Business
Between homefront policies and global developments: Sri Lanka’s external sector outlook
By Nilupulee Rathnayake
Having weathered a challenging period marked by a deep economic crisis, Sri Lanka is now demonstrating positive signs of an economic upturn. Still, amidst limited homefront policy alternatives against an unfavourable global backdrop, a critical question arises: how will Sri Lanka’s external sector cope in the face of these challenges?
Notably, import controls, initially imposed in response to the dearth of foreign exchange liquidity in the domestic market, are being largely eased. The government is actively seeking to forge partnerships with regional giants, aiming to strengthen trade relations through Free Trade Agreements (FTAs). Nevertheless, in the broader global context, the rise of geopolitical rivalries, slow growth and contracting demand in key markets create multiple uncertainties for Sri Lanka’s external sector recovery.
Global Economic Developments: A Complex Web of Uncertainties
Globally, there are promising signs of economic progress in the near term. Supply chain disruptions, which significantly impacted various industries, have largely returned to pre-pandemic levels. Energy and food prices, having peaked during conflict-induced periods, have substantially subsided, alleviating global inflationary pressures faster than anticipated.
However, the global economic landscape remains overshadowed by a complex web of uncertainties. Political dysfunction in key economies and ongoing geopolitical rivalries present challenges. The United States’ imposition of bans on certain exports to Chinese firms exemplifies the extant geopolitical tensions. This growing inclination towards trade interventions through industrial policies, subsidies, and import restrictions, driven by national security and environmental considerations, has the potential to impact the trajectory of globalisation. These developments carry substantial implications for emerging and developing economies, particularly those deeply reliant on a globally integrated economy, foreign direct investment (FDI), and technology transfers. Economies contending with burgeoning sovereign debt overhangs in particular, are expected to face heightened vulnerabilities. Having defaulted in early 2022, Sri Lanka is among the countries particularly affected by these global economic shifts.
Sri Lanka’s Vulnerable Export Sector
In 2022, Sri Lanka recorded its lowest merchandise trade deficit since 2011, primarily due to reduced imports and an uptick in exports. Merchandise exports expanded by 4.9% in 2022 compared to the previous year, while import expenditure decreased by 11.4% in 2022 relative to 2021. The decrease in import expenditure stems from a combination of import restrictions and foreign exchange liquidity constraints.
However, as import controls ease and the economy gradually improves, a marginal increase in import expenditure is observed from June 2023 onwards. While improving consumer welfare and food security, this move may negatively impact the trade deficit this year, especially as global demand for Sri Lanka’s primary exports, like tea and garments face a downturn – the former triggered by high production costs and the latter by contracting foreign demand.
Sri Lanka’s key export markets for garments, particularly in the US and Europe, are experiencing low growth and weakened demand since the fourth quarter of 2022. Consequently, monthly earnings from garment exports in August 2023 indicates a 26% decline compared to August 2022. Notable decreases in the import of Ceylon tea by prominent Sri Lankan tea importers in 2022 relative to 2021, including Russia (by 9.6%), the UAE (by 2.5%), and Turkey (by 47%), also highlight the vulnerability of Sri Lanka’s export sector to external shocks. The tea market’s condition has seen a modest improvement in 2023, though it has not been entirely resolved.
The concentration of Sri Lanka’s exports in terms of products and markets has long been a source of concern, rendering the economy exceedingly susceptible to sector-specific shocks.
Tourism and Worker Remittances: A Silver Lining
In a positive trajectory, 2023 has witnessed a notable increase in monthly tourist arrivals compared to the previous year, signalling a discernible recovery trend. Cumulative tourist arrivals from January to August 2023 amounted to 904,318, compared to 496,430 arrivals recorded during the corresponding period in 2022. Overcoming the challenges within this sector necessitates a coordinated effort from various stakeholders, including the government and the private sector, as Sri Lanka endeavours to reconstruct its brand identity as a secure and preferred destination.
Worker remittances, representing another crucial source of foreign exchange earnings, have exhibited promise. In the first half of 2023, worker remittances grew to USD 2.8 billion, however it remains below the pre-pandemic level of USD 3.6 billion recorded in the first half of 2018. While the Middle East remains a vital destination for Sri Lankan workers, alternative destinations offering employment across various job categories have emerged, including South Korea, Singapore, Japan, and several European countries. Notably though, the large-scale migration of workers, including white-collar employees, raises concerns regarding long-term economic repercussions due to brain drain.
Challenges in Attracting Foreign Investment
In a fiercely competitive global FDI landscape, political stability and a robust macroeconomic framework are paramount considerations for investors, especially given the numerous countries competing for their attention.
In the post-war period, Sri Lanka experienced its peak FDI inflows in 2018, attracting USD 1.6 billion. However, in 2022, this figure dwindled to USD 898 million, reflecting the adverse impact of the pandemic and economic challenges. Sri Lanka’s economic crisis – and the country’s sovereign default status together with public protests, strikes, and violence – reshaped the country’s perception as a not particularly attractive destination for foreign investors.
