Category: Daily Financial Times

New York New Jersey was hosting its penultimate match of the tournament, with the next fixture being the 19 July final. Norway stand now just two matches from reaching that decider, having downed Brazil in the Round of 16, on the back of Erling Haaland’s sixth and seventh tournament goals. Those goals move him level with Kylian Mbappe and Lionel Messi as the race for the adidas Golden Boot heats up.

In mid-afternoon sunshine, the Seleção survived an early Patrick Berg chance before they had a golden opportunity to go ahead just shy of the quarter hour. Kristoffer Ajer mistimed a challenge on Matheus Cunha and after a VAR review, Brazil were awarded a penalty. Initially, Vinicius Junior had possession of the adidas TRIONDA before passing it to Bruno Guimaraes, who saw his shot saved down low to his left by the firm hands of Orjan Nyland.

The 35-year-old Norwegian keeper was a keen handball player in his youth, but it was his legs that denied firstly Gabriel Martinelli and then Vinicius Junior to send the teams to the break with the score unbroken.

One of Norway’s chief creative threats, Antonio Nusa, was withdrawn at the interval but it was a Brazilian substitute, Endrick, that spurned a huge chance to break the deadlock. Fifty-two seconds after his arrival, the teenage forward was sent through on goal by a surgical Vinicius Junior pass, only for a heavy first touch to lead to a mis-placed shot.

The Volda Viking then produced another pair of fine saves to thwart firstly Rayan and then Bruno Guimaraes before Norway struck.

Andreas Schjelderup, the man who came on for Nusa, broke free down the left after a slick seven-pass sequence and stood up the perfect cross for Haaland to smash a downward header past Alisson.

Haaland then grabbed a second right at the end of regulation time as he steered a shot through the legs of Danilo and past a diving Alisson to spark jubilant scenes among the throng of Norway supporters.

A late Neymar penalty, coming in the tenth minute of stoppage time, was nothing more than a consolation as Brazil made their earliest World Cup exit since 1990, while Norway reach the last eight for the first time.

A quarter-final date with England, in Miami on 11 July, now awaits Stale Solbakken’s side.

England overcame co-hosts Mexico in a thrilling, incident-packed last-16 tie to set up a FIFA World Cup 2026 quarter-final showdown with Norway.

The Three Lions prevailed despite playing for most of the second half with ten men following Jarell Quansah’s 54th-minute red card. Backed by a feverish home crowd, co-hosts Mexico fought tirelessly in their bid to reach first quarter-final in 40 years, but England held on to keep their title dreams alive.

Mexico dominated possession in the game’s opening stages, but a quick-fire Bellingham double swung the game in England’s favour.

First, he headed in from Bukayo Saka’s inviting cross to open the scoring. Almost straight from kick-off, Bellingham made it 2-0. Mexico turned over possession and Harry Kane set up the Real Madrid superstar to slot home.

Mexico City Stadium was shellshocked, but El Tri quickly responded, with Julian Quinones crashing an unstoppable shot past Jordan Pickford from close range. The co-hosts’ tails were up and only a spectacular Pickford save prevented Raul Jimenez from levelling before half-time.

The action was unrelenting, and it continued after the interval. Nico O’Reilly struck the post with a low drive, before Quansah was sent off for a challenge on Jesus Gallardo.

Moments after England were reduced to ten men, Mexico goalkeeper Raul Rangel brought down Anthony Gordon in the penalty box. The spot-kick was awarded and Kane stepped up to rifle in his sixth goal of the tournament.

Kane would soon be involved in more penalty drama at the other end of the pitch. A foul by the England skipper on Brian Gutierrez resulted in a penalty been awarded to Mexico following a VAR review. Jimenez made no mistake from 12 yards and the co-hosts were back within striking distance at 3-2.

El Tri piled on the pressure in search of an equaliser which would have taken the game to extra-time. England held firm, though, and can look forward a last-eight clash with Norway in Miami on Saturday, 11 July.

The Central Bank of Sri Lanka (CBSL) said, acting in terms of the Regulations made under the Registered Stock and Securities Ordinance and the Local Treasury Bills Ordinance, it has decided to extend the suspension of Perpetual Treasuries Ltd., (PTL) from carrying on the business and activities of a primary dealer.

