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Economist and Arutha Research Director – Civic Education Rehana Thowfeek said Sri Lanka must stop repeating the mistakes of the past and commit to an open, outward-looking trade policy if it wants to escape recurring economic crises.

Speaking at the Annual Conference on Public Sector Reforms for Economic Revival, organised by CA Sri Lanka and the Association of Public Finance Accountants of Sri Lanka, she said the country has no choice but to ‘trade its way to recovery.’

‘Trade for Sri Lanka is not just about growth anymore. It is about survival,’ Thowfeek said. ‘The fuel queues, gas shortages, and medicine crises of 2022 were all connected to our inability to earn enough foreign exchange through trade.’

She noted that Sri Lanka has long suffered from a balance of payments deficit because imports have consistently exceeded exports. ‘Before the default, we spent 30 to 35% of our export revenues just on debt servicing,’ she said. ‘We cannot meaningfully reduce our nominal debt stock, so the only way forward is to grow the denominator, GDP, by expanding industries, exports, and jobs.’

She pointed out that public debt exceeded 100% of GDP before the 2022 default and will still remain around 92% of GDP by 2030, even after debt restructuring.

‘While there is some relief from extending debt maturities, the burden is still very high. We must now focus on growing the economy, and that means focusing on exports,’ she said.

Thowfeek said Sri Lanka’s economic history offers clear lessons on what works and what fails.

‘By 1977, Sri Lanka was a closed and inward-looking economy with high tariffs, rationing, and foreign exchange controls,’ she said. ‘The people were dissatisfied, and the economy had stagnated. Liberalisation changed that trajectory. Exports became the engine of growth and the economy shifted from agriculture to manufacturing.’

But over the past two decades, she said, Sri Lanka has reversed direction.

‘There has been a noticeable shift towards protectionism, with para-tariffs and import restrictions that created an anti-export bias, making it more lucrative to sell domestically than to export.’

As a result, the country’s export base has stagnated.

‘The share of exports in GDP has fallen from around 30% at the start of the millennium to about 20% in recent years, and our share of global exports has declined sharply,’ she said. ‘Our export basket remains concentrated in three products-apparel, tea and rubber-and our markets are limited to the US, UK, and EU.’

She contrasted Sri Lanka’s experience with countries such as Vietnam and Cambodia, which liberalised later but have since expanded rapidly.

‘Vietnam and Cambodia opened their economies nearly 10 years after us, yet their trade has surged since the 1990s while ours has declined,’ she said.

‘Sri Lanka’s high-tech exports account for only 1.5% of manufactured exports, compared to 46% in Vietnam and more than 50% in Malaysia and Singapore. These countries attracted foreign investment, integrated into global supply chains, and negotiated multiple effective trade agreements. We did the opposite, and the results are clear.’

Thowfeek said that despite being one of the first South Asian countries to open up, Sri Lanka has regressed into a closed and inward-looking economy.

‘By 2022, we had import bans, exchange controls, and even talk of self-sufficiency. Exports have stagnated, and our lack of diversification has left us vulnerable,’ she said. ‘Einstein said that doing the same thing over and over again and expecting different results is insanity. That is exactly what Sri Lanka has been doing.’

She argued that people expect simple outcomes from economic policy: better jobs, stable prices, and a decent standard of living.

‘Trade is one of the most powerful levers to achieve this,’ she said. ‘But Sri Lanka’s policies have focused on dividing a small pie, not growing it. The question should have been how to make the pie bigger so that everyone benefits.’

Turning to the way forward, Thowfeek said Sri Lanka must make use of trade policy for trade objectives rather than using it to generate revenue or serve narrow interests.

‘There is a national export strategy in the works, but the real test will be implementation,’ she said. ‘We need to work on trade facilitation measures, whether that means fewer bureaucratic procedures, more digitisation, or better infrastructure. We should establish a dedicated office to take over trade negotiations and ensure that trade agreements are effectively implemented. Countries that have succeeded in growing their exports all have such institutions.’

She also called for leveraging and expanding Sri Lanka’s limited number of trade agreements, improving education and skill development, and preparing for technological shifts. ‘We must re-skill people, including in the public sector, and prepare for the Artificial Intelligence (AI) revolution. We need to move up value chains and start targeting high-tech exports,’ she said.

Sri Lanka exported $ 12.7 billion in goods and services in 2024 while importing $ 18.8 billion, resulting in a trade deficit of about $ 6 billion. ‘We can’t close that gap by borrowing. We have to earn our way out by trading more, producing more, and integrating better,’ Thowfeek said.

She also warned of growing global risks, including shifting trade patterns and tariff shocks.

‘When the US imposed a 44% tariff on Sri Lankan exports earlier this year, later reduced to 20%, it exposed how vulnerable we are because 25% of our exports go to the US. If we are so against the US putting high tariffs on our exports, why do we do it to other countries? Is that fair?’ she asked.

Thowfeek warned that reforms are no longer optional but essential. ‘Sri Lanka has been here before. The 1970s were a lesson, and history shows that openness worked for us. Protectionism has hurt us,’ she said. ‘We cannot borrow our way out of a crisis or protect our way to prosperity. The only sustainable path is to open up, diversify, and trade our way to recovery.’

