SL must go well beyond IMF programme: Prof. Sally

26 June 2025 06:20 am Views - {{hitsCtrl.values.hits}} 7 Bookmark

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Prof. Razeen Sally

Pic by Nisal Baduge

Says deeper trade, investment and regulatory changes are essential to shield crisis-hit economy from fresh external shocks
Asserts it is important that Sri Lanka links itself to the value chains of southern India

Sri Lanka could miss a once-in-a-generation opportunity to plug into the fast-growing supply chains of southern India – that is unless the island nation pushes through market-opening reforms that go “well beyond” its current International Monetary Fund (IMF) programme, leading international economist Prof. Razeen Sally warned this week.

Prof. Sally, former Associate Professor at the Lee Kuan Yew School of Public Policy in Singapore and a former chair of the Institute of Policy Studies (IPS), Sri Lanka, said deeper trade, investment and regulatory changes are essential to shield the crisis-hit economy from fresh external shocks such as higher oil prices or new US tariffs.

“The danger is that the external shocks, Trump, trade wars, whatever new tariffs the United States might impose on Sri Lanka, hitting garment exports in particular, a skyrocketing oil price, as a result of an escalating Middle East war, might tip Sri Lanka pretty quickly into recession.

“...and it’s important that Sri Lanka links itself to that, particularly the south and the value chains of southern India. That’s not going to happen unless there are those structural reforms going well beyond the IMF programme,” he said.

Prof. Sally was responding to a question during a one-on-one session at the 13th Capital Market Conference in Colombo this week, moderated by Daily Mirror Business Editor Shabiya Ali Ahlam.

He traced Sri Lanka’s trajectory from the garment-led liberalisation of the late 1970s to the debt-fuelled expansion that collapsed in 2022 and mapped out three scenarios for the next five years, which are ‘drift’, ‘relapse’ and ‘sustainable growth’.

The first scenario is sticking to the IMF’s rescue but stopping short of deeper reforms, a path he deemed most likely under the current politics.

The second is a populist turn that could accelerate a slide back into recession and even a second sovereign default.

The third scenario is a reform push that dismantles import barriers, liberalises foreign direct investment and fully integrates Sri Lanka into global value chains, starting with India.

Without such a “take-off” scenario, Prof. Sally cautioned that the economy could lurch from crisis to crisis, eroding revenue, raising the risk of renewed default and fuelling public backlash.

Prof. Sally pointed out that India’s upgraded hard and digital infrastructure, especially in the southern states, offered Sri Lanka a ready platform for logistics, IT and professional-services exports that could offset any slowdown in its US $ 5 billion apparel sector.

However, according to him, the investors would only commit if Sri Lanka tackled the Customs red tape, streamlined investment rules and locked in policy continuity.

“Politically, of course, that’s unlikely, in all probability, given the domestic politics here. I’m not saying it’s impossible. But that’s the scenario that I think we need in these more adverse, malign global economic and political conditions,” said Prof. Sally.

Prof. Sally is currently focused on travel writing, journeying across Asia, as he works on his upcoming book.

Comments - 7

ameen atham Thursday, 26 June 2025 05:57 AM

i agree with the author that Srilanka should tackled the red tape in the foreign investment area. I knew personally that two companies have to wait more than two years to get the relevant permit to operate. Ameen Atham, CPA USA

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Abeysingha rala Thursday, 26 June 2025 08:24 AM

Mentality and banking processes, as well as customs clearance processes, are still in the 5th century due to a lack of accountability and the required processes and laws. 1- Banks still need so much evidence to send TT to overseas suppliers and put so many restrictions and doubts on local entrepreneurs - this will only help a few wealthy businessmen—so much prejudice when deciding things than the process. 2- Customs HS code scam - When bringing parts for a technology product, they calculate duty on the raw materials, and the product client has to pay 300% more than the value of the goods. 3. The deeds and address format (not the actual location address) of the importer must be the same. Even if the address is technically the same, changing lines is not permitted. If this is the case, evidence from lawyers is required. This bullying approach needs to be stopped. So much needs to be done to bring the country up in terms of support for poor entrepreneurs

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Realistica Adams Thursday, 26 June 2025 11:56 AM

Totally agree. However, stabilisation of the economy and the ruling party getting complete control of the economy are fundamental prerequisites. The risk of trying to jump too high too soon is there. The President says this risk has to be managed. This is true because of not only external shocks but also internal and external destabilising forces. Pragmatism is the call of the times IMO.

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Kays Thursday, 26 June 2025 10:50 AM

Self important public service will definitely like to keep d'(g)rifting' towards their pensions.

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Jude Thursday, 26 June 2025 11:48 AM

Already gone beyond to China

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Fact Thursday, 26 June 2025 12:16 PM

Unfortunately, in Sri Lanka we will never have the likes of a 'Lee Kuan Yew' or for that matter the amazing leaderships of countries like China, South Korea, Japan, Taiwan, and Vietnam. Why? The majority of our people are downright LAZY and always seek the easy path. Hence, the high correlations of fraud and corruption in our society. This has been the norm since independence, and also the reason why Sri Lanka continues to fall behind all the other nations in the region in terms of development. There needs to be a fundamental shift in peoples' mindsets which is not taking place in our education system.

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Vis Thursday, 26 June 2025 12:58 PM

SL tourism is not catching up the global trend. Ice land has a perfect ring road along the costal line around the country with many camping sites. You can rent a new jeep and camping tools and go around the country, at stay at designated camping sites and recharge and start again and complete your journey around the country without much stress. In Sri Lanka travelling remote areas can be very stressful. We are not innovative, package tourism is boring. We cannot copy Singapore model, it is a petrol station masquerading like a rich country.

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