Sri Lanka’s dollar bond market once battered by default and investor flight appears to be regaining traction, with the Ceylon Dollar Bond Fund (CDBF) posting an impressive 12.3 percent U.S. dollar return year-to-date as of mid-September 2025.

Managed by Ceylon Asset Management (CAM) and backed by Deutsche Bank as its Trustee and Custodian, the fund’s performance underscores a measured comeback in investor confidence toward the country’s restructured debt, a high official of the Sri Lanka Insurance Corporation (SLIC), a stake holder of the fund revealed.

CDBF, an open-ended fund regulated by the Securities and Exchange Commission of Sri Lanka (SEC), invests exclusively in Sri Lankan International Sovereign Bonds (ISBs) and selected bank-guaranteed dollar securities listed on global exchanges.

It shields investors from rupee currency risk while allowing capital and income repatriation in foreign currencywhile .the social media is being carried out an extensive promotion campaign to lure investors. 

CAM attributes the surge in returns to the rally in ISB prices following Sri Lanka’s successful debt restructuring in December 2024 and improving macroeconomic indicators.

“Sri Lanka’s macroeconomic stability has supported the fund’s strong performance,” said CAM Managing Director Dulindra Fernando, noting that rebuilding foreign reserves to US$ 6.2 billion, easing inflation, and stabilizing the rupee have restored investor optimism.

Foreign inflows from tourism, remittances, and FDIs have further bolstered sentiment, while the Central Bank’s effective policy management has guided the economy out of default.

 The Central Bank Governor Dr. Nandalal Weerasinghe recently said Sri Lanka could see its sovereign rating upgraded from ‘CCC+’ to ‘B-’ by 2027, a milestone that could open the door to fresh capital inflows.

Over the past ten months, CDBF’s net asset value (NAV) has steadily appreciated, tracking the strengthening of restructured ISBs.

Market analysts note that the average yield on Sri Lankan sovereign bonds has narrowed from 15 percent in January to around 10 percent by October, reflecting reduced default risk.

According to Deutsche Bank, which safeguards the fund’s foreign assets, “the recovery in sovereign bonds has mirrored Sri Lanka’s improving fiscal discipline and investor confidence.”

Meanwhile, Sri Lanka Insurance Corporation (SLIC) a key shareholder in CAM acknowledged that the fund’s performance demonstrates “the potential for disciplined investment in restructured sovereign assets,” though it stressed the need for continuous regulatory vigilance to ensure investor protection.

According to Verité Research, the new GDP-linked Macro Linked Bonds (MLBs) could yield up to 10.3percent per annum if the country’s GDP growth surpasses 3 percent between 2025 and 2027. Analysts at Standard Chartered Bank assign a 67.5percent probability of meeting this growth-linked threshold, reinforcing the upside potential for investors in CDBF.

Hitherto, the Central Bank of Sri Lanka (CBSL) remains cautious. While acknowledging such funds’ role in attracting foreign capital, it maintains that its duty lies in ensuring systemic stability, not endorsing individual funds.

It emphasised that Personal and Business Foreign Currency Accounts cannot be directly invested in CDBF and that banks have been instructed accordingly.

But regulators caution that just because it is marketed so heavily to the Sri Lankan diaspora and South Asian investors does not mean dollar bond funds do not carry risk: returns can be affected by a rise in global interest rates, increased market volatility, or geopolitical changes.

For many investors, however, CDBF represents a symbol of Sri Lanka’s gradual return to international financial respectability.

As one Deutsche Bank analyst summarized, “The numbers tell a story not of exuberance, but of cautious recovery. The Ceylon Dollar Bond Fund’s success mirrors Sri Lanka’s own attempt to rebuild trust, dollar by dollar.

Sri Lanka’s beer sector is navigating a delicate balance between resilient demand and heavy taxation, as new data show modest production gains but flat sales revenue in 2025.

The industry, dominated by Lion Brewery (Ceylon) PLC and Distilleries Company of Sri Lanka (DCSL) – which last year acquired Heineken Lanka – remains one of the government’s largest tax contributors.

