08 Nov 2026 | By Maheesha Mudugamuwa
Sri Lanka may have achieved a degree of macroeconomic stability following its unprecedented economic crisis, but the recovery has yet to translate into meaningful improvements in the lives of ordinary people, according to Samagi Jana Balawegaya (SJB) Parliamentarian and Committee on Public Finance Chairman Dr. Harsha de Silva.
In an interview with The Sunday Morning ahead of the 2027 Budget, the economist warned that the Government’s emphasis on improving economic indicators risked overshadowing persistent poverty, declining household purchasing power, and the absence of meaningful employment opportunities.
While acknowledging the International Monetary Fund’s (IMF) contribution to economic stabilisation, he questioned the Government’s ability to sustain fiscal discipline, meet mounting debt repayments, and attract investment. He also raised concerns over excessive taxation, revenue leakages, State-Owned Enterprises (SOEs), and weaknesses in public procurement.
The Government maintains that Sri Lanka’s economy has stabilised and is recovering, but ordinary people are still struggling. How do you assess the situation?
We must look at this from two perspectives: macroeconomic stability and the situation at household level.
Macroeconomically, things are relatively stable, although some indicators are deteriorating. Interest rates have generally declined. The rupee appreciated from around Rs. 370 to Rs. 290 against the US Dollar, but has subsequently weakened from approximately Rs. 295 when President Anura Kumara Dissanayake assumed office to Rs. 330–335. Inflation has also started increasing after entering negative territory.
Debt-to-GDP has declined from approximately 128% to 93%, although it had already fallen to around 101% under former President Ranil Wickremesinghe. But the real concern is what is happening to ordinary people.
Before the crisis, poverty was around 12%. It increased to approximately 25–26% and remains significantly elevated. Under broader international poverty measurements, around 40% of Sri Lankans could be experiencing poverty or serious economic vulnerability. So, while macroeconomic indicators suggest stability, the reality facing households is very different. That is the fundamental contradiction.
Would you attribute much of this stability to the IMF programme introduced under the previous administration?
Certainly. The IMF programme has been instrumental in restoring fiscal discipline. Tax revenue increased from approximately 8% to 16% of GDP, while Government expenditure was tightly controlled. We moved from a primary deficit of around 6% of GDP during the crisis to a surplus, with the IMF requiring approximately 2.8%.
That discipline was essential for restructuring approximately $ 15 billion in international sovereign bonds. Creditors needed confidence that Sri Lanka could meet its future obligations. There were disagreements over economic growth and exchange rate assumptions, which complicated negotiations and eventually led to macro-linked bonds.
The IMF provided the framework and credibility necessary to complete that process. However, fiscal consolidation also limits the Government’s ability to increase spending, particularly when people are demanding relief.
With the current IMF programme approaching its conclusion, can Sri Lanka maintain stability without another programme?
Fiscal discipline must continue, whether we enter another IMF programme or not. We need to broaden the tax base, improve revenue collection, and eliminate unnecessary exemptions, including tax holidays extending 25–30 years.
Legislation such as the Economic Transformation Act, Public Financial Management Act, and Public Debt Management Act provides a framework for maintaining that discipline. But investor confidence remains a concern.
The Government recently attempted to raise up to $ 300 million through domestic dollar-denominated bonds but rejected all bids because investors demanded higher interest rates than it was prepared to accept.
The Government suggested investors had failed to recognise improvements in Sri Lanka’s credit rating. I find that explanation unconvincing. Financial markets respond to rating changes. If confidence is as strong as the Government claims, why couldn’t it raise even a single dollar? That raises serious questions about our financing strategy.
External debt repayments are expected to increase considerably. Do we have sufficient foreign exchange to meet those obligations?
That is a major challenge. Sri Lanka continued servicing multilateral institutions, including the World Bank and Asian Development Bank, even during the default. However, as restructured repayments resume, annual external debt servicing could increase from approximately $ 3–3.5 billion to $ 4–4.5 billion.
We cannot simply use foreign reserves to repay debt. If we have $ 7 billion in reserves and use $ 5 billion for repayments, what happens when another external shock occurs?
Reserves are intended to protect the economy and manage currency volatility. We must generate foreign exchange through exports, tourism, remittances, foreign investment, and services such as IT, shipping, banking, and insurance. Reserve adequacy must also be assessed using the IMF’s Assessing Reserve Adequacy framework, distinguishing gross reserves from genuinely available reserves.
The question is not simply whether we can repay our debt, but whether we can do so without creating another economic crisis.
With the 2027 Budget approaching, should the Government provide tax relief, or are further tax increases unavoidable?
I don’t believe we necessarily need more taxes. During former President Mahinda Rajapaksa’s administration, Government revenue was approximately 22% of GDP. Today, it is around 17%.
We should first examine where revenue is being lost. We have granted enormous tax concessions, sometimes extending 25–30 years. These incentives must be linked to measurable investment, exports, and employment.
Meanwhile, working people face a substantial tax burden. Personal income tax reaches 36%, Value-Added Tax (VAT) stands at 18%, and the Social Security Contribution Levy (SSCL) is 2.5%. Because SSCL applies to turnover, its impact can accumulate across supply chains. I believe SSCL should be abolished.
There is also inconsistency in registration thresholds. VAT remains at Rs. 60 million, while the SSCL threshold was reduced to Rs. 36 million.
