Business
Reform or perish, it’s not too late
Sri Lankan economy in historic crisis
By K.D.D.B Vimanga and Naqiya Shiraz
The Sri Lankan economy faces a historical crisis. The root causes are the twin deficits. First, the persistent fiscal deficit – the gap between government expenditure and income. Second, the external current account deficit – the gap between total exports and imports. The problems have been festering for too long. Without urgent reforms, the crisis could easily morph into a full-blown debt crisis.
Sovereign debt workouts are extremely painful for citizens. A mangled debt restructuring can perpetuate the sense of crisis for years or even decades. A return to normal economic activity may be delayed, credit market access frozen, trade finance unavailable.
With the global pandemic, these are unusual and difficult times. The next five years are going to be crucial for the country. The problems can no longer be avoided and should be faced squarely. The journey ahead is going to be painful but the longer these are delayed the worse the problem becomes and the magnitude of the damage compounds.
State of the Economy
The new government inherited a fragile economy, battered by the Easter attacks of 2019, the constitutional crisis of October 2018 and the worst drought in 40 years in 2017. With the pandemic in 2020 Sri Lanka’s economy shrank by 3.6% with all sectors of the economy contracting.
Yet, the pandemic is not the sole cause – it only accelerated the decline of Sri Lanka’s economy that was weak to begin with. The country has long been plagued by structural weaknesses, with growth rates in the last few years even below the average growth rate during the war. Mismanaged government expenditure coupled with a long term decline in revenue have characterised Sri Lanka’s fiscal policy. As of 2020 total tax as a percentage of GDP fell to just 8%, while recurrent expenditure increased.
Borrowing to finance the persistent budget deficits is proving to be unsustainable. Total government debt rose to 101% of GDP in 2020 and has grown since. Sovereign downgrades have shut the country from international debt markets. The foreign reserves declined from US$ 7.6 bn in 2019 to US$ 5.7bn at the end of 2020 and to US$ 2.8 bn by July 2021. This level of reserves is equivalent to less than two months of imports. With future debt obligations also in need of financing, the situation is dire.
The import restrictions placed to combat this foreign exchange crisis have failed to achieve their purpose and are doing more harm than good. imports rose 30% in the first half of 2021 compared to 2020 despite stringent restrictions.
The problem lies not in the trade policy but in loose fiscal and monetary policy that has increased demand pressures within the economy, drawing in imports and leading to the balance of payments crisis and consequently the depreciation of the currency.
Measures by the Central Bank to address this by exchange rate controls and moral suasion have caused a shortage of foreign currency leading to a logjam in imports.
Fundamental and long-running macroeconomic problems were intensified by the pandemic.Import restrictions, price and exchange controls do not address the real causes.
Treating symptoms instead of the underlying causes is a recipe for disaster.
The continuation of such policies will lead to the deterioration of the economy, elevate scarcities, disadvantage the poor who are more vulnerable and in the long run lead to even higher prices and lower output due to lack of investment.
Sri Lanka’s GDP growth over the last decade has been alternating between short periods of high growth and prolonged periods of low growth. This is a result of the state-led, inward looking policies of the last decade.
A comprehensive reform agenda must be built around five fundamental pillars:
i) fiscal consolidation – The need to manage government spending within available resources and to reduce debt are paramount. Revenue mobilization must improve but the control of expenditure cannot be ignored. Budgetary institutions must be strengthened and there must be reviews not only of the scale of spending but also the scope of Government.
ii) Much of government expenditure is rigid – the bulk comprises salaries, pensions and interest so reducing these is a long term process. Reforming State Enterprises, especially in the energy sector and Sri Lankan Airlines is less difficult and could yield substantial savings. Continued operation of inefficient and loss-making SOE’s is untenable under such tight fiscal conditions. Financing SOE’s from state bank borrowings and transfers from government reduces the funds available for vital and underfunded sectors such as healthcare and education. Excessive SOE debt also weakens the financial sector and increases the contingent liabilities of the state. Therefore SOE reforms commencing with improving governance, transparency, establishing cost reflective pricing and privatisation are necessary. This can take a significant weight off the public finances and by fostering competition contribute to improvements in overall economic productivity.
