By: Staff Writer

April 21, Colombo (LNW): Sri Lanka is facing growing challenges in debt management and food price volatility, worsened by the ongoing global trade war, according to a recent United Nations report. Meanwhile, the country’s energy sector is experiencing turmoil, particularly due to the Ceylon Electricity Board’s (CEB) decision to shut down small hydropower plants, which began on 11 April.

The Small Hydro Power Developers Association (SHPDA) has condemned this move, calling it reckless and harmful to Sri Lanka’s energy security. SHPDA President Thusitha Peiris criticized the shutdown, which the CEB claims is necessary to stabilize the grid during the festive season. However, Peiris argues that small hydropower plants are essential for maintaining grid stability, providing reliable, round-the-clock electricity, particularly during periods when solar and wind energy are unavailable at night.

The decision to shut down the plants is viewed as a result of the CEB’s failure to modernize the grid and invest in critical technologies such as Battery Energy Storage Systems (BESS) and advanced weather forecasting. The shutdown affects 450MW of small hydro capacity, leading to a daily loss of 1.8 million units of electricity. To compensate for this, the CEB will have to rely on expensive thermal power, which costs over Rs. 50 per unit, compared to just Rs. 10 per unit for small hydro. This could result in daily losses exceeding Rs. 70 million, escalating to over Rs. 700 million over a span of 10 days.

These financial losses are expected to be passed onto consumers in the form of higher electricity bills, negatively impacting both households and businesses. Moreover, the SHPDA claims that the CEB’s actions breach binding Power Purchase Agreements (PPAs), which categorize small hydropower plants as ‘must-run’ facilities. This violation risks undermining investor confidence and could lead to significant financial instability, with developers facing loan defaults and project collapses.

The SHPDA has urged the government to intervene, calling for an immediate reversal of the shutdown, compensation for developers, and a renewed focus on grid modernization. They also demand adherence to the terms of existing PPAs and the creation of a fair, transparent framework for grid management that ensures renewable energy sources, particularly small hydropower, are fully integrated.As a critical component of Sri Lanka’s energy infrastructure, the small hydropower sector provides 8% of the country’s annual electricity demand. The SHPDA warns that the government must take swift action to protect the sector and prevent further damage to the economy and the nation’s environmental sustainability.

By: Staff Writer

April 21, Colombo (LNW): In a strategic move to combat illicit alcohol trade and stabilize government revenue, the Sri Lankan government has introduced an annual indexation mechanism for excisable goods, including alcoholic beverages. This policy adjusts excise duties under the Excise Ordinance to reflect inflation and current economic conditions, aligning with global best practices.

A senior Finance Ministry official revealed that the new tax structure particularly targets products such as Special Arrack, Coconut Arrack, Locally Manufactured Foreign Liquor, Beer, Wine, and Cider, all of which saw a 5.9% increase in excise duties under the revised framework. This measure seeks to address shifting trends in alcohol consumption while narrowing the gap between legal and illicit markets.

Despite Sri Lanka recording an average annual consumption of around 90 million liters of spirits, the country faces a persistent challenge with illicit alcohol, which accounts for an estimated 30–35 million liters annually, according to the Excise Department. A notable decline in hard liquor consumption—from 26 million liters in 2022 to 19.31 million liters in 2024—is largely attributed to increased prices and broader economic hardships.

However, this decline in legal alcohol consumption has coincided with a worrying rise in illicit alcohol use, raising serious concerns over public health and the erosion of government revenue. In response, the government has intensified enforcement, which has already resulted in a 22% increase in legitimate liquor production and a 23% surge in excise collections in early 2025.

Authorities credit this turnaround to enhanced vigilance by the Excise Department, which has helped reverse the sluggish trend seen in 2023 and 2024. The renewed focus on enforcement is part of a multifaceted strategy to shorten the illegal liquor supply chain and protect fiscal health through robust excise revenue generation.

Looking ahead, the government is also exploring innovative approaches to redirect consumer demand toward safer, regulated products. One such proposal includes the introduction of 25% alcohol content arrack in 180ml bottles—the most commonly consumed size in Sri Lanka. This initiative would utilize underutilized molasses spirits from the Pelwatte and Sevanagala distilleries, helping to retain excise revenue while meeting consumer needs with safer alternatives.

On the tobacco front, the Committee on Public Finance has examined the existing cigarette taxation model and its impact on state income. Discussions are underway on whether narrowing the tax bands could potentially enhance revenue, especially given that Sri Lanka’s cigarette tax-to-price ratio is still below the global benchmark of 75%.In conclusion, the introduction of excise tax indexation and complementary policy reforms represent a significant step by the Sri Lankan government to modernize tax practices, reduce the harmful impact of illicit trade, and secure a more predictable stream of revenue for the country’s development needs.