Colombo stock market yesterday extended its rally into a 15th session, opening the four-day week in green on improving investor optimism.

The ASPI closed 0.31% up yesterday, gaining 68.34 points to 22,163.23 while the active S and P SL20 gained 0.07% to close up 4.03 points to 6,191.54. Turnover was Rs. 7.95 billion on more than 247 million shares traded.

Foreign investors were net sellers with a net outflow of Rs. 223.3 million, up from a Rs. 149 million outflow on Friday with the market closed on Monday for Poya.

First Capital Research said continuing the bullish leap of the previous week, the Colombo Stock Exchange demonstrated an upward momentum, driven by rising investor optimism. Banking sector counters, coupled with blue-chip companies exerted a positive pressure on the ASPI, which closed the day at 22,163, after registering a gain of 68 points.

LION, SPEN, MELS, BREW and SAMP were the top positive contributors to the index. While both retail and HNW participation remained elevated during the day, turnover stood at Rs. 8 billion, reflecting an increase of 16% compared to the monthly average that stands at around Rs. 6.9 billion.

Banking sector took the lead in terms of sector wise contributions to turnover, with a share of 24%, followed by Capital Goods sector and Diversified Financials sector, which produced a combined contribution of 27%. Foreign investors remained net sellers, recording a net outflow of Rs. 223.3 million.

John Keells CG Auto, the authorised distributor for DENZA in Sri Lanka, has announced the upcoming launch of luxury electric vehicle brand with over a decade of innovation excellence. DENZA is set to bring refined elegance and luxury to Sri Lankan drivers through its premium New Energy Vehicle (NEV) offerings.

Pre-bookings for DENZA are now live, ahead of the brand’s upcoming official launch. Ideal for customers seeking quiet luxury and intelligent, high performance NEVs, the announcement marks another milestone in Sri Lanka’s automotive industry, and for JKCG Auto’s continuing mission to accelerate Sri Lanka’s sustainable mobility transition.

DENZA’s Sri Lankan portfolio features three distinct luxury models designed for different customer preferences. The DENZA D9 offers premium family transportation as a luxury electric MPV, while the DENZA B8 and B5, an adventurous plug-in hybrid, cater to customers seeking high-performance mobility with advanced safety and technological features.

Each model in the DENZA line-up represents the brand’s unwavering commitment to delivering exceptional build quality, innovative technology, and the refined luxury experience that defines premium electric and plug-in hybrid vehicles.

‘Ever since BYD entered Sri Lanka, it has quickly become the island’s most popular NEV brand, reflecting the unmatched value we deliver in performance and the overall driving experience. With DENZA, we are elevating that promise into the luxury segment. Sri Lanka joins a select group of international markets including Singapore, the UK, and Hong Kong in offering DENZA, and we’re incredibly proud of this achievement.’

‘DENZA delivers one of the most sophisticated premium NEV experiences available today anywhere in the world: refined dynamics, intelligent electric performance and a cabin designed for exceptional passenger comfort. It is, in every sense, the complete package, and we are excited to introduce this remarkable brand to our discerning Sri Lankan customer base,’ JKCG Auto CEO Charith Panditharatne said.

Sri Lankan customers can experience DENZA’s advanced technology first-hand during pre-bookings starting 1 October at Cinnamon Lakeside, with the official launch scheduled soon. With this launch, DENZA reaffirms its commitment to advancing sustainable luxury new energy mobility and supporting Sri Lanka’s transition to cleaner transportation solutions.

The partnership between DENZA and John Keells CG Auto was formalised through a Memorandum of Understanding (MoU) in June.

JKCG Auto is committed to delivering an exceptional customer experience throughout the entire ownership journey, establishing a comprehensive 3S solution featuring sophisticated showrooms, state-of-the-art service centres, and readily available spare parts for Sri Lankan customers.

Sustainability has emerged as one of the most critical strategic imperatives of our era, particularly in nations acutely exposed, with economies closely tied to delicate natural and social ecosystems. Sri Lanka, with its rich agricultural exports and thriving apparel sector, finds itself at a pivotal crossroads. As we approach tangible evidence of sustainability progress from both nations and corporates, Sri Lankan enterprises must recognise that the foundations they lay today will determine their ability to respond credibly to these demands.

If organisations wait until the last minute and rely solely on a compliance-centric approach rather than embedding a purpose-driven sustainability dimension into their business strategy, Sri Lankan corporates face a critical turning point. These robust reporting requirements establish a new baseline and align local practices with evolving global expectations. However, there is a real risk that organisations may revert to a box-ticking, compliance-focused mindset, merely meeting minimum standards rather than driving meaningful transformation.

For Sri Lankan companies to truly future-proof themselves, sustainability must be recognised as a core business imperative, one that goes beyond compliance and includes the active inclusion of sustainability professionals in strategic decision-making roles.

Investing in resilience

Sri Lanka’s economy is anchored in climate-exposed sectors, including tea, rubber, coconuts, cinnamon, essential oils, fruits, apparel, gemstones, and tourism. These industries are central to foreign exchange and employment, yet they face mounting disruption from erratic rainfall, prolonged droughts, flooding, and shifting pest and disease patterns. The risks extend well beyond production: agriculture and mining depend on healthy rural labour, while extreme heat and flooding compromise factory productivity, worker health, and community well-being in general. Heavy rainfall can paralyse logistics, making climate risk a systemic threat to livelihoods, competitiveness, and national prosperity.