iii) Tighten monetary policy and maintain exchange rate flexibility. Immediate structural reforms include, Inflation targeting, ensuring the independence of the central bank by way of legislation and enabling the functioning of a flexible exchange rate regime. Further significant attention has to be placed on the financial sector stability with a cohesive financial sector consolidation plan, with special emphasis on restructuring of SOE debt.
iv) Supporting trade and investment. Sri Lanka cannot achieve economic growth without international trade which means linking to global production sharing networks. Special focus has to be given to reducing Sri Lanka’s high rates of protection which creates a domestic market bias in the economy along with measures to improve trade facilitation and attract new export oriented FDI.
Attempts to build local champions supported by high levels of protection have
(a) diverted resources away from competitive businesses,
(b) created a hostile environment for foreign investment,
(c) been detrimental to consumer welfare,
(d) dragged down growth
v) Structural reforms to increase productivity and attract FDI – Productivity levels in Sri Lanka have not matched pace with the rest of the growing economies. The reforms mentioned above are extensively discussed in Advocata’s latest publication “Framework for Economic Recovery”.
Sri Lanka stumbled into the coronavirus crisis in bad shape,with weak finances; high debt and widening fiscal deficits. It no longer has the luxury to delay painful reforms. Failure to do so will not only jeopardize the economy; it could even spawn social and humanitarian crises.
Naqiya Shiraz is the Research Analyst at the Advocata Institute and can be contacted at naqiya@advocata.org.K.D.D.B. Vimanga is a Policy Analyst at the Advocata Institute. He can be contacted at kdvimanga@advocata.org.
In an era where global financial markets demand innovation and agility, Acuity Knowledge Partners has positioned Sri Lanka as a strategic hub for high-value knowledge services. At the helm of this transformation is Jehan Jeyaretnam, Country Head of Acuity’s Sri Lanka operations, whose two-decade journey with the firm mirrors the nation’s growing prominence in the global knowledge process outsourcing (KPO) sector.
Sri Lanka’s exceptional talent pool, which is highly educated, tech-savvy, and globally aware, is the cornerstone of Acuity’s success, asserted Jeyaretnam during an interview with The Island Financial Review. The following are some excerpts from the interview.
“With over 500 professionals in Sri Lanka supporting global clients in investment research, compliance, and data analytics, the firm has forged robust partnerships with universities like Kelaniya, fostering talent through graduate programmes, mentorship, and initiatives such as its decade-long sponsorship of inter-university academic competitions.’’
“Acuity’s commitment to nurturing expertise is evident in its status as a leading employer of CFA charter holders locally and its consistent recognition as a top employer by AICPA & CIMA, climbing to 9th place globally in 2024. Our people access global opportunities and clear career pathways,” Jeyaretnam noted, emphasising long-term growth over talent development.
“Beyond its economic footprint, Acuity’s “Be Kind” ethos drives community initiatives focused on education, sustainability, and welfare. Partnerships with NGOs like Child Action Lanka, tree-planting campaigns, and digital literacy programmes underscore Acuity’s dedication to uplifting underserved communities. Giving back isn’t optional. It’s ingrained in our culture,” Jeyaretnam stated.
Reflecting on his 20-year journey, Jeyaretnam attributed Acuity’s evolution from a ‘small team with big ambitions’ to a global KPO leader with a philosophy centered on trust and empowerment.
“Leadership is about building others up,” he said, highlighting mentorship and continuous learning as catalysts for innovation.
When asked about his personal accomplishments, he said, “Witnessing employees ascend to leadership roles is my most rewarding accomplishment.”
To youth eyeing careers in capital markets, Jeyaretnam advised adaptability, curiosity, and integrity.
“Success stems from asking questions, seeking feedback, and grounding yourself in financial fundamentals,” he stressed, citing Acuity analysts who’ve risen to become industry experts.
