Business

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

Published

5 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.

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Business

SriLankan Airlines Update on Middle East Operations

Published

1 hour ago

2026/03/3

Rashi Nihara

03 March 2026; Colombo – As airspace in certain parts of the Middle East continues to remain closed due to the ongoing conflict, the following SriLankan Airlines flights scheduled to operate today have been cancelled:

Flight Route
UL 225 Colombo–Dubai
UL 226 Dubai–Colombo
UL 231 Colombo–Dubai
UL 232 Dubai–Colombo
UL 229 Colombo–Kuwait
UL 230 Kuwait–Colombo
UL 217 Colombo–Doha
UL 218 Doha–Colombo
UL 253 Colombo–Dammam
UL 254 Dammam–Colombo
UL 265 Colombo–Riyadh
UL 266 Riyadh–Colombo

We sincerely appreciate our passengers’ understanding and patience as these cancellations are implemented in the interest of their safety and wellbeing.

For more information, please contact: 1979 (within Sri Lanka); +94 11 777 1979 (international); WhatsApp +94 74 444 1979 (chat only); your travel agent; or visit www.srilankan.com

Business

Middle East escalation sends oil soaring; Sri Lanka faces price shock despite assurances on supply

Published

11 hours ago

2026/03/3

Thilina Walpola

Vessels have been forced to anchor as Iran threatens to close the Strait of Hormuz

Global oil prices surged sharply yesterday following coordinated US and Israel-backed strikes on Iran, and Tehran’s retaliatory attacks targeting US interests in the region, alongside escalating hostilities involving Hezbollah in Lebanon. The renewed instability in the Middle East – the artery of the world’s energy supply – has sent tremors through financial markets and triggered fresh anxiety in oil-importing nations such as Sri Lanka.

Brent crude climbed steeply in early Asian trading, with traders pricing in the risk of supply disruptions through critical maritime chokepoints, particularly the Strait of Hormuz, through which nearly a fifth of global oil passes. Market analysts say the spike reflects not only immediate supply fears but also the potential for prolonged geopolitical tension that could keep prices elevated for months.

Meanwhile, Asian equities reacted nervously to the unfolding crisis. Major indices across the region retreated as investors fled risk assets, concerned that higher energy costs could dampen growth and reignite inflationary pressures.

Asian oil and gas stocks – the only winner in Asian equity markets – rallied strongly, reflecting expectations of higher revenues amid rising crude prices. This divergence of falling broader markets alongside rising oil shares signals investor anticipation of higher inflation and weaker consumer demand in emerging markets like Sri Lanka.

Meanwhile, reports of increased Chinese crude purchases are further compounding market anxiety. If Beijing accelerates buying to secure strategic reserves in anticipation of supply constraints, global prices could climb even further because China’s procurement strategy has great influence on the world oil price.

“Should Chinese demand rise while Middle Eastern exports face disruption, the supply-demand imbalance could tighten considerably, amplifying volatility in global energy markets”, say global energy market analysts.

In Sri Lanka, long queues have begun forming at fuel stations amid fears of shortages and higher pump prices once new shipments arrive. The government has sought to calm public nerves, stating that sufficient stocks are available for approximately one month and that fresh supplies are being sourced from India and Singapore.

Deputy Minister of Tourism, Dr. Ruwan Ranasinghe said that as Sri Lanka imports refined products primarily from India and trading hubs such as Singapore, direct disruptions to Middle Eastern sea routes would not immediately interrupt supply chains. He maintained that there is no cause for panic buying.

In an unusual show of political maturity, Prasad Siriwardena, an Opposition MP from the Samagi Jana Balawegaya (SJB) urged the public to remain calm and refrain from hoarding, warning that artificial shortages could emerge if panic-driven stockpiling spreads.

However, former minister Wimal Weerawansa criticised the government for failing to build a strategic reserve of at least three months, arguing that Sri Lanka’s total dependence on imported fuel leaves it dangerously exposed to prolonged geopolitical shocks.