Corporate responses in the past were often framed as philanthropy or CSR, disconnected from strategy and risk management. That approach is no longer sufficient. Sustainability must be embedded into business models through a risk lens and as a resilience driver. When integrated into operations, product design, supply chains, and governance, sustainability shifts from vulnerability management to preparedness. Measuring outcomes in financial, environmental, and social terms reframes it from a cost to an investment; one that protects markets, secures supply chains, and creates a durable advantage in a world where resilience is fast becoming the true measure of competitiveness.

IFRS S1 and S2 as the starting line, not the finish

The introduction of IFRS S1 and S2 is a watershed moment for Sri Lanka. These standards require companies to identify, assess, and disclose material sustainability risks and opportunities. For many corporates, mainly those new to formal sustainability reporting, this represents a significant learning curve and a valuable catalyst, not the destination, but a milestone on a much longer journey.

For Sri Lankan companies, especially those in sectors directly exposed to environmental and social volatility, compliance should be seen as a crucial milepost. Meeting these requirements presents an opportunity to build foundational capacity, establish governance structures, gather relevant data, and foster a culture of transparency and continuous improvement. But the true value lies beyond compliance. Companies must use the insights gained from reporting to drive real change. This means embedding sustainability into strategy, operations, innovation, and value propositions. It means setting ambitious goals for decarbonisation, resource efficiency, and social impact. And it means holding leaders and teams accountable for progress, not just disclosures.

A leap into the unknown

Unlike many advanced jurisdictions, Sri Lanka had not previously made it in line with the Task Force on Climate-related Financial Disclosures (TCFD). Boards, executives, and sustainability leaders are navigating new requirements, unfamiliar reporting frameworks, and heightened stakeholder scrutiny, all while contending with immediate operational challenges. This context presents both risks and opportunities.

To succeed, companies must invest in the data systems and processes required for robust reporting. This includes mapping value chains, engaging with suppliers, and developing the internal capacity to collect, analyse, and act on sustainability information. Just as importantly, companies must foster a culture that embraces transparency, experimentation, and learning, recognising that the path to true sustainability is iterative and dynamic.

The buck must stop somewhere

One of the most vital components of effective sustainability integration is the assignment of clear responsibility and the embedding of accountability at every level where it is assumed. It is not enough to designate sustainability officers or create specialised committees. Every individual or team responsible for a segment of the sustainability agenda must be empowered and held accountable to deliver outcomes, not merely perform activities. Accountability is delivered through clear role descriptions and expectations, regular performance reviews, integration of sustainability goals into incentive structures, and transparent reporting to regulators and all stakeholders.

Boards and executive teams must lead by example, setting the tone for responsible behaviour and enforcing consequences for failure to meet targets. Transparent reporting is also essential. Progress toward sustainability objectives must be disclosed not only to regulators but also to all stakeholders, including employees, investors, customers, and the broader public. This transparency builds trust, creates a sense of shared purpose, and motivates continuous improvement.

Upskilling Boards and C-suites for a new era

Leadership is a decisive factor in the success of sustainability integration. In Sri Lanka, where familiarity with global sustainability frameworks is still developing, it is imperative to invest in the knowledge, skills, and mindsets of Board Members and C-suite executives. Targeted education and capacity building are vital. These efforts should include ESG fundamentals and their relevance to local and global markets, strategic foresight and scenario planning for climate and social risks, stakeholder engagement and communication, innovation and change management, and integrating sustainability into business strategy, risk management, and operational planning.

Regular training, partnerships with universities and thought leadership groups, and participation in international peer networks can help build this capacity. Boards may also consider recruiting directors with specialist expertise in sustainability, risk, or climate science. True integration requires that sustainability be incorporated into board mandates and decision-making processes. Committees focused on sustainability should have clear authority and adequate resources, and their recommendations must be effectively integrated into the company’s strategy and operations.

Third-party assurance and eliminating greenwashing

With global attention on sustainable business practices, the temptation to exaggerate or misrepresent achievements, better known as ‘greenwashing’, has become a significant risk. To counter this, companies must subject their sustainability disclosures and claims to rigorous third-party assurance. Independent verification of data and performance not only enhances credibility but also helps identify areas for improvement. Companies should also avoid ‘greenhushing’ by reporting legitimate progress honestly and encouraging balanced communication about successes and challenges.

Effective regulation and governance should foster transparent communication, creating an environment where companies strive for genuine impact, rather than maintaining a perfect public image.

Export markets and the cascading effect of value chain sustainability

Sri Lanka’s export economy faces mounting expectations from global buyers and consumers, who are increasingly demanding sustainability throughout the entire value chain. For manufacturers and producers, this means demonstrating traceability, environmental stewardship, and social responsibility at every stage, from sourcing raw materials to delivering finished products. Stricter regulations and standards in Europe, North America, and Asia, as well as requirements for third-party certification, emissions reductions, and responsible labour practices, are key factors shaping strategic decisions. These factors include the risks of losing contracts, reputational damage, and barriers to market entry.

