SL must turn post-crisis recovery into sustained growth: IPS

Sri Lanka is experiencing a stronger-than-expected economic rebound but the challenge now is turning this post-crisis recovery into long-term, structurally driven growth, according to the Institute of Policy Studies’ (IPS) ‘Sri Lanka: State of the Economy 2025’ report.

GDP growth reached 4.9 percent in the first half of 2025, underpinned by improved macroeconomic fundamentals. 

“While this cyclical recovery is promising, the sustainability of growth will increasingly rely on productivity and efficiency gains,” the IPS said in its report that was launched last evening, highlighting that deeper structural reforms are essential.

The think tank pointed to reforms in land and labour markets as well as opening up trade and investment as critical to improving resource allocation and lifting productivity. 

“Such regulatory policy guidance is not ideologically neutral, nor easy to push through and its dividends often accrue over the longer term,” the IPS added, noting that immediate socioeconomic pressures can divert the policymakers’ focus.

Digitalisation and technology infusion, the IPS said, offer a clear path to faster and cost-effective productivity gains. While national computer literacy remains low at 39 percent, with the estate sectors lagging at 17.9 percent, nearly 42 percent of adults among the poorest 40 percent are already using digital payments, a signal of untapped potential.  Further, digital tools could strengthen e-commerce, improve public transport safety and convenience, provide scalable support for farmers and enhance export competitiveness through product traceability, even amid global trade uncertainties. “External uncertainties and compulsions should hasten policy focus on the domestic economic agenda,” the IPS said, underlining that harnessing technology and productivity gains can help Sri Lanka craft a compelling narrative of resilient post-crisis recovery as the country prepares to resume debt service obligations.