Strategic priorities for Sri Lanka
As global economic powerhouses shift toward inward looking trade policies, small and open economies like Sri Lanka are increasingly exposed to external shocks. US President Donald Trump’s aggressive tariff regime and “America First” doctrine marked a turning point in global trade. While the direct targets were major economies like China and the EU, the spillover effects have disrupted supply chains, undermined global demand, and eroded trade predictability posing substantial challenges for developing nations such as Sri Lanka. This evolving trade landscape demands a shift in Sri Lanka’s approach from reactive to strategic, from dependent to diversified, and from basic exports to value-added production.
Reducing Overdependence on Traditional Export Markets
Sri Lanka’s export sector remains concentrated in a few markets, particularly the US and the EU. While these partnerships remain valuable, overreliance increases vulnerability to external policy changes, as demonstrated during recent tariff escalations and global slowdowns. Diversification is imperative. Policymakers must strengthen trade relations with emerging markets in Africa, West Asia, Central Asia, and Southeast Asia. Bilateral trade agreements, market access facilitation, and regional cooperation especially within SAARC and BIMSTEC can open new avenues for resilient trade expansion.
Strategic Integration into Regional Trade Blocs
Sri Lanka has remained on the periphery of the world’s fastest growing trade alliances. The country’s absence from agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is increasingly a competitive disadvantage.
To avoid marginalisation in the global trading system, Sri Lanka must pursue membership, observer status, or partnership alignments with such blocs. A proactive stance on trade alignment, regulatory harmonisation, and standards compliance is essential to access these high-growth corridors.
Enhancing Value Addition and Export Sophistication
Sri Lanka’s export profile continues to reflect a heavy concentration in low- to mid-value goods. Moving up the value chain especially in sectors like apparel, ICT, rubber-based products, and agribusiness can improve both earnings and resilience. Public policy must encourage investment in innovation, product development, and branding. Government-led programmes that incentivise technology adoption, R&D collaboration with universities, and export diversification can accelerate this transition.
Developing Domestic Input Capacity and Import Substitution
The recent global supply chain disruptions underscored Sri Lanka’s vulnerability due to its dependence on imported raw materials. A targeted import substitution strategy not driven by protectionism, but by strategic self-reliance can reduce this dependency. This involves building intermediate manufacturing capabilities, supporting agro-processing industries, and promoting local entrepreneurship in essential supply chains. Special Economic Zones (SEZs), public-private partnerships, and incentives for technology transfer will be vital to success.
Positioning Sri Lanka as an
FDI-Ready Economy
Investor sentiment is shaped by more than tax concessions. Policy coherence, rule of law, streamlined regulatory processes, and reliable infrastructure are key enablers. With global investors diversifying away from politically volatile regions, Sri Lanka can position itself as a gateway hub between South Asia and the rest of the Indo-Pacific but only if it improves its investment climate. A renewed focus on digital governance, sustainability standards, and logistics competitiveness will further enhance the country’s FDI appeal.
Institutional Reforms for Trade Resilience
Sri Lanka’s trade policy mechanisms remain reactive and fragmented. To effectively respond to global trade volatility, the government should establish a dedicated Trade Policy Response Unit under the Ministry of Trade and the Department of Commerce. This body should serve as a knowledge hub and crisis coordination unit monitoring international trade shifts, advising negotiators, and collaborating with local exporters. This unit could also spearhead economic diplomacy efforts and help reposition Sri Lanka’s narrative on the global trade stage as a dependable, rules-based trading partner.
New Trade Vision for Sri Lanka
The global trading environment is no longer defined by openness and multilateralism alone. Protectionism, regionalisation, and supply chain nationalism are here to stay. In this context, Sri Lanka must rethink its trade and development strategy, focusing on diversification, competitiveness, and institutional adaptability. The costs of inaction are high, but so are the opportunities for bold, well-informed reform. Now is the time to act.
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