As Sri Lanka anticipates modest growth in the coming years, it becomes imperative not only to retain existing investors but also to proactively seek new investments within the current unfavourable climate. The Board of Investment (BOI) has targeted to attract USD 2 billion in FDI in 2023, with a particular focus on the tourism sector. An incentive package, potentially incorporating tax incentives, is being contemplated as a viable policy intervention, aligning with practices observed in peer countries aimed at attracting FDI.
Building Resilience and Diversification
Sri Lanka’s external sector has been susceptible to policy missteps that exposed it heavily to external global shocks. Building the economy’s resilience against external pressures must necessarily be a crucial part of the adjustment and recovery process. As import controls are also eased, to bridge the widening trade deficit, Sri Lanka needs to implement concrete policy measures to diversify its export basket and connect to global value chains.
Several initiatives have already been undertaken, for instance, to pursue fresh trade relationships with neighbouring giants. These trade agreements should be deep trade agreements that target not only merchandise trade but also services, FDI promotion, value addition, trade facilitation, and digitisation. In the near term, negotiations are ongoing on various stalled trade agreements with India, China, and Thailand, amongst others, while expressing interest in joining the RCEP trade bloc in the medium term.
However, notably, Sri Lanka can no longer approach efforts to expand and diversify exports in a piecemeal fashion and FTAs on their own will fail to deliver. High energy costs, labour shortages, and scaling back on infrastructure spending, amongst others, impact the operating environment for businesses. Sri Lanka’s longstanding structural bottlenecks must be overcome by implementing the necessary reforms to raise productivity for sustained growth if the country is to regain lost confidence in its economic prospects.
*This blog is based on the comprehensive chapter on the external environment in IPS’ ‘Sri-Lanka: State of the Economy 2023’ report.
Link to original blog: https://www.ips.lk/talkingeconomics/2023/10/24/between-homefront-policies-and-global-developments-sri-lankas-external-sector-outlook/
The Board of Investment (BOI) of Sri Lanka has successfully increased Foreign Direct Investment (FDI) by US$96 million in the first quarter of 2025, compared with the same period in 2024.
This was disclosed today (20) during a progress review meeting of the Board of Investment of Sri Lanka, chaired by President Anura Kumara Disanayake at the Presidential Secretariat.
BOI officials also noted that, relative to the first quarter of 2024, domestic investment rose by US$21 million, while export income increased by US$176 million during the first quarter of 2025. In total, Sri Lanka has attracted US$4,669 million in investment proposals thus far in 2025.
The meeting also focused on the issues and challenges associated with attracting investment to the country and discussed potential strategies to address them.
Addressing the gathering, President Anura Kumara Disanayake stated that the Board of Investment holds a pivotal role in enhancing the national economy and improving the living standards of the rural population.
He stressed that opportunities to attract investment in traditional sectors are becoming increasingly limited and therefore the nation must identify new areas for investment, an endeavour that falls under the BOI’s mandate.
The President further noted that Sri Lanka has attracted only around US$22 billion in investment since 1978. In comparison to other countries in the region, he stated, Sri Lanka must advance rapidly, referencing Vietnam’s achievement of securing US$23 billion in investment in 2022 alone.
He went on to state that the BOI should prioritise the expansion of investment in the services sector and proactively seek new investment opportunities, rather than focusing solely on recapturing missed ones.
The event was attended by senior officials of the Board of Investment, including Duminda Hulangamuwa, Senior Advisor to the President on Economic Affairs; Arjuna Herath, Chairman of the Board of Investment; and Ms Renuka Weerakone, Acting Director General of the Board of Investment.
Sri Lankan explorer, photographer, and author Senaka Kotagama unveils his debut book, The World of the Black Leopard, at its highly anticipated launch in Colombo. This self-published masterpiece, born from over five decades of global exploration—from Sri Lanka’s misty tea highlands to Kenya’s rugged Laikipia plateau—chronicles Senaka’s groundbreaking discovery of Giza (Black Beauty in Swahili), a rare melanistic leopard. In 2023, Senaka became the first Sri Lankan to track this elusive “ghost in the darkness,” inspired by wildlife photographer Will Burrard-Lucas’s pioneering camera-trap images. Blending gripping adventure with a noble cause, all profits from the book support the Rotary for Little Hearts project.
Born in the mid-1960s in Sri Lanka’s lush tea country, Senaka grew up in a family that cherished the outdoors. The rolling hills and dense forests were his playground, fostering a deep connection to nature that would define his life. This early bond with the natural world set him on a path of exploration that few from his homeland have followed. By profession, Senaka is a Tea Taster, but his true calling lies beyond the tasting room—in the untamed corners of the planet.
