By: Staff Writer

October 07, Colombo (LNW): A quiet but significant financial shift is taking root in Sri Lanka as citizens increasingly turn to cryptocurrencies to protect their wealth amid rising inflation and a depreciating rupee. From tech-savvy youth to small business owners, many are exploring digital currencies as a means to preserve value outside the traditional banking system, creating a rapidly expanding but largely unregulated sector.

Recent studies highlight the scale of this trend. The South Asian Journal of Finance estimates that over 320,000 Sri Lankans currently hold cryptocurrency, while international data from Datawallet projects the number could rise to 1.16 million by 2026. For many, cryptocurrencies are no longer speculative bets they are shields against inflation and currency depreciation.

Most activity occurs on offshore exchanges or through peer-to-peer platforms, as no local service providers are yet licensed. This creates a regulatory grey zone, leaving transactions unrecognised by law and beyond the Central Bank of Sri Lanka’s (CBSL) protective reach. Governor Dr. Nandalal Weerasinghe has repeatedly warned the public that only the Sri Lankan rupee is legal tender, clarifying that while crypto holdings are not banned, they are risky and require careful oversight.

In a move to curb potential money laundering, the CBSL has announced that all Virtual Asset Service Providers (VASPs) will soon be required to register with the Financial Intelligence Unit (FIU). The Bank has proposed amendments to the Financial Transactions Reporting Act (FTRA), currently with the Legal Draftsman’s Department, which will bring crypto service providers under the Act’s remit. The amendments are expected to pass Parliament soon, aligning Sri Lanka with international anti-money laundering and counter-terror financing (AML/CFT) standards ahead of its scheduled mutual evaluation next year.

“After they register with the FIU, these providers must report all transactions conducted through virtual currencies, just as banks do,” Dr. Weerasinghe explained. He emphasised that the measures target service providers facilitating crypto trades, not individuals holding crypto privately. Penalties will apply if providers are found complicit in money laundering. The initiative mirrors global approaches in countries that have not recognised crypto as legal tender but seek to prevent its illicit use.

Despite regulatory caution, global crypto markets continue to surge. Bitcoin trades around US$109,000, up 62.7 percent since late 2024, while Ethereum, Tether, and other cryptocurrencies have also seen substantial gains. Analysts attribute the rally to favourable international regulations, including the United States’ recent Genius Act, which formalised national cryptocurrency oversight, and rising institutional investment.

In Sri Lanka, the growing adoption of crypto reflects a broader desire for financial autonomy amid economic uncertainty. Young professionals and small investors are quietly exploring it to safeguard value, but without domestic legal recognition, they remain exposed. Victims of hacked wallets or failed offshore exchanges have limited recourse, creating a high-risk environment.

The CBSL’s regulatory push represents a critical step toward transparency and accountability. By bringing VASPs under FIU supervision, Sri Lanka aims to curb misuse of crypto while maintaining the flexibility to monitor emerging financial trends. However, the lack of recognition of crypto as a legal asset means the market remains inherently volatile and risky.

As adoption grows, Sri Lanka faces a pivotal choice: regulate and integrate cryptocurrencies responsibly, or allow the sector to remain unregulated, potentially turning a financial innovation into a cautionary tale of unchecked risk. The coming months will reveal whether the nation can balance innovation with investor protection.

By: Staff Writer

October 07, Colombo (LNW): Critical economic infrastructure projects in Sri Lanka’s Northern Province, including the Palaly Airport expansion and the Kankasanthurai (KKS) Port ferry service, have remained stalled despite substantial donor funding and resolved land disputes, raising concerns about missed economic opportunities and governance gaps. The lack of progress has sparked renewed criticism from opposition voices, highlighting the potential consequences for trade, tourism, and regional development.

MP Shanakiyan Rasamanickam of the Illankai Tamil Arasu Kachchi (ITAK) accused the Government of neglecting these vital projects, pointing to a lack of political will as a key obstacle.

He questioned why Ports and Civil Aviation Minister Bimal Rathnayake has shown “no interest” in advancing the development of Jaffna International Airport, even though international partners are ready to support the expansion.

