Despite economic improvements in the first half of this year, there is no room for complacency. Amidst the uncertain and inhospitable global environment, every effort should be taken to increase exports. Enhancing economic growth and increasing exports are works in progress. In spite of the economic growth achieved and the projected growth of 5 per [...]

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Economic improvements no reason for complacency

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Despite economic improvements in the first half of this year, there is no room for complacency. Amidst the uncertain and inhospitable global environment, every effort should be taken to increase exports. Enhancing economic growth and increasing exports are works in progress.

In spite of the economic growth achieved and the projected growth of 5 per cent for this year, there is much more to be done to stabilise the economy, face economic challenges and external shocks and keep promises. There is no room for complacency.

Economic improvements

Economic indicators point towards stabilisation and growth. The economy grew by 3.5 per cent, inflation has dipped to deflationary levels and foreign reserves have risen to US$ 6.3 billion.

Exports have increased, but the trade deficit widened owing to increased imports. Significant increases in remittances and earnings from tourism resulted in a balance of payments surplus of US$ 1.5 billion at the end of July. Indications are that both remittances and earnings from tourism have increased further.

External shocks

In spite of these improvements, the international economy is in turbulence, and external shocks could undermine these economic gains. Therefore, the initial efforts of export diversification must be enhanced significantly.

President in parliament

For whatever reason, President Anura Kumara Dissanayake addressed Parliament last week and dwelt on the economic gains of the country. He said, “The economy is now on a stable and strengthened path as a result of the immense sacrifices made over the past year.”

He explained that the government succeeded in reducing the US tariff to 20 per cent after difficult negotiations. “We achieved a significant outcome through a competent negotiating team and continuous dialogue.”

Export growth

The President said Sri Lanka recorded its highest-ever export earnings in a decade during the first six months of 2025 and that the export market has been diversified.

Tariffs

He pointed out that 25 per cent of our total exports go to the US and 23 per cent to the EU. Therefore, any tariffs imposed by these countries have a significant impact on Sri Lanka. He said that this is why the government has planned to further diversify exports. “We do not intend to rely solely on two or three powerful countries or a few export markets in the future.”

These objectives are indisputable; achieving them is challenging.

Diversification

The President highlighted the recent diversification efforts, comparing June 2024 with June this year, with exports to the African market growing by 57 per cent and exports to Asian countries expanding by 26 per cent compared to 2024.

The Export Development Board (EDB) too highlighted the diversification of export markets. According to its chairman, Dr Mangala Wirasinghe, this was achieved by a diversification of exports and export markets.

Exports

One of the most encouraging developments was the increase in exports. The President emphasised, “We cannot depend on two or three powerful markets. We are planning for broader export resilience.”

Private sector

These are undoubtedly correct perspectives on trade. However, it is the private sector that exports. The government’s role is to be a facilitator. There is much that the government has to do.

Role of government

Among the ways by which the government could boost exports are facilitating the import of raw materials for export manufacture, enhancing production of raw materials such as rubber and the development of export crops such as tea, pepper, cinnamon, cashew, fruits and vegetables. The unavailability of large quantities of these has been a constraint on export earnings. It is also important to export these in value-added form and to promote them as quality products, as is the case of Ceylon Tea. Dilma teas have done this effectively.

Costs

Another important factor is to keep the costs of production of exports low by providing inputs such as electricity at low prices. Our electricity costs are said to be higher than those of our competitors.

Para tariffs

The need to remove or reduce para tariffs on imports that raise prices of export sector raw materials has been acknowledged but not implemented. This is an issue that must be addressed soon.

Economic diplomacy

Our diplomatic missions abroad must orient their activities towards economic diplomacy. They should do market research and establish links with buyers.

Tourism

The President pointed out that revenue from tourism has increased by 10 per cent compared to the previous year and that foreign direct investment (FDI) increased in the first six months, doubling from the $252 million recorded during the same period last year to reach $507 million.

President Dissanayake expects FDI to surpass $1 billion in 2025, with $1.3 billion already approved for the Colombo Port City development project. By December, he said, foreign reserves are expected to reach $7 billion.

“This year”, the President stressed, “we will have the highest exports, foreign workers’ remittances inflows, and the highest number of tourists.”

Vehicle imports

Similarly, there is investor confidence. The All Share Price Index exceeded the 8000 mark. An issue of particular concern is the widening of the trade deficit, in spite of the gains in exports.

Inflation had dipped to deflationary levels. Despite the uncertainties in global trade, exports had increased. However, the trade balance had widened owing to increased imports. Significant increases in remittances and tourism resulted in a balance of payments surplus of US$ 1.5 billion at the end of July.

Stability and growth

Undoubtedly, the economic indicators pointed towards stabilisation and economic growth, and the export growth despite the turbulent global trade and uncertain tariffs is commendable. Yet, there is no room for complacency in adopting policies for the diversification of trade and propelling economic development. In fact our economy is fragile in the current global economic uncertainties and wars.

External shocks can undermine the gains achieved this year. On the other hand, it is vitally important that our trade strategies are adapted to the emerging global conditions.

The business community as well as investors express confidence.

Conclusion

In spite of favourable economic developments, the Sri Lankan economy is very vulnerable to external shocks. Therefore, it is imperative to accelerate the diversification of export markets and export commodities by undertaking the needed reforms.

 

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