Business

COVID-19 and the Sri Lankan economy: Policy choices and trade-offs

Published

5 years ago

2021/10/16

By Chathurrdhika Yogarajah

Sri Lanka’s macro-economic outlook amidst the COVID-19 pandemic came under the spotlight at a webinar panel discussion held on October 11, to mark the release of IPS’ flagship report, ‘Sri Lanka: State of the Economy 2021’. The event featured presentations by Dr Dushni Weerakoon and Dr Asanka Wijesinghe from IPS with expert insights from Dr Missaka Warusawitharana, Financial Economist, Johns Hopkins University, USA. Tharindu Udayanga from IPS moderated the discussion.

Prospects and Possibilities Dr Dushni Weerakoon, Executive Director, IPS

A V-shaped recovery is likely to take shape, but Sri Lanka faces a relatively weak output growth. A critical challenge is to lift the growth rate to, at least, 5-6% and maintain that momentum in the medium term. How investments perform will be a crucial determinant, as the dip in investment was a major driver of output contraction in 2020. With little fiscal space, Sri Lanka relied mostly on monetary policy. There was a surge in direct financing of fiscal spending, and there were efforts to ensure that borrowing costs were kept low via yield-control measures.

Sri Lanka is not so fortunately placed when considering the risks related to large-scale debt monetisation programmes due to high debt levels, elevated exposure to foreign debt with repayments of sizeable amounts in the medium term, and the low reserve stockpiles. With such weak fundamentals, the backbone of debt monetisation programmes is policy credibility. But for the last 18 months, there has been no notable effort to curtail discretionary spending and anchor fiscal plans. Thus, Sri Lanka is reluctant to deal with IMF conditionalities.

Policy measures must address fiscal imbalances through cuts in national spending or raising national income. As the latter takes time, the governments tend to focus on a policy mix to cut national spending that includes tighter budgets allowing interest rates to move with market fundamentals and implementing more flexible exchange rates. The downside is that the growth suffers in the short term with worsening debt ratios. These are politically difficult choices when economic conditions are tight as they are now.

Sri Lanka must firm up its access to foreign capital markets to balance the risks. If Sri Lanka comes to an adjustment on the fiscal front and improves access to capital markets, this will free up the space for a more orderly macroeconomic adjustment. Though the exchange rate may initially overshoot, it can be stabilised over time. This will allow the Central Bank to reverse its debt monetisation and focus on price stability, as that will be an area of concern in the coming months. A policy framework along these lines will provide a more robust environment to support investment and sustain Sri Lanka’s recovery.

Opportunities and Costs Dr Asanka Wijesinghe, Research Economist, IPS

During the pre-pandemic period, there was stabilisation in the rate of globalisation, but Sri Lanka’s openness has continuously declined especially after 2005 due to GDP growth in nontradeable sectors. However, Bangladesh, India, and South Asia, in general, show an increasing trend of openness. COVID-19 led to a deep plunge in the world’s industrial production and trade in 2019. But even after this collapse, it recovered by the beginning of 2021. There is no evidence to show deglobalisation effects due to the pandemic.

When the world trade outlook is taken into consideration, the WTO predicts a pickup in global trade volumes for the year 2022. An IMF database that uses signals emitted by sea vessels also showed an uptick in world trade from the beginning of 2021. Sri Lanka should ready itself to take advantage of trade diversion and investments opportunities the tariffs imposed on China’s textiles by the US, for instance. At present, its global value chain (GVC) participation is low and in fact declined from 2009 to 2019. In contrast countries like Bangladesh, Viet Nam, India and Pakistan showed an increasing trend. He pointed out that the US-China trade war presents opportunities for Sri Lanka to increase both forward and backward GVC participation.

A key challenge is the costly policy of import substitution, resulting in resource misallocation, reduced competitiveness, and possible retaliation from trade partners. Another challenge for Sri Lanka is the potential withdrawal of GSP+ which will be a hard hit on the seafood and textile industries. Sri Lanka should work to secure GSP+, disengage from the ‘anti-trade’ bias, integrate with GVCs, and restructure existing regional trade agreements.

