By: Staff Writer
February 09, Colombo (LNW): While headline indicators suggest Sri Lanka has stepped back from the brink, economists at the 40th Annual Sessions of the Sri Lanka Economic Association (SLEA) urged policymakers not to confuse short-term stability with long-term recovery. The central warning: without consistent policy direction and export-driven growth, the economy risks settling into prolonged low-growth equilibrium.
Sri Lanka’s economic recovery remains vulnerable due to persistent policy instability and weak growth foundations, economists warned yesterday, cautioning that recent macroeconomic stabilisation will not translate into durable revival without long-term structural reform and policy continuity.
Speaking yesterday at the opening of the 40th Annual Sessions of the Sri Lanka Economic Association (SLEA) at the BMICH, SLEA President Prof. Sirimevan Colombage said the country stood at a defining crossroads between hard-won stability and the risk of prolonged stagnation
Outgoing SLEA President Rev. Prof. Wijitaputra Wimalaratana placed current challenges in a historical context, arguing that Sri Lanka’s post-independence development strategy has remained inward-looking and defensive. Despite nearly eight decades of independence, the country has climbed only one World Bank income category since 1989, briefly reaching upper-middle-income status before sliding back.
This legacy continues to shape today’s vulnerabilities. Although foreign reserves have improved and inflation remains subdued, net usable reserves remain constrained when adjusted for swap obligations with China and India. Economists warned that such instruments, while useful for liquidity management, postpone rather than resolve external imbalances.
Interest rate policy was also scrutinised. Maintaining a 7.75% policy rate has supported price stability, but experts cautioned that limited policy flexibility could become risky if global financial conditions tighten or capital outflows accelerate in 2026. With foreign portfolio inflows still cautious and FDI subdued, foreign finance mobility remains fragile.
The balance of payments outlook, though improved, remains exposed. Export growth has not kept pace with import demand, and services exports despite their scale are not sufficiently tradable. Prof. Colombage emphasised that 88% of services output is domestically consumed, constraining foreign exchange generation and limiting growth potential.
Constructive criticism at SLEA focused on governance and policy credibility. Rev. Prof. Wimalaratana highlighted the absence of “policy locks,” noting that frequent reversals in land, investment, and tax policy undermine long-term planning. He called for cross-party consensus to preserve core economic policies for 15–20 years, arguing that transformation cannot occur within election cycles.
The message from the SLEA sessions was unambiguous: Sri Lanka’s challenge in 2026 is not crisis survival but economic redesign. Without stable policies, export-oriented services reform, and credible long-term commitment, recovery risks remaining superficial visible in numbers, but absent in lived economic reality.
The post Recovery on Paper, Risk in Practice: Sri Lanka’s Economic Reality appeared first on LNW Lanka News Web.