Accordingly, the suspension has been extended for a further period of six months with effect from 4.30 p.m. on 5 July 2026, in order to continue the investigations being conducted by the CBSL.

Classic Destinations, one of Sri Lanka’s leading Destination Management Companies (DMC), has successfully concluded an extensive four-city roadshow across North India, covering the key markets of Delhi, Chandigarh, Jalandhar and Amritsar.

The roadshow, conducted under the Classic Sri Lanka banner, brought together leading travel professionals and tour operators for a series of destination knowledge sessions and B2B networking engagements.

The roadshow was hosted by Head of Classic Destinations, Sri Lanka Chalaka Gajabahu and organised by Consultant for Classic Destinations in India Rajiv Verma in association with support partner SriLankan Airlines.

Each city event featured an insightful destination knowledge session, offering the travel trade comprehensive information on Sri Lanka’s tourism offerings, emerging travel experiences, connectivity, hospitality infrastructure, and the full suite of services offered by Classic Destinations as a trusted destination management partner. The B2B networking sessions that followed enabled direct engagement between the Classic Destinations team and prominent tour operators across the region.

The roadshow witnessed enthusiastic participation from the North Indian travel fraternity, with each leg attracting leading tour operators, industry veterans and stalwarts of the regional travel trade. Participants gained valuable insights into Sri Lanka’s diverse tourism products and expressed strong commitment to promoting the island as a preferred destination for Indian travellers.

Chalaka Gajabahu said: ‘The objective of this roadshow was to strengthen our engagement with the North Indian travel trade and showcase the diverse and rewarding experiences that Sri Lanka offers. The response from the travel fraternity across all four cities has been truly encouraging, and it reaffirms the immense goodwill Sri Lanka enjoys in this market.’

Rajiv Verma said: ‘North India holds tremendous potential for Sri Lanka tourism. This roadshow has further reinforced the confidence of travel partners in Classic Destinations’ capabilities as a dependable and professional DMC. We look forward to building stronger relationships with the trade and generating significant business opportunities for our partners in the months ahead.’

India remains one of Sri Lanka’s most important source markets, and initiatives such as this roadshow play a vital role in strengthening trade partnerships, enhancing destination awareness among travel professionals, and creating new opportunities for tourism growth between the two countries.

From left: LB Finance Head of Channel Development Dinesh Pillai, Senior Deputy General Manager – Credit and Branch Operations Ainsley Motha, Executive Director Ravindra Tissera, K Seeds Investments Senior Financial Analyst Pavithra Herath, Financial Analyst Kasun Sajitha, and Trainee Financial Analyst Kalana Palihakkara

K Seeds Investments identified LB Finance PLC as the best performing Finance Company under the 1st category among the 29 listed Finance Companies in Sri Lanka through a ranking carried out based on their financial performance for the fourth quarter of 2025/26.

The report segregates the finance companies based on the size of their asset base and ranks them in their respective categories among their peers based on ten financial metrics, which are calculated from the quarterly financial statements. LB Finance PLC topped the overall spectrum by belonging to ((Category 1′ (asset base> Rs. 100 billion).

The categories 2,3 and 4 represent the companies having an asset base between Rs. 50 to 100 billion, 20 to 50 billion and less than 20 billion respectively.

During the fourth quarter of the 2025/26 financial year (1 January 2026 – 31 March 2026), the performance of finance companies in Sri Lanka was shaped by a combination of a continued domestic recovery in the early part of the quarter and a sharp external shock that emerged towards its close. The recovery of the Sri Lankan economy carried into the new year, with GOP growth accelerating to 5.1% from 4.7% in the preceding quarter, led by a strong industrial sector and resilient services. For much of the quarter, an accommodative monetary policy stance and prevailing low interest rates supported credit demand across sectors, encouraging individuals and small and medium-sized enterprises to seek leasing,

vehicle financing, and personal loans, which contributed to an expansion of loan portfolios for finance companies. Reconstruction and recovery activity following Cyclone Ditwah, which had struck in late November 2025, added further to credit demand in the early part of the year, while the ongoing IMF supported reform program continued to underpin investor confidence. From a micro perspective, finance companies benefited from increased lending activity, a gradual improvement in loan repayment capacity, and a reduction in non-performing loans compared to previous crisis years.

