As India deepens its global trade engagements, most recently through a landmark Free Trade Agreement (FTA) with the United Kingdom, Sri Lanka faces mounting pressure to expedite its own stalled Economic and Technology Cooperation Agreement (ETCA) with its closest neighbour and largest trading partner. The Indo-Lanka Chamber of Commerce and Industry has strongly urged the Sri Lankan government to learn from the UK-India FTA and revive momentum on finalising a bilateral trade pact that could unlock vast economic potential for the crisis-hit island.

 The UK–India FTA, signed earlier this year, is expected to boost the UK economy by £4.8 billion annually, while providing improved market access, regulatory cooperation, and investment flows. The Indo-Lanka Chamber says Sri Lanka stands to benefit even more due to its geographic proximity, cultural ties, and existing economic relationship with India.

 “This is a powerful example of what can be achieved through a well-structured bilateral agreement,” the Chamber said in a statement. “Sri Lanka is far better positioned geographically than the UK to engage with India. We share centuries of trade, cultural and historical links, and India continues to be our top trading partner.”

 India accounted for nearly US$5.4 billion in total bilateral trade with Sri Lanka in 2023, according to Central Bank data, with Sri Lankan exports to India amounting to approximately US$900 million. The Chamber believes these numbers could grow significantly under a modernised framework like ETCA, which would enhance preferential access, draw Indian investment into key sectors, and integrate Sri Lanka more deeply into regional value chains—crucial for the country’s post-crisis recovery.

 Despite these opportunities, progress on ETCA has remained stagnant for over seven years. Introduced during the Yahapalana administration in 2016 as an extension to the existing Indo-Sri Lanka Free Trade Agreement (ISFTA), the ETCA proposal faced intense opposition from nationalist groups, trade unions, and several political parties—including elements of the current ruling alliance. Critics feared job losses and alleged that the agreement could allow an influx of Indian professionals into the domestic job market, although these claims were largely unsubstantiated by official drafts.

Now, with Sri Lanka facing a narrow path to recovery following the 2022 economic collapse, businesses argue that economic pragmatism must override political posturing. The Indo-Lanka Chamber emphasized that India’s rise as a global economic power makes it an indispensable partner, and Sri Lanka must act before it is further sidelined in South Asia’s evolving trade dynamics.

 “India is not just a strategic partner—it is our immediate neighbour and a growing economic powerhouse,” the Chamber said. “As countries like the UK reap tangible benefits from FTAs with India, Sri Lanka must not hesitate. A revived ETCA could deliver jobs, boost investor confidence, and reposition Sri Lanka as a regional trade hub.”

 With nations aggressively pursuing bilateral and multilateral trade deals worldwide, Sri Lanka’s next move could determine whether it remains a passive observer—or an active participant—in the regional economic resurgence.

In a bold step toward modernising governance and unlocking the potential of a digital economy, the Government of Sri Lanka has announced that a national Digital Identity (ID) system will be launched by April 2026. Officials say the move will simplify citizen access to public services, improve transparency, and lay the groundwork for a more inclusive digital economy—while ensuring that citizen privacy and data protection remain paramount.

 The project, led by the Ministry of Digital Economy, is being implemented under the Digital Economy Initiative, which aims to position Sri Lanka as a regional digital hub by 2030. The system is funded through a LKR 10.4 billion grant from the Government of India, significantly reducing the financial burden on Sri Lankan taxpayers.

 Replacing the decades-old physical National Identity Card (NIC) system, the digital version will be based on MOSIP (Modular Open-Source Identity Platform)—a secure, customisable, open-source digital ID framework already adopted by several countries including the Philippines, Ethiopia, Morocco, and Togo. Over 130 million people globally now use MOSIP-powered digital IDs.

 The government says it evaluated three options: building a local system, using a commercial proprietary platform, or adopting an international open-source solution. MOSIP was chosen for its cost-efficiency, flexibility, and sovereignty-friendly architecture. Unlike proprietary systems that risk vendor lock-in and carry high recurring costs, MOSIP allows full government control of data, is customisable, and can be audited and updated independently.

 A certified Indian systems integrator will handle the initial MOSIP customisation for Sri Lanka, while local IT professionals will be trained to run and maintain the system long-term. Data collection will be managed solely by the Department for Registration of Persons, and no biometric or personal data will be collected until the system is fully under Sri Lankan control.

