By: Staff Writer

April 02, Colombo (LNW): Sri Lanka’s construction sector in early 2026 presents a paradox: robust growth indicators on paper, yet intensifying warnings from industry leaders about an impending crisis. As of April 1, the sector continues to expand, but underlying pressures suggest that this momentum may not be sustainable.

The latest data from February 2026 shows the Construction Purchasing Managers’ Index (PMI) at 70.3, signaling strong expansion. However, this marks a slight decline from January’s 75.0, hinting at a gradual slowdown. Growth has been supported by several key drivers, including post-disaster reconstruction following Cyclone Ditwah, which has boosted demand for infrastructure and irrigation repairs. At the same time, public sector projects most notably road rehabilitation efforts such as the Central Expressway have resumed, adding further momentum.

Private sector activity is also expected to dominate output in 2026, particularly in commercial developments and urban housing. Firms reported favorable conditions in February, supported by steady project inflows and conducive weather. New orders increased, and companies expanded hiring in anticipation of sustained demand. Purchasing activity also rose, reflecting heightened construction work.

However beneath this expansion lies mounting strain. The ongoing West Asia conflict, triggered by late-February military escalation, has disrupted global supply chains and driven up costs. Sri Lanka has felt these shocks acutely. Fuel prices have surged by 36%, significantly increasing transportation and operational expenses across the industry. Delivery times for materials have lengthened due to freight delays and regional instability, compounding project timelines.

The Asian Development Bank attempted to cushion the impact by pledging an additional $100 million in March 2026 to support Sri Lanka against these external shocks. Meanwhile, multiple ADB-funded initiatives including water supply, renewable energy, healthcare, and agricultural infrastructure projects are underway or in the pipeline, providing some structural support to the sector.

However, the most pressing issue remains the rapid escalation in material costs. Steel prices have jumped by Rs. 18,000 per ton, sand is expected to rise from Rs. 37,500 to Rs. 46,000 per cube, and metal prices have climbed from Rs. 8,600 to Rs. 11,000 per unit. Cement now ranges between Rs. 1,600 and Rs. 2,300 per 50kg bag. These increases have pushed overall construction costs sharply higher, with building rates now estimated between LKR 5,500 and over LKR 22,000 per square foot depending on finish quality.

Labor shortages add another layer of difficulty. Despite high unemployment, the sector faces a deficit of around 20,000 workers, prompting calls to import 7,500 foreign laborers. Standard daily wages range from Rs. 2,800 for unskilled workers to Rs. 3,800 for highly skilled tradesmen, though market rates—especially in Colombo often exceed these benchmarks.

Compounding the risk, many contractors continue to submit bids below official engineer estimates to secure projects. Experts warn this practice is increasingly unsustainable in the face of rising costs, potentially leading to financial distress or project failures.

Sri Lanka’s construction sector, therefore, stands at a critical crossroads expanding in activity, yet under severe financial and structural pressure that could reshape its trajectory in the months ahead.

By: Staff Writer

April 02, Colombo (LNW): Sri Lanka’s decision to once again postpone the implementation of a standardized Value Added Tax (VAT) invoice system is revealing deeper tensions within its ongoing tax reform agenda. The Inland Revenue Department (IRD) has pushed the deadline to July 1, 2026, marking the second delay of a policy initially scheduled for January 1 under Gazette Extraordinary No. 2463/05.

At first glance, the delay appears administrative. Officials cite “practical issues,” while businesses point to system readiness challenges. But a closer look suggests the postponement reflects broader structural friction as Sri Lanka attempts to modernize its tax framework under international pressure.

The standardized invoice format is a cornerstone of reforms aimed at tightening compliance and digitizing revenue collection. It mandates uniform elements such as the label “TAX INVOICE,” a strict serial numbering system (YYMMM_QQQQ_XXXXX), inclusion of Taxpayer Identification Numbers (TINs) for both supplier and buyer, and the reporting of all values in Sri Lankan rupees without cents. These requirements are designed to eliminate inconsistencies and improve audit trails.

However, the transition from flexible, often customized invoicing practices to a rigid, system-generated format has proven more complex than anticipated. VAT-registered businesses, along with accounting professionals and software providers, have requested additional time to upgrade invoicing systems and internal processes. Many firms are still adapting to new technical specifications, highlighting gaps in digital readiness across the economy.

The delay also intersects with a wider overhaul of the VAT regime driven by the International Monetary Fund’s Extended Fund Facility (EFF). This program requires Sri Lanka to broaden its tax base, improve compliance, and increase revenue to around 15% of GDP. Measures include removing exemptions, taxing digital services, and replacing the Simplified Customs Levy with standard VAT.

Central to this transformation is the push for digitalization. The IRD’s move toward standardized invoicing supports systems like RAMIS, enabling real-time tracking of transactions and reducing opportunities for tax evasion. The IMF estimates that improved VAT compliance alone could generate an additional 0.3% of GDP in revenue.

Nevertheless implementation challenges are exposing the limits of rapid reform. The abolition of the Simplified VAT (SVAT) scheme in October 2025 already forced thousands of businesses to transition from a voucher-based system to a conventional VAT structure. This shift was supported by the introduction of the Risk-Based Refund Scheme (RBRS), which promises refunds within 45 days but applies varying levels of scrutiny based on taxpayer risk profiles.

While the RBRS aims to maintain liquidity particularly for exporters and strategic projects it has added another layer of administrative complexity. Businesses must now navigate risk classifications, compliance monitoring, and stricter reporting standards.