The external environment shifted materially towards the end of the quarter. On 28 February 2026, the outbreak of the 2026 Iran war and the subsequent disruption to shipping through the Strait of Hormuz a conduit for roughly a fifth of global oil flows, drove global crude oil prices sharply higher. As an economy that imports virtually all of its fuel, Sri Lanka felt the pass-through quickly, domestic fuel prices rose steeply. These pressures fed into consumer prices late in the quarter, with Colombo headline inflation (CCPI, year-on-year) accelerating to 2.2% in March 2026 from 1.6% in February, having stood at 2.3% in January, and the March increase was driven primarily by the transport and broader non-food categories.

While inflation remained low by historical standards, the renewed energy-cost pressure marked a clear reversal of the disinflationary trend seen earlier in the quarter.

For finance companies, this late-quarter energy and price shock introduced a fresh set of risks. Higher fuel and living costs weigh on the repayment capacity of leasing and personal-loan borrowers and add to operating costs, while heightened global uncertainty clouds the near-term outlook. Layered on top of intense competition in the lending market and declining interest margins, these factors made for a more demanding operating environment than in recent quarters. Despite these mounting pressures, finance companies as a whole demonstrated strong resilience and continued to perform during the January-March

2026 period, with the early-quarter domestic recovery and a supportive low-rate environment helping to cushion the impact of the closing-weeks shock.

It was against this more challenging backdrop that LB Finance PLC stood out. Despite the external shock from the outbreak of the Iran war, the sharp rise in fuel costs and the acceleration in inflation during the closing weeks of the quarter, the company delivered the strongest overall performance in Category 1, securing the top rank across the ten equally weighted KPls. Its ability to outperform its peers under these conditions underscores the resilience of its balance sheet and the strength of its lending franchise, and it is this result that places LB Finance PLC at the top of the latest of the series of ranking reports released by

K Seeds Investments on the finance sector of Sri Lanka.

The report ranks the finance companies according to their financial results released through interim reports on the Colombo Stock Exchange across ten key performance indicators (KPls) – cost to income ratio, net profit margin, impairment to loan book, return on equity, return on assets, net interest margin, credit to deposits, operating leverage, net profit growth and loan growth.

These ten KPls are weighted equally and an overall ranking is arrived at, based on the aggregate score for each category.

Best Western Elyon Colombo is celebrating its 12th anniversary, marking twelve years of exceptional hospitality, resilience and an unwavering commitment to the growth of Sri Lanka’s tourism industry.

As part of the globally renowned Best Western Hotels and Resorts, the hotel continues to uphold international hospitality standards while offering the authentic Sri Lankan warmth that has defined its guest experience over the years.

The first Best Western Hotel in Sri Lanka comprises 60 contemporary rooms and includes a rooftop bar and modern facilities.

To commemorate the milestone, the hotel hosted special promotions, exclusive packages and a celebratory evening that brought together valued guests, business partners and team members who have contributed to the hotel’s remarkable journey.

Managing Director Presantha Jayamaha said: ‘Our journey over the past twelve years has been defined by resilience, determination and an unwavering commitment to excellence.’

Jayamaha further noted that the group remains confident about Sri Lanka’s potential as a world-class tourism destination, with a new project currently under development in Tangalle reflecting continued confidence in the country’s hospitality sector.

A key strength behind the hotel’s sustained success has been its leadership team. The property is led by General Manager Ajit Gurugalle, together with Director Finance Wijith Prasanna, Director, Sales and Marketing Roshi Lokuge, Executive Chef Rasiak Suraweera, Chief Engineer Rohan Weerasinghe, Executive Housekeeper Nimalan, Front Office Manager Andrew Anthony and Group Systems Administrator Ishan.

Their collective leadership, together with the dedication of the entire team, has played a pivotal role in maintaining the hotel’s reputation for excellence and delivering outstanding guest experiences.

General Manager Ajit Gurugalle said the hotel’s success has always been built on the passion and dedication of its people, with the team remaining focused on memorable guest experiences, service excellence and continuous innovation.

Over the past twelve years, Best Western Elyon Colombo has continued to enhance its services, integrate modern technologies and meet the evolving expectations of today’s travellers. The hotel’s commitment to quality has also earned industry recognitions, including multiple TripAdvisor Certificates of Excellence.

As the hotel embarks on its next chapter, guests are invited to experience the hospitality, modern comforts and personalised service that have defined the property for the past twelve years.

