By Joseph G.

The uneven rewards of adjustment seem to be uncomfortably glaring

Every economic recovery raises one fundamental question: who actually benefits? It is a question that becomes especially important in Sri Lanka today, as the Government continues to point to stabilisation, improved reserves, debt restructuring progress, and even an upgrade to Upper Middle Income status as evidence that the economy is turning around.

But beneath these headline achievements lies a deeper and more uncomfortable reality: the benefits of this “recovery” appear to have been distributed very unevenly.

For the majority of Sri Lankans, the period of adjustment has meant sacrifice. Higher taxes, reduced subsidies, elevated utility costs, tighter credit, and shrinking real incomes which have placed enormous pressure on households. Small businesses continue to struggle. Public servants and pensioners face declining purchasing power. Many families are cutting consumption, delaying medical care, and reducing educational spending simply to stay afloat.

Yet, while this hardship has spread across the wider population, another segment of society appears to have emerged stronger.

Asset holders, high-net-worth individuals, and those with access to capital have been immensely better positioned to benefit from the adjustment process. High interest rates rewarded large depositors. Asset values in selective sectors have risen. Financial market gains have accrued to those with liquidity and investment capacity. The appreciation of certain business sectors, and the visible rise in luxury consumption, suggests that while many tightened their belts, some found opportunities to expand wealth.

The problem is not that some prosper. The problem is when prosperity appears insulated from the pain borne by the majority. When economic policy is seen to protect capital more effectively than labour, or to reward wealth more quickly than work, it begins to generate a perception of structural unfairness.

That perception matters. Because economies do not operate in a political vacuum. Public acceptance of difficult reforms depends heavily on whether people believe the burden is being shared fairly. If sacrifice is concentrated among wage earners, small entrepreneurs, and vulnerable communities while gains are concentrated among the financially privileged, social trust begins to erode.

This is where Sri Lanka now faces a critical choice.

Arguably, the first phase of adjustment may appear to have restored a measure of macroeconomic order. But, recovery cannot be judged merely by seemingly stronger reserves, seemingly lower inflation, or seemingly improved fiscal balances. It must also be judged by on-the-ground job creation, visible business revival, real wage growth, affordable healthcare, and wider opportunity.

Otherwise, the danger is clear: what is celebrated as recovery by a few may be disnissed as exclusion by many. Worse still, if the majority begins to believe that the economy is growing, but not for them, the political and social consequences will be far-reaching.

In the end, the sustainability of any recovery depends not on how much wealth is created, but on how broadly its benefits are shared.

That is the question Sri Lanka must now confront: was this recovery for the majority of the people of the country — or only for a fortunate few?

Sri Lanka’s latest export agreement with Germany’s Import Promotion Desk (IPD) arrives at a critical moment for an economy still attempting to rebuild confidence after its worst financial crisis in decades. The renewed Memorandum of Understanding with the Export Development Board (EDB) offers fresh opportunities for export-oriented SMEs, but whether those opportunities translate into measurable economic gains remains the key question.

The agreement strengthens cooperation that has existed since 2019, focusing on market intelligence, technical training, trade promotion, buyer connections and institutional capacity building. Germany’s continued engagement signals confidence in Sri Lanka’s export potential, particularly in sectors such as natural ingredients, spices, value-added agriculture and women-led enterprises.

Supporters argue that the partnership could help diversify Sri Lanka’s export basket, reducing dependence on traditional industries while opening new access to high-value European markets.

However, several economic analysts caution that international partnerships alone cannot compensate for persistent domestic challenges.

Although macroeconomic stability has improved compared to the peak of the crisis, businesses continue to report high borrowing costs, taxation concerns, labour shortages and complex regulatory requirements. Exporters also face increasing compliance costs as European markets tighten environmental and sustainability regulations.

For many SMEs, obtaining technical expertise is only one part of the equation. Access to affordable financing, investment in technology and efficient logistics remain equally important if they are to compete internationally.

