Tourism, like cricket, needs better fundamentals

By Dhananath Fernando

Originally appeared on The Morning

Sri Lanka tourism is a lot like Sri Lanka cricket. For cricket, everyone has an opinion. Who should be captain, what the team should look like, what the game plan should be. Tourism is the same. Almost everyone has a different idea of how to ‘fix’ it.

And, like cricket, tourism is emotionally connected to the hearts and minds of people. That is why we get disappointed so easily after even a small setback, and why we bounce back so quickly too. The love for the game and the industry is real.

Tourist arrivals are now picking up and we are hitting record highs. But estimated earnings are declining. We need to remember that ‘earnings’ are an estimate. We calculate earnings by multiplying the number of arrivals by average length of stay, and then by average spending per night. The most sensitive part of that equation is average spending, which is based on surveys of tourists, on what they spend on categories such as accommodation, travel, shopping, and so on.

A few months ago, the Sri Lanka Tourism Development Authority (SLTDA) with Australia’s Market Development Facility (MDF) launched results of a survey with a sample of about 11,000 inbound travellers and 5,000 outbound travellers, covering about 50 countries.

According to those results, average spending per tourist is now $ 148, down from the earlier $ 171. That shift alone helps explain why earnings can fall even while arrivals rise. The same survey shows that about 18% of visitors are repeat visitors and 58% are women. Of total spending, 55% goes to accommodation. Interestingly, 46% of travellers booked through Online Travel Agents (OTAs) and 62% are non-package travellers.

In this context, another SLTDA study has made headlines: out of about $ 3 billion in earnings in 2024, around $ 900 million is said to have “leaked,” and the Government is now trying to prevent this leakage. According to the study, around $ 500 million is leaking through inbound travel operators and another $ 250 million through accommodation. Based on these findings, there is a renewed push for measures to minimise leakage.

The obsession with leakage

The intentions are good. But the problem is the way we are diagnosing the disease. In my view, there is a poor understanding of monetary economics behind this obsession with ‘leakage.’

Yes, OTAs charge commissions. Yes, some payments are settled overseas, so not every tourism dollar will enter Sri Lanka through our banking system. But the idea that regulating OTAs or tightening rules on parts of the tourism value chain will meaningfully ‘save’ dollars is not first principles thinking. Oversight matters. Compliance matters. But oversight is not a monetary strategy.

Here is why.

Leakage of dollars is largely a function of excess rupees in the system, not simply the behaviour of tourism stakeholders. When we create excess rupees, people will try to convert those rupees into dollars. The most common way this happens is through imports.

Let’s simplify it. When we buy a mobile phone, we are effectively buying dollars with rupees. We pay the shop in rupees. The shopkeeper goes to the bank, buys dollars using those rupees, and pays the overseas supplier. The transaction is initiated by rupees. If we have excess rupees the demand for USD is higher.

Now imagine we ban mobile phones, thinking those dollars will stay in the country. They will not. The bank will sell those dollars to someone else who wants to import something else, because banks are in the business of converting currencies, and because demand for dollars does not disappear simply because one item is restricted. If there is excess rupee liquidity, the dollars will find a way out through whatever channel is available.

The same logic applies to tourism. Even if you restrict OTAs or tighten certain import segments, there will be no ‘dollar saving’ if the rupee side remains loose. Any dollars entering the market will still leave as long as there is excess rupee liquidity chasing foreign exchange. Restrictions shift routes. They do not remove the pressure.

At the same time, we should be honest about why some businesses prefer to keep foreign currency outside Sri Lanka. It is not only about commissions or convenience. It is also about the difficulty of moving money across borders when regulations are heavy, approvals are unclear, and conversion rules are tight. If you are running a cross-border business, you will naturally park funds where transactions are smoother and risk is lower. That is exactly what is happening.

There is another reality we cannot ignore: there is a limit to how much import content we can cut in tourism without damaging the product.

A visitor expects a basic standard. Rooms need air-conditioning. Air-conditioners are imported. Tourism transport needs reliable vehicles and fuel. Vehicles and fuel are imported. There is a minimum quality bar in a competitive global market, and trying to cut our way below that bar will not save us; it will simply push tourists elsewhere.

Even in services, ‘local only’ is not always practical. World-class restaurants and wellness experiences often depend on specialised inputs and, sometimes, specialised talent. In some cases, salaries have to be paid in foreign currency.

You cannot run a top-tier Japanese restaurant or a great Thai experience with good intentions alone. We need talent from those countries to be located here for an authentic experience. If we attempt to ‘save dollars’ by lowering quality, we will end up losing the very customers who bring the dollars in the first place.

So what should we focus on?

Instead of hunting ‘leakage’ like it is the main villain, we should focus on value creation. If tourists see value, they spend more. Higher spend improves earnings, supports better jobs, and creates stronger businesses that can invest in quality.

The path to stronger tourism earnings is not to squeeze the system tighter; it is to make Sri Lanka a place where people are happy to spend, and businesses are confident to bring money in and reinvest.

And this is where monetary stability becomes central. If we stabilise the monetary system, avoid excess rupee creation, and reduce unnecessary friction in capital flows, tourism earnings will naturally improve. Yes, there will always be some money that is paid abroad, just as Sri Lankans will always spend money abroad too. That is normal in an open economy.

The solution is not to treat tourism stakeholders as the problem. The real fix is to get the monetary foundations right and make Sri Lanka easy to do business with. Otherwise, we will keep arguing about captains and game plans while losing the match in the middle overs.

Sri Lanka and IMF: The subscription economy

By Dhananath Fernando

Originally appeared on The Morning

Last week, former Chief Economic Adviser to the Government of India Arvind Subramanian delivered a talk organised by a local media outlet and repeated a message this column has been making for years. Sri Lanka has become a permanent client of the International Monetary Fund (IMF). His uncomfortable question was simple: have we really addressed the reasons we keep returning to the IMF?

The IMF is not the problem. The real problem is what we repeatedly do, and fail to do, that pushes us back to the IMF. We postpone reforms. We dilute reforms. We announce reforms and then negotiate with ourselves until nothing meaningful remains. That is how a country ends up treating the IMF like a recurring subscription, not a last-resort lender.

We are now back again, for what feels like the umpteenth time, still asking for breathing space while keeping the deeper structural issues on hold. The tragedy is not the programme. The tragedy is the pattern.

One of Subramanian’s most important warnings was about memory. Sri Lankans must not forget the economic crisis. Most reforms we managed to pass were done at the height of pain, when denial was no longer possible. Once the pain fades, our political system starts behaving as if the crisis was a bad dream, not a diagnosis. History shows that when we forget the lesson, we repeat the bill.

To be fair, this time we do have a few structural reforms in place. The Central Bank of Sri Lanka’s greater independence, the Public Debt Management Office and framework, the fuel price formula, the Public Financial Management Act, and the Anti-Corruption Act are steps that bring more discipline to the system. They help reduce policy chaos. They improve predictability. They can strengthen credibility.

