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Sri Lanka caught in low-productivity trap: IPS
ECONOMYNEXT —Six consecutive quarters of negative economic growth in Sri Lanka has led to lower wage rates and discouraged workforce participation and skill development, lowering productivity levels and creating a low productivity trap, the Institute of Policy Studies (IPS) said.
Real wages also decreased after high inflation following the 2022 currency crisis.
At a recent discussion, IPS researchers said the negative growth recorded up to the third quarter of 2023 which had a direct impact on the labour market and the resultant “low productivity trap” has hampered further economic recovery.
The discussion held at the launch of the institute’s State of the Economy 2024 report focused on issues within three key aspects of Sri Lanka’s economy: the education sector, labour market, and public sector.
IPS Research Officer Suresh Ranasinghe noted that, between 2018 and 2023, Sri Lanka’s labour force participation rate fell from 51.8 percent to 48.6 percent, while the employment-to-population ratio dropped from 49.5 percent to 46.3 percent. According to Ranasignhe, some of the main issues within Sri Lanka’s labour market include rising labour market inactivity, declining labour productivity and employment growth, and declining high-skilled employment.
“While all three sectors – agriculture, industry, and services – observed negative average labour productivity from 2018 to 2023, the ICT sector stands out, with the highest output per worker.”
IPS said in a statement on Tuesday October 15 that the discussion had focused on the need to invest in technology, infrastructure, and skill development, particularly within the agriculture sector. Given the ICT sector’s high productivity, recommendations included offering VAT exemptions and bridging the existing skill gap within the sector through targeted interventions.
“Only 20 percent of the total workers held high-skilled jobs in 2023, a decline from 23 percent in 2018, mainly due to a decrease in the share of Managers, Senior Officials, and Legislators,” said Ranasinghe.
One potential reason for this decline was the emigration of high-skilled workers during the pandemic and economic crisis, as they sought better wages abroad due to declining real wages in Sri Lanka. To retain the remaining high-skilled workers, the importance of providing competitive salaries and benefits was pointed out by speakers at the event.
“In the long term, expanding knowledge-based industries, supporting persistent professional development, and revising public sector policies are important to foster high-skilled employment.”
Rationalising public sector employment was also a point of discussion at the event.
Sri Lanka’s public sector accounts for 15 percent of total employment and 35 percent of formal employment, while it consumes 26 percent of public expenditure and 5 percent of GDP, said IPS. Notably, public sector employment has increased by about 60 percent since 2005. However, “Sri Lanka’s government performance is considered ‘poor’ as per the Worldwide Governance Index (WGI), with the government effectiveness being negative 0.65.”
“The rise in inactivity, particularly among youth, is likely linked to education disruptions. To tackle this, the session highlighted the importance of promoting and improving the quality of Technical and Vocational Education and Training (TVET), focusing on access for vulnerable youth and improving public perceptions, as well as supporting entrepreneurship initiatives to create sustainable employment opportunities,” IPS said in its statement.
IPS Research Fellow Lakmini Fernando discussed the importance of improving public sector efficiency. She noted how government expenditure has a declining trend (47 percent decline from 1990 to 2023) while spending on wages remains stable (5 percent). While high government expenditure crowds out investments, it lowers prospects for growth. Fernando recommended introducing a new public management approach, which provides an immediate pay rise while ensuring the right size of the public sector. An effective public sector is essential for improving education planning and enabling strategic interventions in the labour market, she said.
Overall, Fernando noted that improving administrative operations, downsizing the sector, and addressing barriers that lead to policy failures were important. A debate ensued during the Q&A session on downsizing the sector and whether or not the public sector deserves a pay rise. “The minimum monthly wages of all types of public employee levels are below the expenditure benchmark of LKR 68,056,” said Fernando, suggesting that to ensure successful policy implementation, the government needs to create an environment that supports adopting changes.
The institute also noted that education equips individuals with the knowledge and skills necessary for a productive and competitive workforce and fosters creativity and problem-solving abilities essential for driving innovation and technological advancements.
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Delay in govt. response to UK sanctions on ex-military chiefs, and others causes concern
Admiral of the Fleet Wasantha Karannagoda said that he is still waiting for the government’s response to the UK sanctions imposed on three ex-military officers, including him, and a former member of the LTTE.
The former Navy Chief said so in response to The Island query whether he was aware of the position taken by a three-member ministerial committee, consisting of Foreign Minister Vijitha Herath, Justice and National Integration Minister Harshana Nanayakkara and Deputy Defence Minister Maj. Gen (retd) Aruna Jayasekera.