For Sri Lankan companies, this is both a challenge and an opportunity. Those who can credibly demonstrate sustainable practices gain a competitive edge and can command premium prices in certain markets. Moreover, building sustainable value chains can open new markets, foster long-term buyer relationships, and increase supply chain resilience. Collaborative approaches are essential, including collaboration within and across industries to establish common standards, joint investments in traceability systems, collective bargaining for sustainable materials, and industry-wide worker welfare programs. Sector-wide initiatives can accelerate progress and reduce costs for all participants.

Innovation, circularity, and product life-cycle management

Sustainability-driven innovation is essential for future-proofing Sri Lankan companies, especially in a climate-exposed context, where traditional products and processes may become obsolete or untenable. Embracing circular economy principles means developing agricultural products resilient to climate shocks and processed with minimum waste, designing apparel and manufacturing products with modularity and repairability, and creating systems for collecting, refurbishing, or recycling products at the end of their life cycle. Such approaches reduce environmental impact, create new revenue streams, enhance customer loyalty, and position companies as leaders in responsible production.

Innovation must reach across the value chain, from smart logistics that reduce carbon footprints and improve efficiency, to technology-enabled traceability meeting buyer demands for transparency, and collaborative platforms for sharing resources and developing sector-wide solutions. By fostering a culture of innovation, companies can quickly adapt to changing conditions and capitalise on new market opportunities emerging from the global shift towards sustainability.

Cost savings, business resilience, and seizing opportunities

Integrating sustainability into core business processes can yield significant cost savings, drive operational efficiencies, and build the resilience required to weather both expected and unforeseen challenges. Sustainable practices such as energy conservation, water management, and waste minimisation can directly lower operating costs, especially valuable in Sri Lanka, where utilities and resource prices are volatile and supply interruptions common. Proactive management of environmental and social risks prevents costly disruptions, safeguards reputations, and ensures continuity of supply to key markets. Companies with strong sustainability credentials are increasingly favoured by investors, lenders, and insurers, gaining access to more and cheaper capital.

Treating sustainability as a central business driver enables organisations to unlock new opportunities: entering new markets that reward sustainable practices, developing innovative products and services for climate adaptation or resource efficiency, partnering with international organisations or governments on sustainable development initiatives, and attracting and retaining top talent who seek purpose-driven employers. By seeing sustainability as a source of strategic advantage, companies can reveal opportunities that might otherwise remain hidden.

Open dialogue and collaboration: Overcoming challenges together

The scale and complexity of the sustainability challenge in Sri Lanka means that no single company or sector can tackle it alone. Open and honest discussions about barriers, failures, and lessons learned are essential for building collective resilience. Fostering industry and cross-sector collaboration can take many forms, including industry associations, public-private partnerships, knowledge-sharing platforms, and informal networks among peers. What matters most is the willingness to be transparent about challenges and to collaborate in developing solutions that benefit the entire ecosystem. This openness not only accelerates progress but also strengthens trust between companies, regulators, and the public, laying the groundwork for more ambitious, system-level change.

The role of the sustainability professional

As Sri Lankan corporates move from compliance to integration, the role of the sustainability professional becomes pivotal. These leaders are not simply report writers or compliance officers; they are strategic navigators who connect global expectations with local realities. Positioned effectively, they help align sustainability with business purpose, guide innovation to reduce environmental and social impacts, and act as trusted bridges between diverse stakeholders such as employees, investors, customers, and regulators. By embedding accountability into governance and ensuring that progress is measured by outcomes rather than activities, sustainability professionals elevate organisations from reactive box-ticking to proactive, purpose-led growth. For Sri Lanka, their expertise is essential in turning vulnerability into resilience and compliance into competitive advantage.

Towards true organisational sustainability

Sri Lankan corporates are at a defining moment. The journey towards sustainability begins with compliance, using IFRS S1 and S2 as mileposts, but must not end there. The true imperative is to embed sustainability into organisational purpose, governance, accountability, and business integration, ensuring that the organisation itself is future-proofed through robust assurance and a relentless commitment to eliminating greenwashing and greenhushing.

It calls for upskilling leaders, fostering innovation, embracing circularity, and cultivating a spirit of collaboration, even among traditional competitors. Companies must be courageous in addressing their challenges, nurturing partnerships, and building sector-wide solutions. Sri Lanka’s unique vulnerability to climate and labour risks makes this agenda urgent and non-negotiable.

The amendments to Sri Lanka’s Children and Young Persons Ordinance (CYPO) and the push for a new comprehensive ‘Compact Act’ are being hailed as long-overdue reforms, aligning the nation with international child rights conventions. Yet, beneath the veneer of progress lies a profound anxiety: will these rights-centric laws, particularly the outright ban on corporal punishment and the shift toward rehabilitation, inadvertently dismantle the traditional mechanisms of discipline that underpin Sri Lankan society?

A growing chorus of critics-from concerned parents and overburdened teachers to social conservatives-argues that these reforms are being enacted without adequate preparation, threatening to unleash a wave of juvenile indiscipline that the State is ill-equipped to manage.

