Business

To Leave or to Stay? Years of bad economic policy are killing the aspirations of Sri Lanka’s youth

Published

4 years ago

2021/09/1

By Sathya Karunarathne

Overseas migration for work or study, seems a popular option for Sri Lanka’s youth. Central Bank data shows that in 2019 alone the age group 25-29 recorded the highest number of departures abroad for skilled, semi-skilled, and unskilled employment. This age group also recorded the second-highest number of departures for professional, middle, and clerical level jobs. UNESCO’s Eurostat data collection on education for 2020 states that the total number of Sri Lankan students overseas is 24,118.

A significant segment of the youth population seem dissatisfied with the available opportunities and choices within Sri Lanka.The above numbers reflect their lack of faith in a better and safer society in the years to come. For decades this lack of opportunity was blamed on the war. However, even twelve years after the conclusion of the war little has changed.It is worthy to explore why.

How did we get here?

The island nation’s predicament was in the making for almost 70 years.Consecutive governments since independence have failed to successfully implement policies to deliver economic growth and better living standards.

Trade is the engine of growth but over the last fifteen years Sri Lanka has shied away from trade led growth. Although Sri Lanka was South Asia’s first to embark on economic liberalisation in 1977 and despite the relatively robust economic performance that resulted even during the war years, Sri Lanka began to move away from international trade and investment.

Starting in 2004 import tariffs were raised in an ad hoc fashion to finance a growing defence budget. By 2009 Sri Lanka had one of the world’s most complex import tax regimes made up of para tariffs, (taxes above custom duties) and customs duties. By 2009 the overall protection more than doubled from 13.4 percent to 27.9 percent. Sri Lanka’s import policies by this time were as protective as they had been 20 years ago. While Sri Lanka continued to miss the boat of economic globalisation our East Asian neighbours such as Vietnam and Thailand have risen to prosperity by successfully integrating with global value chains.

This was compounded by an increase in state spending and increased state involvement in the economy. Much of it is financed by debt. Sri Lanka’s state expenditure has ballooned. Due to excessive borrowing, the central government’s highest recurrent expenditure is on interest payments which were at 36 percent in 2020. The country boasts a bloated public sector. The Ministry of Finance states that 30 percent or the second largest of the central government’s recurrent expenditure is spent on salaries and wages. This amounted to a staggering 794.2 billion in 2020 an increase of 15.7 percent from 2019. The Economy Next reported in June that 86 percent of tax revenue went into salaries and pensions in 2020. Moreover, these salaries are only a part of the problem, much expenditure is wasted sustaining mismanagement, corruption, and negligence within some 527 SOEs whose cumulative losses outweigh profits.

Tax revenues have not kept pace with expenditure and the tax system is weighted towards indirect taxes. In 2020 of the share of Sri Lanka’s tax revenue only 22.1 percent was direct taxes with 77.9 percent being indirect. This is highly regressive as a large component of indirect taxes end up on goods and services consumed by the average Sri Lankan imposing a higher burden on low income earners.

Consecutive government’s reluctance to rectify these economic miscalculations through hard reforms have brought the island to a precarious state of high levels of accumulated debt with exponentially growing interest payments.The country now has a debt to GDP ratio of over 101 percent, while foreign reserves have declined to 2.8 billion- sufficient for less than two months of imports.Fitch ratings have estimated that Sri Lank’s foreign currency debt service obligations until 2026 amount to USD 29 billion. Sri Lanka’s debt is on an unsustainable path.

So what’s at stake for young

people in all this?

Sri Lanka’s youth sit helplessly as bungled policy results in the economy tanking, taking them further away from their aspirations, hopes and dreams. Labour force survey for the fourth quarter (Q4) of 2020 reported a startling youth unemployment (15-25 years) rate of 25.7 percent. In terms of education level, the highest unemployment rate is reported from the GCE A/L and above group. Although the labour force is educated their main source of employment remains in the informal sector. Nevertheless, skills gap and mismatches have been identified as a major obstacle preventing employment. For example, a 2019 survey estimated a shortage of 12,140 ICT graduates.A World Bank study recognised poor English language skills as another impediment.

In addition to this, COVID exacerbated Sri Lanka’s challenge of providing employment. Unemployment as a percentage of the total labour force increased from 4.5 percent to 5.2 percent between 2019 Q4 – 2020 Q4.19 This coupled with the country’s poor economic conditions will lead to more job losses in the coming months.For instance, with banks rationing letters of credit those employed in the import sector are in panic. Additionally, with prices of essential items increasing the demand for other products and services will decline as people are forced to deprive themselves of small luxuries such as ordering a meal from a restaurant to survive.This poses a threat to business operations and employment.

