POLICY MIX HOLDS THE KEY

Shiran Fernando deep dives into the recent budget presentation

The government’s maiden budget was delivered by President Anura Kumara Dissanayake in his capacity as the Minister of Finance on 17 February. It hit the right tone in terms of continuing the key targets under the IMF programme and retaining debt sustainability targets while providing relief for the public sector through salary adjustments.

So what does the national budget mean for economic growth and the implementation of six key themes for sustainable growth?

A key reform under the International Monetary Fund’s programme is the implementation of the Public Financial Management Act No. 44 of 2024. Accordingly, the government of the day must commit to primary expenditure not exceeding 13 percent of the estimated nominal GDP for the relevant financial year.

Furthermore, the annual budget reserve shall not exceed two percent of the proposed estimate of the primary expenditure. These requirements have been met by the budget proposals.

At a recent outlook and strategy event hosted by a private sector bank, I emphasised that Sri Lanka’s growth momentum can continue this year if it’s supported by the budget proposals.

This optimism is driven by a resurgence of tourism reaching pre-2018 levels, an improvement in consumer demand – which accounts for nearly 70 percent of GDP – and the revival of key infrastructure projects that will boost the construction industry.

For example, almost 26 percent of public investment projected for 2025 is expected to be for the development of roads – including certain sections of the Central Expressway – while another seven percent is budgeted for other infrastructure such as the railways, transport, ports, the airport and bridges.

However, while this GDP trajectory (3-5%) is encouraging, achieving sustained high growth over the long term requires critical reforms. There are six key areas where policy changes and structural improvements are necessary for Sri Lanka to unlock its economic potential.

TRADING Sri Lanka has long discussed modernising trade facilitation but little progress has been made. The implementation of a new customs law and the National Single Window (NSW) is crucial to improving efficiency in cross border trade.

These reforms, which have been under discussion for decades and mentioned in the budget, need urgent execution to reduce transaction costs, improve transparency and enhance trade competitiveness. Streamlining customs clearance procedures will create a more business friendly environment that attracts investors and boosts exports.

DIGITISATION A key driver of Sri Lanka’s future economic success is digital transformation. Digital Public Infrastructure (DPI) and the Digital ID system are essential to improving governance, increasing financial inclusion and enhancing service delivery.

These initiatives will reduce bureaucratic inefficiencies, enable seamless online transactions, and support the growth of e-commerce and fintech sectors. Countries that have successfully implemented digital identities and public digital platforms have seen significant gains in efficiency and productivity.

LEGISLATION For Sri Lanka to attract higher levels of private investment, policy certainty and legal frameworks must be strengthened. The enactment of the Public-Private Partnership Investment Management law and the Public Procurement law, and implementation of the Economic Transformation Act, will provide much needed clarity and confidence for investors.

These laws will streamline investment processes, reduce risks and encourage private sector participation in large-scale projects that are essential for long-term economic stability.

DOING BUSINESS One of the biggest obstacles to investment in Sri Lanka is bureaucratic inefficiency. At the recent Sri Lanka Economic Summit, the president outlined ambitious targets to reduce approval times and simplify investment procedures.

This will include shortening environment approvals from 269 days to less than 82 days, reducing the time taken by another eight institutions from 184 weeks to 14 weeks and approvals from the Board of Investment of Sri Lanka (BOI) from 80 days to less than two weeks.

REGIONAL GROWTH For economic growth to be inclusive and sustainable, Sri Lanka must reduce regional disparities.

Investing in key infrastructure projects in the Northern and Eastern Provinces will help reduce business costs, improve market access and integrate regional economies with agriculture, fisheries and tourism value chains. Some of the public investment outlined for 2025 will support this.

EXPORT SECTOR With global trade policies evolving, Sri Lanka has an opportunity to benefit from trade realignments due to the Trump 2.0 tariff scenarios.

Sri Lanka must position itself as a preferred destination for export diversification. Developing an integrated trade strategy to attract business relocation and foreign investment will be crucial for driving an export led growth model.

While Sri Lanka is on track to register a moderate economic recovery this year, achieving sustained high growth requires deep structural reforms.

Modernising trade, embracing digital transformation, enacting key legislation, improving the business environment, stimulating regional development and capitalising on global trade shifts are needed, in order to drive a stronger and more resilient economy.

The right policy mix and efficient implementation will propel Sri Lanka towards long-term economic stability and global competitiveness.