Business

Belated economic reforms: Lankans to swallow more ‘painful medicine’

Published

4 years ago

2022/05/2

Failure to implement required policy reforms at this critical juncture will be very costly, the Ministry of Finance says.

‘Accumulated issues in the past have now exploded

‘Time has come to put the house in order’

‘Dismal fiscal sector has caused imbalances in the macro-economy’

‘Engagement with IMF, a starting point in implementing critical reforms’

by Sanath Nanayakkare

The Ministry of Finance (MOF) said last week that Sri Lanka urgently needs to undertake difficult, but much needed and far-reaching reforms to address the accumulated and persistent issues in the country’s fiscal sector.

In a report titled ‘Fiscal Sector: Present Situation and Way Forward’, MOF pointed out that dismal fiscal sector performance has caused many imbalances in the macro-economy.

“Exceptionally low tax revenue, rigid recurrent expenditure, a large budget deficit, an accumulated and now unsustainable debt are the key concerns in the fiscal sector. Responsible and disciplined fiscal management has become more important than ever. In this process, the country and its citizens will have to go through a period of difficulty,” MOF warned.

The report further said:

“A strong social protection network is required for the vulnerable and needy segments as reforms will be painful.”

“The time has come to put the “house in order” and revamp the government’s fiscal operations to strengthen macroeconomic stability and facilitate economic growth in the medium to long term.”

“Deficit financing poses a critical challenge due to the shortfall of foreign financing following the loss of international capital market access. The resulting rise in monetary financing has caused severe macroeconomic imbalances.”

“The dismal performance of the fiscal sector over the years has contributed to macroeconomic instability and failed to support long-term growth. The excess aggregate demand generated by unsustainable fiscal deficits has resulted in elevated inflation, pressure on the balance of payments (BOP) and currency volatility.”

“Sri Lanka today is facing a severe BOP crisis with insufficient foreign exchange to buy essential imports such as food, energy,and pharmaceuticals, let alone meeting its debt service obligations. Sound macroeconomic fundamentals cannot be achieved without prudent and sustainable fiscal outcomes.”

“Accumulated issues in the past have now exploded and caused severe disruptions to the day-to-day lives of Sri Lankans, leading to widespread public displeasure and social unrest.”

“The fiscal sector performance in the recent past is characterised by exceptionally low government revenue, rigid recurrent expenditure, high budget deficits, and accumulated debt which is now unsustainable. The weak fiscal position has manifested in credit rating downgrades, loss of access to international capital markets and foreign financing. As a result, the government has increasingly relied on domestic financing of the budget, including monetary financing by the Central Bank, in turn leading to significant macroeconomic imbalances.”

“Government revenue declined particularly sharply in the last two years due to various reasons including the economic downturn caused by the COVID-19 pandemic, import restrictions imposed to ease the external sector pressure, but

most importantly, due to the ultra-low tax regime introduced in late 2019 and COVID-19 related easing measures in early 2020. Even before these tax cuts, Sri Lanka was a country with one of the lowest revenue-to-GDP ratios in the world, and the tax cuts drove Sri Lanka closer to the bottom of this list.”

“The government’s decision to seek the assistance of the International Monetary Fund (IMF) will be a starting point and a catalyst in implementing these critical reforms with the support of the citizens and other stakeholders.”

While acknowledging the fact that government fiscal operations have played an important role in improving economic and social conditions in Sri Lanka during its post-independence history, MOF went on to say that, “Failure to implement required policy reforms at this critical juncture will be very costly. However, it will lay a strong foundation to create a resilient economy for future generations.”

Central Bank Governor Dr. Nandalal Weerasinghe said on Friday that the Central Bank has taken measures required to stabilize the economy by taking the right monetary policy measures in terms of price adjustments and by increasing policy rates.

“Now, the fiscal side also needs implementing critical measures such as increasing state revenue by way of raising taxes. There is complete understanding on improving macro-economic fundamentals and decisions will be made to address the BOP issue, debt sustainability and enhancing state revenue in order to turn around the economy to a more resilient one,” he said.

The Governor noted that sooner the social and political stability were restored, the better it would be for stabilizing the economy and shifting it to growth path.

In September 2020, responding to a downgrade in credit ratings from Moody’s, a global rating agency, from a B2 to a Caa1, Sri Lanka’s Finance Ministry hit back claiming that such a report was ‘unwarranted, premature and reckless’.

In November 2021, former governor of the Central Bank Ajith Nivard Cabraal said that debt restructuring was underway without assistance from IMF and said, “We have to manage our debt without using the word ‘restructuring’ in a frivolous manner.”

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Business

Sri Lanka’s 2026 economic growth predicted to be around 4-5 percent

Published

23 hours ago

2026/01/10

Thilina Walpola

Dr. Nandalal Weerasinghe; ‘Growth prospects okay’

Sri Lanka’s economic growth for 2026 will be around 4-5 percent, Central Bank Governor Dr. Nandalal Weerasinghe said.

The Governor indicated the estimated economic growth while announcing the Central Bank’s policy agenda for this year, last Thursday.

‘The Central Bank’s 2026 growth estimation is higher than the growth prediction of the IMF and the World Bank and is achievable, the Governor told the media while announcing the Central Bank’s policy agenda for 2026.