The World Bank’s reclassification of Sri Lanka as an upper middle-income country is an important milestone in the economic recovery after 2022. Having lost this status in the aftermath of the unprecedented financial crisis, this development signals that the economy has regained a degree of stability after one of the darkest chapters in its post-independence history. It is undoubtedly a welcome development and an indication that difficult reforms and economic adjustments have begun to yield results.

Yet, while this achievement deserves recognition, it should also be approached with caution. The classification, which will remain valid until the end of June 2027, should not be mistaken for evidence that Sri Lanka’s economic challenges have been resolved. Rather, it should serve as a reminder that recovery is still a work in progress and that sustained structural reforms remain essential.

The World Bank’s income classifications are based on Gross National Income (GNI) per capita, a measure of the average income earned by a country’s residents. Unlike Gross Domestic Product (GDP), which captures the value of goods and services produced within a country’s borders, GNI also accounts for income earned by residents from overseas. This makes it a broader measure of national income than GDP and, in many respects, a better indicator of the income available to citizens.

However, GNI per capita, like any economic indicator, has its limitations. By focusing on averages, it can obscure significant disparities in income distribution and living standards. A rise in national income does not necessarily translate into improved prosperity for all citizens. Persistent inequalities, regional imbalances and uneven access to economic opportunities can undermine both political stability and long-term economic resilience. The events leading to the 2022 crisis demonstrated that headline economic figures can conceal underlying vulnerabilities until they become impossible to ignore.

The implications of Sri Lanka’s upgraded classification extend to determining to face reduced eligibility for concessional loans, grants and other forms of development assistance that are typically available to lower-income economies. While this reflects growing confidence in the country’s economic standing, it also means that future development will increasingly depend on the country’s own capacity to generate investment, expand exports and strengthen domestic productivity.

This shift places greater responsibility on policymakers. Sri Lanka must accelerate efforts to build a more competitive and diversified economy that is less dependent on favourable financing terms and preferential trade arrangements. Improving the ease of doing business, attracting high-quality investment, enhancing productivity, strengthening public finances and promoting innovation must remain central priorities. Equally important is ensuring that economic growth is inclusive, creating opportunities across all regions and social groups rather than benefiting only a select few.

The painful lessons of 2022 should not be forgotten simply because economic indicators have improved. The crisis exposed deep structural weaknesses in fiscal management, external debt sustainability and governance. Those shortcomings cannot be addressed through higher income classifications alone. Without prudent economic management and institutional reforms, gains achieved today can quickly be reversed tomorrow.

Sri Lanka’s return to upper middle-income status is therefore best viewed as a milestone rather than a destination. It reflects meaningful progress, but it is neither a guarantee of lasting prosperity nor an assurance against future crises. The country now has an opportunity to build a stronger, more resilient economy capable of sustaining growth without excessive reliance on external support.

That progress is less visible in the workplace. Women make up more than half the population, but only around a third of the labour force, and their representation narrows further as seniority rises. Presence does not carry through into leadership or decision-making in the same way.

This raises a more pressing question for organisations. The issue is not only whether women are present, but whether that presence translates into influence, progression, and authority. Female labour force participation remaining around 31.3%, despite high educational attainment and Sri Lanka’s strong human development indicators, brings that gap into sharper focus (Country Gender Equality Profile: Sri Lanka, 2026).

Representation rises, but power narrows

That imbalance is visible across national institutions and within organisations. Women now hold 9.8% of parliamentary seats. Local government representation has risen from around 2% to about 22%. Participation on listed company boards increased from about 8.4% in 2024 to around 30% in 2025. These are meaningful gains, particularly where policy direction or deliberate action has created room for change.

Yet in a country where women account for more than half the population, representation remains below parity across institutions, sectors, and levels of leadership. Inside organisations, it narrows further from about 40% at entry level to around 20% at senior management. Even in sectors with strong female participation, progression into decision-making remains limited, reflecting the distance between presence and influence.

Politics shows a similar pattern, with women more often present in portfolios associated with care, while finance, infrastructure, and civil engineering remain largely male-dominated. Representation has increased, but structural and cultural barriers continue to shape who progresses, where they progress, and how much authority they are able to hold.