By: Staff Writer

April 21, Colombo (LNW): Sri Lanka is grappling with a deepening food crisis, with over 6.3 million people currently facing moderate to severe levels of food insecurity. Despite signs of economic recovery since the collapse of 2022, the government has struggled to implement effective, long-term strategies to safeguard food security, leaving millions vulnerable.

The crisis has been fuelled by soaring food prices—some of the highest in the world—and a sharp decline in household purchasing power. These economic pressures have severely restricted access to nutritious food, especially for young children. Health experts report rising rates of undernutrition and growth faltering among children under five, underscoring the growing humanitarian toll.

Compounding the crisis are the worsening effects of climate change. Erratic weather patterns, frequent droughts, and flash floods have severely disrupted agriculture, particularly in the country’s dry zones. Meanwhile, unchecked wildlife damage—including crop destruction by monkeys and peacocks—has resulted in an estimated 20% drop in overall production.

International agencies have stepped in to fill the gaps. The World Food Programme (WFP), in collaboration with local authorities, is working to expand access to fortified foods and support smallholder farmers.

Yet experts warn that these interventions, while essential, are not a substitute for a comprehensive national policy. The International Water Management Institute (IWMI) has also stressed the need for better integration of water and energy resources to ensure food system resilience—another area where government response has lagged.

Adding further pressure is a deteriorating global economic environment. A recent report by the United Nations Conference on Trade and Development (UNCTAD) described Sri Lanka as being caught in a “perfect storm” of financial instability, unsustainable debt, and weakening economic growth. Food price volatility, according to the report, will continue to plague countries like Sri Lanka in the months ahead.

UNCTAD also highlighted the risk posed by external trade shocks. Sri Lanka, which relies heavily on the United States for exports—valued at nearly USD 2.9 billion annually—was recently hit by a 44% tariff under the Trump administration. Though implementation of the tariff has been paused for 90 days, it has already sparked concerns over the country’s economic resilience.

With the global economy expected to slow to 2.3% growth this year, UNCTAD warns that low-income countries will bear the brunt of reduced investment and rising uncertainty. For Sri Lanka, the ongoing food crisis is a stark indicator of the government’s inadequate preparedness and lack of coordinated strategy.Despite international support, the path forward remains uncertain. Unless swift and sustained action is taken to address both structural vulnerabilities and immediate food needs, millions of Sri Lankans will continue to face a precarious future.

By: Isuru Parakrama

April 21, Colombo (LNW): Sri Lanka’s foreign reserve position experienced a significant uplift in March 2025, marking a notable improvement in the island’s external finances.

This development follows the receipt of a key disbursement from the International Monetary Fund (IMF), alongside the Central Bank’s active intervention in the domestic currency market.

New figures reveal that the country’s gross official reserves climbed by US$ 431 million during March, elevating the overall total to approximately US$ 6.52 billion.

A major share of this increase stemmed from the arrival of the fourth instalment under the IMF’s Extended Fund Facility—a financial support arrangement designed to stabilise Sri Lanka’s economy in the wake of its severe debt crisis.

The tranche, valued at around US$ 334 million, forms part of a broader US$ 2.9 billion stabilisation package expected to extend through to 2027.

In tandem with IMF support, the Central Bank of Sri Lanka (CBSL) continued its focused effort to strengthen reserves through foreign currency absorption. Over the course of March, the Bank acquired a significant US$ 401.9 million from domestic banking sources without engaging in any parallel sales, a strategy intended to carefully manage the appreciation trajectory of the Sri Lankan Rupee.

This is a sharp rise compared to the net acquisition of just US$ 70.3 million recorded in February. Altogether, foreign currency purchases for the first quarter of 2025 have amounted to US$ 484.5 million.

Authorities have clarified that such monetary operations are part of a calibrated strategy to shield the rupee from appreciating too rapidly, which could disrupt the competitiveness of Sri Lankan exports and remittances.

Despite the Central Bank’s efforts, the rupee has experienced a mild depreciation of 2 per cent against the US dollar since the beginning of the year.

As of April 17, the currency held steady at an average exchange rate of Rs. 298.71 to the dollar, unchanged from the previous week but notably stronger than the Rs. 300.24 observed in April 2024.

The recent improvement in reserve accumulation also reflects broader macroeconomic dynamics. Overseas remittances have surged to their second-highest monthly level in recent history, providing a welcome buffer to the country’s foreign exchange position.

At the same time, tourist inflows have remained strong, bolstered by renewed interest in Sri Lanka’s travel sector and improved international perception of the island’s post-crisis stability.

Meanwhile, export performance, though challenged by fluctuating global trade conditions and the threat of new tariff regimes from key partners like the United States, has remained largely resilient. Revenue from other services, particularly in sectors such as logistics, IT, and professional consulting, has further supported the external account.

Whilst near-term headwinds remain—including the prospect of tightening external credit markets and persistent fiscal vulnerabilities—Sri Lanka’s ability to build up its foreign currency reserves in early 2025 signals cautious optimism.