But we must be clear about what they are, and what they are not. Stability is not reform. Stability is not the same as growth. Stability is the floor, not the ceiling. It prevents the economy from collapsing again. It does not automatically make the economy expand.

Subramanian also stressed something that Sri Lanka often tries to ignore: stability has to be continuously defended through reforms. Without economic stability, growth is simply impossible. As the saying goes, stability is not everything, but without stability everything is nothing.

Yet even if we get stability right, we cannot ignore the fundamental shift happening in our demography, which will shape every economic outcome over the next decade. Our labour force is ageing and our population is shrinking. That means a smaller base of working people will have to carry a larger burden: elderly citizens who need care and income security, and younger citizens who still need education and investment. If productivity does not rise, the arithmetic will not work.

The outlook becomes even more worrying when we look at how our labour migration patterns are changing. We proudly celebrate rising remittances, and the headline numbers look comforting. But the composition behind those numbers tells a more serious story. The old perception that Sri Lanka’s out-migration is mainly unskilled women leaving for domestic work is no longer accurate. Increasingly, our out-migration is skilled and male.

Recent quarterly trends show that it is largely skilled males in the prime working-age bracket who are leaving. And when we look at destinations, with a few exceptions, the pattern again points to a labour export profile dominated by skilled men. In simple terms, the country is losing the very workforce it needs for growth, productivity, and tax revenue.

At the same time, we are failing to solve the long-standing problem of low female labour force participation. We have discussed this for years. We have had commissions, reports, policy notes, and conferences. The conclusions are broadly consistent. But the reforms remain stuck.

Contributory pension schemes that create portability and security, flexible work arrangements that fit modern households, clear part-time work regulations, and enabling rules for gig and platform work are not ‘nice to haves.’ They are core reforms for an ageing society with a shrinking workforce. Delaying them is not neutral. The costs will show up through slow growth, weaker productivity, and a narrower tax base.

These are the kinds of reforms Subramanian may not have listed one by one, but his point was clear: we have not done a good job of getting the right things done to ensure we do not return to the IMF again.

Both economic stability and economic growth are difficult games to play. The danger is thinking we can remain stable without growing. Stability cannot be sustained without growth. But growth also cannot be achieved without reforms, and reforms create political pressure, which can tempt governments to return to short-term populism and policy reversals. That push and pull is the real challenge.

This is a delicate balance, and failing to manage it will cost us dearly: by eroding hard-earned wealth, weakening institutions, and drifting back into crisis. Or, as Subramanian bluntly framed it, drifting back to the IMF.

The IMF is not the problem. What we keep doing to end up back there is the problem.

Departures for foreign employment

Source: CBSL, JB Securities Research 

Composition of total departures for foreign employment: Jan.–Sept. 2025

Source: CBSL, JB Securities Research 

Total departures for foreign employment by age and gender: Jan.–Sept. 2025

Source: CBSL, JB Securities Research

Economics of education reform

By Dhananath Fernando

Originally appeared on The Morning

Sadly, education reform has been reduced in the public conversation to one narrow question: sex education, and what should or should not appear in the school curriculum. That debate matters, but it is not the debate we should be trapped in. While we argue about a small corner of the syllabus, the real architecture of education remains untouched.

Every economy runs on incentives. Education is no different. What students learn, how they learn, what teachers are rewarded for, what principals are promoted for, and what the system measures as ‘success’ are all incentive problems before they become curriculum problems.

On top of that, we have powerful perceptions shaping decisions. In primary and secondary education, the user and the decision-maker are not the same person. The child is the user, but the parent is the buyer. That gap changes everything.

It gets more complex in higher grades and tertiary education, but the market dimension never disappears. Education is ultimately about skills, competencies, and ethics needed for a globally competitive world, whether we like that framing or not.

If we take competitiveness seriously, what matters is not only what is taught but how it is taught, and whether the system has the governance and accountability to improve it. Monitoring performance, rewarding excellence, fixing weaknesses, and updating content are not ‘nice-to-have’ reforms. They are the minimum conditions for a modern education system. A real reform agenda has to be holistic.

But we also need to be honest about constraints. Sri Lanka is still climbing out of an economic crisis and a debt restructuring. Large-scale investments and expensive redesigns are difficult. That is precisely why reform must focus first on incentives, productivity, and institutional design, not only on spending more.

Core components

When we look at the education delivery ecosystem, there are three core components.

First, the content setters, the institutions that decide what should be taught. In Sri Lanka, that role largely sits with the National Institute of Education.

Second, the execution arm, the teachers who deliver learning in classrooms.

Third, school administration, principals, and support staff who manage teachers, students, infrastructure, and the daily operations of the system.

In Sri Lanka these three streams are often intertwined in a way that weakens all three. Many teachers want to become principals for reasons that include salary structure and career progression. But when we turn a good teacher into a principal, we may lose both a potential great principal and a great teacher, because teaching skill and school leadership are not the same skill set.

In other cases, teachers move into curriculum-setting roles on the assumption that the execution arm alone knows what is best for students. Teacher input is essential, but treating it as the only criterion is also a mistake. Content design requires multiple perspectives, including pedagogy, labour market needs, child development, and global benchmarking.

Building a better system

A better system would treat teaching as a profession you can master without needing to escape the classroom to earn more. Teachers should have a salary and career structure that rewards excellence in teaching, not only movement into administration. Principals should have a separate professional track with a distinct salary scale, and training focused on leadership, student welfare, staff management, and operational efficiency.

In a meritocracy, a great teacher should be able to earn more than an average principal. That is how you keep talent where it creates the most value.

Curriculum also needs openness and competition. In practice, we already have a version of it. At a certain point many parents choose between Edexcel, Cambridge, or the local syllabus. That choice signals something important: parents want global standards and credible pathways.

A system that is open to competition is forced to benchmark itself, update itself, and respond to outcomes. At the same time, this does not mean we abandon local identity. Subjects like history, geography, language, and culture matter. The point is not to import a foreign syllabus blindly, but to ensure our local syllabus can stand confidently alongside global standards.

There is also a productivity question we rarely ask: how well do we use the infrastructure we already have? Schools typically operate for only part of the year, and even on a school day, the infrastructure sits idle for a large share of the total time. This is expensive infrastructure, much of it built with borrowed money.

We cannot afford underutilisation. Improving the productivity of school facilities through better scheduling, shared use, community learning programmes, and structured after-hours activities is not a cosmetic reform. It is a fiscal and economic reform.

Demography makes reform even more urgent. Sri Lanka’s population is ageing and overall numbers are not growing the way they used to. Popular schools are expanding catchment areas, while many others will eventually have to reduce classrooms or rethink capacity. A system designed for a different demographic era cannot remain unchanged.

Then there is the admissions system, which urgently needs digitisation. It is difficult to clean up malpractice when processes are manual, opaque, and dependent on documents that are easy to manipulate.