Roads to Recovery

Dr Missaka Warusawitharana, Financial Economist, Johns Hopkins University, USA

Sri Lanka’s growth trajectory has not been in line with its true potential, adversely impacting the well-being of the people. This can be attributed to the low level of productivity growth. Although the manufacturing sector has contributed to growth, it has not demonstrated sufficient productivity that would enable the country to achieve a better output.

Further, the current fiscal difficulties can be pinned to structural imbalances in the country’s budgets that have spanned decades along with different administrations that have been unwilling to make hard choices. In the longer term, budgets must be structured to bring the debt down to a manageable level.

The world economy is moving away from physical goods to a digital-based economy, requiring greater provision of services. Sri Lanka scores well on the Human Development Index with its knowledgeable workforce. The need is to increase productivity by investing more in education and service-producing industries and improve the business environment by reducing institutional barriers.

Link to blog: https://www.ips.lk/talkingeconomics/2021/10/15/covid-19-and-the-sri-lankan-economy-policy-choices-and-trade-offs/

Chathurrdhika Yogarajah is a Research Assistant at IPS with research interests in macroeconomics and trade policy. She holds a BSc (Hons) in Agricultural Technology and Management, specialised in Applied Economics and Business Management from the University of Peradeniya with First Class Honours. She is currently reading for her Master’s in Agricultural Economics at the Postgraduate Institute of Agriculture, Peradeniya. (Talk with Chathurrdhika: chathurrdhika@ips.lk)

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Business

Financial literacy central to country’s development – CBSL Governor

Published

2 hours ago

2026/10/13

Sahan Weerasooriya

Dr. Nandalal Weerasinghe: ‘Financial literacy vital’.

By Hiran H. Senewiratne

Sri Lanka’s financial literacy rate is approximately 58 percent. Such literacy is absolutely necessary for the inclusion of people in the country’s financial system which in turn is central to overall economic development, Central Bank Governor Dr. Nandalal Weerasinghe said.

‘One needs to have knowledge and skills of a financial nature to figure in financial inclusiveness. While 86 percent of Sri Lanka’s population has access to the country’s financial system, 82 percent of the public has at least a savings account in the country’s banking system, Dr Weerasinghe said.

The Governor made these comments recently at the inauguration of Financial Literacy Month 2026 at the Central Bank’s Centre for Banking Studies, Rajagiriya.

Dr. Weerasinghe added: ‘Suitable, affordable and quality financial instruments are needed to enhance financial literacy in the country.

‘Financial information has to be accurate, risk-free and accountable, thus creating confidentiality in the financial system, which would enable the sector to reach greater heights’.

Meanwhile CBSL sources said: ‘The Literacy Month opened with the two-day ‘FinLit Expo Colombo’. The expo gives the public the opportunity to engage with institutions, better understand financial services, gain practical insights into managing their finances and learn how to protect themselves from financial fraud and scams.

‘The CBSL is leading the program in collaboration with stakeholder institutions. It forms part of the Financial Literacy Roadmap for Sri Lanka, which is implemented under the National Financial Inclusion Strategy (NFIS), the national framework for widening access to and use of formal financial services.

‘The Colombo event will be followed by six regional ‘FinLit Expos’ aimed at direct engagement with local communities. Partner institutions will also run awareness activities. Together, the events are intended to provide financial education to communities and encourage people to apply financial knowledge in everyday life.

‘A public awareness campaign on television, radio, newspapers and social media will extend the program’s reach. The program also includes digital financial literacy activities and the promotion of QR codes and other online payment methods.

‘The public and stakeholder institutions are encouraged to take part in the month’s activities under the theme, “Towards a Financially Literate Sri Lanka”.