Rasamanickam noted that Bandaranaike International Airport (BIA) in Katunayake is operating at peak capacity, causing airlines to cancel weekly flights due to slot shortages—underscoring the strategic need for Palaly Airport.

“The Government has US$63 million in donor funding ready, yet Palaly Airport remains underdeveloped. Why is the Minister refusing to answer questions about this?” the MP asked, warning that inaction could carry significant economic consequences for both the Northern Province and the entire country.

Rasamanickam also criticised the KKS Port and its ferry link to Nagapattinam in India, which connects Sri Lanka to a potential market of 2 billion people. He cited social media videos showing poor facilities, warning that substandard conditions could deter passengers and tarnish Sri Lanka’s international image.

The MP further accused the ruling NPP Government of prioritising symbolic initiatives over substantive economic development. “Refurbishing a bus station in Fort, opening a tap, or handing over bicycle tyres will not drive economic growth,” he said, highlighting the lack of mechanisms to stimulate real regional economic activity.

Linking the issue to broader governance concerns, Rasamanickam noted that Sri Lanka will face heightened scrutiny at the upcoming 60th session of the UN Human Rights Council (UNHRC), where accountability for misuse of public funds and economic justice is expected to feature prominently.

“The failure to deliver on promises of economic justice affects not just minorities in the North, but the entire country. For youth across the North and South, the common aspiration is to leave for better opportunities abroad,” he stressed, warning that continued inaction could deepen inequality and erode public trust.

As Sri Lanka seeks to rebuild its economy, the stalled Northern infrastructure projects underscore a critical tension between available resources, donor funding, and political will, raising questions about the Government’s ability to effectively implement previously budgeted projects.

By: Staff Writer

October 07, Colombo (LNW): Sri Lanka’s decision to lift a four-year ban on vehicle imports has sparked a surge in demand, delivering a windfall in government revenue while intensifying pressure on the nation’s fragile foreign exchange reserves. The move, implemented in early 2025, aims to revive tax income and stimulate economic activity, but it comes with significant external sector implications.

Official data shows that vehicle imports reached US$918 million during the first eight months of 2025, accounting for nearly 7 percent of total merchandise imports, which stood at US$13.34 billion.

Meanwhile, Letters of Credit (LCs) opened for vehicles exceeded US$1.2 billion by the end of August, signalling potential further outflows of dollars as these commitments are settled in the coming months.

Analysts warn that simultaneous LC settlements could reduce foreign reserves by several hundred million dollars, threatening the Central Bank’s US$7.5 billion reserve accumulation target under the IMF-supported programme.

Despite these pressures, Sri Lanka continues to record strong forex inflows. Exports, remittances, and tourism have contributed nearly US$19 billion in 2025, pushing official reserves up only marginally by US$55 million to US$6.2 billion by August.

Deputy Treasury Secretary Ajith Abeysekera defended the current policy, asserting that the LC volume remains “within expected parameters” and does not threaten external stability, while noting that the IMF’s Colombo mission maintains close oversight.

The fiscal impact has been significant. Vehicle imports generated Rs. 700 billion in customs revenue, an unexpected boost after years of stagnation.

Yet economists caution that while the government earns in rupees, the imports are settled in dollars, creating a mismatch that heightens external vulnerability. “We are earning in rupees but spending in dollars. That mismatch is where the pressure begins,” one analyst noted.

Commercial banks and leasing companies have also seen renewed activity in vehicle financing. Central Bank-imposed loan-to-value (LTV) limits of 50-80 percent have curbed excessive credit growth, but market participants warn of rising liquidity risks as more LCs mature. Consumer interest is particularly strong in hybrid and electric vehicles, reflecting renewed confidence and easier credit access.

Looking ahead, the government projects total vehicle imports in 2025 could reach US$1.5–1.8 billion.

Officials emphasize that coordinated management with the Central Bank ensures this outflow will not compromise reserves. Still, market observers caution that any weakening in foreign inflows from exports or tourism could necessitate tighter monetary controls or even renewed import restrictions.