Consider one common criterion: distance from residence to school. We do not have a fully reliable digital land registry to authenticate addresses and property details at scale. That gap creates space for corruption and abuse.

Education reform, in other words, is linked to broader economic reforms like digitisation, land administration reform, and better public sector data systems. If we pretend education sits in isolation, we will keep treating symptoms instead of fixing causes.

Preparing children for the real world

On the flip side, new subjects such as Entrepreneurship have been added to the curriculum with good intentions. But the reality is uncomfortable. Entrepreneurship cannot be taught only as a subject and graded like a textbook chapter. In many ways, real entrepreneurship is about challenging assumptions, taking risks, and learning through failure, which often clashes with how school systems are designed.

A stronger foundation would be economic education: helping students understand incentives, markets, trade-offs, and how the real world works. Then those who want to innovate, break patterns, and build can do so with clearer thinking and better tools.

Education reform has a strong economic angle, but we keep reducing it to the loudest cultural argument of the moment. Meanwhile, the deeper reforms on incentives, professional pathways, productivity, digitisation, and governance get delayed or quietly put on hold.

If we want a system that prepares Sri Lankan children for the world they will actually live in, we need to stop debating only the content of one chapter and start redesigning the system that delivers the whole book.

Lessons from Venezuela for Sri Lanka

By Dhananath Fernando

Originally appeared on The Morning

Venezuela is often discussed today through the lens of geopolitics, sanctions, and global power games. But if we set those aside for a moment, the country offers a far more fundamental lesson. It is a reminder of how moving away from basic market principles can slowly push even a resource-rich nation to its knees and eventually turn it into a geopolitical problem.

At one point, Venezuela stood among the most prosperous countries in Latin America. Its citizens enjoyed living standards comparable to advanced economies in the region. Today, that reality feels distant.

The collapse did not come from a lack of resources. Venezuela sits on vast oil reserves and is rich in other minerals as well. The problem was not what the country had, but how it chose to manage what it had.

For decades, Venezuela’s oil industry attracted global companies, expertise, and capital. Productivity was high, technology improved, and the sector generated steady income. That changed when the State decided it should take full control.

Nationalisation sent a clear signal that private investment was no longer welcome on fair terms. Efficiency declined, reinvestment slowed, and political priorities replaced commercial logic. Profits that should have gone back into maintaining and improving production were instead used to fund widespread subsidies.

When global conditions were favourable, this model appeared to work. Oil revenues masked structural weaknesses. But when prices turned, the system had no buffers. Subsidies could not be sustained, production could not be ramped up, and confidence had already evaporated.

The State turned to the easiest option left: printing money. What followed was a devastating inflationary spiral that destroyed savings, wages, and trust.

Once inflation runs out of control, people respond in predictable ways. Workers leave. Skills drain away. Businesses shut down or relocate. Venezuela experienced this painfully.

As foreign companies exited and domestic capacity weakened, productivity fell further, creating a vicious cycle. Sanctions later worsened the situation, but by then the foundations had already cracked. The greatest cost was borne not by politicians or ideologues, but by ordinary Venezuelans.

Sri Lanka does not need to look at Venezuela as a distant or irrelevant case. Too often, we have followed a similar logic, believing that the State can run businesses efficiently while ignoring the political interference that inevitably follows.

We have also been suspicious of foreign investors, forgetting that resources only become valuable when capital, technology, and skills are combined with them. Without investment, even the richest endowments slowly lose their economic meaning.

The story of subsidies is another shared lesson. Prices exist for a reason. They signal scarcity, abundance, and trade-offs. When prices are artificially suppressed, demand grows without regard for supply or cost.

It is no different from spending beyond one’s income and hoping the bill never arrives. Sri Lanka learnt this the hard way through unsustainable fuel and electricity pricing, which played a central role in the recent economic collapse.

There is also a deeper lesson about money itself. Before the crisis, many in Sri Lanka believed that money creation could continue without consequences, echoing arguments once made in Venezuela. But money is not just paper or digits. It is a store of value based on trust. When that value is diluted without public consent, people respond with anger, protest, or migration. Sri Lanka saw all three during and after the crisis.

Venezuela’s experience goes beyond geopolitics. It is a cautionary tale about abandoning basic economic principles. When countries ignore incentives, undermine markets, and treat capital with suspicion, they make themselves fragile. That fragility invites external shocks and political pressure from abroad.

For Sri Lanka, the lesson is clear. Staying anchored to sound economics is not an ideological choice. It is a practical necessity. If we want stability, prosperity, and genuine independence, we must respect markets, welcome investment, price resources honestly, and protect the value of money. The alternative is not self-reliance; it is slow decline, followed by crisis.

(The writer is the Chief Executive Officer of Advocata Institute. He can be contacted via dhananath@advocata.org)

(The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute)

Wealth Creation, Not Welfare: Why Revenue Sharing and Home Ownership Outweigh the Tea Workers’ Wage Hike

By Aysha Sameera Mohamed Ali

The government has proposed a plan to raise the daily minimum wage of estate workers from Rs. 1,350 to Rs. 1,550 alongside a state-funded daily allowance of Rs. 200, which would bring the total daily cash earnings of estate workers up to Rs. 1750. Including the associated employer contributions to EPF/ETF, the proposed Rs. 200 minimum wage hike represents an effective earnings increase of about Rs. 230 per worker. Given the well-documented economic hardships faced by the estate worker community, this wage hike may seem justifiably well-intentioned to many. However, well-intended actions do not necessarily constitute sound economic policy; by subsidising the payrolls of private Regional Plantation Companies (RPCs), the government will only ensnare the very workers it seeks to assist in a cycle of dependency, low productivity, and scarce economic opportunities.

The labour costs at plantations already make up more than 70 percent of the cost of production of Ceylon tea, which makes Sri Lanka the world’s most expensive producer of black tea and puts the industry at a unique disadvantage in the world market. The primary cause of this high labour cost is the already high daily wage of Sri Lanka’s estate workers, which is higher than in any other black tea producing country, and twice that of India. This gap is even wider in reality, given the additional non-cash benefits that Sri Lanka’s estate workers receive, estimated at Rs. 750 per working day. As extreme temperatures in the winter and summer months rob Indian estate workers of many working days a year, the real gap between the annual earnings of Sri Lankan estate workers and their Indian counterparts is even larger. On top of this, Sri Lanka’s antiquated attendance-based minimum wage system remunerates workers for their attendance rather than the amount of leaf they harvest, which makes Sri Lanka’s tea industry the least productive among its competitors. The daily average plucking rate of a worker in Sri Lanka is 18kg, which is about half of India’s and one-third of Kenya’s.

Given the substantially higher minimum wage and lower productivity compared to other black tea producing countries, Sri Lanka’s plantation sector cannot afford to pay even higher wages, unless the productivity gap is addressed. In fact, by subsidising a minimum wage hike, the government only merely supports the inefficiencies within the industry and disincentivises it from improving for the better. Simply put, the government subsidy deters RPCs from moving towards a win-win wage structure models that would both improve productivity and give estate workers higher incomes and greater dignity.