Weerawansa contended that the government failed to anticipate the likelihood of US-Iran tensions escalating into direct confrontation and should have proactively guided petroleum authorities to secure adequate reserves in advance.

Meanwhile, an independent analyst told this reporter on the condition of anonymity that the global economic spillover could have wide-ranging consequences on Sri Lanka, outlining five factors.

Energy costs that feed into transportation, manufacturing and food prices

Tighter monetary policy risks as the Central Bank may hesitate to cut rates if inflation resurges

Slower growth as consumers and businesses reduce spending when energy costs rise

A widening trade deficit as Sri Lanka would face increased import bills

Pressure on the Rupee as increased dollar outflows for fuel imports could strain foreign exchange reserves

In conclusion, he said, “One can only hope that diplomacy prevails before oil’s surge turns into a sustained economic storm for the global economy.”

by Sanath Nanayakkare

Business

How ‘distant wars can quickly arrive at the domestic pump’

Published

11 hours ago

2026/03/3

Thilina Walpola

Vehicles lining-up for petrol in Colombo as panic buying takes control.

The harsh economic realities behind soothing words

Sri Lanka’s fragile economic recovery faces a renewed external threat as escalating conflict involving Iran sends global oil prices sharply higher, raising concerns over inflation, foreign reserves and fiscal stability.

While authorities insist there is no immediate fuel shortage, economists warn that prolonged instability in the Middle East could trigger a familiar and painful chain reaction in an import-dependent economy still recovering from its worst financial crisis in decades.

The state-run Ceylon Petroleum Corporation (CPC) confirmed that the country currently holds sufficient petrol and diesel stocks for more than a month.

Energy Minister Eng. Kumara Jayakody assured that scheduled shipments remain unaffected and urged the public to refrain from panic buying, warning that artificial demand could disrupt smooth distribution.

But behind those reassurances lies a harsher economic reality: Sri Lanka does not need a physical fuel shortage to suffer — a sustained spike in global crude prices alone could be enough.

Market jitters intensified amid fears that any escalation could threaten shipping through the Strait of Hormuz, the narrow maritime corridor through which a significant share of the world’s oil supply passes daily. Even speculation of disruption has historically been sufficient to push prices sharply upward.

Sri Lanka sources refined fuel from multiple markets, including India and Southeast Asia. However, global benchmark prices ultimately determine import costs. If crude prices remain elevated, the country’s monthly fuel import bill could surge — placing fresh strain on dollar reserves.

Higher oil prices would ripple across the entire economy. Transport, electricity generation, manufacturing, agriculture and food distribution are all energy-sensitive sectors. A sustained price increase could reverse recent gains in inflation control.

The Central Bank of Sri Lanka has worked to stabilise inflation and the rupee through tight monetary discipline. Analysts caution that a renewed oil shock could complicate this effort, widening the trade deficit and pressuring the exchange rate.

“Sri Lanka is structurally vulnerable to energy price shocks. Even without direct supply disruption, higher global prices immediately translate into macroeconomic stress, a senior economic analyst said.

The government is currently operating under strict fiscal consolidation targets as part of its recovery programme. A rising fuel bill could expand subsidy pressures or force politically sensitive fuel price adjustments.

Any increase in administered fuel prices would inevitably feed into cost-of-living pressures, testing public tolerance amid ongoing austerity.

Beyond oil markets, instability in the Middle East carries another risk: remittances. The Gulf region remains a key source of foreign employment for Sri Lankans and a crucial inflow of foreign exchange.

Any economic slowdown or labour disruption in the region could dampen remittance flows, reducing one of the country’s most stable dollar lifelines.

An energy expert said for Sri Lanka, the Iran conflict is not merely a distant geopolitical event. It is a potential economic stress test at a moment when stability remains hard-won.

“Whether this turns into a temporary price spike or a prolonged oil shock will determine how severely it tests the country’s recovery trajectory. For now, policymakers are watching global markets closely — aware that in today’s interconnected economy, distant wars can quickly arrive at the domestic pump.”

By Ifham Nizam