January 19, Colombo (LNW): As Sri Lanka moves into 2026, the country must break away from an overly narrow fixation on crisis containment and IMF benchmarks and adopt a broader development-focused economic strategy, according to Verité Research Executive Director Dr Nishan de Mel.
Speaking on a recent television programme, Dr de Mel said the IMF-supported reform package, while helpful in restoring a degree of macroeconomic order, has encouraged a form of economic “short-sightedness” that ignores worsening conditions in the real economy. He argued that the programme was never intended to serve as a long-term blueprint for national progress, but rather as a temporary response to an acute financial emergency.
He pointed to a widening gap between official claims of stability and the lived experience of ordinary citizens. While fiscal metrics such as government revenue and primary balances show improvement, indicators tied to everyday wellbeing remain deeply troubling. Poverty, employment levels and real wages, he noted, are performing among the weakest in the region.
According to Dr de Mel, Sri Lanka’s poverty rate rose by an estimated 13 percentage points during the crisis, marking one of the sharpest increases globally among countries facing debt distress in recent years, second only to Mozambique. He cautioned that celebrating technical fiscal successes risks mistaking the tools of recovery for the actual goal.
“These indicators are only instruments,” he said, adding that the ultimate objective should be a society where people are materially better off. He warned that Sri Lanka could emerge having technically resolved a financial crisis while leaving the underlying economy and social fabric severely damaged.
The economist highlighted long-lasting scars in the labour market, with real wages still between 10 and 20 per cent below previous levels and employment at its lowest point in two decades. He attributed much of this damage to the sharp rise in interest rates, which at one stage reached 30 per cent, triggering widespread business closures. In contrast, individuals with substantial savings or assets benefited from the high-rate environment, creating an uneven recovery in which wealthier groups rebounded quickly while lower-income households continued to struggle.
Dr de Mel also raised concerns over the Central Bank’s inflation targeting framework. Despite a statutory target of 5 per cent under the new Central Bank Act, inflation has remained outside this range for multiple consecutive quarters. While the law requires the Monetary Board to explain such deviations to Parliament, he questioned whether the institutional culture is robust enough to enforce genuine accountability. Drawing on past Supreme Court rulings, he noted that accountability hinges on the absence of sound reasoning in decision-making rather than disagreements over economic theory.
Beyond macroeconomics, Dr de Mel introduced the idea of “professional competency” as a necessary evolution beyond the government’s anti-corruption agenda. While deterrence is important, he argued, it does not automatically lead to effective governance. He called for a more professional, risk-aware public sector, capable of anticipating and absorbing shocks, citing recent responses to Cyclone Ditwah as an example of where such capacity is lacking. He was particularly critical of recent debt decisions taken without clear liquidity pressure, including emergency borrowing linked to disaster relief.
Turning to digital development, Dr de Mel warned that Sri Lanka’s internet penetration rate, at just over half the population, lags behind regional competitors and poses a serious threat to future growth. In an increasingly digital global economy, he said limited access to the internet is fast becoming a key driver of poverty and inequality.
He concluded by urging policymakers to move beyond externally driven crisis management and embrace a domestically grounded development agenda aligned with the Sustainable Development Goals. Without such a shift, he warned, Sri Lanka risks remaining trapped in a cycle of stabilisation without meaningful progress.
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