By: Staff Writer
November 10, Colombo (LNW): Sri Lanka stands at a critical juncture for its small and medium-enterprise (SME) sector. With the newly announced 2026 budget proposing a consolidation of the Industrial Development Board (IDB), the National Enterprise Development Authority (NEDA) and the Small & Medium Enterprise Development Division (SMED) under a single umbrella, the question is whether this institutional overhaul can deliver the leap in performance that SMEs so desperately need.
According to President Anura Kumara Dissanayake, the move is a bid to achieve “more efficient coordination” in the development of SMEs. Under the plan: IDB will absorb the functions of NEDA and SMED, with a proposed allocation of Rs. 4 billion to the IDB and an additional Rs. 1 billion earmarked for the establishment and development of industrial zones.
The overall budget for SMEs is set at Rs. 55.7 billion (Rs. 53.4 billion for capital expenditure and Rs. 2.3 billion for recurrent). A new loan scheme also aims to provide up to Rs 50 million at concessional interest rates, under a Rs. 7.7 billion allocation, and a further Rs. 5.9 billion and Rs. 6.2 billion are allocated respectively for the “Enhancing SMEs Finance Project” and the “Agriculture Value Chain Financing / Commercialisation Project”. These are significant moves indeed.
Yet behind the headline numbers lies a complex reality. SMEs are said to contribute over 52 % of GDP and employ nearly half the workforce, according to Mr. Dissanayake.
However, the structural and institutional framework to support them has long shown fragmentation and sub-optimal performance. The IDB itself only last year embarked on a structural overhaul of its staff roles and KPIs, signalling that institutional transformation is still in early phases.
For the first nine months of 2025, broader economic data offers both opportunity and caution. Export earnings rose to approximately US$12.99 billion, a 7 % increase year-on-year. Foreign direct investment (FDI) inflows reached about US$787 million over the same period.
Meanwhile the government’s budget deficit was reduced significantly to Rs. 441.4 billion from Rs. 970 billion in the January-September window, thanks to a 31 % rise in revenue to Rs. 3.83 trillion.
And yet private-sector borrowing rose in the first seven months to over Rs. 9.5 trillion. What does this mean for SMEs and the proposed restructuring? First, the rise in exports and FDI signals that external opportunities are growing but SMEs must be ready and able to tap them.
That requires well-coordinated institutional support, streamlined access to finance, stronger value-chain integration, and relevant industrial zones outside the main hubs. The proposed consolidation of IDB, NEDA and SMED, if executed with clarity and accountability, could help deliver this.
However, the risks are real. Consolidation can lead to disruption, duplication, cultural friction and delays unless clear transitional governance, performance metrics and stakeholder engagement are built in. The loan allocations are welcome, but access, monitoring and repayment performance will matter: the increase in private-sector borrowings shows risk is elevated. Without strong credit-risk management and targeted capacity building, SMEs may still struggle to scale and contribute meaningfully to growth.
Moreover, while macro-data is positive, the growth rate is still modest: 2025 is expected to grow only about 4–4.5 % according to the IMF and local analysts, weighed down by project delays and weak capital spending.
In that context, SMEs must become engines of productivity, not just of employment, meaning the new industrial zones and value-chain financing must enable export-ready manufacturing or services, not mere substitute imports.
In short: the restructuring of the IDB, NEDA and SMED presents a significant opportunity for Sri Lankan SMEs to break out of the longstanding institutional gridlock. But the deliverables matter clarity on roles, accountability, financing terms, zone activation, value-chain linkages and monitoring.
The risk is that this turns into another institutional reshuffle without meaningful results, at a time when the SME sector and national economy need a genuine growth boost. The proof will be in execution — the next 12 months will test whether the change is cosmetic or transformational.
