Thursday Jan 09, 2025
Thursday Jan 09, 2025
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Sri Lanka’s economic recovery hinges on a commitment to comprehensive and sustained reforms
Targeted social safety nets will ensure inclusivity, while policies promoting innovation and sustainability will drive long-term growth. Sri Lanka’s transformation into a resilient and inclusive economy is not just a necessity but an achievable vision. With unified efforts from the Government, private sector, and international partners, the nation can emerge as a model for sustainable growth, rebuild public trust, and improve the quality of life for its citizens
Sri Lanka stands at a pivotal moment, where bold and transformative reforms can lead the nation toward economic recovery and sustainable development. Decades of structural challenges, compounded by recent economic shocks, highlight the urgent need for fiscal consolidation, governance improvements, and policy modernisation. By implementing reforms that foster resilience, attract investments, and ensure equitable growth, Sri Lanka has the opportunity to rebuild its economy, restore public trust, and position itself as a competitive player in the global market.
1. Macroeconomic stabilisation policies
Sri Lanka needs to adopt targeted inflation control policies through a mix of monetary tightening and supply-side interventions, maintaining a positive real interest rate to stabilise the currency and reduce imported inflation. Enforcing a Fiscal Responsibility Act with clear deficit and debt targets and reallocating fiscal resources from subsidies to productive infrastructure projects will further strengthen economic stability. Conducting Public Debt Sustainability Analyses (DSA) can guide borrowing effectively.
2. Fiscal policy innovations
Progressive tax reforms are essential, expanding the tax base by taxing wealth and high-income individuals more effectively while rationalising indirect taxes like VAT to minimise regressive impacts on low-income groups. Public-Private Partnerships (PPPs) can be leveraged to finance infrastructure projects such as ports, roads, and power plants, reducing public debt burdens. Introducing carbon taxes to finance green initiatives and meet global climate commitments would also position Sri Lanka as a leader in environmental responsibility.
3. Trade and industrial policies
Sri Lanka should focus on export-led growth by developing sector-specific export strategies, emphasising high-value goods such as IT services, specialty tea, and garments. Negotiating Free Trade Agreements (FTAs) with the EU, ASEAN, and China can expand market access while enhancing bilateral trade without Dollar dependency. Establishing Export Credit Agencies (ECAs) for export financing and encouraging domestic production of critical imports like pharmaceuticals, agricultural inputs, and energy products can reduce import dependency. To address unemployment and also contribute to improving GDP growth, Special Economic Zones (SEZs) with tax holidays and streamlined approval systems should be created to attract Foreign Direct Investment (FDI) in manufacturing and services.
4. Financial sector reforms
Reforming the banking sector by recapitalising weak banks and improving corporate governance standards is vital. A national bad-debt resolution framework can address non-performing loans (NPLs), while boosting local and foreign investments in equity and debt markets will strengthen the financial sector. Establishing a Sovereign Wealth Fund (SWF) to invest foreign reserves in productive assets like Fin-tech or Agri-tech sectors can enhance long-term economic growth.
5. Agriculture and rural development
Revitalising agriculture is crucial for economic recovery. Deploying precision farming tools like drones and IoT can improve productivity, while developing cold chain infrastructure can reduce post-harvest losses. An agro-export strategy investing in high-value crops like spices, organic products, and medicinal plants should be pursued alongside ensuring compliance with international sanitary and phytosanitary standards. Targeted microfinance schemes for rural credit growth should also be promoted.
6. Tourism revitalisation
Strategic marketing campaigns can promote Sri Lanka as a unique, safe, and culturally rich destination. Leveraging rupee depreciation to attract tourists, expanding eco-tourism destinations in forest and coastal reserves, and investing in digital tourism platforms for booking, payments, and destination management can enhance the tourism experience. Connecting initiatives like the Ram Sethu Project to the billion-strong Indian tourist base can significantly boost the sector.
7. Energy and infrastructure
Sri Lanka has an abundance of natural resources that make transitioning to renewable energy a viable target, aiming for 70% renewable energy generation by 2030. By incentivising private investment in solar, wind, and bio-energy projects, the CEB can encourage the development of domestic energy sources such as LNG terminals and offshore wind farms. These efforts will reduce dependency on imported oil and enhance energy security. Additionally, infrastructure upgrades prioritising multimodal transport systems, along with expanding rural electrification and internet penetration, are essential for equitable growth and connectivity.
8. Digital and knowledge economy
Expanding the IT-BPO-KPO sectors and positioning Sri Lanka as a hub for business and knowledge process outsourcing will enhance software exports. Implementing e-governance systems to streamline public services and reduce corruption will improve efficiency. Establishing startup ecosystems with incubation centres and encouraging venture capital investments through tax breaks and co-funding models can drive innovation and entrepreneurship, fostering a vibrant digital economy.
9. Environmental and climate policies
Sustainable urban planning with smart cities integrating green building codes, efficient waste management systems, and renewable energy should be a priority. A Climate Resilience Fund can finance adaptation projects like agriculture and coastal protection while balancing development and conservation through the protection of national parks, forests, and marine ecosystems. Additionally, Sri Lanka should request support from International Financial Institutions focused on climate initiatives to fund large-scale renewable energy and disaster-resilient infrastructure projects, ensuring a sustainable future.
10. Social protection and inclusion
Universal access to healthcare, education, and sanitation is vital for equitable growth. Poverty Alleviation programs such as direct cash transfer programs targeted at vulnerable populations and rural employment guarantee schemes for those below the poverty line can alleviate poverty. Policies should also emphasise women and youth empowerment through training and financing.
11. Skill building and innovation
Developing a skilled workforce aligned with both local and global market demands will boost productivity and reduce unemployment rates. Increased innovation-driven economic activities through collaboration between government, industry, and academia can transform Sri Lanka into a thriving, innovative economy.
12. Institutional and governance reforms
Strengthening anti-corruption agencies, enforcing strict penalties, and improving transparency using blockchain in public procurement are important steps. Judicial reforms to ensure swift and fair dispute resolution mechanisms and institutionalising long-term planning frameworks that transcend political cycles will boost investor confidence and policy continuity.
Sri Lanka’s economic recovery hinges on a commitment to comprehensive and sustained reforms. By prioritising fiscal discipline, fostering an environment conducive to investment, and addressing structural inefficiencies, the nation can chart a path toward stability and resilience. Targeted social safety nets will ensure inclusivity, while policies promoting innovation and sustainability will drive long-term growth. Sri Lanka’s transformation into a resilient and inclusive economy is not just a necessity but an achievable vision. With unified efforts from the Government, private sector, and international partners, the nation can emerge as a model for sustainable growth, rebuild public trust, and improve the quality of life for its citizens.
13. Key metrics for monitoring progress
To be continued.
(The writer is the Managing Director and CEO, G&G Group of Companies, Singapore.)