When leadership is drawn from the same social, cultural, and professional profiles, the range of perspectives available to decision-makers narrows. Over time, this shapes how problems are defined, which risks are noticed, and whose potential is recognised early enough to be developed.

Social norms play a central role in this. Women are still more readily associated with care-oriented roles. Leadership in high-authority domains is still treated as requiring a different profile. Those assumptions quietly shape nominations, promotions, access to mentors, and the assignments that build credibility. A workforce that does not reflect the society around it is less equipped to identify blind spots, understand shifting expectations, or solve with relevance.

Sri Lanka performs among the poorest in the region on gender norms, despite leading on female literacy and maternal health. The gap between what this country’s women are capable of and what its institutions are drawing on, constrains how well those institutions can think, compete, and grow.

Broader representation strengthens creativity, judgment, and problem-solving because it expands what institutions are able to see and solve for.

Representation changes institutions most clearly when it reaches decision-making spaces. Workplace needs that were previously invisible become visible when people with lived experience are part of leadership and management.

The introduction of lactation rooms at MAS is one such example. The need had existed for years. It became possible to act on once women in leadership could identify the gap, articulate its importance, and push it into practice. This is where representation begins to alter the institution itself – in what organisations notice, what they consider urgent, and what they are prepared to solve.

When those shaping decisions understand the realities being addressed, change becomes more grounded and more likely to endure. The question for any organisation is simple: are the people making decisions the same people who understand what those decisions affect?

For that impact to last, inclusion has to move from individual responses to institutional discipline. Progress depends on organisations willing to keep listening, keep learning, and keep correcting systems as new barriers become visible. Policies need to be tested in practice. Leaders need to revisit assumptions. Institutions need to hold themselves accountable for whether representation is translating into real influence.

It took over a hundred years of global advocacy and activism for women to gain the right to vote. Change that looks obvious in retrospect is rarely fast. Organisations will make mistakes, and the work will need adjustment as social expectations, employee needs, and business realities change.

Diversity, Equity and Inclusion has become contested language in a number of markets. Political backlash may change the terminology organisations use but it does not change the underlying business need to build workplaces where people can contribute, progress, and lead without being held back by structural barriers. The real measure is whether companies stay with this long enough for representation to shift from presence in the workforce to power within the institution.

For business leaders, the next step is to examine where influence actually sits inside the organisation. It is possible to have diversity in the workforce while authority remains concentrated within familiar networks and familiar assumptions about who is ready to lead. That is where the real test begins. Organisations need to look beyond headcount and ask whether people from different backgrounds are being given access to senior guidance, operational responsibility, and the visibility that builds leadership credibility over time. When that pathway is weak, representation remains fragile.

The responsibility for leaders is therefore to close the distance between who is present in the organisation and who has the authority to shape its future.

Listen to the full episode on ‘Conversations That Count 2.0’ podcast on DEI here – https://masholdings.com/podcast-category/conversations-that-count-2-0/?episode=10553

(Esther Hoole is a Strategic Partnership and Coordination Analyst at UN Women Sri Lanka and Surein Wijeyeratne is the Director – Corporate Communications at MAS Holdings.)

Pan Asia Bank yet again reinforces its position as one of Sri Lanka’s most awarded and innovative financial institutions by securing multiple international honours at the prestigious 15th ACEF Global Customer Engagement Awards 2026, including a coveted Grand Prix recognition for excellence in customer engagement.

Held annually, the ACEF Global Customer Engagement Awards recognise outstanding brands and organisations across the world for innovation, creativity and effectiveness in customer engagement strategies. Pan Asia Bank emerged among the top winners at this year’s awards, demonstrating excellence across digital engagement, social impact and integrated campaign execution, securing four Gold Awards across highly competitive categories.

The Pan Asia Bank Corporate Campaign won Gold for Best Use of Television + Digital Synergy as well as Gold for Best Use of Data or Insights in TV Campaign Planning, highlighting the Bank’s ability to combine strategic insight with impactful storytelling and integrated customer communication.

The Bank’s sustainability-focused digital initiative, One Click Thousand Trees, received Gold under the category of Best Cause / Social Awareness Campaign on Social Media, underscores its efforts to connect digital engagement with environmental action and community impact.

