At a petrol station in Galle, a familiar anxiety returned before any shortage had arrived.
News of conflict involving Iran had begun circulating. Within minutes, tuk-tuks were queuing for petrol. For Gregory Smith, Manager for Country Advisory and Economics in South Asia of the International Finance Corporation, this was muscle memory, a country flipping back into an old behaviour in a moment. The scene was a reminder of how quickly things can change.
Gregory Smith, Manager for Country Advisory and Economics in South Asia, International Finance Corporation
That was the thread running through DFCC Bank’s Future Ready Sri Lanka: Resilience, Competitiveness and Digital Transformation. Moderated by Chayu Damsinghe of Frontier Research, the discussion brought together Gregory Smith, Manager for Country Advisory and Economics in South Asia at the International Finance Corporation; Duminda Hulangamuwa, Chairman of the Board of Investment of Sri Lanka; Hans Wijayasuriya, Chief Advisor to the President on Digital Economy and Chairman of GovTech Sri Lanka; and Thimal Perera, Director and Chief Executive Officer of DFCC Bank, to ask whether stability, once won, can be turned into readiness for what comes next.
Stability is not yet resilience
Sri Lanka’s recovery deserves recognition, Smith noted. Growth has returned, foreign exchange reserves have improved, inflation has been controlled, and tax revenue has recovered.
Yet he argued that stabilisation is only a step, and that the next one should be resilience: being able to survive the shocks that will come, from energy prices and trade disruption to natural disasters.
Smith identified four priorities: manage public debt actively, expand renewable energy at scale, work towards a solid single-B sovereign rating, and protect the gains made in government revenue.
Sri Lanka remains exposed to energy shocks it cannot control, he said, and renewable energy at scale would leave it less prone to buying diesel at a steep premium, paid for in dollars. Debt should be managed with maturities in mind well ahead of time, and that a better rating would lower the cost of borrowing.
Sri Lanka’s primary surplus has anchored the recovery, and that growth has held up despite it. He pointed to Jamaica, where a primary surplus of around 7% cut debt but growth stayed near 1% for a decade, and said reforms in Sri Lanka should be centred on growth of 5% or more.
Sri Lanka also sits beside one of the world’s fastest-growing large economies, Smith noted. India’s per capita GDP, at purchasing power parity, rose from half of Sri Lanka’s in 2010 to 70% by 2025, with its latest quarterly growth at 7.8%.
Investment cannot move at the speed of paperwork
Duminda Hulangamuwa, Chairman of the Board of Investment of Sri Lanka, turned to the investor’s experience.
A tourism project may require clearance from as many as 18 agencies, he noted. Government land can take around two years to obtain. He explained that each layer exists because the system presumes wrongdoing will occur, and laws added over four decades have removed approval powers from the Board of Investment (BOI), which can no longer act as a one-stop shop.
Duminda Hulangamuwa, Chairman, Board of Investment of Sri Lanka
Changing that, he said, requires the government to amend those laws. Beyond a domestic market of 22 million, growth depends on selling to the world, which is why the government has named ports and logistics among its priority sectors and has begun discussing a free trade agreement with India.
Citizens should not have to carry government between offices
For Hans Wijayasuriya, Chief Advisor to the President on Digital Economy and Chairman of GovTech Sri Lanka, competitiveness also depends on whether the State can function as one connected system.
Hans Wijayasuriya, Chief Advisor to the President on Digital Economy and Chairman, GovTech Sri Lanka
He described citizens collecting a digitally produced document, QR code and watermark included, from one public institution and carrying it to the next, where it is entered all over again. A reliable digital identity and secure exchange of data could allow public institutions to retrieve information at its source, with the citizen’s consent. Services would become presence-less and paperless, and the duplication across institutions would fall.
People adopt technology, he said, when they are convenient, cheaper, and add real value.
Banks must finance what comes next
Thimal Perera, Director and Chief Executive Officer of DFCC Bank, argued that banks must direct savings towards productive activity and help viable businesses grow.
Banks, he said, still prefer some form of collateral, but need to look more closely at cash flow and to support start-ups, new businesses, and micro-entrepreneurs.
Thimal Perera, Director and Chief Executive Officer, DFCC Bank
He said data and artificial intelligence can help banks make better credit decisions, and credit guarantees can share risk. Sustainable finance must become mainstream, though better country ratings are needed for low-cost green and blue financing. Digital banking, he believes, still needs human intervention.
Lending, he said, is about supporting the segments that serve the country’s economic objectives.
The next shock will provide the answer
Smith noted that Sri Lanka has no shortage of reform proposals, but what is missing is a prioritised list that could guide the next IMF programme or a homegrown reform plan. His answer was to work first on the four resilience priorities, then build a strategy for structural reform. Rather than waiting for the IMF programme to expire, he said, Sri Lanka should approach the markets sooner, while it is not desperate for money.
The test, Smith said, is how Sri Lanka survives 2030, when debt payments ramp up and big shocks should be expected.