The present Government has repeatedly highlighted exports as a cornerstone of economic recovery. Yet business organisations continue to seek clearer policy consistency, faster decision-making and greater coordination among state institutions responsible for trade facilitation.

Industry representatives note that Sri Lanka has signed numerous cooperation agreements over the past decade. While many have generated training programmes and networking opportunities, relatively few have significantly altered the country’s export performance or transformed the SME sector into a major foreign exchange earner.

The renewed German partnership may nevertheless differ because it builds on an existing programme rather than launching a completely new initiative. Previous cooperation has already assisted exporters through international trade fairs, buyer introductions and capacity-building activities.

Another notable aspect is the emphasis on women entrepreneurs. International studies consistently demonstrate that increasing female participation in export industries contributes to higher household incomes, greater innovation and broader economic resilience. If properly implemented, this component could generate long-term social as well as economic benefits.

Still, success will ultimately be measured by export earnings rather than signed agreements.

The coming years will reveal whether Sri Lanka can remove longstanding structural barriers that have discouraged exporters and investors alike. If policy reforms accompany German technical assistance, the country could strengthen its position within European supply chains. If implementation falters, however, the agreement risks becoming another well-intentioned document with limited economic impact.

For now, the MoU represents cautious optimism a reminder that while international confidence in Sri Lanka is gradually returning, the decisive work of transforming that confidence into sustained export growth must be carried out at home.

Sri Lanka’s Board of Investment finds itself at a decisive moment as its new leadership confronts a familiar problem: ambitious investment targets continue to outpace actual foreign direct investment inflows despite years of promised institutional reforms.

The BOI’s Director General, Dr. Sulakshana Jayawardena, has presented a candid assessment of the challenges confronting the country’s investment climate, identifying policy inconsistency, excessive bureaucracy, slow land approvals and workforce skill shortages as key factors undermining investor confidence.

The numbers reveal the scale of the problem.

Sri Lanka secured only $1.063 billion in realised foreign direct investment last year against a target of $1.5 billion. This year’s objectives remain equally ambitious, with authorities seeking $1.5 billion in realised investments alongside $2 billion in committed investments.

However, realised FDI had reached only about $250 million by June, placing considerable pressure on the BOI to generate significantly higher inflows during the remaining months of the year.

Dr. Jayawardena underscored that investment commitments should not be confused with realised investments. Signed agreements represent investor intent, but the country’s economic benefit materialises only when foreign capital is transferred into Sri Lanka through approved investment accounts.

His remarks effectively acknowledged that headline investment announcements have often failed to translate into actual capital inflows.

Among the most serious institutional weaknesses identified is Sri Lanka’s fragmented approval process. Depending on the nature of a project, investors may require clearances from over 20 Government agencies, each following separate administrative procedures without coordinated timelines.

The resulting delays have become one of the country’s most persistent investment bottlenecks.

To address this, the BOI intends to introduce a fully digital single-window approval mechanism before the end of the year, allowing investors to deal with one portal while electronically linking all relevant public institutions. The system is also expected to improve transparency by enabling investors to track the progress of approvals.

While welcome, the initiative represents the continuation of reforms that began under the previous Ranil Wickremesinghe administration, which recognised that the BOI itself required significant restructuring if Sri Lanka was to compete effectively for regional investment.

Those earlier reforms sought to modernise institutional processes, reduce regulatory duplication and establish a more predictable investment framework. Much of that agenda remains incomplete, leaving the new BOI leadership with the task of implementation rather than policy design.

The Government is also advancing an Investment Protection Act, which has already received legal clearance and is expected to strengthen policy stability by limiting abrupt regulatory changes that have historically unsettled investors.

Land remains another unresolved issue. The transfer of State land can currently take between 18 and 24 months, prompting a review of land allocation rules and possible measures to simplify ownership arrangements for eligible investors.