As Acuity eyes the future, Jeyaretnam reaffirmed its commitment to innovation, talent development, and scaling Sri Lanka’s capabilities.
“We’ll keep investing in Sri Lanka, ensuring we’re resilient and ready to meet tomorrow’s challenges together,” he asserted, encapsulating Acuity’s clients, employees and stakeholders.
In a world where knowledge is currency, Acuity Knowledge Partners and Sri Lanka’s talent are proving to be invaluable global assets.
By Sanath Nanayakkare
In a bold and pioneering move, John Keells Properties (JKP), in collaboration with MullenLowe, has launched “Minutes Away – The Smartest Campaign in Sri Lanka” for JKP’s smart apartment development, TRI-ZEN. Redefining how real estate is experienced and promoted in the digital age, this campaign is the first in Sri Lanka to utilize Meta Ray- Ban Smart Glasses—bringing viewers into a fully immersive, first-person perspective that captures the essence of smart urban living like never before.
As Sri Lanka’s first smart apartment complex, TRI-ZEN has consistently set new benchmarks in urban innovation. Now, with the Minutes Away campaign, John Keells Properties elevates its brand storytelling by delivering a unique point-of-view (POV) journey, giving audiences the chance to see through the eyes of a resident navigating the conveniences of smart city living—from seamlessly connected spaces to vibrant city life just minutes away.
“Innovation is embedded in the DNA of John Keells Properties,” said Chamal Fonseka, Assistant Vice President of John Keells Holdings and Head of Brand Strategy s Customer Experience at John Keells Properties. “With ‘Minutes Away’, we wanted to push the boundaries of how real estate is communicated. The use of Meta Ray-Ban Glasses not only allows us to immerse our audience in the daily rhythm of a TRI-ZEN resident—it also marks a first for Sri Lanka in terms of campaign technology and narrative style. This campaign is not just about showcasing a product—it’s about enabling prospective homeowners to feel the lifestyle TRI-ZEN offers. And there’s no better way than putting them quite literally in the shoes of a resident.”
The Meta Ray-Ban Glasses are at the heart of this one-of-a-kind activation, enabling content to be captured from a natural, unfiltered perspective—no gimbals, no staging, just real- time storytelling. Whether it’s a short commute to Colombo’s key hotspots, smart home features activating at a touch, or the energy of city life just steps away, the viewer experiences it all through the eyes of the modern, connected homeowner.
As global gold prices soar and investors worldwide turn to gold as a trusted store of value, Amana Life Insurance stands out for offering Sri Lankans a rare and rewarding opportunity to invest in gold through life insurance.
Amana Life Insurance is the only life insurer in Sri Lanka offering customers access to a dedicated Gold Investment Fund across all life insurance products including retirement, education, and health plans. This presents a unique opportunity for Sri Lankans to save in gold and receive gold at maturity, combining financial protection with the long-term stability of a globally valued asset.
As of March 31st, 2025, the Gold Investment Fund delivered an impressive 12-month return of 19 percent, offering strong returns for policyholders who chose the Gold Fund investment option as part of their wealth planning strategy.
Whether you’re planning for your child’s education, retirement, or long-term wealth creation, Amana Life Insurance gives you access to one of Sri Lanka’s most diverse and high-performing investment portfolios. These include the Protected Multiple Fund, Stable Multiple Fund, Growth Multiple Fund, Volatile Multiple Fund, Bullion Multiple Fund, and the standout Gold Investment Fund, each designed to match different financial goals and risk profiles.
Commenting on the fund’s performance, Gehan Rajapakse, CEO of Amana Life Insurance, stated: “The continued rise in global gold prices underscores the importance of offering innovative, long-term investment options. The strong performance of our Gold Investment Fund reflects our deep commitment to creating lasting value for our policyholders. However, we remind customers that past performance is not indicative of future results, and every investment should be aligned with one’s financial goals and market outlook.”
As Sri Lanka’s most awarded insurer, Amana Life Insurance continues to lead with foresight, innovation, and a customer-first mindset, enabling every Sri Lankan to secure their future with confidence and clarity.
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