To curb the outflow of dollars the country has resorted to increased import restrictions.These unsustainable policy responses have robbed the Sri Lankan youth of the luxury to dream and to aspire. Purchasing a car and housing are two such aspirations that are slipping through the fingers of the average Sri Lankan. Vehicle Importers Association of Sri Lanka (VIASL) stated that the price of certain vehicles in the local market has increased by around Rs.10 million due to import restrictions.20 A 2017/2018 Wagon R which was sold at Rs.3.5 million is now being sold at Rs.6 million. Those building or repairing houses face difficulty as cement importers have limited the release of cement to the market due to partial suspension of imports and price controls resulting in severe shortages. This coupled with high tariffs on construction material will further contribute to making the construction of a house an illusion to the middle-class Sri Lankan.

Even the escape routes of Sri Lanka are closing. Students aspiring to leave the country for higher education fear banks may not issue dollars to finance their stay. Migrants are unable to take their savings with them meaning they face a much harder start in another country- last month the Central Bank issued a new order under the Foreign Exchange Act declaring limits on migration allowances26. Social media is swamped with infuriated complaints on price hikes and scarcity of essentials such as medicine in midst of a pandemic.

It is safe to conclude that young people have found themselves in a perilous socio economic fabric with looming uncertainty.

To leave or to stay?

If the government is to retain young people they must be provided with indications of stability and hope. Excessive reliance on import restrictions as a policy solution to the foreign exchange crisis at hand exhibits the government’s reluctance to implement painful but necessary reforms. Stability and hope lie in reforms the politicians are resistant to.

Increasing sources of government revenue, re-prioritising government expenditure, limiting intervention, relying on markets and recognizing the vitality of trade in a globalised economy is Sri Lanka’s road to prosperity. It will not be easy or painless, the accumulated policy mistakes of the past two decades require some very hard reforms but it is the only sustainable way out of the current mess.

Sri Lanka faces a serious crisis but it presents an opportunity to learn from the mistakes of the past and to rebuild the island’s institutions along with the hopes and dreams of the young.

Sathya Karunarathne is the Research Analyst at the Advocata Institute and can be contacted at sathya@advocata.org. Learn more about Advocata’s work at www.advocata.org. The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute, or anyone affiliated with the institute.

All News Advertisement

Business

eChannelling introduces ‘eHomecare’ as SL’s first doctor-led elderly care service

Published

17 hours ago

2025/12/27

Thilina Walpola

Officials from eChannelling PLC and SLT, along with doctors, at the event

Supporting families with medically supervised care for elderly individuals in the comfort of their own homes, SLT-MOBITEL and eChannelling PLC, in partnership with medical experts from Golden Years Care, have introduced eHomecare’, Sri Lanka’s first doctor‑led elderly‑care service.

The pioneering initiative is designed to address a growing societal need. The service launched by eChannelling, Sri Lanka’s leading digital healthcare solutions provider, brings together the technological capabilities of SLT-MOBITEL with eChannelling’s healthcare expertise and Golden Years Care’s extensive experience in compassionate home-based support, ensuring quality standards throughout the program.

With increasing migration, many adult children are now living or working abroad, leaving their elderly parents alone in Sri Lanka. For many seniors, mobility challenges make it difficult to access hospitals for routine checkups, medication, or urgent medical attention. eHomecare seeks to fill this critical gap, offering a structured, reliable, and compassionate solution for families navigating these challenges.

The purpose of eHomecare is to support families in assuring their elderly loved ones receive the medical care they need, even when children are living overseas or occupied with demanding careers, guaranteeing elderly individuals are supported with dignity.

eHomecare provides families with a safe and trustworthy platform to arrange professional doctor‑led home visits, benefit from real‑time assessments and guidance from qualified healthcare professionals and ensure the elderly are supported with holistic care.

More than a convenience, eHomecare is a vital solution to a pressing social concern, offering peace of mind to families and guaranteeing seniors receive the respect, and medical attention they deserve.

Key features of the service include doctor-led home visits providing personalized care tailored to individual health needs, continuous assessment and recommendations for ongoing care for optimal health management, prompt medical attention during emergencies, with qualified healthcare professionals available when needed and a comprehensive, professional, and trustworthy approach to elderly care that prioritizes dignity and wellbeing.

Through eHomecare, families gain access to a reliable network of medical professionals who understand the unique needs of elderly individuals. The service bridges the distance between overseas children and their aging parents, with medical support, and emotional reassurance that loved ones are being cared for with compassion and expertise.

Business

NDB shows strong growth, rising investment potential

Published

17 hours ago

2025/12/27

Thilina Walpola

In a striking testament to both corporate resilience and a recovering macroeconomic environment, the National Development Bank (NDB) has delivered a set of third-quarter results for 2025 that far exceed market expectations. The figures, detailed in a recent analysis by First Capital Research (FCR), paint a picture of a financial institution leveraging favourable conditions to accelerate growth, justify upward revisions in valuation, and present a compelling case to investors for long-term value creation.