 The government will own and operate the infrastructure, and Sri Lanka CERT (Computer Emergency Readiness Team) will conduct a full security audit before the system goes live. To address public concerns, the Ministry stressed that citizen data will be encrypted using multi-layer protection, ensuring data security both during transmission and while stored.

 Importantly, the Ministry clarified that MOSIP is not India’s Aadhaar system, though it draws inspiration from its functionality. Developed by a global consortium of identity and cybersecurity experts, MOSIP has had no reported breaches, further reinforcing its credibility.

 Officials say this digital ID initiative is not just a technological upgrade—it is a national transformation. It will streamline access to both public and private sector services, reduce fraud, enhance efficiency, and enable digital authentication across sectors. Most crucially, it aims to build public trust by prioritising transparency, privacy, and local ownership.

 Calling for public support, the Ministry urged stakeholders to focus on verified facts, not unfounded fears. “This is a system designed for our future,” the Ministry stated. “Digital ID is the backbone of a modern economy and a key enabler of inclusive, secure governance.”

Despite a slight reduction from previous rates, Sri Lanka has been slapped with a significant 20% tariff in the latest list of revised reciprocal tariff rates announced by former U.S. President Donald Trump through an executive order. The move, while reducing Sri Lanka’s earlier rate by 10 percentage points, still places the country among a cluster of nations subject to heavy U.S. import duties amid a tightening of trade policy tied to national security and economic alignment.

Sri Lanka now shares the 20% tariff band with other regional peers like Bangladesh, Vietnam, and Malaysia (19%), and is slightly above some nations such as Afghanistan and African states which have been granted a lower 15% rate. By contrast, India—seen as a key economic rival in the region—was hit with a steeper 25% duty, pointing to broader U.S. frustrations with its trade balance and alignment on strategic issues.

Cambodia, which has seen rapid export growth following its macroeconomic reforms and dollarization in the 1990s, secured a slightly more favorable 19% tariff rate. Cambodia’s success in stabilizing its economy and attracting foreign investment by curbing currency manipulation and exchange rate distortions stands in contrast to nations like Sri Lanka, which continue to grapple with structural imbalances.

The executive order cited national security and trade alignment as core justifications for the tariff schedule. “Some trading partners have agreed to, or are on the verge of agreeing to, meaningful trade and security commitments with the United States,” the order noted, adding that such actions “signal their sincere intentions to permanently remedy the trade barriers” that contributed to a “national emergency.”

In contrast, the U.S. administration signaled frustration with other nations that either failed to offer satisfactory terms in negotiations or did not align adequately with U.S. strategic interests. “There are also some trading partners that have failed to engage in negotiations with the United States or to take adequate steps to align sufficiently,” Trump stated in the order.

Sri Lanka’s inclusion in the 20% category comes despite concerted diplomatic efforts. Treasury Secretary Harshana Suriyapperuma led a negotiating team in multiple discussions with the Office of the U.S. Trade Representative, while President Anura Kumara Dissanayake also held direct online consultations in hopes of securing more favorable terms.

However, Trump’s statement leaves the door open for future revisions. “Certain foreign trading partners identified in Annex I to this order have agreed to, or are on the verge of concluding, meaningful trade and security agreements,” he said, hinting that tariff adjustments may be possible “until such time as those agreements are concluded.”

Brazil, which maintains a trade surplus with the U.S., was granted a more favorable 10% tariff following sustained pressure and diplomatic engagement—suggesting that countries willing to strike broader bilateral deals may yet secure relief.

For Sri Lanka, while the 20% rate marks a step down from previous levels, the high tariff remains a barrier to export competitiveness in the U.S. market. Going forward, deeper economic alignment and strategic engagement with Washington could be key to unlocking further concessions.

Sri Lanka finds itself on the precipice of both opportunity and risk as it is now out of the Intensive Care Unit after four years in economic crisis ailment, and it has to follow a path towards inclusive and transformative growth that ensures debt sustainability, avoiding future crises for the benefit of all Sri Lankans.

To address this critical need of getting discharged from the post ICU unit fully recovering from the economic ailment, the country should achieve economic development attracting foreign investments and modern technology from overseas, former Prime Minister Ranil Wickremasinghe asserted.

Mr Wickremesinghe has suggested a wider economic strategy for Sri Lanka, underlining the need for capital and technology to drive growth.