In the financial year ended March 2025, Lion Brewery alone generated RS 123.2 billion in revenue, paid nearly RS 97 billion in taxes – equal to about 3 percent of state tax revenue – and reported a net profit of RS 9.5 billion, official financial statement data showed. .

Yet these figures mask signs of strain. Following the January 2025 excise hike, which raised levies per litre to Rs 333 for beers with less than 5percent ABV, Rs 400 for 5–12 percent ABV, and Rs 446 for those with higher ABV, volumes dropped as legal liquor “sailed beyond affordability levels,” according to company reports. (ABV, or Alcohol by Volume, is the standard measurement of alcohol content, the percentage of pure alcohol in a beverage.)

The government added to the pressure in April by suggesting an automatic excise indexation device which would link duty increases with inflation in an effort to generate real-term revenues.

While praised by policymakers for its volatility, brewers warn that higher prices risk spurring a consumer exodus to illegal beverage alcohol and slashing industry volumes and state revenues.

Production trends suggest a tentative rebound. The Index of Industrial Production (beverages category) grew 6.4 percent year-on-year in the second quarter of 2025, with a sharp 15.9 percent surge in April offsetting weaker output in May.

However, the largest listed brewer’s June quarter results underline demand fragility: Lion’s revenue slipped 2percent year-on-year to Rs29 billion, though profit rose 10 percent on tighter cost control and product mix management.

A crucial offsetting factor has been the rebound in tourism, a major driver of on-trade beer consumption.

July 2025 tourist arrivals hit 200,244, up 6.6percent year-on-year, bringing total visitors past 1.3 million by end-July and nearing 1.5 million by mid-August. Hotels, bars, and restaurants report stronger beer sales, particularly in the premium and international lager categories where Heineken and Tiger – now marketed by DCSL – compete directly with Lion’s portfolio.

Analysts suggest the remainder of 2025 will hinge on the interaction of these forces. Base-case forecasts see low single-digit volume growth, supported by tourism and stabilising incomes, but mid-single-digit revenue growth largely driven by higher prices rather than stronger consumption.

The risks remain tilted to the downside. Another round of excise indexation before year-end, coupled with intensifying competition from DCSL-Heineken, could squeeze margins and volumes further.

At the same time, substitution toward untaxed or illicit alcohol threatens to undercut both legitimate brewers and state coffers.

For now, Sri Lanka’s beer industry stands as a fiscal workhorse and a tourist beneficiary, but its recovery is capped by taxation that may be approaching the limits of consumer tolerance

Sri Lanka must not rush into dismantling tariffs and para-tariffs under the newly introduced Economic Stabilisation Act, No. 45 of 2024, until the country rebuilds “safe and sustainable” levels of foreign exchange reserves, a leading industry expert has cautioned.

Ceylon United Business Alliance (CUBA) Industry Sub-Committee Chairman and former KPMG auditor M.R. Jeffrey warned that while the Act’s goal of modernising the tariff system is commendable, any unilateral opening of the economy would be dangerously premature in the current fragile environment.

Jeffrey argued that tariff reforms should not move ahead unless regional economies adopt similar frameworks, noting that Sri Lanka cannot afford to liberalise when neighbouring countries continue to shield their industries with robust protectionist policies.

“We are still under severe forex pressure,” he said. “If we remove protective duties now, cheap imports will flood the market, the rupee will come under renewed attack, and our domestic industries which we are struggling to revive will face further collapse.”

He stressed that under WTO Article XXVIII and the Common But Differentiated Responsibilities (CBDR) principle, Sri Lanka has every right to adopt a gradual and strategic path toward liberalisation rather than emulate the accelerated timelines expected of wealthier nations.

Para-Tariff Distortions: Politically Favoured Sectors vs. Neglected Industries

Jeffrey highlighted deep historical distortions in the country’s para-tariff structures, pointing out that earlier administrations provided extraordinary protection to sectors such as tiles, aluminium, and hardware often linked to politically connected interests with para-tariffs ranging from 40% to 75%.