The revenue share wage model, strongly endorsed by the government’s own Tea Research Institute and successfully implemented by several RPCs, is one such win-win model. Under this, each individual estate worker is assigned a plot of land to cultivate, maintain, and pluck, virtually making smallholder tea farmers out of them. The earnings from the tea auction are then shared between the worker and the RPC, just as auction proceeds are shared between smallholders and bought-leaf factories. This approach precisely aligns incentives by tying earnings to the quantity and quality of leaves plucked, increasing productivity and producing significantly greater incomes. Most importantly, it gives motivated and productive workers the ability to earn substantially more than they ever could under the minimum wage model. It also addresses the very frustrations that push workers away from the estate sector by substituting entrepreneurship for the humiliation of strict supervision by kanganies under the minimum wage model.

Unlike the revenue share model, the subsidised minimum wage hike creates significant labour market distortions by artificially raising the cost of labour in the plantation industry. Instead of learning new skills or moving to high-growth industries where their labour may naturally be valued higher, it encourages workers to stagnate in a low-productivity environment. Instead of encouraging the mobility and dynamism necessary for a modern workforce, it pays people to continue to be impoverished and cultivates a dependence on public support.

In essence, this subsidised wage hike is a wealth transfer from the taxpayers’ wallets to the financial sheets of RPCs. It incentivises private companies to avoid the difficult, yet essential structural reforms needed to boost both productivity and efficiency. Moving forward businesses may use this as an opportunity to rely on government assistance rather than investing in technology or improving their business models to pay greater wages naturally. The focus of businesses may change from innovation to extraction, where an objective could be to push the government for handouts to satisfy payroll commitments. What will stop every troubled industry from viewing the national budget as a safety net for their operating overheads?

Furthermore, an argument propounded in the public discourse claims that ‘exorbitant’ profits of RPCs warrant a minimum wage hike entirely on the RPCs’ dime. This argument is moot for two reasons. Firstly, profits of RPCs fluctuate heavily based on seasonal factors and subject to the realities of global demand and supply factors. Given the oversupply of tea by Kenya, the price of Ceylon tea has been on a consistent decline since 2024, which means that RPCs themselves are headed towards financially difficult times, also compounded by the yet-to-be-estimated damages that RPCs have suffered from Cyclone Ditwah. Secondly, it is not absolute profits, but relative profits, that dictate wages in the RPCs. If shareholders deem that coffee, which is substantially less labour intensive than tea, provides larger profits relative to tea after the most recent wage hike, a mass conversion to coffee would be inevitable. This conversion was already in motion for several years before the wage hike precisely because of the high labour costs of tea, rendering many estate workers without work to begin with.

Finally, it is also important to ask why the government’s priority is estate workers, and not private sector minimum wage workers or smallholder tea workers, whose economic conditions are even more precarious. The minimum wage in the private sector is currently Rs. 27,000 a month (Rs. 1,080 a day), well below the earnings of estate workers. Workers in the tea smallholder sector, which represents 75 percent of the tea production in Sri Lanka, do not have a minimum wage to begin with, and they do not receive any of the statutory benefits that estate workers are entitled to. Why should one group of workers receive additional support from the government while the majority is ignored?

It is no secret that, despite the already high minimum wage and the additional statutory benefits, estate workers still represent one of the most economically disadvantaged groups in Sri Lanka. This begs the question: is the problem merely not one related to incomes, but one related to inter-generational barriers to wealth creation? Estate residents live in government-owned housing, which heavily constraints their economic mobility. Ownership rights to their estate homes would bring about lasting economic liberalisation to estate communities, more than a wage subsidy. With secure titles, the “line rooms” would become capital rather than just a place for them to reside in. By acting as collateral for loans, such asset ownership opens credit access, eliminates previous mobility constraints, and creates wealth for future generations. A short-term cash allowance just cannot deliver the kind of long-term economic dignity that such a structural shift would.

Everyone agrees that estate workers should be paid a fair wage, but the taxpayer should not foot the bill. The road to Sri Lanka’s economic ruination was paved on similarly well-intentioned policies that subsidised inefficiency and poverty instead of rewarding prosperity and entrepreneurship. To correct this course, the government should urge RPCs to implement productivity-linked wage models and give workers land rights in place of this Rs. 5 billion proposal.

(The author is an Economic Researcher at the Advocata Institute. The opinions expressed are the author’s own.)

Economic resolutions for 2026

By Dhananath Fernando

Originally appeared on The Morning

We all have New Year’s resolutions. Most of the time, they are not new at all. They are the things we always wanted to do, but never made time for, or never had the courage to start. So every year we repeat the same promise in different words, hoping that this time will be different.

Sri Lanka is not very different in 2026. As a country, we also have resolutions. They are familiar, inspiring, and regularly repeated. Yet they remain largely unfinished.

In many cases, we did not fail because we lacked effort. We failed because we misunderstood the problem. We kept chasing outcomes without fixing the process.

For years, our national resolution list has looked more or less like this:

• A trading hub in the Indian Ocean

• Export diversification

• A tourism paradise

All three are still worth keeping for 2026. But if we want them to be more than slogans, we have to turn them into a reform checklist and not just a speech.

Trading hub is not about ships

Becoming a trading hub is not primarily about the ocean, shipping containers, or building warehouses near the port. It is about building a policy environment that attracts competent people and serious capital, and allows them to move goods quickly, add value, and serve markets.

Trading hubs do not manufacture everything they consume. That is not the point. A trading hub brings things from all over the world, stores them, processes or packages them, trades them, adds value, and sends them back to where demand is. It is an ecosystem, not a factory.

That ecosystem depends on speed, predictability, and cost.

In Sri Lanka, the cost of trading is high not only because of distance but because of policy. Para-tariffs and complex border taxes raise input prices. Slow and discretionary Customs processes delay shipments. Barriers to entry in logistics and shipping reduce competition. Labour rules and immigration processes make it difficult to attract global talent or even short-term specialists.

If 2026 is serious about the trading hub dream, then the resolution is not to ‘become a hub.’ The resolution is to do the hard and unglamorous work: modernise the Customs Ordinance, simplify border procedures, reduce para-tariffs, and remove barriers for entry and ownership in shipping and related services.

We should also reform labour and entry processes so skilled foreigners can work here easily, contribute, and move on if needed. Trading happens when trading becomes easier and cheaper than in competing countries.

A hub is not declared. It is designed.

Export diversification cannot happen on speeches

Export diversification has been discussed for so long that it has become a classroom lesson. Yet our export basket remains narrow and our transformation has been slow.

The reasons are not mysterious. They are structural.

Export diversification depends on factor markets working well: land, labour, and capital.

In Sri Lanka, land is difficult to use productively because ownership, access, and clear titles are complicated. Labour shortages are real, but the deeper problem is skills. A modern export economy requires technicians, designers, engineers, supervisors, and managers, not only workers. Capital is also a constraint, and capital for new industries often needs to come from outside through foreign direct investment.

