Sri Lanka’s proposal to establish a domestic gold refinery has resurfaced at a time when the country is still navigating a fragile post-crisis recovery. The idea, confirmed by the National Gem and Jewellery Authority (NGJA), is positioned as a solution to disrupted gold imports, rising smuggling, and heavy border taxes. Yet beneath the promise of value addition lies a complex question: is Sri Lanka economically and institutionally ready to implement such a project?
Until 2018, Sri Lanka allowed relatively free gold imports, supporting its jewellery industry and bullion trade. That system collapsed when foreign exchange shortages emerged following aggressive money printing and macroeconomic mismanagement. In 2017 alone, the country imported gold worth nearly US$650 million. By 2018, steep import taxes were imposed, exceeding 45 percent, effectively halting legal imports. What followed was not stability, but a sharp depreciation of the rupee and the growth of an underground gold market.
Today, gold is widely smuggled into the country, depriving the state of revenue and exposing the jewellery sector to legal and quality risks. Authorities argue that a domestic refinery could reverse this trend by importing semi-refined gold from producing nations such as South Africa, refining it locally, and distributing it to manufacturers, the Central Bank, and export markets.
However, the feasibility of this ambition remains uncertain. Establishing a refinery requires significant capital investment, technical expertise, energy reliability, and strong regulatory oversight. Sri Lanka’s current fiscal constraints under an International Monetary Fund programme severely limit public spending, while private investors remain cautious amid policy inconsistency and high taxation.
There is also ambiguity over whether the proposed facility would operate as a primary refinery processing raw gold or a secondary refinery handling already refined material. Each option carries different cost structures, environmental implications, and skill requirements. Without a clear operational model, the project risks becoming another underutilized state-backed venture.
Moreover, Sri Lanka’s broader economic environment presents challenges. Power costs remain high, logistics are inefficient, and policy reversals have damaged investor confidence. A refinery alone cannot compensate for these systemic weaknesses. Unless import taxes are rationalized and macroeconomic discipline restored, legal gold flows may not return even with local refining capacity.
While a gold refinery could theoretically reduce smuggling, support exports, and add value to the gem and jewellery sector, its success hinges on governance reforms, stable monetary policy, and realistic market assessments. Without these, the refinery risks becoming a costly symbol of ambition rather than a catalyst for recovery.
