THE WAY FORWARD

A ROAD MAP TO ECONOMIC PROSPERITY

Sri Lanka’s search for inclusive growth

The economic situation in Sri Lanka has sparked intense debate with conflicting narratives surrounding stability. While some indicators point to growth and progress, beneath the surface lies widespread hardships, particularly for a large segment of the population.

However, the country is gradually coming out from an unprecedented economic crisis; there are signs that it is stabilising under the implementation of stringent policies. These measures include increased taxes and a weakened exchange rate.

Meanwhile, the IMF has emphasised the need for additional measures in terms of debt restructuring, alongside prudent macroeconomic reforms and a social safety net that protects the most vulnerable groups.

Navigating such unpredictable and turbulent waters calls for bold strategies and innovative solutions, as emphasised by the Consulting Leader of Deloitte Sri Lanka and Maldives Nishan Mendis.

He shares insights into Sri Lanka’s path to economic recovery, the imperative of digital transformation and opportunities for businesses amid adversity.

MACRO INDICATORS Mendis asserts that “although the nation is not out of the woods yet, macroeconomic indicators have stabilised due to a number of monetary and fiscal measures.”

“The president himself has called for a radical restructure, not merely minor adjustments or mere reforms. These changes are expected to drive a permanent solution to help the country recover, and become stronger and more competitive. To ensure a lasting impact however, these steps must be sustained and not backtracked due to short-term complacency,” he adds.

Mendis underscores the importance of urgent action to reach this goal – including promoting foreign direct investments (FDI) by building investor confidence. This involves fostering an investment friendly and regulatory environment, addressing policy uncertainties, and facilitating trade agreements with potential partners.

He emphasises the critical importance of strengthening governance, greater transparency and improving efficiency at all levels while stressing the need to rebuild trust in the market, particularly on a global scale.

Additionally, Mendis highlights the imperative of reforming state-owned enterprises (SOEs) and enhancing their governance standards.

Despite the government’s optimistic economic pronouncements, the reality for many citizens is shrouded by financial difficulties as affording basic necessities due to the high cost of living continues to be a challenge.

While inflation has tapered and stabilised to a large extent, stagnant wages and a higher tax regime have eroded purchasing power, exacerbating poverty and inequality.

BUSINESS CONFIDENCE The LMD-PEPPERCUBE Business Confidence Index (BCI) remains lacklustre although it has stabi­lised at well below its all-time average.

While challenges such as high operating costs and taxes persist for businesses, there is a slight uptick in optimism surrounding the investment climate.

Meanwhile, the Consulting Leader of Deloitte Sri Lanka and Maldives points out that local businesses have experienced multiple shocks since the Easter Sunday bombings back in April 2019. That said, he believes that as the macroeconomic situation improves, opportunities will arise for businesses to bounce back with a ‘catapult effect.’

Mendis urges businesses to seize this opportunity and pursue new possibilities by making the most of existing and new partnerships to change negative perceptions about the country, and regain market confidence at global level.

COMPETITIVENESS It is also important he says, to “adopt digi­tal solutions and foster innovation, to improve efficiency, quality and customer satisfaction. Being export focussed – and becoming globally and regionally competitive – is also important.”

To this end, leveraging the country’s strategic location and trade agreements to access regional markets, bolstering exports and investing overseas stand out as being crucial. “Sri Lanka has a highly skilled workforce to explore global opportunities – especially in the ICT sector. Continuous development of human capital with the latest skill sets is essential to harness this asset,” Mendis says.

Additionally, tapping into the healthy economic growth in India and the region in general – in addition to fostering collaborations and partnerships – is essential. Mendis emphasises that to overcome challenges and create opportunities, businesses in Sri Lanka must be flexible, resilient and proactive.

ESG STRATEGIES In today’s evolving landscape, environmental, social and governance (ESG) principles are integral to achieving sustainable business growth.

Mendis highlights the importance of aligning business operations with ESG strategies to drive innovation and enhance stakeholder value: “Organisations are paying increased attention to integrating ESG practices into their operations; not only as an investment but also a way to forge deeper connections with clients.”

He notes that companies use multiple approaches to build responsible and resilient businesses – from adopting new technologies and sustainable operating practices, to reduce emissions and decarbonise operations; making strategic decisions along the supply chain focussing on resource optimisation and product design; and having robust processes and controls in place, to track and report on their performance.

Businesses need to work closely with supply chain partners to assess how operations are affecting the environment, local communities and economies, while collaborating to establish shared ESG values and helping to elevate their standards.

“For effective ESG integration, it is important for organisations to have committed leadership, a well-defined strategy and road map, stakeholder engagement and continuous monitoring,” he affirms.

DIGITAL IMPERATIVES As Sri Lanka strives to garner the benefits of a resurgent economy, digital transformation emerges as a cornerstone of progress. Mendis emphasises the pivotal role of tech adoption and innovation in driving efficiency and transparency.

“The government’s role lies in formulating policies, establishing the necessary regulatory frameworks, and creating foundational technology platforms and infrastructure, thereby creating an ecosystem that fosters innovation, allowing startups and private entities to build on  this,” he explains.

He continues: “Immediate execution of some of these technologies like the digital ID could also help reduce wasteful expenditure and widen the tax base to augment fiscal revenue.” However, Mendis cautions against haphazard adoption, stressing the need for strategic planning and skills development.

“Sri Lanka should acquire knowledge and draw lessons from successful regional counterparts – particularly India, where remarkable progress has been achieved in technology transformation in a relatively short time span,” he adds.

Mendis adds that technology and innovation can yield seve­ral advantages in both the public and private sectors, by improving efficiency and productivity among others.

Moreover, he emphasises the importance of transparency and accountability, which is facilitated by digital channels – so as to ensure that public services are accessible to all citizens in a transparent and accountable manner, and foster trust and inclusivity within communities.

Data driven decision-making emerges as another critical factor, whereby access to data analytics empowers informed decision-making, resulting in better outcomes and resource allocation.

Additionally, Mendis stresses the role of technology in promoting entrepreneurship and innovation, as it encourages entrepreneurial ventures and drives economic growth through innovative solutions.

He also notes the significance of technology in facilitating financial inclusion, highlighting how digital solutions provide access to financial services; in particular, this would benefit underserved populations and foster inclusive economic deve­lopment.

THE BIG PICTURE As Sri Lanka charts a course towards economic renewal, the insights of business leaders provide valuable guidance for policymakers, businesses and stakeholders alike.

By embracing innovation, fostering collaboration and prioritising sustainable practices, Sri Lanka can pave the way to a prosperous future.

With concerted efforts and strategic planning, Sri Lanka stands to emerge stronger and more competitive on the global stage, facilitating an environment of prosperity and inclusivity for all its citizens.