Sri Lanka’s Construction Industry Poised for Revival amid Policy Reforms

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By: Staff Writer

September 02, Colombo (LNW): Sri Lanka’s construction industry is on the cusp of a significant revival, driven by ongoing efforts to restructure external debt.

Projects that were previously stalled due to financial constraints, partially funded through bilateral agreements, are expected to resume as the debt restructuring process concludes.

This renewed financial support is anticipated to inject essential liquidity into the sector, allowing large-scale infrastructure projects to move forward, thereby boosting economic growth.

The Central Bank reported a rise in Sri Lanka’s Purchasing Managers’ Index for Construction (PMI – Construction) in July 2024, with the index reaching 62.9.

This increase reflects a steady uptick in construction activities, particularly in projects funded by multilateral agencies. New orders also expanded in July, indicating a consistent flow of construction projects.

However, the employment rate in the sector contracted, though at a slower pace compared to June. The quantity of purchases also increased in line with the heightened activity levels.

Despite these positive developments, challenges remain. Several survey respondents reported a shortage of bitumen, a critical material for road construction. Additionally, while the prices of most construction materials continued to decline, the delivery time for supplies lengthened, albeit at a slower rate in July.

In an effort to revive the struggling construction sector, the Finance Ministry is planning to propose several key measures, including easing taxes on building materials in the upcoming 2024 budget.

These proposals, aimed at increasing the construction industry’s contribution to the GDP, include 13 far-reaching measures submitted to President Ranil Wickremesinghe by the Urban Development and Housing Ministry.

These proposals emphasize the need to prevent a total collapse of the sector, which supports the livelihoods of 20% of the country’s population.

The Finance Ministry is also considering pre-budget submissions from construction sector stakeholders. This includes proposals to ease taxes on building materials like cement and steel, which have seen unusual price hikes and shortages in the local market.

The Committee on Public Finance (COPF) has already highlighted these issues to the Finance Ministry.

Additionally, the government is contemplating the introduction of a mechanism to use current market prices of construction materials when calculating price variations for reimbursing contractors working on public projects.

The soaring prices of materials like cement and steel have significantly impacted the industry, leading to a 23.1% contraction in the construction sector and a substantial loss of jobs.

 The construction sector’s decline was confirmed by the Census and Statistics Department, which reported a 23.1% drop in building work during the second quarter of 2023 compared to the same period last year.

The rising prices of essential materials like cement and steel, driven by undue profits in the market, have exacerbated the sector’s challenges. Efforts to reduce these prices by lowering taxes are being considered as part of the broader strategy to revive the industry.

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