The BOI’s latest reform agenda therefore reflects a broader recognition that Sri Lanka’s investment challenge extends beyond global economic conditions. Without meaningful institutional restructuring and faster implementation of reforms already identified, ambitious FDI targets are likely to remain aspirational rather than achievable.

When Sri Lanka adopted inflation targeting as part of its IMF-supported economic reforms, the objective was straightforward: deliver predictable inflation, strengthen confidence in monetary policy and protect the purchasing power of citizens.

Three years later, those promises are facing perhaps their toughest public test.

The Central Bank maintains that inflation remains manageable. June’s Colombo Consumer Price Index rose to 6.8 percent, remaining within the statutory target range of five percent plus or minus two percentage points.

CBSL Economic Research Director Dr. Lasitha Pathberiya argues that inflation has evolved largely as expected and that falling international oil prices following the easing of Middle East tensions have significantly improved the outlook. Consequently, the Bank currently sees no immediate need for another policy rate increase unless inflation expectations deteriorate.

That assessment reflects orthodox central banking.

However, it also exposes a widening gap between official economic indicators and lived economic reality.

Across Sri Lanka, many households report that food prices have increased far beyond wage growth. Essential household spending continues to consume a larger share of disposable income, while families also face rising transport costs, private education expenses, healthcare bills, insurance premiums, municipal charges and utility payments.

The question increasingly asked by consumers is simple: if inflation is under control, why does everyday life feel considerably more expensive?

The answer may lie in the distinction between statistical inflation and household inflation.

The official consumer price index represents a weighted average of hundreds of goods and services. It does not necessarily reflect the spending patterns of lower-income families, pensioners or urban wage earners, whose budgets are heavily concentrated on food, transport and essential services.

This distinction matters because inflation targeting ultimately depends on public confidence.

If households no longer believe official inflation forecasts, inflation expectations themselves may begin to rise. Workers seek higher wages, businesses raise prices pre-emptively and inflation becomes more difficult to control regardless of interest-rate policy.

The Central Bank’s previous 100-basis-point increase in the Overnight Policy Rate has already tightened financial conditions. Lending costs have increased, deposit rates have risen and credit expansion is expected to moderate.

But another policy dilemma is emerging.

Further interest-rate increases may slow inflation by weakening demand, yet they could also discourage investment, reduce business expansion and increase financial pressure on borrowers. If current inflation is being driven mainly by supply-side factors rather than excessive demand, monetary tightening alone may offer only limited relief.

The Monetary Policy Board therefore faces a critical decision at its next meeting. Maintaining current rates would signal confidence that inflation will moderate naturally. Raising rates again would signal concern that inflation expectations are becoming unanchored.

Whatever decision is taken, one issue can no longer be ignored. Inflation targeting was introduced not simply to satisfy IMF programme benchmarks but to restore public confidence in economic management.

That confidence will be measured not by statistical compliance alone, but by whether Sri Lankan families eventually experience a genuine reduction in the relentless cost of everyday living.

Sri Lanka’s National People’s Power (NPP) Government is facing growing pressure to demonstrate that economic recovery extends beyond stabilising public finances as the International Monetary Fund (IMF) increasingly shifts attention towards structural reforms designed to transform the country’s long-term growth prospects.

Policy experts argue that the current administration possesses a rare political opportunity to implement reforms that previous governments repeatedly delayed due to electoral pressures and resistance from vested interests.

Addressing CA Sri Lanka’s Annual Economic and Tax Symposium, Advocata Institute CEO Dhananath Fernando outlined six key reform priorities that closely reflect the IMF’s broader prescription for rebuilding Sri Lanka’s economy beyond the present bailout programme.

Foremost among these is restructuring State-Owned Enterprises (SOEs). Fernando said SOEs collectively control assets equivalent to nearly half of Sri Lanka’s Gross Domestic Product but generate relatively limited returns for taxpayers. He urged the Government to accelerate the proposed State-Owned Holding Company, allowing greater commercial discipline and improved management of public assets.