The discipline deficit: When the rod is spared

The most immediate and controversial change is the explicit repeal of the section of the CYPO that permitted the use of corporal punishment by parents and teachers. For generations in Sri Lanka, as in many South Asian nations, the principle of ‘spare the rod, spoil the child’ has been central to moral and academic instruction. Discipline, enforced through firm action, was seen not as abuse, but as a form of moral care (‘metta’ in Buddhist thought).

The negative ramification, according to sceptics, is the creation of a ‘license for indiscipline.’

Erosion of authority: The ban immediately undermines the authority of teachers and parents, replacing traditional respect with what is perceived as a permissive legal framework. Teachers already report feeling powerless against defiant students, with the law stripping away their only effective sanction in large, under-resourced classrooms.

Creating a culture of impunity: By raising the age of protection to 18 and emphasising rehabilitation over punitive justice, the law risks being interpreted by adolescents as a shield against consequences. In a society grappling with rising youth crime, critics fear the shift from punishment to ‘restorative justice’ will simply be seen as a slap on the wrist.

The ‘Western Model’ mismatch: While developed nations like the UK phased out corporal punishment over decades alongside massive investments in social workers, counsellors, and specialised educational psychologists, Sri Lanka’s adoption of the standard is instantaneous. The result is a Western legal standard layered onto an Eastern cultural reality, creating a vacuum where traditional controls have been removed, but modern support systems are non-existent.

The flip side: Excessive punishments and the impact on children and adolescents

Proponents of this piece of legislation and those initiators in the NPP Government argue that long enough have we had archaic child rights statutes and we must move with times and in tandem with ‘developed’ societies. Definition of development apart it is a fact that there have been and continue to be excessive punishment of children in schools, public humiliation and abuse Not only in schools but at home fronts as well. This requires stringent preventive laws and deterrent punishments. However are we jumping into a fire from a frying pan? Are we being too liberal?

Readiness: Are parents and teachers equipped?

The efficacy of the new laws hinges entirely on the readiness of the two most crucial groups: parents and teachers. Current data suggests they are dangerously unprepared for the cultural revolution mandated by the legislature.

Parental confusion and anxiety

For the average Sri Lankan parent, the sudden prohibition of physical discipline causes immense confusion. There has been a clear failure by the state to launch comprehensive, nationwide public education campaigns to teach alternative, positive parenting skills.

Instead of being empowered, many parents now face a triple dilemma:

1.Legal fear: Fear of being reported and prosecuted for disciplinary actions traditionally considered normal.

2.Disciplinary void: Lacking the skills to manage severe behavioural issues without firm measures.

3.Moral anxiety: Concern that their children will grow up lacking the discipline and obedience necessary to succeed in a highly competitive society.

The teacher’s dilemma in schools

The burden of maintaining order in overcrowded public schools falls squarely on teachers, who are already stretched thin due to administrative loads and insufficient resources. Research indicates that many teachers view the ‘form and severity’ of corporal punishment as the issue, not the act itself, suggesting a fundamental disconnect with the legislative intent.

Teachers argue that without the fear of sanction, student defiance will surge, leading to:

Deterioration of educational quality: More class time spent managing disorder rather than teaching the curriculum.

Stress and burnout: Increased psychological stress on teachers who feel their authority is constantly being tested and their professional judgment second-guessed by students and authorities.

Lack of alternatives: The promised investment in school counsellors, specialised training in positive reinforcement, and behavioural management teams remains largely unfulfilled, leaving educators with no tools to replace the discarded ‘rod.’

Resource shortfall: The ultimate policy failure

Beyond cultural resistance, the proposed reforms suffer from a crippling resource deficiency. Moving the juvenile justice system from a punitive model to a rehabilitative one is extraordinarily expensive.

The new law promises that minors will be placed in specialised institutions focusing on rehabilitation. However, Sri Lanka currently lacks the required specialised facilities, trained social workers, and psychological experts to handle the influx of 16-to-18-year-olds removed from the adult prison system. The practical risk is that these young people may simply be shuffled into understaffed, ill-equipped remand homes, or worse, released into communities without necessary support, creating a public safety risk.

This failure to provide the social scaffolding necessary for the law to succeed makes the entire exercise vulnerable to criticism that it prioritises international optics over domestic reality.

Credibility: A child rights compact or a political gimmick?

Given the immense challenges, the critical question remains: is the push for this rapid, sweeping child rights reform driven by genuine national interest, or is it a calculated political manoeuvre?

While child protection activists have long championed these changes, the timing-often coinciding with governments seeking international legitimacy, as evidenced by the IMF push-invites scepticism. The NPP (National People’s Power) or any incumbent government, stands to gain significant political capital from championing a popular, internationally supported human rights agenda.

The most cynical interpretation suggests this is a calculated political gimmick designed for future electoral benefit. The children currently being empowered by this legislation will be the voting block of tomorrow. By positioning themselves as the saviours of child rights, the current political establishment is potentially cultivating the loyalty of a new generation of voters who will hold a favourable view of the party that abolished corporal punishment and granted them greater autonomy.