Further strengthening its digital leadership credentials, Pan Asia Bank’s Digital Customer On-Boarding initiative won Gold for Best Social Media Campaign for Customer Service / Response Management, reflecting the Bank’s focus on delivering seamless, technology-driven customer experiences while promoting digital accessibility and convenience.

The Bank’s digital onboarding platform, which enables customers to open accounts within minutes through a completely paperless process, has transformed the onboarding experience while improving digital literacy and customer empowerment. Complementing this, the Bank has continued to expand API-driven services, digital payment solutions and customer-centric engagement campaigns that create more seamless interactions across every touchpoint.

Head of Marketing Sirimevan Senevirathne said: ‘These awards reflect the strength of a marketing approach that is rooted in understanding our customers and creating relevant, impactful experiences across every stage of their journey. We are particularly encouraged to see our work recognised across multiple categories, as it validates our commitment to combining creativity, insight and innovation to deliver campaigns that not only drive business outcomes but also create meaningful value for the communities we serve.’

Director/CEO Naleen Edirisinghe said: ‘Winning multiple Gold Awards alongside the Grand Prix recognition is an extremely proud moment for Pan Asia Bank. These awards reflect the depth of our commitment towards creating meaningful, engaging and future-ready customer experiences. The Grand Prix recognition especially validates the progress we have made in placing customer engagement at the heart of our transformation journey.’

Choosing the optimal inflation target is a classic problem in monetary economics, lacking robust research findings to determine the most desirable number. Central banks in many advanced countries have chosen a common inflation target close to 2%. Following this trend, several analysts are of the view that an inflation target around 2% is most suitable for Sri Lanka, instead of the present target of 5% with a margin of 2% on either side.

The myth ‘Lowering the Central Bank’s inflation target from 5% to 2% is desirable for economic stability’ was demystified in last week’s column on the premise that the present flexible inflation targeting at 5% provides leeway to the Central Bank of Sri Lanka (CBSL) to dampen economic downturns and to factor in supply-side inflationary pressures. The case against a lower inflation target is elaborated further in this column, considering other factors.

Zero lower bound interest rates

A primary reason for choosing a higher inflation target is to overcome the Zero Lower Bound (ZLB) problem in monetary policy arising from the fact that nominal interest rates cannot be negative. The real interest rate, which is the actual cost of borrowing adjusted for inflation, equals the nominal interest rate minus the inflation rate. As per the Fisher Effect, the nominal interest rate is determined by adding the expected inflation rate to the equilibrium real interest rate. Thus, a lower inflation target shrinks the average baseline nominal interest rate. In order to stimulate GDP growth during an economic downturn, the central bank has only a little room to cut interest rates before hitting zero. A low inflation target triggers a Keynesian-type liquidity trap where monetary policy becomes ineffective.

Deflationary spiral

An extremely low inflation target creates an ‘inflation target floor’ by pushing interest rates to the ZLB and inflation into negative territory. It results in a rise in the real interest rate, causing deflationary biases and economic stagnation. High real interest rates make financing prohibitively expensive and thereby suppress borrowing, investment, and consumer spending.

In an environment of declining prices, consumers postpone their purchases of durable goods, anticipating further price drops in the future. The decline in aggregate demand forces businesses to reduce prices further, setting off a vicious cycle of low production, job losses, and wage stagnation. In this context, a moderate inflation targeting at 5% is beneficial for economic growth.

Structural factors affecting productivity growth

Low inflation targeting is often cited as a prerequisite to productivity growth by the proponents. They argue that low inflation reduces the volatility of interest rates and exchange rates, and market uncertainties. Such conditions prevent misallocation of resources and encourage companies to engage in long-term investments, focusing on efficiency and innovation rather than short-term speculative trading. Thus, low inflation helps to improve productivity growth, according to the critics.

However, inflation in a developing country like Sri Lanka is subject to internal and external shocks such as domestic food supply disruptions due to weather conditions and globally determined oil price fluctuations. Inflation due to such factors is beyond the control of the CBSL, and therefore, a low inflation target does not necessarily ensure the price stability required to improve productivity.

CBSL requires a certain degree of flexibility in conducting monetary policy to provide the necessary monetary stimulus to prevent economic downturns. Lowering the inflation target to 2%, as recommended by the critics, will restrict such policy space, resulting in a deceleration of GDP growth. Hence, there is no justification for lowering the inflation target, as suggested

There are many factors other than price stability that adversely affect productivity in developing countries against the backdrop of fast-growing knowledge-based economies. They include political instability, inconsistent economic policies, labour unrest, human capital shortages, infrastructure bottlenecks, low research and development (R and D), and technology and innovation handicaps.