But investors do not move money just because a country ‘needs dollars.’ They look for a level playing field, regulatory predictability, and access to markets. They also look for reliable infrastructure and a stable macro environment.

So if 2026 wants export diversification, the resolution cannot be another line in a policy document. It has to be a shift in how we attract and support investment.

The Board of Investment must be strengthened and reoriented towards active investor facilitation, not paperwork. Industrial zones should be opened to professional private sector operation and management. The country must actively pursue market access and trade facilitation, because new industries will not come if they cannot sell competitively.

Diversification is not a solo act. It is a system working together.

Tourism paradise needs policy, not posters

Tourism is often marketed with sunsets and smiles. But higher-spending tourists do not arrive because we printed better brochures. They arrive because the product is better and the experience is seamless.

If Sri Lanka wants to be a tourism paradise in reality, then the policy environment must help the sector upgrade.

Hotels should be able to renovate and expand without construction costs being inflated by tariffs and restricted access to quality materials and modern designs. We cannot talk about high-value tourism while making it expensive to build high-quality tourism infrastructure.

Airports and connectivity matter too. Capacity constraints and slow expansion weaken the entire tourism plan. And aviation needs competition, not protection. Monopolies and market distortions in aviation may keep certain entities alive, but they keep the country small.

Tourist destinations also need better services. That means managing and leasing services properly, creating space for private investment, improving safety and cleanliness, and creating real spending opportunities beyond hotel walls. A tourist cannot spend money if there is nothing to do, nowhere to shop, and no quality experience to buy.

A tourism paradise is built on policy decisions, not on slogans.

The resolution underneath all resolutions

There is one resolution that sits underneath all the others: monetary stability.

None of the above dreams work if inflation rises, the exchange rate becomes unpredictable, and confidence collapses. Businesses do not plan long-term investments when the value of money itself is uncertain. Tourists do not come in large numbers when macroeconomic instability turns into shortages, controls, and political tension. Exporters cannot build stable supply chains when the policy environment swings with every crisis.

In that sense, the country’s New Year’s resolution is not only about what we want to become, but about what we must protect: low inflation, a sound currency, credible fiscal management, and rule-based policy.

New Year’s resolutions, whether personal or national, are more about process than promises. Outputs come when the process is followed. Pronouncing the outcome without committing to the steps is how we fail every year, as individuals and as a country.

So perhaps Sri Lanka’s economic resolution for 2026 should be simple: stop repeating the dream and start doing the list.

Permits, privilege, and the price we all pay

By Thamirran Chuciyanthan

Originally appeared on Daily FT

“There will be no permits. The permit culture must end in Sri Lanka.” This was the resounding declaration from President Anura Kumara Dissanayake as he presented the 2026 Budget proposal. The plan to supply vehicles to Members of Parliament (MPs) on a strictly “return-after-term” basis echoes a long-overdue escape from a system that has, for decades, quietly drained public coffers. It is a system that has rewarded privilege over performance, entrenched inequality, and undermined the credibility of the state.

The Advocata Institute welcomes this decision. It is a vital critique of a “permit culture” that is a remnant of a feudal past, not a modern economy. A permit is, by definition, a special approval granting selected groups privileged access to benefits unattainable to the general public. It creates an inherently regressive, two-tier system: one for ordinary citizens, and another for those afforded special treatment.

When we examine the case of vehicle permits in Sri Lanka, the dynamic becomes disturbingly stark.

The anatomy of an exemption

To understand the magnitude of this reform, one must understand the distortionary nature of the “permit.”

According to Finance Ministry officials, since 2020 alone, 25,508 duty-free vehicle permits have been issued to Government employees. Even during the economic constriction of recent years, the flow continued: 6,062 permits in 2024 and 2,043 in 2025.

In Sri Lanka, vehicles are expensive because of import tax – a policy imposed and strengthened by Parliament since the 1960s. Issuing exemptions (permits) is, therefore, a fundamentally flawed rationale. It’s the equivalent of penalising an entire class, with no basis for the punishment to begin with, before releasing the favoured students from sanction – all the while cleverly disguising the exemption as a so-called “benefit”. And who are the first beneficiaries? The very policymakers responsible for the high taxes.

Evolution of privilege: From compensation to commodity

Originally introduced as compensation for low nominal salaries, the permit system morphed into a transferable asset and a reliable source of campaign financing. By importing vehicles at the fraction of its taxable price, or by selling the permit itself, MPs were able to generate substantial profits, untaxed, to fund electoral activities. In the decades that followed, eligibility expanded well beyond Parliament. The privilege was extended to senior civil servants and a wide array of public-sector professionals, including but not limited to doctors, university professors, State engineers, and directors of State corporations.

Eventually, permits had become a normalised perk in the public sector, issued as frequently as once every five years. However, this perk was driven not by performance gains, but lobbying pressure. No circular or audit report has ever tied permit eligibility to measurable performance. Entitlement was purely based on title or years of service, thus, creating a dangerously perverse incentive structure.

The result? Permits turned into a predictable political asset, attached to a significant transferable cash value. As vehicle import taxes increased over the years, the value of the permit increased proportionally. The permit itself became an appreciating asset, detached from its initially stated purpose, and thus began the trading of permits too.

In December 2010, Transparency International Sri Lanka revealed that the majority of 65 newly elected Parliamentarians, including 2 Cabinet Ministers, sold their duty-free vehicle permits for as much as Rs. 17 million each, when adjusted for inflation using Department of Census and Statistics figures, that windfall is equivalent to which adjusted for inflation sits at approximately Rs. 48 million today.

In December 2012, in an event the Sunday Times classified as a “Christmas Bonansa for MPs,” the Government granted permission for MPs to openly sell their duty-free permits. At the time, they sold for Rs. 20 million each, which adjusted for inflation sits at approximately Rs. 50 million today.

Consequently, we saw a worsened repetition of this in 2016.

Nagananda Kodituwakku is an attorney-at-law and rights activist, who formerly headed the Customs Revenue Task Force. On 28 October 2016, he wrote to the Commissioner General of Motor Traffic, naming 75 MPs who imported luxury vehicles, including BMWs, Mercedes-Benz, Land Cruisers and even a Hummer. The total tax waived per MP ranged from Rs.30 million to Rs. 44.7 million. In today’s terms, this range approximately translates to between a staggering Rs. 66 million and Rs. 98.5 million.

The numbers speak for themselves.

Since the permit artificially lowers the price of a vehicle for a specific group, they benefit from a subsidised (concessional) price. The relative price of a vehicle falls for members of this group, so demand rises, but this rise is not attributed to market forces. The sudden rise in vehicle purchases among permit holders is not a reflection of genuine need; it is a rational response to a market distortion. They buy not because they must, but because the tax exemption makes it financially irrational not to.