If the ‘Compact Act’ is enacted but fails to receive the necessary funding for implementation-if teachers remain unsupported, and rehabilitation centres remain empty promises-it will confirm that the reform was less about securing the child’s future and more about securing the politician’s vote. The true measure of the Government’s sincerity will not be the law passed in Parliament, but the Budget allocated to the child protection and social welfare departments in the years to come.

Sri Lanka’s economy is expected to grow by 4.6% in 2025, supported by a modest rebound in industry and steady growth in services, before slowing to 3.5% in 2026, according to the World Bank’s latest Sri Lanka Development Update titled ‘Better Spending for All’.

The report, launched yesterday in Colombo, warns that the recovery remains fragile and heavily dependent on the country’s ability to implement deep and sustained reforms.

Speaking at the launch, World Bank Country Manager for Sri Lanka and the Maldives Gevorg Sargsyan said the country’s economy had shown encouraging signs of recovery in the first half of 2025, growing by around 5% as industrial activity rebounded and services expanded.

‘We have seen people spending and investing more, inflation returning to low and stable levels, and businesses benefiting from easier access to credit,’ he said speaking via video conference from Washington D.C. where he is attending the IMF/World Bank Annual Meetings also attended by senior Sri Lankan officials.

He noted that Government finances had improved with stronger revenue collection, a smaller deficit, and stable foreign reserves, reflecting ‘the determination and effort of the Sri Lankan Government and people from all walks of life.’

However, he cautioned that the journey was far from over. ‘The economy is still not back to where it was in 2018, and while poverty is expected to fall this year, it is still twice as high as it was before the crisis in 2019,’ he said.

Sargsyan said that about 22% of the population still lives below the poverty line and another 10% remains just above it. Malnutrition remains a serious concern, while the job market is recovering too slowly, with wages and employment rates still at pre-crisis levels.

Looking ahead, the World Bank said that growth will likely remain modest unless Sri Lanka moves quickly to implement strong and urgent reforms.

‘Without these reforms, growth will likely come from people’s spending rather than from new investments and exports. Without these reforms, progress could even stall, and the benefits of recovery may not reach everyone,’ Sargsyan said.

He identified four key areas for reform: trade, investment, taxation, and job creation. ‘Sri Lanka needs to keep policies stable and consistent, and move quickly to remove barriers to trade, improve the investment climate, modernise the tax system, and make it easier for businesses to grow and create jobs,’ he said.

Sargsyan stressed that private sector-led growth was the only viable path for the time being. ‘Currently, in Sri Lanka, there is no fiscal space in the public sector. The Government doesn’t have the opportunity to use its own investments to facilitate growth,’ he said.

‘Hence, private sector-led growth is the only viable option for Sri Lanka for the time being.’

He also highlighted inefficiencies in public spending, noting that around 80% of Government expenditure is allocated to public sector salaries, welfare programs, and interest payments.

‘While there is limited room to drastically increase or cut overall public expenditure, there is significant potential to improve the efficiency and impact of existing spending,’ he said.

Sargsyan said that smarter spending could create fiscal space for growth-enhancing investment in infrastructure, education, and health. ‘Public investment and public sector wages reform can ensure that every rupee of public money is spent well and delivers more for the people,’ he said.

He welcomed the establishment of a new public investment program system to serve as a unified pipeline for Government projects, calling it ‘one of the key building blocks’ for more effective spending.

‘Sri Lanka has made real progress, but there is still much to do,’ Sargsyan noted.

‘The recovery is fragile, and many vulnerable citizens have not yet felt its benefits. By focusing on smarter spending, meaningful reforms, and inclusive growth, Sri Lankans can look forward to a stronger, more resilient recovery. And we, the World Bank Group, stand ready to support Sri Lanka in this journey,’ he said.

World Bank Country Economist for Sri Lanka Shruti Lakhtakia said the economy’s recovery had continued for a second year, with growth of 4.8% in the first half of 2025 driven primarily by household consumption. ‘High-frequency indicators such as cement consumption show improvement, a good sign for industry, but activity remains below pre-crisis levels,’ she said. Inflation turned positive after months of deflation, allowing the Central Bank to cut rates and fuel private credit growth, which reached nearly 20% in July.

She said Sri Lanka’s external balances had held up due to tourism and remittances, even as the trade deficit widened. ‘The current account has remained in surplus this year, but reserve accumulation has slowed, and the rupee has depreciated,’ she said.

Fiscal buffers have strengthened because of higher import tax revenues and lower capital spending, though under-execution of the capital budget was a concern. ‘We project a primary surplus above the Government’s 2.3% of GDP target, but this has come partly from reduced capital investment,’ she said.

Lakhtakia said poverty had begun to decline, but vulnerability remained high. ‘We expect around 22.5% of the population to be below the poverty line this year and another 10% just above it,’ she said.

‘Continuous food price increases have contributed to food insecurity and worsening child malnutrition, with more underweight and stunted children under five.’ The labour market, she said, was improving but had not yet reached pre-crisis levels in either participation or real wages.

Looking ahead, Lakhtakia said the outlook for 2025 was positive, with strong growth projected, but the path was narrow and dependent on policy consistency. ‘We expect the current account surplus to persist, supported by tourism and remittances, though merchandise exports may be affected by new tariffs,’ she said.