In sharp contrast, one of Sri Lanka’s largest domestic consumption industries  the $2 billion clothing sector  received only 5% to 10% protection. He cited the example of imported denim fabric, which faces a mere Rs. 200 para-tariff per metre, despite Sri Lanka having the capability to produce it competitively.

“This imbalance distorts market competition, discourages local manufacturing, and rewards import-heavy business models,” he said. “Such a system is economically indefensible.”

Jeffrey added that Sri Lanka must abandon politically motivated tariff protection and move toward a uniform, transparent, and rational tariff band, similar to the 25–35% protection range used by most developing economies.

Call for WTO-Compliant Safeguards

Rather than blindly cutting tariffs, Jeffrey urged policymakers to adopt WTO-permitted non-tariff measures including stricter quality standards, licensing frameworks, and safeguard clauses that protect domestic industries without breaching international trade commitments.

He insisted that any future tariff liberalisation must be linked to a foreign reserve threshold, ensuring that reforms do not undermine economic stability.“Economic sovereignty begins with economic stability,” he emphasised.

The CUBA Industry Sub-Committee continues to advocate for evidence-based reforms across apparel, footwear, industrial materials, and related sectors.

Sri Lanka may be celebrating record-breaking tourist arrivals, but behind the glossy numbers lies a stark truth: the state-run tourism promotion machinery is failing to convert footfalls into meaningful economic value. Despite October 2025 marking the highest visitor count ever recorded for that month, earnings remain anaemically low an indictment of amateur planning, inexperienced leadership, and institutions obsessed with arrival statistics rather than attracting high-spending travellers.

According to the Central Bank of Sri Lanka, tourism earnings in October rose by a negligible 0.3% year-on-year, reaching just US$186.1 million. The figure is shockingly low compared to US$287.4 million earned in October 2018, when fewer tourists generated far more revenue. This widening mismatch exposes the core weakness of Sri Lanka’s tourism strategy: empty promotional slogans instead of targeted, value-driven marketing.

The country welcomed 165,193 visitors in October, a 22% increase over last year and even higher than the 153,123 arrivals recorded in 2018. Yet the revenue picture remains bleak. The authorities’ fixation on arrival numbers has overshadowed a more crucial metric spending power. With average daily tourist spending stuck at an unimpressive US$171, Sri Lanka continues to attract low-budget travellers rather than the high-value segments it desperately needs.

The earnings trend across the year paints an equally troubling picture. July revenue fell 3% to US$318.5 million, August dropped 8.2% to US$258.9 million, and September managed only a timid 1% increase to US$182.9 million. Even January the best month of 2025 generated only US$400.6 million, the highest since 2020 but still far below global tourism benchmarks.

For the first ten months of 2025, the sector brought in US$2.65 billion, a modest 4.9% improvement from last year. Yet this figure is still 33% below the earnings of 2018, when Sri Lanka collected US$3.53 billion over the same period and ultimately recorded its highest-ever annual tourism earnings of US$4.38 billion.

Despite this glaring underperformance, the state tourism institutions continue to operate without strategic direction. Industry insiders point to leadership dominated by politically appointed individuals lacking professional expertise. Their plans often underwhelming, outdated, or hastily assembled—fail to target high-spending markets such as Europe, East Asia, or the Middle East. Instead, authorities boast of raw arrival numbers while ignoring the more important task of increasing per-tourist revenue.

With only two months left in the year, Sri Lanka faces an almost impossible climb to meet its US$5 billion revenue target. To get there, the country would need to generate over US$2.34 billion in November and December more than four times its current monthly earnings. Tourism experts dismiss this as “unrealistic” given the poor demand momentum and lack of strategic promotional efforts.Until Sri Lanka replaces its incompetent tourism leadership and adopts a serious, high-yield strategy, the nation will remain trapped in a self-inflicted paradox: millions of tourists arriving, but the economy barely feeling their presence