Mechanics of the loss

When a permit holder imports a vehicle, the State suffers a “double blow” to its revenue stream. First, the Treasury forfeits the revenue at the border. The list of waived taxes is exhaustive and compounding:

1. Customs Import Duty (CID)- Calculated as a % of Cost, Insurance and Freight (CIF)

2. Excise Duty (XID)- Calculated using engine capacity, fuel type, vehicle category

3. Social Security Contribution Levy (SSCL)

4. Luxury Tax (LTMV) – Applied when value or engine capacity exceeds specific thresholds

5. VAT (charged on a cascading* tax base: CIF + CID + XID + LTMV)

*This means this tax is calculated on top of the previous taxes, not just the original value of the vehicle.

Second, the State loses on income tax. In most tax systems around the world, law requires the benefit to be assigned an imputed monetary value, so that it may be taxed, just like income. But Sri Lanka’s duty-free vehicle permits have escaped this entirely.

The cost to the citizen

Sri Lanka’s cascading, multi-layered tax structure drives effective import taxation on most passenger vehicles into the 125%–250% range, with the Vehicle Importers Association of Sri Lanka placing some models in the 200%–300% bracket. It is, by any comparative standard, one of the most punitive vehicle-tax regimes in the world.

The macroeconomic consequences are visible everywhere:

Inequality: Middle-income families are priced out of car ownership; mobility becomes a privilege, not a right.

Inefficiency: High tariffs keep the national fleet old and costly to maintain. Older vehicles burn more fuel, produce higher emissions, and compromise road safety. As a result, public transport absorbs pressure it was never designed for

No industrial rationale: Sri Lanka does not manufacture cars, so these tariffs serve no protectionist purpose. These taxes function solely as revenue extraction, and our citizens and economy pay the price.

Tax compliance deteriorates. Consumer choice shrinks. Economic participation weakens.Productivity sours.

A future without exemptions

The move to a “return-after-term” model is the correct economic and ethical step.

Looking forward, the Government must adopt a centralised fleet-management framework. We should look to models like Australia’s, which utilises a single regulated system ensuring consistent pricing, transparent leasing, and the timely replacement of aging units to reduce maintenance costs.

The President’s declaration promises an end to a distortionary era. However, the future relies on vigilance. Citizens, media, and Parliament must ensure this commitment is honoured through transparent procurement and a permanent end to exemptions. The “permit culture” was a price the economy could never afford; it is time we stopped paying it.

Sources

Duty-Free Permits system under scrutiny | Print Edition - The Sunday Times, Sri Lanka

1991 Public Administration Circular No: 14/91

Scheme for Issuance of Motor Vehicle Permits on Concessionary Terms Nos. 01/2016, 01/20

Transparency International Sri Lanka

UNP MPs silent over daylight robbery: Sale of duty free car permits? | The Sunday Times

List of 75 MPs and their Luxury Vehicle Imports | Colombo Telegraph

Ceylon Public Affairs - Vehicle Import Tax Structure

Chapter 87, Motor Vehicle 2025 Tariff Guide

Quantification of Values for Non-Cash Benefits in calculating Employment Income

Ceylon Public Affairs - Vehicle Import Tax Structure

Chapter 87, Motor Vehicle 2025 Tariff Guide

Quantification of Values for Non-Cash Benefits in calculating Employment Income

Fleet Management - The Morning

Appendix

CCPI | Department of Census and Statistics

“Today” = Oct 2025. For inflation calculations, we chain-link across base changes:

1. Within a base, inflation factor between month A and month B =

Factor = Index(B) / Index(A) (same base series).

2. Across base changes, pick a bridge month that appears in both series. Multiply factors in sequence (“chain link”).

3. Multiply the historical amount by the product of factors to get the “today” value.

(The author is an Economic Researcher at the Advocata Institute. The opinions expressed are the author’s own.)

Rebuilding without derailing reforms

By Dhananath Fernando

Originally appeared on the Morning

The Government is proposing an additional Rs. 500 billion supplementary budget for 2026 to manage expenditure linked to Cyclone Ditwah.

Obviously, we have to spend money to restore damaged civil infrastructure, livelihoods, and businesses. But we also need to remember that some reforms were already delayed, and now the cyclone has arrived on top of that.

The economic stability we have achieved, including 5.4% growth and the performance of the stock market, rested on five key pillars of reforms. We cannot compromise those reforms on one side. On the other, we must actively push the next set of reforms needed for growth. The cyclone should not become an excuse to pause the growth agenda.

The Central Bank independence law, the Public Financial Management Act, the Anti-Corruption Act, the setting up of the Public Debt Management Office, and cost-reflective pricing for fuel are five pieces of key legislation that helped rebuild stability. Now, with a new Rs. 500 billion supplementary budget, we are looking at amending the Public Financial Management Act and the 13% primary expenditure limit as a percentage of GDP.

Yes, we need to spend. But before we go to the full stretch of a supplementary budget, we must first be serious about repurposing existing allocations and redirecting budgets to rebuilding priorities. With higher expenditure being planned, revenue performance in 2026 may also weaken.

The main tax measure announced was to bring the Value-Added Tax threshold down, which may broaden the base. Still, the cyclone will affect consumption, production, and compliance in ways that are hard to predict. If revenues underperform while spending expands, we risk a wider budget deficit at the very moment we thought we had regained control.

We also need to be careful about what it means to relax the primary expenditure limit from 13% to 14.4%. This does not mean we should never amend the limit. Exceptional events require flexibility. But once we loosen a fiscal anchor, we should be clear-eyed about the political economy.

If another unexpected event happens within the next few months, the risk is that expenditure drifts further and discipline becomes harder to restore. The right sequence matters: repurpose first, tighten implementation, and then expand only what is absolutely unavoidable.

A wider budget deficit will also create pressure on other safeguards. When fiscal policy slips, monetary credibility comes under strain. The temptation then is to reopen backdoors, delay hard decisions, and use inflation as a silent tax. Even when intentions are good, this is often how political systems behave during shocks.

That is why defending the credibility of the Central Bank independence framework and the fiscal rules-based approach is not a technical obsession. It is the firewall that prevents emergencies from becoming permanent instability.

At the same time, we must move ahead with the reforms that were already pending: strengthening the social safety net through better targeting, land reforms, public transport reforms, and, most importantly, State-Owned Enterprise reforms. These reforms can unlock existing assets, reduce losses, and lift growth without continuously leaning on taxpayers.

Alongside this, trade and investment reforms are necessary for sustained growth. Simply lowering tariff rates, simplifying the tariff structure, and fixing Customs processes are not optional anymore. In fact, the cyclone opens a reform window for the Government, but the reforms must aim beyond merely returning to where we were before the disaster. Rebuilding should mean building better systems, not just repairing broken structures.

The immediate risk is that the national conversation narrows to cyclone recovery and, conveniently, forgets recovery from the economic crisis. Of course, if we fail to recover from the cyclone, another economic crisis is inevitable. But the reverse is also true. If we recover from the cyclone but abandon the economic reforms, we may still slide back into crisis, only with a different trigger.