A second priority involves expanding industrial capacity by permitting privately developed industrial zones. Existing Government-managed industrial parks, he noted, already operate at over 90 per cent occupancy, leaving limited space to attract new investors. Expanding industrial infrastructure would become critical if Sri Lanka hopes to create the estimated one million private-sector jobs required over the coming years.

Fernando also advocated comprehensive Customs and trade reforms aimed at making Sri Lanka more competitive internationally. These include simplifying border procedures, reducing trade barriers and expanding the country’s network of Free Trade Agreements to improve export opportunities.

Land reform represents another major recommendation. Accelerating the Bim Saviya land title programme would provide clearer property ownership, allowing businesses and individuals to use land more effectively as collateral for investment while reducing legal uncertainty.

Labour market reforms also feature prominently in the proposed agenda. Modernising labour regulations could improve workforce flexibility while encouraging investment and employment creation in emerging industries.

Finally, Fernando called for rationalising Sri Lanka’s public holiday calendar to improve national productivity—one of the more politically sensitive proposals but one he believes would contribute to greater economic efficiency.

Together, these six reforms form the backbone of what many economists believe will determine whether Sri Lanka can move from economic stabilisation to sustained growth.

Fernando argued that tax increases and fiscal consolidation alone cannot deliver long-term prosperity. Instead, future growth must be driven by higher productivity, stronger exports, increased private investment and greater competitiveness.

He acknowledged that many of the proposed reforms would inevitably encounter political opposition, including from trade unions and interest groups. Nevertheless, he argued that the NPP Government’s strong parliamentary majority and broad public mandate provide a unique opportunity to overcome those obstacles.

With only about three years remaining before political attention shifts towards the next general election, economists believe the Government’s reform window may be limited.

The IMF’s message has become increasingly clear: the emergency phase of Sri Lanka’s recovery is gradually ending. The next and perhaps most decisive stage will depend on whether the Government can convert macroeconomic stability into lasting structural transformation through reforms capable of generating investment, employment and sustainable economic growth.

The Colombo Municipal Council (CMC) has launched a new School Canteen Food Environment Policy aimed at improving nutrition and promoting healthier eating habits among schoolchildren across the city.

Colombo Mayor Vraie Cally Balthazaar said the initiative follows an assessment of all 86 school canteens in the city, after which schools were provided with essential kitchen equipment to support the preparation of healthier meals.

Under the new policy, school canteens will be required to comply with nutritional guidelines, provide access to safe drinking water, and undergo regular monitoring and grading to ensure food quality and safety standards are maintained.

Balthazaar said the programme comes amid a sharp rise in childhood obesity in Colombo, with prevalence rates having doubled between 2023 and 2025.

She said the initiative was made possible through a grant from the Partnership for Healthy Cities and thanked schools, canteen operators, parents, students and partner organisations for supporting the programme.

The Mayor said the policy aims to create healthier school food environments and encourage lifelong healthy eating habits among children.

At least 3,700 excess deaths have been reported in France, Belgium and the Netherlands following the severe heatwave that swept across Europe in late June, according to preliminary official figures.

Health authorities said the death toll is expected to rise as additional data becomes available. Experts have described the June 20–28 heatwave as one of the most intense ever recorded in Europe, with scientists attributing the extreme temperatures largely to climate change.

France recorded 2,025 excess deaths during the heatwave, with the sharpest increase among people aged over 45, Health Minister Stéphanie Rist said. The country’s public health authority also reported a 91% increase in deaths at homebetween June 22 and 28 compared with the previous week, alongside a rise in deaths in nursing homes and healthcare facilities.

Belgium reported around 1,200 excess deaths between June 18 and 29, including 530 people aged 85 and above. The Belgian Health Ministry described the level of excess mortality during the heatwave as unprecedented.