The government named the committee in the wake of the UK declaration of travel bans and asset freezes in respect of Karannagoda, General Shavendra Silva, General Jagath Jayasuriya and Vinayagamoorthy Muralitharan, also known as Karuna. Maj. Gen. Jayasekera said that they inquired into the issue at hand.
Karannnagoda said that he would like to know the government’s recommendations if the ministerial committee briefed the Cabinet as per a decision taken by the Cabinet of Ministers. Karannagoda said that the issue should have been taken at the highest level as various interested parties continue to humiliate the war-winning military by targeting selected individuals.
Other sources, familiar with the issues at hand, told The Island that the government was yet to announce its stand.
Sources pointed out that the Opposition has been silent on what they called a matter of utmost national importance.
Cabinet spokesman Dr. Nalinda Jayathissa is on record as having described the UK move as a unilateral move and that committee was formed to examine the developments and recommend appropriate measures to the Cabinet.
Foreign Minister Herath told The Island the government was not successful in getting the British to withdraw sanctions. Describing the UK decision as unilateral, the Miniser said that the government conveyed its concerns but the UK didn’t change its stand.
The Island raised the issue with Minister Herath and Admiral Karannagoda in the wake of British MP of Sri Lankan origin, Uma Kumaran requesting the UK Foreign Secretary Yvette Cooper to expand on the government’s sanctions imposed on the four above-mentioned persons.
During a Foreign Affairs Committee meeting on 16 December, the MP for Stratford and Bow highlighted the lack of accountability and political will from the current Sri Lankan government to address war crimes and mass atrocities committed in Sri Lanka.
Sources said that David Lammy, who served as Secretary of State for Foreign, Commonwealth and Development Affairs at the time of the declaration of sanctions, had no qualms in declaring that the action taken against four Sri Lankans was in line with a commitment he made during the election campaign to ensure those responsible wouldn’t be allowed impunity. The UK government statement quoted Lammy as having said that this decision ensured that those responsible for past human rights violations and abuses were held accountable.
By Shamindra Ferdinando
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Sri Lanka outlines seven key vectors of international cooperation at Moscow forum
Sri Lankan Ambassador to the Russian Federation, Shobini Gunasekera recently presented a conceptual framework of seven key vectors that defined contemporary international relations and facilitated dialogue among States. She made the presentation at XI Moscow International Financial and Economic Forum held under the theme “Building Bridges: Partnership without Borders”.
In her address, the Ambassador emphasised that these vectors represent the channels through which ideas circulate, trade expands, and peace is strengthened, serving as guiding principles for cooperation amid global uncertainties. The seven key vectors highlighted were economic ties as a foundation for long-term stability; political choice and diplomacy through dialogue and multilateral engagement; security cooperation to address cross-border threats; cultural linkages through education, tourism, and professional exchanges; technological advancement, particularly in digital systems and artificial intelligence; environmental stewardship through collective action on renewable energy and climate change; and humanitarian obligations, including disaster relief and development cooperation.
Drawing on Sri Lanka’s experience, the Ambassador illustrated the practical application of these principles by highlighting the country’s strategic location in the Indian Ocean, its role as a trade and logistics hub, and its active engagement in regional groupings such as BIMSTEC and the Indian Ocean Rim Association, where the Russian Federation serves as a Dialogue Partner.
The potential for enhanced Sri Lanka–Russia bilateral cooperation was underscored, particularly through complementarities between Russia’s technological and energy expertise and Sri Lanka’s logistical capabilities and maritime infrastructure. She noted that such synergies could support joint initiatives in trade, innovation, tourism, and logistics, while cultural and scientific exchanges would further strengthen mutual understanding between the two countries.
Concluding her remarks, the Ambassador stated that sustained progress requires dialogue, mutual respect, and forward-looking partnerships capable of shaping a shared and stable future.
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Sri Lanka third most preferred destination for Indians
Thailand takes top place
Travel website Make My Trip has named Sri Lanka as the third most booked international destination by Indian travellers for the festive period, following Thailand and the United Arab Emirates (UAE).
According to a report released by MakeMyTrip, an analysis of booking trends between 20 December and January 2026 compared to the same period last year, highlighted a growing interest in Sri Lanka as a preferred destination.
Thailand ranked first, while the UAE secured second place. Vietnam recorded a notable rise, moving from seventh position last year to fourth this year, followed by Malaysia, Indonesia, Singapore, the UK, the US, and Hong Kong.
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