Bold Reforms Critical to Sustain Sri Lanka’s Economic Recovery, New Report Warns

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Sri Lanka must act urgently to implement bold economic reforms or risk sliding back into crisis, according to a new report by the Independent Growth Study Group.

The study identifies deep structural weaknesses in the economy and emphasizes that short-term gains such as reduced inflation and successful debt restructuring will remain fragile unless transformative policies are enacted swiftly.

The report is particularly relevant as Sri Lanka prepares to face a severe setback with a 44% U.S. tariff set to take effect on August 1—threatening to wipe out 50,000 jobs in the export sector.

Titled “Sustaining Transformative Growth in Sri Lanka 2025-2030”, the report provides a comprehensive roadmap for rebuilding the nation’s economy after its most severe economic crisis in decades.

The study was compiled by nine prominent economists and development experts, under the guidance of ODI Global and the Centre for Poverty Analysis (CEPA).

The report lays out six interconnected policy pillars essential for long-term growth: maintaining macroeconomic stability, deeper global trade integration, reforms to labour and capital markets, targeted sectoral strategies, poverty alleviation, and achieving political consensus.

While recognising recent progress in stabilising inflation and public finances, the study highlights Sri Lanka’s vulnerability due to limited exports and low productivity. Dr. Ganeshan Wignaraja, ODI Global Visiting Senior Fellow and convenor of the study group, stressed the need for proactive leadership. “Sri Lanka has shown resilience, but prosperity requires bold action. This report offers a blueprint for growth that benefits all Sri Lankans,” he said.

The study identifies four key growth sectors—tourism, the digital economy, modern agriculture, and niche manufacturing—as drivers to boost exports, create employment (especially for youth and women), and attract foreign investment.

However, looming trade barriers threaten this progress. Dr. Wignaraja raised alarm over the incoming 44% U.S. tariff on Sri Lankan exports, warning it could result in the loss of 50,000 jobs. “This is a serious blow to thousands of families and underscores the urgency for reform and global trade diversification,” he noted.

CEPA Executive Director Prof. Sirimal Abeyratne echoed concerns over Sri Lanka’s poor export performance. “An entrenched anti-export bias and complex regulations are stifling growth. Removing these barriers is critical for attracting investment and enhancing global competitiveness,” he explained.

The report also draws international attention. Prof. Dirk Willem te Velde of ODI Global said Sri Lanka’s recovery process can serve as a model for other emerging economies. “This is a moment for bold, pragmatic leadership and decisive reforms. With development partner support and internal political will, Sri Lanka can realise sustainable prosperity,” he said.

The final chapter of the report underscores the importance of implementing the recently passed Economic Transformation Act, enhancing the capacity of public institutions, and targeting at least 5% annual growth over the next five years to reduce poverty and avoid another debt crisis.

To reach a broader audience, the report will soon be published in Sinhala and Tamil and distributed across Sri Lanka. A digital version is currently available on the ODI Global website: www.odi.org/publications/sustaining-transformative-growth-in-sri-lanka-odi-cepa.

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