He noted that countries like China and Vietnam have successfully raised capital investment and technology from abroad and called on Sri Lanka to follow suite in order to increase per capita income as well as achieve sustainable development.

If Sri Lanka’s economy is to move beyond its current fragile state, he said that integration and cooperation with the Indian economy must be a priority

The former Premier was speaking in Rajagiriya this week at the launching ceremony of the latest book on five laws for economic sustainability and causes of economic crisis in 2022 titled “   “Arthikaye Panchayudhaya “written by former Minister Bandula Gunawardena who has already written and published more than 55 books on the subject of economics.    

‘Panchayudha’ is the five divine weapons including Discus, Conch, Mace Sword and Bow used by God Vishnu There is also a famous Panchayudha Stotram which is chanted for all kinds of protection. It is highly beneficial to people suffering from phobias.

Mr Wickremasinghe noted that likewise five laws for economic stability, the Central Bank Law, Public Debt Management Law, the Public Finance Act, Economic Transformation Law and the New Anti Corruption Act are the arms now in place toward building resilience and ensuring a stronger economic trajectory. 

It will pave the way towards economic sustainability through disciplined fiscal management and debt restructuring.

Focusing on five key areas—economic stability, energy security, education reform, agricultural productivity, and poverty reduction—will be critical for Sri Lanka to navigate 2025 successfully

Attracting foreign direct investment (FDI) in sectors like manufacturing, tourism, logistics, power and technology is vital for recovery and long-term growth. 

Addressing the energy crisis is critical, Mr Wickremasinghe said adding that renewable energy sources—solar, wind, and hydropower—will reduce dependence on costly fuel imports while bring into line with global sustainability trends.

In this context “Sri Lanka cannot go forward by antagonizing India has helped the island nation as and when it’s in difficulty as its recent gesture of providing US$ 4 billion to overcome economic crisis has saved the country from possible economic disaster.

He warned that Sri Lanka could not move ahead with out large-scale foreign investments, and the holding up of the $ 700 million Adani project alone was a massive setback to the recovery of the country’s economy.

Adani’s alone is $ 700 million. Not a joke. We require that for recovery,” He explained, adding that other projects of development in Trincomalee could draw in another $400–500 million. “Imagine—a billion plus investments worth of total stalled,” he stated.

He warned that renegotiating agreements or tariffs with energy companies, including the Adani Group, can deter future investment, particularly in the emerging field of energy, where bids for billions of dollars’ worth of proposals are in the pipeline.

He also highlighted Sri Lanka’s continuing risk factors in the economy, which can force investors to charge higher for power projects.

Particularly referring to the Adani wind farm agreement inked during his tenure, Wickremesinghe stated that an agreement signed must be honored.

He added that attempts at renegotiation can harm the credibility of the country. “We established a benchmark for the value, with a rate of 8.26 US cents a unit. Changing this now will send a negative signal to investors.

The Sri Lankan government is set to revise generous tax holidays and exemptions granted to mega and mixed development ventures under the Strategic Development Act (SDA) and the Colombo Port City Act, following strong recommendations from the International Monetary Fund (IMF).

In its 2023 Governance Diagnostic Assessment, the IMF warned that prolonged and broad tax concessions are undermining the country’s ability to generate revenue and repay debt sustainably. It specifically called for the phasing out of the SDA, suggesting it be replaced with a more targeted Priority Investment Project Act.

The IMF has urged Sri Lanka to reduce tax holiday periods — some of which extend up to 40 years — to more reasonable durations and remove exemptions for projects not deemed truly strategic.

Projects within the Colombo Port City, developed under significant Chinese investment, have been granted sweeping tax exemptions, including waivers on customs duty, VAT, and other levies. The Port City Commission currently determines which businesses qualify for tax concessions, in consultation with the President or relevant minister, under the label “Business of Strategic Importance” (BSI).

However, the IMF is pressing for stricter, rule-based criteria and greater transparency in awarding such incentives. Amendments to the Port City Act are planned for October 2025, while the SDA will be revised by August 2025, as part of the government’s structural reform agenda.

Despite earlier promises to halt new exemptions, 24 companies have already been gazetted as eligible for BSI status without IMF consultation. These approvals — including four primary, three duty-free, and 17 secondary businesses — will not be reversed due to legal concerns, the government admitted.

Concerns have also been raised about Chinese investors pushing for additional tax breaks in exchange for backing election campaigns of the JVP/NPP alliance, adding a political dimension to the economic debate.