‘The key is to maintain reform momentum in trade, fiscal policy, and public spending.’

Lakhtakia, presenting findings from the World Bank’s Public Finance Review published in September, said spending reform was a core priority. ‘Sri Lanka’s total Government spending is low compared to peers, but 80% of it is rigid, locked in salaries, transfers, and interest payments,’ she said.

The public wage bill as a share of GDP is relatively small, but the headcount is high, resulting in lower average wages and inequities across the public sector. ‘If we include SOEs and Government-funded institutions, public employment would be about 3% higher than reported,’ she said.

She recommended preserving frontline workers in health and education to protect service delivery, while allowing natural attrition in overstaffed sectors.

‘A comprehensive review of base pay versus allowances could help systematise the wage structure,’ she said. She also called for modernising the payroll system to increase transparency and efficiency.

On public investment, Lakhtakia said Sri Lanka’s stock of public assets was low and declining, with investment concentrated in sectors like transport.

‘It is critical to improve the link between capital spending and infrastructure needs, complete projects more quickly, and maintain assets to extend their life,’ she said.

She added that the new public investment management system should streamline project planning, screening, approval, and monitoring, supported by better data to prioritise spending.

Lakhtakia said maintenance spending had risen recently, which was a positive sign, and encouraged the Government to continue this trend to maximise the lifespan of assets.

‘Better targeting, reallocation of resources to high-impact projects, and stronger implementation through the Public Financial Management Act will be key,’ she said.

The World Bank economists concluded that while Sri Lanka had made significant progress in stabilising its economy, sustaining growth and reducing poverty would depend on reforms that promote competitiveness, attract private investment, and make public spending more equitable and effective.

Lawyers in Jaffna yesterday staged a strike to protest what they described as an illegal search carried out by Police at the residence of a fellow attorney without court authorisation.

The protest followed an incident on Sunday in which police officers reportedly entered the home of a lawyer accused of involvement in land deed fraud and conducted a search in an attempt to arrest him. The search was allegedly conducted without a court warrant or prior judicial approval.

The incident comes amid ongoing police investigations into several lawyers suspected of participating in land deed fraud cases in the Jaffna area.

In response, members of the legal community gathered outside the Jaffna courts to condemn what they called a violation of legal procedure and professional rights.

Lawyers facing related allegations are expected to submit anticipatory bail applications to court today to prevent possible arrests.

Asian Infrastructure Investment Bank (AIIB) President Jin Liqun yesterday said that the bank was committed to supporting Sri Lanka’s development, particularly in the promotion of the green energy sector, the President’s Media Division said.

An AIIB delegation led by Jin Liqun met with President Anura Kumara Disanayake yesterday and reviewed the progress of projects implemented in Sri Lanka under AIIB loans. Liqun expressed his intention to continue collaborating with the country to support its overall progress.

He highlighted that future support will focus on sectors such as green energy and green transportation, while ensuring energy stability in Sri Lanka.

President Disanayake provided an overview of the country’s economic progress, including reduced interest rates and controlled inflation, emphasising the Government’s goal of delivering the benefits of economic growth to the people.

The President also outlined plans to restructure the public sector and enhance the efficiency and effectiveness of public services, with a focus on Artificial Intelligence and digitalisation to streamline service delivery, reduce the gap between villages and cities and facilitate international transactions.

Disanayake further stated that, in attracting foreign investments to develop Sri Lanka as a region with low-cost electricity supply, the Government hopes to introduce a data centre. He also noted that the Government has a planned program to enhance productivity in key sectors such as agriculture and fisheries.

Additionally, the President briefed the delegation, including the President of the AIIB, on the new reforms being implemented in the education sector.

Tourism industry has maintained its growth momentum into October, welcoming 34,046 arrivals in the first six days of the month, a robust start following the record-breaking performance in September.

According to the Sri Lanka Tourism Development Authority (SLTDA), the country is averaging 5,299 arrivals per day, placing it on track to achieve the monthly target of 197,693 visitors set for October 2025.

The figure reflects a 14% year-on-year (YoY) increase compared to 25,965 visitors recorded during the same period last year, signalling continued confidence in Sri Lanka as a preferred South Asian travel destination.

India once again emerged as the dominant source market, contributing 10,738 visitors, or 31.5% of total arrivals in the first week. China followed with 3,684 tourists (10.8%), while the United Kingdom (2,200; 6.5%), Germany (1,988; 5.8%), and Bangladesh (1,577; 4.6%) rounded out the top five markets.

Year-to-date (YTD) figures show that Sri Lanka has now surpassed 1.75 million arrivals, with India leading at 386,030 visitors (22%), followed by the UK with 164,093 (9%) and Russia with 123,414 (7%).

Industry analysts note that the strong performance in early October builds on the momentum generated during the third quarter, bolstered by improved air connectivity, new destination promotions in key source markets, and the government’s renewed focus on attracting high-value travellers.

To achieve the revised target of 2.6 million tourist arrivals, Sri Lanka will need to attract an additional 840,460 visitors during the final quarter of the year. The initial goal for 2025 had been set at 3 million arrivals.