Business

HUTCH strikes five awards as the only telco honoured at SLIM DIGIS 2.6

Published

2 hours ago

2026/10/13

Sahan Weerasooriya

HUTCH Sri Lanka strengthened its position as a leader in digital engagement by securing five accolades at SLIM Digis 2.6, emerging as one of the most recognized brands at this year’s digital excellence awards. The achievement was further highlighted by HUTCH being the only telecom operator to be recognized at the event.

Organized by the Sri Lanka Institute of Marketing (SLIM), SLIM Digis is Sri Lanka’s premier platform celebrating excellence, innovation, and outstanding achievements in the digital marketing industry. The recognition highlights HUTCH’s growing strength in digital-first, agile, and creative marketing, and its ability to respond to everyday moments, engage audiences, and deliver impactful digital campaigns.

The Gold Award for Best Use of Agile and Moment Marketing, a Silver for Best Use of Digital in a Marketing Campaign, and a Bronze for Best Performance Marketing were all awarded for “Keeping Sri Lanka Connected Through Ditwah,” HUTCH’s response to the cyclone that struck Sri Lanka in November 2025, recognised for the speed and relevance with which HUTCH kept customers better connected and informed.

HUTCH Roaming also earned two further Bronze awards for Best Use of Digital in a Marketing Campaign and Best Use of Creative Content. Bringing together AI-led storytelling, the campaign was designed around distinct customer clusters, each characterized by unique travel behaviours, needs, and perceptions, delivering relevant content for different audiences within a single overarching campaign.

“These wins are a strong reflection of how HUTCH approaches marketing today, staying close to the moments that matter to our customers and responding with speed, relevance, and creativity. Being the only telco recognised at SLIM DIGIS 2.6, and across five categories, is proof that agility and thoughtful storytelling can go hand in hand. This recognition reflects the collective efforts with our strategic partners, whose collaboration, expertise, and shared commitment brought great campaigns to life,” said Hamdhy Hassen, Chief Marketing Officer, HUTCH Sri Lanka.

Business

Fairway Colombo named Official Accommodation Partner of Manhunt International 2026

Published

2 hours ago

2026/10/13

Sahan Weerasooriya

(L-R): Gamunu Cooray, Ms. Tharushi Kulathunga, Avinga Wanigasekara, Arjuna Senanayake, and Jagath De Almeda at the signing ceremony held at Fairway Colombo.

Sri Lanka’s Smart Luxury Business Hotel to Host Delegates and Contestants from Over 40 Countries as the Island Nation Hosts Its First-Ever Global Pageant of This Scale

Fairway Colombo, a subsidiary of Fairway Holdings (Pvt) Ltd, has been appointed as the Official Accommodation Partner for Manhunt International 2026, one of the world’s most prestigious male pageants, scheduled to take place in Sri Lanka.

The event marks a historic milestone for Sri Lanka, as the country prepares to host a global pageant of this scale for the very first time. More than 40 contestants representing countries from across the world will arrive in Colombo, bringing together diverse cultures, international media attention, and a global audience — further strengthening Sri Lanka’s position as a premier destination for tourism, culture, and hospitality.

As the official accommodation partner, Fairway Colombo will welcome and host international delegates and contestants throughout their stay in Colombo, delivering the exceptional hospitality experience and personalized service that the hotel is recognized for.

A Landmark Partnership for Sri Lankan Tourism

“We are truly honored to be selected as the Official Accommodation Partner for Manhunt International 2026. This partnership is a proud moment not only for Fairway Colombo but also for Sri Lanka as a whole. Hosting an event of this global stature provides us with an opportunity to showcase our commitment to smart luxury, innovation, and authentic Sri Lankan hospitality to an international audience. We look forward to creating a memorable and seamless experience for all delegates and guests,” said Avinga Wanigasekara, General Manager of Fairway Colombo.

Strategically located in the heart of Colombo’s historic Fort district, Fairway Colombo is recognized as a Smart Luxury Business Hotel, combining modern comfort, advanced technology, and exceptional service. As part of Fairway Holdings (Pvt) Ltd, the property represents the group’s vision of delivering innovative, world-class experiences across the hospitality and leisure sectors.