For now, Sri Lanka navigates a delicate balance: reaping immediate fiscal benefits from vehicle taxes while testing the resilience of its external accounts amid continued global and domestic pressures. The coming months will reveal whether this strategy strengthens public finances or strains foreign reserves.

October 07, Colombo (LNW): In its latest assessment of Sri Lanka’s economic prospects, the World Bank has called for far-reaching structural reforms to secure long-term growth and help lift millions out of poverty.

The institution’s recommendations come as the island nation emerges from a devastating financial collapse that saw it default on its external debt and experience soaring inflation and widespread hardship.

According to the World Bank’s newly released Development Update, Sri Lanka’s economy is on a fragile recovery path, with projected growth of 4.6 per cent in 2025, potentially slowing to 3.5 per cent the following year.

However, sustained progress will depend on how effectively the country implements key reforms in trade, labour, land ownership, and public finance.

One of the central messages of the report is the need for Sri Lanka to liberalise its “factors of production”—namely labour and land—both of which are currently bound by outdated legal frameworks and state control.

Richard Walker, the World Bank’s Senior Country Economist for Sri Lanka, noted that the labour market is governed by legislation dating back several decades, creating layers of bureaucracy and uncertainty for investors. “Employers are often deterred by the complexity of the labour regulations, which in turn hampers job creation. This rigidity also disproportionately affects women’s participation in the workforce,” he said, describing female employment as an underutilised area of potential.

On the issue of land, the World Bank highlighted that approximately 80 per cent of land remains under state control, managed by a maze of overlapping authorities with unclear mandates. This situation stifles agricultural productivity and makes private investment in land development difficult. “Clarifying land ownership and improving access is critical not only for farmers but for long-term sustainable land management and urban development,” Walker added.

Public investment is another area the Bank scrutinised, urging the government to be more selective and strategic. Rather than launching new projects indiscriminately, authorities are advised to complete existing infrastructure works, shift focus to essential maintenance, and employ a more data-driven approach to planning. Shruti Lakhtakia, Country Economist for Sri Lanka, emphasised the need for a more integrated public investment management system that streamlines project selection, appraisal, and execution.

Fiscal discipline remains a major concern. While recent tax increases have led to higher revenues, Sri Lanka’s massive debt burden leaves little room for wasteful spending. The report underlined the importance of redirecting expenditure towards projects with demonstrable value and long-term benefits.

Reforming the public sector was also identified as crucial. Over time, Sri Lanka has built a bloated public service, with frequent hiring sprees—often politically motivated—adding thousands to the payroll without corresponding increases in productivity.

Though average public wages are not exceptionally high, the sheer number of government employees is unsustainable for a country of Sri Lanka’s size. The Bank also criticised the current wage structure, which consists of a confusing mix of allowances and basic pay, calling for simplification and rationalisation.

A key backdrop to these recommendations is Sri Lanka’s recent economic collapse. Years of mismanagement, combined with excessive money printing and ill-timed interest rate cuts, triggered a severe currency devaluation and eventually a sovereign default. The consequences were dramatic: inflation soared, food prices surged, and poverty rates ballooned.

Though the central bank has since introduced stabilisation measures, concerns remain. Analysts warn that inflation could continue to rise at an annual rate of 5–7 per cent if fiscal and monetary discipline wavers again, particularly if currency depreciation is used to meet inflation targets.

Despite these risks, there are signs of gradual recovery. The World Bank projects that poverty levels, which spiked dramatically during the crisis, could fall from 24.9 per cent in 2024 to 22.3 per cent in 2025. Still, a significant portion of the population—estimated at around 10 per cent—remains vulnerable and at risk of slipping back into poverty if economic conditions deteriorate.

The report concludes with a cautious note of optimism. While Sri Lanka has begun laying the groundwork for economic recovery, the real test lies in whether it can push forward with difficult but necessary reforms. By creating a more open, transparent, and investor-friendly environment, the country may yet find a sustainable path to prosperity.