The headline figure is arresting: a 145.6% year-on-year surge in earnings for 3Q2025. This explosive growth was primarily engineered by a dual engine of stronger net interest income, which grew 13.8% YoY to LKR 9.1 billion, and a significant 24.3% rise in net fee and commission income. The former benefits directly from the prevailing low-interest-rate environment, which has helped margins and stimulated borrowing, while the latter points to broad-based business momentum across the bank’s operations, from trade finance to its digital platforms. A remarkable leap in other income – to LKR 1.04 billion from a mere LKR 27.7 million a year earlier – further bolstered the bottom line.

Perhaps as encouraging as the income growth is the notable improvement in credit quality. Impairment charges declined by a substantial 46.9% year-on-year, a clear signal of improving macroeconomic conditions and a healthier loan book. This trend underscores a banking sector that is emerging from the shadows of past economic stress with greater stability.

Buoyed by this outperformance, FCR has significantly revised its earnings forecasts upward. Their 2025 estimate has been lifted by 33.5% to LKR 11.6 billion, and the 2026 forecast by 26.1% to LKR 13.2 billion. This positive reassessment flows directly into the bank’s perceived fair value. FCR now assigns a fair value of LKR 180.0 per share for 2025, implying a 27% potential upside, and LKR 200.0 for 2026, suggesting a 42% increase from current levels. When expected dividend per share (DPS) returns are included, the total return projections become even more attractive, estimated at 33% for 2025 and 48% for 2026.

First Capital maintains a “BUY” recommendation on NDB, citing a constructive outlook founded on a favourable macro backdrop and stable interest-rate trends. These factors are expected to continue fuelling loan book expansion. Furthermore, growth in trade finance and an accelerating adoption of digital banking services are anticipated to provide sustained momentum to fee-based earnings, diversifying the bank’s revenue streams.

However, the report does not ignore the clouds on the horizon. It highlights near-term risks to asset quality, particularly stemming from recent adverse weather events. Given NDB’s sizable exposure to the Small and Medium Enterprise (SME) sector, which is often vulnerable to such disruptions, the analysis expects a possible uptick in non-performing loans (NPLs) in the coming quarters. This is a prudent note of caution for investors, emphasizing that the recovery path may not be entirely smooth.

Nevertheless, the overarching narrative from these results is one of a bank positioned at the confluence of economic recovery and strategic execution. NDB appears to be translating improved national economic indicators into robust financial performance. Its “resilient base,” demonstrated by strengthening fundamentals and declining impairments, provides the foundation for “rising potential,” captured in the revised earnings and fair value estimates.

For the investing public, the message from this analysis is clear: NDB is presented as a institution harnessing the winds of economic change to propel itself forward. While mindful of sector-specific risks, the data suggests a strong trajectory for growth and value appreciation, making it a standout candidate for potential investors.

By Sanath Nanayakkare

Business

Sri Lankan tea sees a week of robust activity

Published

17 hours ago

2025/12/27

Thilina Walpola

A tea garden in Akuressa: The low grown segment, comprising approximately 2.4 M/Kgs, met with fair to good demand

The Colombo tea auctions witnessed a week of robust activity and generally firm prices, as total offerings rose significantly to 6.0 million kilograms, according to the latest market commentary from leading brokers Forbes & Walker. This marks a notable increase from the 5.2 million kilograms on offer the previous week.

The market was characterized by good general demand, with an encouraging overall price structure attributed to seasonal interest. The report indicates a nuanced picture across different elevations and tea types.

Offerings from Ex-Estate gardens increased marginally to 0.79 M/Kgs. The sector saw good demand, with prices maintaining a firm to marginally dearer trend. However, within the Western High-Grown region, teas in the Best category were marginally weaker, while improved and brighter sorts in the Below Best category appreciated. The Nuwara Eliya region remained sluggish, while the Uva/Uda Pussellawa regions sold at levels consistent with the previous week.

The High and Medium Grown CTC market saw firm conditions for PF1 grades, which gained by Rs. 20 per kg or more. In contrast, the corresponding Low Grown PF1 varieties weakened by a similar margin. BP1 grades were scarcely available.

The Low Grown segment, comprising approximately 2.4 M/Kgs, met with fair to good demand. The Premium category, in particular, witnessed good interest.

BOP1 grades were fully firm. OP1 varieties saw Best and Below Best types appreciate, while high-priced OPs were easier. OPAs saw high-priced teas become dearer.

FBOPs were generally firm, and Select Best FF1s were firm to selectively dearer.

Very Tippy teas met with good, firm demand, with Best and Below Best varieties appreciating.

The broker report noted that shippers to traditional markets like the United Kingdom, the European continent, and South Africa continued to be selective in their purchases. Meanwhile, there was fair activity from buyers representing China, Japan, the Commonwealth of Independent States (CIS), and the Middle East.

Forbes & Walker concluded that the overall price picture is encouraging, driven by a combination of selective international demand and seasonal factors. The firm to dearer trend at the lower end of the market and for specific grades indicates a solid underlying demand, despite some regional and qualitative weaknesses. The trade will be watching closely to see if this firm trend holds as new seasonal crops come to market.