The only way out is economic reform-led recovery, and we need to move quickly.

At the moment, there is talk of an international donor conference and an International Monetary Fund (IMF) Rapid Financing Instrument to support recovery. These can help, and Sri Lanka should pursue them with urgency and credibility. But the real game changer is defending the reforms that brought stability and executing the reforms that generate growth.

Donor support works best when paired with reforms, because the donor community understands our real weakness: after every external shock, we struggle not because we lack sympathy or even financing, but because we delay hard economic reforms once the immediate pressure eases.

Let us hope this cyclone becomes a turning point not only for relief and reconstruction, but also for the fundamentals of growth. And let us hope the donor community connects its support to long-delayed reforms that can prevent the next shock from becoming the next crisis.

When relief meets reality

By Dhananath Fernando

• Sri Lanka’s construction cost problem

The Government has announced Rs. 5 million for houses completely destroyed by Cyclone Ditwah and up to Rs. 2.5 million for houses that are partly damaged. Bridges and a lot of civil infrastructure have been damaged.

On the other side, the Government has announced a Rs. 200,000 initial relief package for Micro, Small, and Medium-sized Enterprises (MSMEs). The Central Bank of Sri Lanka has also requested Licensed Commercial Banks (LCBs) to offer a loan moratorium of 3–6 months for affected businesses.

These measures are meant to help people rebuild their lives and restart the economy. But there is one vital reform missing from the response. If we ignore it, even well-intended relief will deliver less than promised.

That reform is lowering the cost of construction.

This crisis has created a rebuilding requirement at a scale that no one can ignore. As per released data, about 5,000 houses have been completely destroyed and about 87,000 houses are partly damaged. More than 40 bridges have been affected, and flood waters have reached more than 720,000 buildings, including schools and hospitals.

The damage goes far beyond housing and bridges. A further 1,777 tanks, 483 dams, 1,936 canals, and 328 agricultural roads under the Department of Agriculture have been damaged.

You do not need to be an economist or a financial analyst to understand what this means. Rebuilding will require an enormous volume of construction work. Even the smallest repair job requires materials. A partially damaged house may need new switches, repainting, replacement tiles, and electrical wiring checks after floods. Public buildings will need similar work, while roads, canals, tanks, and dams will need steel, concrete, and heavy repair inputs.

This is precisely why Sri Lanka’s cost of construction becomes the real litmus test of our crisis response.

Sri Lanka’s cost of construction is higher than the region. Worse, the tariff rates on basic construction materials are so high that one can only describe them as inhumane. Housing is a basic need, especially in a disaster. Yet we continue to push up prices through taxes and para-tariffs that make rebuilding unnecessarily expensive for families and for the State.

Consider just a few examples. The total tariffs on steel bars is 33%. The total tariff for cement is 64%. Tariffs on wall tiles are 80%. Sanitaryware is 46%. Aluminium is about 50%. When these numbers sit on top of a massive rebuilding effort, it becomes obvious that a large share of what the Government allocates for construction-related rebuilding ends up as taxes and para-tariffs embedded in prices.

Some may argue that these tariffs help raise revenue to redistribute to cyclone-affected people. But the reality is different. Many of these tariffs are not designed primarily as revenue measures. They are designed to block competition.

Just think about it: why would anyone import when there is an 80% tariff rate? Yet in some sectors, imports still happen even at such rates, because even after paying the tariff, the imported product is cheaper than some local items protected behind these same barriers.

That should tell us something uncomfortable. If the Government does not reduce construction-related tariffs, a significant portion of ‘relief’ becomes indirect support for unproductive, protected businesses. In other words, the country attempts to rebuild after a disaster while keeping policies that quietly inflate the bill and reward rent-seeking.

During the crisis, there was a powerful story that Welikada Prison inmates contributed one meal for those affected. Even prisoners were willing to compromise. Now imagine, at the same time, the State maintaining a policy environment that creates room for excessive profits for protected sectors in one of the worst crises Sri Lanka has faced. That is not just bad economics. It is morally indefensible. It will not pass the test of any moral compass.

There is also an international dimension that the Government cannot keep dodging. The World Trade Organization (WTO) does not permit customs duty in excess of 30%. Sri Lanka imposes the Ports and Airports Development Levy, the Commodity Export Subsidy Scheme (CESS), Value-Added Tax (VAT), and Social Security Contribution Levy (SSCL), all of which have a cascading impact.

These layers are used to find loopholes in WTO guidelines, but the economic outcome is simple: higher prices, lower competitiveness, and a heavier burden on citizens at the worst possible time.

So the question of whether the Government is willing to change tariffs on construction is not just a test of the influence of certain rent seekers. It is a test of common sense and a test of our humanity. If we are serious about rebuilding after the cyclone, the Government must remove these additional tariffs and bring the cost of construction down for all those affected.

If we fail, we will not only fail families trying to rebuild homes. We will fail as a nation trying to recover with dignity.

A turning point for a more resilient economy

By Dhananath Fernando

What Sri Lanka faced with Cyclone Ditwah is unprecedented. The loss of human lives and the damage to homes, roads, and livelihoods cannot be captured in a single-rupee figure.

There is very little value in the blame game now. The only useful response is to ask how we can build better, not simply build back. Our strategy has to be better than before.

This is not easy. We are coming out of a painful debt restructuring and a severe economic crisis.

The first step is a decision. If we aim only to put things back to where they were, we will almost certainly fail. If we decide to build better, we must accept that the main bottleneck will not be money alone. It will be the way the State works.

Governments can find money. Multilateral agencies and friendly countries can support us. But delays come from bureaucracy and procedures.

After the tsunami, Sri Lanka had more than enough funds on paper. The real problem was spending it on time. Files moved slowly, approvals were stuck, and people waited.

Transparency and good governance are essential. Yet too many layers, too many signatures, and too much fear of taking a decision can cause more harm than good.

Four pillars

To avoid repeating the same mistake, we need four pillars to work together.

The first is the strategic layer, led by the President and the Cabinet. They must set clear priorities and identify the main areas for rebuilding. Roads, bridges, schools, hospitals, tanks, and other public infrastructure that are critical for mobility, education, health, and agriculture need immediate attention. This is a macro-level decision. The Government must say clearly which districts, which sectors, and which projects are first in line and publish that list.

The second is the Treasury and finance layer. This is where funds must be released quickly and predictably. The good news is that in the first 11 months of 2025, revenue performance has been better than expected. That gives some room. But the key is not only how much money we allocate. It is how fast we transfer it to the agencies that can actually spend it. Districts that are hardest hit must get advance allocations linked to the priorities decided at the top, with simple formulas and simple reporting.