Dr. Weerasinghe added: ‘The Central Bank will introduce a benchmark intra-day reference exchange rate this year to ensure transparency in the foreign exchange market.

‘The absence of a reference exchange rate has held back the expansion of the Sri Lankan forex market and discouraged the trading of rupee-denominated derivatives Governor said.

‘The Central Bank last year carried out the necessary preliminary work to implement the benchmark spot exchange rate.

‘The benchmark intra-day reference exchange rate will be introduced in 2026 to foster a transparent foreign exchange market.

‘This benchmark will guide market participants, help reduce volatility and promote more competitive pricing on a given date, thereby enabling the introduction of more innovative products in the foreign exchange market.

‘Sri Lanka’s foreign exchange market has limited derivatives like currency swaps and options aiming to deepen markets and attract inflows.

‘However, these instruments failed after a lack of reliable reference exchange rate amid concerns over excessive speculation, rupee over-appreciation risks and interventions distorting clean floating rates.’

Meanwhile, currency dealers welcomed the move and said it will help to deepen the market.

“This will expand the market with more products and promote rupee-denominated derivatives, a currency dealer from a local bank said.

“It is something the market wanted to fix in derivative prices. This is a pricing mechanism for the rupee, he added.

By Hiran H Senewiratne ✍️

Business

Sevalanka Foundation and The Coca-Cola Foundation support flood-affected communities in Biyagama, Sri Lanka

Published

23 hours ago

2026/01/10

Thilina Walpola

With funding support from The Coca-Cola Foundation (TCCF), the Sevalanka Foundation has launched a humanitarian relief programme to support flood-affected communities in Biyagama. The initiative focuses on restoring access to safe water, healthcare services, and essential public facilities during the critical recovery period following the Cyclone Ditwah.

Working closely with the Divisional Secretariat, the program prioritizes the cleaning and rehabilitation of contaminated dug and tube wells, helping address the urgent post-flood challenge of access to safe water. This intervention will also support the cleaning and reopening of essential public spaces, including schools, and Grama Niladhari (GN) offices, enabling authorities and communities to resume daily activities safely. The Sevalanka Foundation and TCCF, as part of the initial response, have also donated water pumps to the Divisional Secretariat to support immediate water extraction and clean-up efforts.

In addition, as the second main component of the project, and based on the guidance of the Medical Officer of Health (MOH), support is being provided to MOH-operated healthcare facilities to restore access to emergency and essential medical services. This support includes sanitization, debris removal, hazard stabilization, and the provision of emergency medical supplies such essential medicines and hygiene products. Medical camps staffed by doctors and senior nurses will be conducted through MOH offices to provide prioritized groups of persons with health, nutrition and hygiene related relief items.

Business

Bourse radiates optimism as UK grants tariff-free concession to local apparel exports

Published

23 hours ago

2026/01/10

Thilina Walpola

CSE activities were extremely bullish yesterday mainly due to the UK government’s announcement on tariff free access for local apparel sector exports into the UK coupled with Central Bank Governor Dr Nandalal Weerasinghe’s positive outlook on the economy this year.

Amid those developments the turnover level also improved and the All Share Price Index moved up to the 23500 mark during the trading day.

The All Share Price Index went up by 127.17 points, while the S and P SL20 rose by 56.75 points. Turnover stood at Rs 8.5 billion with 18 crossings.

Top seven crossings were: LOLC Holdings two million shares crossed to the tune of Rs 1.18 billion; its shares traded at Rs 575, Renuka Agri 45 million shares crossed to the tune of Rs 594 million; its share price was Rs 13.20, Sampath Bank 1.4 million shares crossed for Rs 215 million and its shares traded at Rs 154.35, Renuka Holdings 1.5 million shares crossed for Rs 75 million; its shares traded at Rs 50, Hayleys 200,000 shares crossed to the tune of Rs 41.3 million; its shares traded at Rs 207, Tokyo Cement (Non-Voting) 400,000 shares crossed for Rs 37.8 million; its shares sold at Rs 50 and NTB 100,000 shares crossed for Rs 326 million; its shares sold at Rs 326.

In the retail market top seven companies that contributed to the turnover were; LOLC Rs 340 million (591,000 shares traded), Sampath Bank Rs 310 million (two million shares traded), Renuka Agri Foods Rs 275 million (19.4 million shares traded), ACL Cables Rs 238 million (2.3 million shares traded), Overseas Realty Rs 215 million (4.9 million shares traded), CIC Holdings (Non Voting) Rs 180 million (6.3 million shares traded) and Wealth Trust Equity Rs 132 million (8.2 million shares traded). During the day 269.3 million share volumes changed hands in 47852 transactions.

It is said the banking and financial sectors performed well, especially Sampath Bank, while a top diversified company, LOLC Holdings, also performed well.

Yesterday, the rupee opened at Rs 309.15/30 to the US dollar in the spot market relatively flat from Rs 309.10/50 the previous day, having depreciated in recent weeks, dealers said, while bond yields opened higher.

The telegraphic transfer rates for the dollar were 305.8500 buying, 312.8500 selling; the British pound was 409.7568 buying, and 421.1186 selling, and the euro was 354.0809 buying, 365.4441 selling.

By Hiran H Senewiratne ✍️