Sri Lanka’s high corporate tax rate (30%) — in stark contrast to regional peers like Cambodia (20%), Vietnam (20%), Thailand (15%), and Singapore (17%) — has been blamed for driving businesses to set up in more stable, low-tax jurisdictions such as Dubai. Some fear that companies may now shift to the Port City enclave to benefit from its exemptions, potentially causing revenue leakage from the domestic tax base.

The IMF cautioned that such unchecked exemptions were a key contributor to Sri Lanka’s financial crisis. It emphasized that a sound investment environment cannot rely solely on tax breaks but must be supported by stable governance, legal reforms, and monetary credibility.

Sri Lanka has agreed to submit monthly reports to the IMF on all tax exemptions granted, as part of its commitment to restoring fiscal discipline. Regulations for registering Port City offshore companies and imposing new investor taxes were also submitted to Parliament this week.

As the country continues its recovery path under the IMF program, the government appears poised to tighten its tax incentive framework to ensure better revenue collection, reduce corruption risks, and promote sustainable foreign investment.

Sri Lanka’s state-owned enterprises (SOEs), long burdened by inefficiency and financial mismanagement, have racked up a staggering cumulative loss exceeding Rs. 8 trillion over the past 30 years—an amount nearly equivalent to the country’s pre-2022 sovereign external debt. This stark figure underscores the urgency of structural reforms under the government’s IMF-supported economic recovery program.

According to senior Finance Ministry officials, the government currently spends nearly Rs. 300 billion annually to keep these underperforming institutions afloat. This fiscal drain has diverted public funds away from critical sectors such as healthcare, education, and infrastructure.

Despite years of losses, the tide may be turning. Thanks to macroeconomic stabilization and corrective measures initiated in 2023 and 2024, the SOE sector has begun to show signs of recovery. Reforms include cost-reflective pricing for electricity and fuel, the introduction of a water tariff formula, and significant balance sheet restructuring for key entities.

“These reforms were not based on a fixed model but are being adapted case by case,” said Deputy Minister of Economic Development Anil Jayantha Fernando. Key restructuring actions included transferring legacy debts to the government’s balance sheet, settling cross-liabilities, and enhancing institutional management.

Results are beginning to show. In 2024, the combined profits of the 52 strategically important SOEs rose by 19.9% to Rs. 534.1 billion from Rs. 445.3 billion in 2023. Among 41 non-financial SOEs, 24 returned profits, though the number of loss-making entities rose to 17, up from 13 the previous year. Data reveals that nearly Rs. 2.9 trillion was lost by 450 SOEs between 2012 and 2022, with 55 key enterprises accounting for Rs. 1.2 trillion in losses from 2006 to 2020.

Persistent losses have largely been driven by mismanagement, political interference, and lack of financial discipline. In response, the Cabinet has approved the drafting of the Public Commercial Business Management Bill, spearheaded by President and Finance Minister Anura Kumara Dissanayake. The proposed legislation seeks to overhaul governance of SOEs by enforcing performance-based management, mandating audited financial disclosures, and enhancing fiscal oversight.

The government also sees potential for divestiture in select SOEs as part of its long-term strategy. However, officials stress the importance of public awareness and support to sustain reform momentum and prevent reversals.

With more than 400 SOEs operating across vital sectors such as energy, water, aviation, and finance—and 52 classified as strategically important—turning them into value-generating institutions is crucial for Sri Lanka’s fiscal health and economic stability.

The Central Bank of Sri Lanka (CBSL) has released its third Market Operations Report (MOR) for 2025, detailing key developments in monetary policy, liquidity trends, interest rates, and foreign exchange management during the first half of the year. 

The report aims to raise public awareness of CBSL’s ongoing efforts to stabilize the economy under the Flexible Inflation Targeting (FIT) framework and a flexible exchange rate regime.

 A key highlight of the report is the persistent surplus liquidity in the domestic money market, a trend that has continued since April 2024.

 As of end-June 2025, the liquidity surplus stood at Rs. 138.1 billion, down from Rs. 168.1 billion at end-2024, with an average surplus of Rs. 154.6 billion for the first six months of the year. 

The surplus was primarily driven by the Central Bank’s aggressive foreign exchange purchases to strengthen the country’s external reserves, resulting in a net injection of Rs. 408.7 billion.

