Defining Sri Lanka in 2025
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As Sri Lankans prepare to move into 2026, three significant events that defined and shaped Sri Lanka this year were parliamentary polls (in which the National People’s Power – NPP secured a landslide victory); the continuation of the IMF’s extended fund facility by the ruling party contrary to expectations that it would be abandoned; and the November 28th Cyclone Ditwah (while the number of casualties was less than the 2004 tsunami, the destruction to land and property was higher than in 2004).We were on the same page on these developments – ‘Human resource’ pundit HR Perera, popularly known as HR, and I, when he called on Thursday morning. “This has been an interesting year dominated by the elections, the continuation of the IMF package and the cyclone. I wonder what is in store for us in 2026,” he asked. “Well……looking at the crystal ball and predicting the future, I would say that the government will focus on two things – recovery and reconstruction after the cyclone and going after crooked politicians and officials with more cases being filed,” I said, adding that whether these cases will lead to convictions or not remains to be seen.
“The opposition says the country’s economy will collapse in the first quarter of the year. What do you think?” he asked. “Well we have to wait and see,” I added. “One thing is very clear. Small businesses (MSMEs) will struggle to recover after a shattered future from the 2020 COVID-19 pandemic, the economic crisis in 2022 and now the impact from the cyclone,” he said. On that score (impact on MSMEs) too, we were on the same page.
Over the past five years, small businesses have been battered and bruised, many have closed down with workers thrown onto the street, with a bleak future.
In a recent interview on the impact of the cyclone, the Ceylon Federation of Micro, Small and Medium-sized Enterprises (CFMSME) President Mahendra Perera said that businesses in flood-affected low-lying areas were severely affected. According to a preliminary estimate by the Ministry of Industries at least 13,698 businesses have been affected. These are made up of 5,639 micro enterprises, 4,636 small businesses, 2,986 medium-scale enterprises and 437 large-scale enterprises.
This crisis is on top of the 2020 impact, while another disturbing development has been the reduction for all businesses of the annual VAT threshold to Rs. 36 million from Rs. 60 million, effective from April 2026, brings small shops into the net. “This move will bring a large number of small retailers into the tax net and ultimately pass the 18 per cent VAT burden onto consumers. It will also create an imbalance in the economy, as most consumers will shift their purchases toward goods and services provided by businesses that are not liable for VAT,” said Mr. Perera.
The MSME sector is the backbone of Sri Lanka’s economy. MSMEs contribute 52 per cent to the national GDP and provide employment to 4.5 million people in the workforce. According to 2022 data from the Department of Census and Statistics, out of 1.3 million MSMEs, 263,000 have permanently closed; 14,577 are temporarily closed; and approximately 1,050,000 remain active.
This data represent the situation up to 2022; however, the major impacts of the economic crisis were felt most strongly in 2023–2024. Analysts say at least another 100,000 or more enterprises have already been affected due to the bankruptcy declaration and the sharp rise in interest rates.
The World Bank has estimated that Cyclone Ditwah caused an estimated US$ 4.1 billion in direct physical damage to buildings and contents, agriculture and critical infrastructure, the cost being three times more than the 2004 tsunami. This damage is equivalent to about 4 per cent of Sri Lanka’s GDP, the multilateral organisation said in a statement.
In a separate, brief assessment, the International Labour Organization (ILO) said 374,000 workers were affected by the devastating Cyclone Ditwah. The affected workers were from the area directly impacted by floods and landslides. This represents $ 48 million in potential earnings lost per month if these workers are unable to work or find quality employment elsewhere, it said.
Taking a breather, I walked to the kitchen to see what was in store, food-wise, for me. Thankfully – even though it was Christmas day – Aldoris, the choon-paan karaya, had come down the lane and his piping hot ‘maalu paans’ were on the kitchen table. Grabbing two and pouring myself some tea that was also prepared, I was about to walk back to the office room and continue this column, when the conversation by the trio under the margosa tree drew my attention.
“What were they discussing,” I wondered. Well……they were also stargazing into the future.
“Ena avurudda amaru avuruddak wenna yanney aanduwata. Mokada egollo peedanayata path wenna yanney dushitha deshapalanayinta viruddawa nadu pawaranna. (I think next year will be a tough year for the government as there will be pressure to file cases against corrupt politicians),” said Kussi Amma Sera. “Mokada oya hithanney eka amaru wedak kiyala (Why do you think this is difficult)?” asked Serapina. “Nadu pawaranna balaporoththu wena ekai, varadikaruwan hatiyata oppu karanna sakki hoyana ekai athara loku wenasak thiyanawa (Planning to file cases and trying to get enough evidence to ensure a conviction, are two different things),” responded Kussi Amma Sera.
“Magey mathey nam aanduwata godak weda thiyewi kiyala suli-sulang aapadawen goda enna, wena kissi dekata wadiya (My view is that the government would be too busy recovering from the cyclone destruction to focus on anything else),” noted Mabel Rasthiyadu. “Egollange janapriya bawaya adu wei, nadu dammey nathnam (Well they would be unpopular, if they don’t file these cases as promised),” added Kussi Amma Sera.
Returning to my computer, I realised Kussi Amma Sera’s last comment was probably true – the government needs to fulfil its promises, otherwise its popularity will sink.
Challenges on the revenue front include trying to retain the positive 2025 budget position. This year revenue – largely due to vehicle imports – resulted in a revenue surplus owing to favourable tax income while 2026 will be a different ballgame with an expected revenue fall from lower-than-expected vehicle imports.
My wish-list at the end of 2024 was for laws to be applied equally to the rich and the famous, the ruling party politicians, the fraudsters, the corrupt, the drug lords and ordinary people. While the ruling party seems to be on this track, their hands would be full in tackling post-cyclone rebuilding and managing a testing economy.
This, of course, is notwithstanding the antics of the former speaker Asoka Ranwala (who probably has a record for the shortest period of a parliamentary Speaker……23 days for failure to confirm his education qualifications) and then a motor accident fiasco. He should quit or be sacked.
Thus……..as I wind up this year, the message is for peace to continue, government institutions to work diligently for the people, wages to improve and inflation to continue downwards, amidst the cyclone-rebuilding efforts. With more money circulating in the economy from billions of rupees being pumped into the economy vis-à-vis reconstruction, it is critical that this is balanced with managing inflation, and not allowing consumer prices to run riot.
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