Instead of repeatedly increasing taxes on compliant businesses and salaried employees, the Government should address revenue leakages, eliminate unnecessary concessions, and strengthen enforcement.
You have repeatedly raised concerns about online gambling and alcohol tax enforcement. Is the Government overlooking significant revenue sources?
Absolutely. There are substantial revenue leakages that require immediate attention.
Online gambling operates on a considerable scale, including activities involving foreign individuals and businesses. Although a regulatory framework exists, the necessary regulations, licensing procedures, and monitoring mechanisms remain inadequate.
Simply blocking gambling websites will not solve the problem. We need proper regulation, licensing, transparent monitoring, and effective taxation. The alcohol sector presents similar concerns. Allegations involving counterfeit or misused tax stickers have repeatedly surfaced.
Why should the Government continuously increase taxes on ordinary people when potential revenue is being lost through weak regulation and inadequate enforcement?
Vehicle imports generated substantial tax revenue. Can the Government expect similar collections in 2027?
No. That would be unrealistic. The Government, Treasury, and economic analysts underestimated the pent-up demand following the removal of vehicle import restrictions.
Initially, imports surged, generating significant revenue through Customs duties, excise duties, and VAT. But that demand is slowing.
Dealers are holding unsold vehicles, some buyers are struggling with leasing payments, and the market is showing signs of stagnation. Consumers are also shifting towards less expensive vehicles, including affordable electric models. That means average tax revenue per vehicle could decline.
The initial import boom was largely a one-off windfall. The Government cannot assume those extraordinary collections will continue in 2027.
Despite repeated investment announcements, there appears to be little major industrial expansion or job creation. What is going wrong?
The fundamental problem is that the IMF programme was designed to stabilise the economy, not generate economic growth. Stability provides the foundation, but investment and employment require a separate strategy.
The Economic Transformation Act provides a framework, but implementation has been inadequate. Look at Port City Colombo. Much of the visible development involves local property investment rather than major international businesses establishing operations. Meanwhile, some established international businesses are reconsidering their presence.
The electricity sector is another concern. Changes to the reform framework have restricted private participation in transmission, distribution, and existing generation infrastructure. We urgently need investment in grid modernisation, transmission infrastructure, and energy storage to support renewable energy expansion.
The Government does not have sufficient resources to finance everything independently. Without private investment, industrial development, and a credible growth strategy, where will the jobs come from?
SriLankan Airlines continues to face financial difficulties, while SOE reforms remain slow. Is the Government avoiding difficult decisions?
SriLankan Airlines remains a major financial burden. It has accumulated substantial debt, faced prolonged management uncertainty, and missed opportunities to expand international routes while competing airlines moved ahead.
The Government must decide what it intends to do. We cannot continue committing taxpayers’ money indefinitely to loss-making commercial enterprises.
There is also inconsistency in economic policy. On one hand, the Government invites investors. On the other, certain policies restrict private sector participation. Investors need predictability, consistency, and confidence.
My greatest concern, however, is employment. Young people are struggling to find suitable jobs, while technological developments threaten employment in sectors such as accounting and software development.
We need investment, industrial expansion, and a strategy to prepare workers for technological change. Renovating railway stations and improving buses may be worthwhile, but those projects cannot replace a national economic development strategy. We need jobs, jobs, and more jobs.
The National People’s Power (NPP) promised transparency, accountability, and an end to corruption. Have those promises translated into meaningful change?
I have not seen sufficient evidence of genuine systemic change. We have witnessed controversies involving coal procurement, other Government transactions, and the alcohol tax sticker system. There have been investigations, committees, and reports, but where is the decisive accountability?
The underlying problem is the absence of comprehensive procurement legislation. Guidelines alone are insufficient because they can be interpreted, changed, or circumvented. We need a proper procurement law establishing clear procedures, accountability, and legal penalties for violations. I have repeatedly challenged the Government to introduce such legislation.
Corruption must be addressed consistently, regardless of who is in power. Investigations are not enough. Those responsible for wrongdoing must face consequences. That is what genuine system change should mean.
With geopolitical tensions increasing, is Sri Lanka doing enough to protect its economic and strategic interests?
Sri Lanka occupies an extremely important geographical position in the Indian Ocean. We must carefully balance our relationships with India, China, the United States, Europe, and other international partners. These relationships need not be identical. Each should serve clearly defined national interests.
Our ambition should extend beyond container handling. Sri Lanka can become a regional centre for logistics, maritime services, international arbitration, commercial transactions, and professional services. We should also strengthen maritime surveillance, naval capabilities, and our role in regional maritime diplomacy.
However, geographical advantage alone is insufficient. We need strategic leadership, international partnerships, and institutions capable of converting our location into economic opportunities.
Finally, what should be the Government’s most important economic priority in the 2027 Budget?
Jobs. That must be the central priority. The Government needs to move beyond celebrating macroeconomic stability. Stability is necessary, but it is not the ultimate objective of economic policy.
We need investment, industrial development, higher productivity, export growth, and meaningful employment opportunities. We also need a fairer tax system, stronger governance, and greater accountability.
Most importantly, economic recovery must be measured by what happens to ordinary people. If poverty remains high, young people cannot find jobs, and families struggle to afford basic necessities, then the recovery is not reaching those who need it most.
The IMF programme has helped stabilise the economy. Now the Government must demonstrate that it has a credible strategy for growth.
Ultimately, economic success is not about presenting impressive statistics. It is about improving people’s lives. And that requires investment, opportunity, and, above all, jobs.
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