintaining fiscal discipline, and leveraging international goodwill, the country can navigate this crisis and emerge stronger. The stakes are high, but so are the potential rewards. This is a moment for bold but measured action—a chance to turn adversity into a turning point for sustainable growth.

The eyes of the world are on Sri Lanka. Let this be the moment when it rises to the challenge.

By Ifham Nizam

Blue carbon ecosystems, such as mangroves and sea grasses, are emerging as critical players in global climate mitigation strategies. However, these ecosystems face mounting challenges due to coastal development, climate change, and mismanagement.

Speaking to The Island, renowned expert Dr. Mat Vanderklift, Director of the Indian Ocean Blue Carbon Hub, who is on a short visit to Sri Lanka stressed the urgency of integrating high-integrity principles and sustainable practices to safeguard these vital habitats.

Excerpts of the interview

Q: Dr. Can you elaborate on the unique challenges that blue carbon ecosystems, such as mangroves and sea grasses, face compared to terrestrial carbon sinks like forests? 

A:Mangroves and sea grasses are located on the coastal margins, which places them in areas where many activities occur and competition for space is high. Most people live near coasts, so there are pressures from development as well as infrastructure such as ports. They are also spaces where activities like aquaculture and fishing can lead to degradation if they are not done in a sustainable way.

 Q: How do you assess the long-term effectiveness of blue carbon ecosystems in carbon sequestration, especially in the face of climate change impacts like rising sea levels and extreme weather? 

A: Mangroves and ecosystems can cope with sea level rise well enough as long as there is space for them to retreat to – although seawalls, roads and other infrastructure can block them. In some places that can simply rise vertically by accumulating sediment. Extreme weather events like heatwaves are a growing problem, and can cause death of vegetation over large areas.

 Given the complexities of carbon credit markets, what do you believe are the most promising strategies to ensure that blue carbon credits maintain high environmental integrity? We need to follow principles to ensure that our desire to generate credits does not create further damage or infringe on people’s rights. Principles like doing no harm, respecting rights, empowering people, acting and sharing benefits equitably, and using the best available knowledge. We can follow a ‘mitigation hierarchy’ in which we ensure that we protect first, and restore when we need to.

Q: What role do you see for governments in regulating the emerging market for blue carbon credits to ensure its effectiveness in climate mitigation efforts?” 

A: Each government will take a different approach, but some regulation can be helpful. Regulations can help ensure that high integrity principles are followed. Regulations can also help ensure that the right kind of knowledge is generated for a national context. Most nations, including Sri Lanka, have international commitments, and regulation can help make sure that those commitments are realised.

 Q: What are some innovative financial models or partnerships that have shown success in attracting private sector investment for the restoration of blue carbon ecosystems? 

A: Sometimes we don’t need innovation because the mechanisms already exist, we just need to make them work properly. Carbon and biodiversity markets are an example – they have promise, but are not as successful as they could be because there are barriers to effective implementation.

 Q: How can smaller nations or communities with rich blue carbon ecosystems access funding or investment to protect and restore these vital habitats?

A: In some situations, there might be potential to engage with the private sector, and building public-private partnerships can help. These are mostly used for infrastructure projects, but could be harnessed towards climate mitigation and nature protection. In other contexts, some international investment might be needed – the recent climate meeting in Baku finalised some of the international rules under which this can occur.

 Q: You mentioned the importance of blue carbon ecosystems for supporting livelihoods, particularly in fisheries and tourism. How can we ensure that the restoration of these ecosystems also benefits local communities economically?

A: This is fundamental, and part of building markets with integrity. Local peoples need to be involved all the way through projects and need to receive an equitable share of benefits. This might mean a share in revenue from the sale of credits, but it might also mean new business or livelihood generation opportunities. If lives are not improved, there will be little support for climate action or nature protection.

 What are the potential risks or unintended consequences for coastal communities if blue carbon financing schemes are not properly designed or implemented? In some situations, destructive activities are simply displaced elsewhere, so there is no net benefit. In others, locals do not receive an adequate share of benefits, so trust and long-term success is eroded.

 Q: What are some of the key metrics used to assess the health and carbon sequestration potential of blue carbon ecosystems? How reliable are these metrics across different regions? 

A: Measuring carbon is relatively easy. Measuring other benefits, such as improvements in fisheries or improved resilience of a community, is much harder but just as important. We need to put more effort into measuring these other benefits.

 Q: In terms of monitoring blue carbon projects, what are the most significant technical or logistical challenges that need to be addressed? 

A: Cost is often the main barrier. The methods and technologies exist but can be expensive. This can be a barrier in two ways. One is that it makes projects so expensive that revenue from sale of credits does not offset the cost of doing the project. Another is that poorer nations and communities can be left behind. Ensuring that we have low-cost methods that work in developing countries is important for international equity.

Q: As we look to the future, do you think blue carbon credits will become as established and integrated into global carbon markets as terrestrial carbon credits? 

A:Yes, they already are. The scale is not as great as it is for forests, but blue carbon credits from the protection and restoration of mangroves and sea grasses are being generated in multiple countries.

 Q: How do you envision the evolution of blue carbon and biodiversity financing over the next decade, especially in terms of its role in achieving international climate targets like those in the Paris Agreement?” 

A:My aspiration is that we continue to break down the barriers that prevent protection and restoration of blue carbon ecosystems. This can include finance, and developing low-cost technologies and building capacity is key. Just as important will be adoption of high integrity principles and development of an enabling regulatory environment. Some things governments and communities can already do, they just need a little help or a clearer mandate. The emergence of broader nature and biodiversity markets also has potential to reward good ecosystem stewards who are currently locked out of carbon markets.