In the case of Sri Lanka, the old-style manufacturing ventures dependent on cheap labour and backward technology retard GDP growth. The country’s R and D expenditure is as low as 0.1% of GDP, compared with 1.0% in Malaysia, 1.2% in Thailand, and 2.2% in Singapore. While low inflation is a necessary condition for GDP growth, that itself is insufficient to accelerate growth. Science, Technology, and Innovation (STI) needs to be prioritised in policy agendas to shift the economy towards a technology and innovation-driven growth path from the present outmoded factor-driven growth.

Tolerable inflation is high for developing economies

Given the resource constraints, developing countries are compelled to tolerate higher inflation due to production cost escalations arising from excess demand for labour and raw materials during initial phases of development. Accordingly, the inflation threshold of 7% to 11% is typically considered a tolerable inflation zone to support GDP growth in emerging and developing countries. In contrast, the advanced countries aim for lower inflation thresholds of 1% to 3%, as technology and innovation enable them to produce goods and services more efficiently at low cost.

For developing countries, the beneficial inflation zone falls within the threshold of 1% to 7% for fostering investment and growth. The detrimental inflation zone, which encounters inflation exceeding 11%, is harmful to GDP growth.

Trade-off between inflation and growth

The trade-off between inflation and GDP growth is a macroeconomic dilemma where policies designed for low inflation often dampen growth, and vice versa. In the short run, there is a positive correlation between inflation and growth. For instance, an interest rate cut by the central bank could stimulate growth. Eventually, such growth momentum fades away with rising inflation due to a surge in aggregate demand. Hence, there is no significant trade-off between inflation and GDP growth in the long run.

Dismal growth prospects

While Sri Lanka’s economy has shown significant stability signs following the economic reforms adopted in 2023, its growth potential is severely constrained by export setbacks, surging import outlays, slow productivity growth, delayed structural reforms, and macroeconomic volatility. According to official sources, the GDP is projected to grow by only 3.0% in 2026, 3.2% in 2027, and 3.1% in 2028.

The IMF, in its latest Country Report for Sri Lanka, stresses that broader reforms are needed to unlock Sri Lanka’s growth potential. The areas to be prioritised include liberalising trade, improving the investment climate, enhancing SOE efficiency, reducing labour market rigidities, mitigating climate vulnerabilities, and improving the targeting and coverage of social safety nets.

In this context, the CBSL requires a certain degree of flexibility in conducting monetary policy to provide the necessary monetary stimulus to prevent economic downturns. Lowering the inflation target to 2%, as recommended by the critics, will restrict such policy space, resulting in a deceleration of GDP growth. Hence, there is no justification for lowering the inflation target, as suggested by them.

(The author, Emeritus Professor in Economics at the Open University of Sri Lanka, is the President of the Sri Lanka Economic Association and the Honorary Deputy Chairman of the Gamani Corea Foundation)

Opposition Leader Sajith Premadasa has held the Government responsible for the deadly violence at Negombo Prison, saying the incident reflects a broader collapse of discipline and efficiency within the prison administration.

Issuing a special statement yesterday, Premadasa said the loss of life and injuries were the result of institutional failure, arguing that the authorities had failed in their duty to maintain order within correctional facilities.

He said at least 25 people had died in the violence and stressed that the Government must accept full responsibility for the tragedy.

Premadasa also pointed to earlier remarks made by the current President during his time in the Opposition, when he had argued that Governments should be held accountable if deaths occur inside prisons. He said that same standard should now be applied to the present administration.

The Opposition Leader further claimed that the Government’s promise of ‘system change’ had not materialised, saying the incident exposed serious weaknesses in governance, law enforcement, and prison management.

He questioned whether the administration was capable of ensuring both effective law and order and humane treatment within the prison system, adding that the public deserved clear answers on how the situation escalated to such a scale.

Premadasa called for an independent, impartial, and transparent investigation into the incident, insisting that it should not be handled by a Government-appointed committee tasked with producing a favourable report.

He also urged the Government to set aside what he described as political arrogance and focus on urgent national priorities, including security and prison reform.