Sri Lanka enters the period of 2025-2030 at a critical juncture, having emerged from its severe economic crisis in the recent past. Sri Lanka’s economic landscape once in the brink of collapse in the aftermath of the 2022 crisis has demonstrated a remarkable turnaround, yet the path to sustained growth is weighted with significant challenges. Though the country achieved a swift rebound through decisive policy measures, a strategic roadmap with deep structural transformation is imperative to establish a resilient economy without derailing the current momentum.

A report was presented by a group of professionals on the central theme ‘Sustaining Transformative Growth in 2025-2030’ with the objective of ensuring the continuity of transformative growth in the next half decade. This article is based on the presentations of the contributing professionals namely, Prof. Sirimal Abeyratne – Executive Director of the Centre of Poverty Analysis, Dr. Ganeshan Wignaraja – fellow ODI Global and Yvette Fernando – former Senior Deputy Governor of the Central Bank of Sri Lanka who elaborated on its key themes and implications, at a seminar organised by the Centre for Poverty Analysis, the Overseas Development Institute and the Sri Lanka Economic Association at the Organization of Professional Associations of Sri Lanka.

Structural impediments

The recovery is laden with inherent uncertainty as the country experienced a historical tendency towards inconsistent policy and institutional inefficiencies which aggravated the crisis situation. Structural reforms and sectoral strategies are necessary to convert the macroeconomic stabilisation into a trajectory of sustained and transformative growth. The phase preceding the crisis was defined by sovereign default, acute shortage of foreign exchange, double digit inflation and disrupted productive activity. Successive Governments faced twin deficits for years. Persistent budget deficits were financed through unsustainable debt.

Due to revenue shortfalls and high expenditure in the past, authorities were committed to broaden the tax base which was a part of the stability program. New taxes affected the basic needs. As a result of the high post crisis poverty and high inflation, the real income was wiped out and holding to the permanent income hypothesis people consumed less. Hidden poverty was seen in the middle class. There are binding constraints such as low female participation rate, skill gaps, brain drain and a high ageing population in the labour force.

Formidable challenges

Debt sustainability remains the cornerstone of economic recovery. An equally pressing challenge is the management of foreign exchange deficits. The coming years demand a credible path to debt sustainability, requires rigorous fiscal consolidation and effective management of external sector vulnerabilities. Sri Lanka is expected to end the IMF debt target in 2027. In 2028 the country needs to resume its debt restructuring program of bilateral and commercial debt. The Government’s target of achieving debt sustainability by 2032 hinges on structural reforms, fiscal discipline and stronger export earnings.

Even though robust recovery is visible in key sectors such as tourism, the recovery is vulnerable to unpredictable global headwinds. While inflows of tourism have rebounded, the country remains heavily reliant on imports. Export earnings are concentrated in a narrow product base exposed to global demand shifts and price volatility. Export earnings are insufficient to pay the external debts.

The domestic markets do not support a large manufacturing base. Rising global protectionism and trade policy uncertainty will further underscore the country’s vulnerability to external shocks and trade disruptions. Trade and investment are important for the country’s success. The trade agenda is controversial due to inconsistent global tariffs. Supply chains are challenged by high factor costs.

Accelerating transition

Sri Lanka has to embark on a deep transformation. The country’s transformative growth will rest on the interlinked pillars such as restoring debt sustainability, entrenching fiscal discipline, and narrowing external imbalances. We have been targeting the estimated indicators of these numerators as a percentage of GDP. Whereas improving the GDP denominator plays a vital role in achieving sustained growth. Without focusing on the GDP, the stability of the other sectors cannot be sustained. The GDP growth should align with export growth especially from the tradable sectors.

Trade and investment are important for the country’s success. Fiscal consolidation is central to this agenda. Achieving a durable primary surplus is vital for anchoring investor confidence and creating fiscal space for priority investments in infrastructure, social protection and human capital.

Deepening trade integration and accelerating the transition towards reducing import dependency while prioritising export led growth moving out of a shallow trade base is vital for growth. The trade strategy around FDI too should be looked into comprising of high return projects. The haphazard tariff structure should be restructured aligned to the country’s economic goals with rational trade agreements.

Embracing a revolutionary digital transition with upskilling is also important to accelerate growth. The education system must be modernised to align with the demands of a high value digital economy. While developing and retaining human capital in order to reverse brain drain and retain youth and skilled professionals migrating, addressing the root cause of the exodus is required.

Building resilience

Catalysing the private sector, the State should reprioritise goals and facilitate private sector led growth. A national plan which is centrally driven with an independent growth committee is needed to ensure transparency and proper management.

Social protection and safety networks can help to survive but it does not eradicate poverty. With overall growth and the aggregate demand people receive income and generate employment which is needed to come out of poverty. Sri Lanka needs a policy consensus and a sustained commitment to reduce the sectoral poverty. It needs inclusive growth and social stability to achieve long term productivity and social stability.

Based on Sri Lanka’s underperformance compared to South Asian countries, lessons from successful emerging economies can provide a powerful blueprint to enhance the overall efficiency of the economy which is a key prerequisite for global competitiveness.

The success of this hinges on a sustained commitment to reform a new resilient economic model. This comprehensive approach will help to ensure a transition from the short-term recovery to a long-term stabilisation, underpinning the sustained growth.