Authorities in the Netherlands said approximately 480 excess deaths were recorded, with most fatalities involving people aged over 80.

The government has decided to provide 50 modern paddy drying machines to cooperative societies across the country, with each machine capable of drying nearly 10 metric tonnes of paddy per day.

Accordingly, Rs. 500 million has been allocated through decentralised funds to procure the machines, each valued at approximately Rs. 10 million, for active and financially stable cooperative societies.

The Ministry of Trade, Commerce, Food Security and Cooperative Development said cooperative societies requiring paddy dryers can apply by submitting a project proposal.

According to the ministry, the initiative will enable farmers to sell their harvest to cooperative societies at better prices, while cooperative members will also have convenient access to paddy drying facilities.

The ministry further noted that Sri Lanka recorded a record paddy harvest during the previous Maha cultivation season, while extensive cultivation has also taken place during the ongoing Yala season. As a result, it said there is no likelihood of a rice shortage in the country.

Meanwhile, the government has accelerated the purchase of paddy from farmers at guaranteed prices by reopening warehouses operated by the Paddy Marketing Board and coordinating procurement through Lanka Sathosa and other state institutions.

The ministry said strengthening the government’s paddy purchasing mechanism is expected to promote fair competition in the market, ensure consumers have access to rice at affordable prices, and encourage the private sector to offer fair prices to farmers.

Health authorities have warned of a growing spread of dengue among children, noting that some infected children are developing serious complications even after recovering from the illness.

Consultant Paediatrician Dr. Deepal Perera of the Lady Ridgeway Hospital for Children (LRH) said dengue can, in rare cases, lead to complications affecting the brain, while also causing severe muscle and bone pain and potentially affecting the heart.

He further warned that if a child continues to experience a persistent fever beyond the usual recovery period of seven to eight days, without regaining appetite or becoming active and cheerful, it may indicate a rare immune-related condition known as Hemophagocytic Lymphohistiocytosis (HLH).

Dr. Perera advised parents to continue eliminating mosquito breeding sites while taking steps to prevent mosquito bites, particularly between 5.00 p.m. and 7.00 p.m. He recommended keeping windows closed during these hours and dressing children in long-sleeved shirts and long trousers to reduce mosquito exposure.

He said the common symptoms of dengue include fever, pain behind the eyes, headaches, body aches and joint pain. However, doctors have recently observed uncommon complications following dengue infection, including neurological disorders, muscle inflammation, heart-related complications and prolonged fever associated with immune system abnormalities.

Dr. Perera also noted that children with persistent high fever after recovering from dengue may require further medical evaluation, including Creatine Phosphokinase (CPK) testing. He stressed the importance of adequate rest and increased intake of clear fluids during the recovery period.

“If a child’s platelet count falls below around 150,000, we may need to admit the child to hospital for further investigations and close observation. If the child develops dengue haemorrhagic fever or dengue shock syndrome, they must be hospitalised and monitored for at least 48 hours, or longer depending on their condition,” he said.

Emphasising that dengue remains a potentially fatal disease, Dr. Perera urged the public to remain vigilant as hospitals continue to record an increase in cases.

Meanwhile, the National Dengue Control Unit reported that more than 1,200 dengue cases were detected during the previous day.

According to the unit, 57,668 dengue cases have been reported across Sri Lanka so far this year, with the Western Province recording the highest number of infections.

Dengue control programmes were also carried out in several areas today, during which government institutions were inspected for mosquito breeding sites.

Showers will occur at times in Western, Sabaragamuwa and North-western provinces and in Galle, Matara, Kandy and Nuwara-Eliya districts. Fairly heavy falls above 50 mm are likely at some places in these areas.

Several spells of showers will occur in Anuradhapura and Mannar districts.

Strong winds about (40-50) kmph can be expected at times over Western slopes of the central hills, Northern, North-central and North-western provinces and in Hambantota and Trincomalee districts.