With several free trade agreements (FTAs) in place, Sri Lanka is exploring options for new trade deals and seeking to upgrade at least one existing one. It is also working together with international groupings and is seeking to regain preferential status with the EU. In part, this trend is the result of the change in government and the return to more balanced relationships, while it is also simply…
The election of President Maithripala Sirisena in January 2015 signified an historic shift in Sri Lanka’s trajectory. With the former administration having often been accused of nepotism and political appointments to key roles, the team of the prime minister, Ranil Wickremesinghe, has signalled a move towards liberalisation, transparency and more merit-based leadership. Challenges remain in making…
An ideal entrepôt and with productive agricultural lands, Sri Lanka has nonetheless experienced persistent trade deficits that have had a significant impact on the currency and the economy. A number of options have been suggested in recent years. One solution is to retain additional value in-country by encouraging more domestic value-adding activities and processing. The government wants Sri Lanka…
Sri Lanka is well situated for trade and an attractive target for international investment. Lying on major shipping and air routes, it is close to the markets of Asia, Africa and the Middle East. Moreover, the country has a literate workforce, good infrastructure, a healthy population and relatively low wages. Since the 2009 cessation of a long-running civil war, Sri Lanka has become one of the region’s…
Thanks to close historical ties and geographic proximity, Sri Lanka stands to benefit from efforts to strengthen economic cooperation with India. With talks around an expanding free trade agreement (FTA) in the works, momentum appears to be on Sri Lanka’s side, particularly with a rebalancing of foreign policy following the election of President Maithripala Sirisena early last year. Agreements…
Sri Lanka’s debt picture is decidedly mixed. In some ways, the country has been greatly successful in managing its international exposures. Government obligations have fallen significantly, from over 100% of GDP in 2004 to about 74% in 2015. As the civil war ended, defence spending decreased, and this opened up previously committed resources for covering the budget and paying down debt. Yet at the…
Worker remittances have been growing over time and now play an important role in the country’s international capital flows. They surpassed $7bn in 2014, up from about $2bn in 2006. Despite levelling off in early 2015, they then reached $8.2bn in 2015, which remains a large portfolio for a $75bn economy. Historically, workers’ remittances have been essential for the stability of the economy. They…
Sri Lanka has had a poor history of revenue collection. Tax revenues as a percentage of GDP have declined from above 20% in the early 1990s to about 12.2% in 2014. In comparison, Malaysia and Thailand are at about 15%, while Singapore is about 13%. India, however, is at 10%, although it also contains a far larger informal economy. So while the country has done a good job of increasing per capita income,…
The NBFI segment is a small part of the financial sector overall, representing just 8% of total deposits. However, it has been an area of concern in recent years. The stability of some of these institutions has been brought into question, and considerable thought has been given to how to regulate NBFIs. No final solution has been developed thus far, and the regulation remains a work in progress. Early…
The Sri Lankan banking sector is in some ways fragmented for a country of 20.5m people, and in need of consolidation, but there is little agreement on how that should be done. In total, the country has 25 licensed commercial banks and 56 non-bank financial institutions (NBFI). And while the vast majority of these enterprises are healthy, some of the smaller institutions may be struggling and consolidation…