Senaka’s adventures read like a catalogue of the world’s wildest places. In South America, he tracked jaguars and anacondas through the dense Amazon rainforest. He dived into Brazil’s Abismo Anhumas, a surreal underwater cave, and rafted beneath the roaring Iguaçu Falls. His scuba-diving exploits took him from Sri Lanka’s coastal waters to the pristine Similan Islands, all the way to the Myanmar border, where he swam alongside rare tiger sharks, and the whale-rich seas off Vietnam. In Chile’s Patagonian Andes, he pursued elusive pumas across windswept peaks, while Tanzania’s Serengeti brought him face-to-face with cheetahs and a near call with an angry lioness. India’s Bengal tigers, China’s Manchurian tigers, and Indonesia’s Komodo dragons have all crossed his path, each encounter fuelling his insatiable curiosity.
The World of the Black Leopard immerses readers in Laikipia’s wilderness, a hidden Kenyan gem often eclipsed by the Maasai Mara. Few outsiders have glimpsed Giza, a revered “freak of nature” among the Samburu and local tribes. Senaka’s multiple journeys to this mystical plateau spotlight its wonders, inspiring Sri Lankan and global wildlife enthusiasts to explore this remote region. His vivid prose—often penned on his phone amidst rugged terrain—pairs with stunning photography from his vast archive, capturing the wild’s fleeting magic with authenticity and depth.
More than a memoir, the book fuses drama, firsthand knowledge, and philosophical reflection, offering a window into a shrinking habitat through the eyes of a modern explorer inspired by literary giants like Wilbur Smith. Accompanied by breathtaking illustrations, it invites readers on a journey of empathy, awe, and cognitive awakening. For Senaka, the true reward lies in nature’s lessons, not financial gain. All proceeds from The World of the Black Leopard will fund Rotary for Little Hearts, a Rotary District 3220 initiative aiming to raise $1 million for Sri Lanka’s Lady Ridgeway Hospital. This project seeks to expand intensive care and surgical facilities for over 3,000 children born annually with congenital heart defects, giving them a chance at life through Senaka’s lifelong passion.
By Senaka Kotagama
The CSE kicked off yesterday on a positive note but later selling pressure mounted due to the West Asian crisis which went on to trigger panic- selling of shares. However, at the tail end of the day the market indicated a slight recovery, market analysts said.
The All Share Price Index went down by 253 points, while the S and P SL20 declined by 55.19 points. Turnover stood at Rs 3.32 billion with five crossings.
Those crossings were reported in Central Finance, where 313,000 shares crossed to the tune of Rs 71.6 million; its shares traded at Rs 228, People’s Leasing 2.2 million shares crossed for Rs 40.7 million and its shares traded at Rs 18.50, Commercial Bank 200,000 shares crossed for Rs 30.4 million; its shares traded at Rs 152, Central Industries 150,000 shares crossed for Rs 23.3 million; its shares sold at Rs 150 and Hemas 745,000 shares crossed to the tune of Rs 20.6 million; its shares traded at Rs 27.60.
In the retail market top six companies that mainly contributed to the turnover were; HNB Rs 212 million (672,000 shares traded), Commercial Bank 197 million (1.31 million shares traded), Sampath Bank Rs 164 million (1.4 million shares traded), Lanka IOC Rs 120 million (871,000 shares traded), Browns Investments Rs 114 million (15.3 million shares traded) and Dipped Products Rs 96.5 million (1.9 million shares traded). During the day 139 million share volumes changed hands in 27968 transactions.
It is said that the banking and financial sector led the market, especially Central Finance and HNB, while the manufacturing sector was the second largest contributor to the market, especially Central Industries. Further, the services sector and the plantations sector did not perform well.
Lankem Ceylon plans a one for three rights issue of 17.15 million ordinary shares at Rs 70 each to raise Rs 1.2 billion, CSE sources said. The cash will be used for part settlement of bank loans. The firm’s current stated capital is Rs1.28 billion made up of 55.4 million ordinary shares.
The rights issue is subject to Colombo Stock Exchange and shareholder approval. A subdivision of shares will follow if the proposed rights issue is fully subscribed, the company said, with 68,627,676 ordinary shares split “on the basis of every One (1) Existing issued Ordinary Share being Sub-divided into Two (2) issued Ordinary Shares, thereby increasing the number of shares of the Company to 137,255,352 shares.”
Yesterday, the rupee opened at Rs 300.50/70 to the US dollar in the spot market, broadly flat against previous day’s close of Rs300.40/60, dealers said, while bond yields were up, particularly in the mid tenors and above.
A bond maturing on 15.12.2026 was quoted at 8.15/25 percent, up from 8.14/20 percent. A bond maturing on 15.09.2027 was quoted at 8.50/60 percent, up from 8.54/60 percent. A bond maturing on 15.10.2028 was quoted at 8.90/9.00 percent. A bond maturing on 15.12.2029 was quoted at 9.62/67 percent, up from 9.52/56 percent. A bond maturing on 15.03.2031 was quoted at 10.05/20 percent, up from 9.98/10.10 percent. A bond maturing on 15.12.2032 was quoted at 10.35/40 percent, up from 10.31/38 percent.
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