 However, this surplus was partially offset by net foreign loan repayments (Rs. 231.9 billion), currency withdrawals (Rs. 106.4 billion), coupon payments on Treasury bonds (Rs. 95 billion), and bond maturities (Rs. 6.7 billion). 

Due to improved liquidity conditions, the CBSL discontinued its reverse repo auctions from January 2025, opting instead to monitor liquidity and short-term interest rate trends more passively.

 On the monetary policy front, CBSL continued its accommodative stance, reducing the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) in May 2025 by 25 basis points. 

The new rates were set at 7.25% and 8.25%, respectively, forming a symmetric corridor around the reduced policy rate of 7.75%. This easing facilitated lower short-term market interest rates, with the Average Weighted Call Money Rate (AWCMR) aligning closely with the policy rate by the end of June.

 Meanwhile, under the flexible exchange rate regime, the Sri Lankan rupee depreciated marginally by 2.46% against the US dollar over the first half of the year. CBSL intervened selectively in the domestic foreign exchange market to absorb volatility and accumulate reserves without distorting market functions.

 In total, the Bank absorbed USD 1,077.4 million and injected USD 63.3 million, resulting in a net absorption of USD 1,014.1 million. Consequently, gross official reserves rose to USD 6,081.4 million by end-June.

 To improve transparency and price discovery in the foreign exchange market, the Central Bank, in collaboration with Bloomberg, launched the “BMatch” platform. This real-time matching tool allows anonymous spot trading and enables CBSL to monitor market dynamics more efficiently.

 Overall, the first half of 2025 saw a steady consolidation of monetary and foreign exchange conditions, with CBSL leveraging a surplus liquidity environment to scale down operations while focusing on stability and reserve accumulation.

Showers or thundershowers will occur at several places in Northern, North-Central, Uva, Eastern, Central and Sabaragamuwa provinces and in Kurunegala and Hambantota districts after 1.00 p.m. Fairly heavy falls above 75 mm are likely at some places in these areas.

Several spells of showers will occur in Western province and in Galle, Matara and Puttalam districts.

The general public is kindly requested to take adequate precautions to minimize damages caused by temporary localized strong winds and lightning during thundershowers.

The Colombo District Court has issued an injunction against the publication and distribution of the book “Kapati Upasakaya” (The Deceitful Devotee), which makes serious allegations against Mr. Pradeep Nilanga Dela, the incumbent Diyawadana Nilame (Chief Custodian) of the Sacred Temple of the Tooth Relic in Kandy.

The book, authored by Dr. K. A. Dharanitha, a senior lecturer at the University of Kelaniya, has been challenged in court by Mr. Dela, who claims the contents are completely false and defamatory. He filed a lawsuit requesting the court to prevent the book from being printed, distributed, or published until the case is concluded.

Presiding over the case, Colombo District Judge Sadun Withana, on July 17, issued an interim injunction and restraining order, granting the request based on the merits of the complaint submitted by Mr. Dela.

According to Mr. Dela’s petition, “Kapati Upasakaya” accuses him of corruption, misappropriation of temple funds, antiquities theft, and other criminal activities, all of which he vehemently denies. He emphasized that all accusations made in the book are untrue and that previous legal proceedings on similar claims have already resulted in his exoneration.

The book allegedly mentions:

• Illegal sale of lands belonging to the Temple of the Tooth
• Disappearance of a golden Buddha statue
• Misplacement of 38 kg of gold from the Sabaragamuwa Saman Devalaya
• Abduction of baby elephants from the Pinnawala Elephant Orphanage
• Creation of a Mini Cooper’s buffer and handles using stolen gold

Dela asserts that none of these allegations hold legal ground and confirms that no laws were broken concerning temple property, which, under the Temple and Devalagam Ordinance, cannot be sold or transferred.

He further stated that the publication appears to be politically motivated, as he is preparing to recontest the upcoming election for the position of Diyawadana Nilame, scheduled for September. He believes the defamatory narrative is an attempt to tarnish his reputation and undermine his candidacy.

Additionally, an injunction has also been obtained against Nishshanka Mayadunne, also known as Nishshanka of Galkanda Puravantalaya, for conducting media discussions based on the book’s allegedly false contents. That case too remains under court examination.

Dela emphasized that the false and malicious claims published in Kapati Upasakaya have caused significant damage to his personal integrity, honor, and dignity. The court’s injunction stands as a legal safeguard until the matter is fully adjudicated.