The repeated delay of the invoice standardization suggests that the sequencing of reforms may be outpacing the capacity of businesses to adapt. It also raises questions about enforcement readiness and whether compliance gains can be achieved without disrupting economic activity.

Ultimately, the July 2026 deadline represents more than a technical adjustment. It is a test of Sri Lanka’s ability to balance ambitious fiscal reforms with on-the-ground realities ensuring that modernization does not come at the cost of operational stability.

By: Staff Writer

April 02, Colombo (LNW): Sri Lanka’s external sector, which showed signs of recovery in 2025, is once again under pressure as global geopolitical tensions begin to erode its current account position. The sharp narrowing of the current account surplus in February 2026 signals that the country’s տնտեսական stability remains highly exposed to external shocks.

The surplus dropped 68% year-on-year to $117.2 million in February, reflecting a rapid deterioration driven by surging imports and stagnating exports. Although the cumulative surplus for January and February rose modestly to $486.9 million, this aggregate figure obscures the speed of the downturn now underway.

The Crisis intensified following the outbreak of conflict in the Middle East on February 28. The immediate transmission channel has been energy. Rising oil prices have significantly increased Sri Lanka’s fuel costs, cascading through the economy via higher transportation, logistics, and production expenses.

This has had a direct impact on trade dynamics. Imports rose sharply by 25.2% in February to $1.83 billion, while export growth remained almost flat at 0.5%, reaching $1.05 billion. As a result, the trade deficit widened dramatically. Over the first two months of 2026, imports reached $3.6 billion, compared to exports of $2.2 billion, further expanding the deficit to $1.43 billion.

Structural weaknesses are becoming more visible. Sri Lanka’s terms of trade deteriorated as export prices fell faster than import prices, reducing the real value of export earnings. At the same time, higher freight charges and insurance premiums driven by regional instability are inflating import costs and squeezing exporters.

The services sector, another key pillar of external earnings, is also faltering. The services surplus declined 16.7% year-on-year to $340 million in February. Tourism, despite higher arrivals, generated lower revenue, with earnings falling to $352 million. For the first two months, total tourism income declined to $730 million, highlighting the disconnect between visitor numbers and actual receipts.

Flight disruptions and rising airfares linked to the Gulf conflict are dampening travel demand, with estimated monthly losses of up to $100 million. Meanwhile, technology service exports and logistics inflows have both contracted significantly, indicating broader Weakness in service-related foreign exchange earnings.

One bright spot remains workers’ remittances, which surged 33% in February to $729 million and totaled $1.48 billion for the first two months. However, this resilience may not be guaranteed, as economic disruptions in Middle Eastern labour markets could eventually impact migrant incomes.

Financial flows present a mixed picture. While government securities attracted a net inflow of $53 million, the stock market recorded a $30 million outflow, suggesting cautious investor sentiment. Official reserves increased to $7.3 billion, but this has not prevented a 1.6% depreciation of the rupee so far in 2026.

The contrast with 2025 is stark. Last year, Sri Lanka recorded a $1.73 billion current account surplus, supported by strong remittances of $8.08 billion and services inflows of $3.71 billion. However, with imports rising faster than exports and global conditions deteriorating, that stability is now under threat.

The narrowing surplus is more than a statistical shift it is a warning sign. As external pressures mount, Sri Lanka faces a critical challenge: sustaining its recovery in an increasingly volatile global environment.

By: Staff Writer

April 02, Colombo (LNW): Sri Lanka’s Energy Ministry has begun a significant review of its coal procurement system, responding to mounting pressure over the impact of low-quality coal on the country’s primary coal-fired power facility. The move comes amid growing concern that substandard fuel imports have contributed to reduced efficiency and reliability in electricity generation, particularly at the Norochcholai power plant.

Ministry Secretary Prof. Udayanga Hemapala confirmed that weaknesses in the current procurement framework have been identified and are now under review. According to him, the ministry has already initiated steps to revise procedures, aiming to improve both transparency and operational efficiency. While procurement issues have been flagged across the energy sector, coal purchasing has emerged as the immediate priority.

Coal plays a critical role in Sri Lanka’s power mix, especially in maintaining base-load generation. Any disruption in supply quality can directly affect output levels, plant stability, and maintenance cycles. Recent allegations that certain coal shipments failed to meet required specifications have therefore raised serious concerns among engineers and policymakers alike. Lower-grade coal can reduce combustion efficiency, increase wear and tear on machinery, and lead to unplanned outages factors that ultimately strain the national grid.

The procurement process itself has long been a subject of controversy. Over the years, repeated accusations have surfaced regarding irregular tender procedures, questionable pricing decisions, and inconsistent supplier selection criteria. Critics argue that these systemic weaknesses have allowed room for inefficiencies and, at times, possible malpractice. The latest review appears to be an attempt to address these longstanding vulnerabilities while restoring confidence in the system.

Energy analysts note that reforming procurement is not merely a bureaucratic exercise but a technical necessity. Ensuring strict adherence to coal quality standards, improving inspection mechanisms, and enhancing contract enforcement could significantly improve plant performance. However, they caution that procedural reforms must be accompanied by strong oversight and accountability measures to be effective.

The ministry’s decision also comes at a time when the country is under pressure to maintain stable electricity supply without significantly increasing costs. Any inefficiency in coal procurement has a cascading effect, potentially leading to higher generation costs and increased financial burdens on the state.

While the review process is still in its early stages, expectations are high that it will lead to tangible improvements. The challenge, however, lies in translating policy adjustments into consistent practice. If successful, the overhaul could mark a turning point in how Sri Lanka manages one of its most critical energy resources, ensuring that quality and transparency are no longer compromised in the pursuit of supply.