The third is the operational layer. Here the district and divisional secretariats, provincial authorities, and local councils are in the front line. Their spending limits need to be raised for emergency work. Their procedures to call bids for urgent repairs must be simplified. If we wait for a central mechanism in Colombo to clear every road, tank, dam, culvert, and minor bridge, recovery will drag on for years. Many of these tasks can and should be done at the local level, with standard price schedules, simple contracts, and strict but reasonable timelines.

The fourth is the governance and transparency layer. Faster spending does not mean a free-for-all. The Auditor General’s Department should be involved from the start, not at the very end only to write a critical report. Clear guidelines on emergency procurement and reconstruction can be issued for all district and divisional secretariats so they act as one team. Major bridges and A-class roads can remain under central ministries. But cleaning debris, repairing rural roads, restoring minor irrigation, and helping affected households should be decentralised.

The work of rebuilding

To make this work we have to trust our officials, empower them, and hold them accountable. If the State worries about capacity, we can invite professional bodies such as the Institute of Chartered Accountants of Sri Lanka and engineers’ associations to support audit, monitoring, and technical approval. This will improve both speed and credibility.

Support to affected households should also be as close to the ground as possible. Cash transfers, vouchers, or material assistance should be handled at local level using existing social protection lists, with space to update them after proper verification. People who have lost everything should not have to travel from office to office, or from district to Colombo, to prove that they are victims.

If any regulatory changes are needed to relax procedures in the short term, the Government has the numbers in Parliament to act. Emergency regulations and amendments with sunset clauses can be used for a limited period, with clear publication of all contracts and major payments.

At the same time, the Government must revisit the 2026 Budget. Some spending planned for less urgent areas will need to be repurposed towards rebuilding and repair. This will also mean a conversation with the International Monetary Fund (IMF). Some targets and benchmarks may have to be adjusted so that the revised budget remains consistent with the programme while giving space for essential recovery spending.

In the medium and long term, ‘building better’ must be tied to structural reforms. Ditwah has shown again how vulnerable our people are. Food tariffs that keep prices high hurt poor households during and after a disaster. Construction sector tariffs on cement, steel, tiles, and fittings raise the cost of rebuilding houses, bridges, and factories. Land and labour market rigidities slow investment and job creation when people need work the most. State-owned enterprises that control key inputs like electricity and fuel must also be part of a serious reform agenda.

Usually, a government has a reform window of three to six months after coming to power. A crisis of this scale opens another window of three to six months. People understand that change is necessary when their lives and livelihoods are at stake. If the Government chooses to lead, Ditwah can be not only a tragedy but also a turning point for building a stronger, fairer, and more resilient Sri Lankan economy.

The economics of floods we keep forgetting

By Dhananath Fernando

Natural disasters and national emergencies do not arrive every day. But when they do, if we are unprepared, the damage can shape our lives for years. As floods intensify across the country, we hope our readers and all Sri Lankans are safe. Our thoughts are with everyone affected.

A familiar pattern repeats during every crisis. In the middle of the emergency, there is no shortage of commentary, ideas, and expert panels. Yet once the water recedes, our attention recedes with it. Reports gather dust, committees dissolve, and we wait for the next disaster to teach the same lesson again.

But natural disasters have an economic side that we rarely discuss. Managing them is not a simple Government-versus-private sector debate. It requires everyone – State, private sector, communities, and individuals – to play a part.

The first pillar is identification and prevention. This lies mainly with the Government. Investing public funds in proper disaster management systems is essential, not optional. A modern system must include accurate weather forecasting, river and reservoir monitoring, rapid communication tools, and tsunami alert networks.

With climate change intensifying extreme weather, Sri Lanka must prioritise floods, landslides, and coastal hazards. The encouraging news is that many global partners stand ready to help, if we can present a credible plan and maintain continuity in implementation.

The second pillar is understanding risk and preparing people. After the 2004 tsunami, Sri Lanka built some capacity: drills, awareness programmes, and clear guidance in risk zones. These efforts are not perfect, but they show we can act when we learn from tragedy.

We now need the same commitment for floods, landslides, and droughts. Risk maps must be updated regularly, zoning laws enforced, and evacuation routes rehearsed. But identifying risks alone does not guarantee safety.

The Koslanda landslide is a painful example. The area had been identified as high risk and equipment had been issued, yet the system failed. Telling people to evacuate is easy. Convincing them is difficult. Many fear theft, losing their valuables, or damage to their homes.

In every major flood near the Kelani River, we see hesitancy to leave, even when the danger is clear. For a family with limited assets, their home is everything. Walking away without assurance of security feels impossible.

This is where community-level solutions matter. Secure storage points, community-managed watch systems, and support from local Police can give people confidence to evacuate early. Temporary safe locations must be identified, tested, and publicised long before an emergency. These systems do not require large budgets, only coordination and trust.

The third pillar is insurance as a financial buffer. In Sri Lanka, the first responders are the armed forces, Government officers, and volunteer groups. Their role is essential. But in a well-prepared system, insurance absorbs a significant part of the financial loss.

Insurance is not only about payouts. When insurers assess a property, they analyse its disaster risk. This creates clear price signals. High-risk zones face higher premiums, discouraging settlement in vulnerable areas. Better data allows insurers to price risk accurately, which encourages investment in monitoring and early-warning systems. It creates a virtuous cycle where good information has real economic value.

Sri Lanka’s insurance penetration is low, and it is unrealistic to expect every household to be covered. But even partial coverage builds resilience. Insurance spreads risk, supports recovery, and funds the very information systems that reduce future losses.

Disaster management, the rule of law, and proper regulation are core responsibilities of the State. When government performs well here, the whole country benefits. Unfortunately, over successive administrations, the State has often done what it should not do, and failed to do what only it can do. Unlike many other areas of governance, disaster management has no private sector substitute.

Ignoring the economic logic of disaster preparedness is itself a silent disaster. If we continue to treat floods and landslides merely as humanitarian events, and not as recurring economic shocks that can be managed and reduced, we will keep paying the price in lives, in property, and in opportunities lost.

Disasters may be natural. Their impact, however, is shaped by the choices we make long before the rains begin.

When Price Caps Backfire: Rethinking Rice Policy

By Tormalli Francis

For a country that prides itself on self-sufficiency, Sri Lanka’s struggle to keep rice both affordable and available has become a recurring national drama. Long seen as the backbone of food security, the rice industry has weathered turbulent seasons — from erratic weather and disrupted harvests to sudden policy shifts and market shocks. In the latest Maha season, 701,453 hectares were cultivated, producing 2.7 million metric tonnes of paddy. Yet despite paddy dominating the country’s farmland, productivity gains have largely stalled — even slipping in recent years — reflecting both the resilience of farmers and the mounting strain of input shortages and climate disruptions.

The government’s recent purchase of over 40,000 metric tonnes of paddy through the Paddy Marketing Board (PMB), under a Rs. 60 billion procurement programme, highlights the state’s continued effort to stabilise supply. Yet, despite these interventions, the market still faces periodic shortages and sharp price swings that leave both farmers and consumers frustrated. These recurring bouts of scarcity expose the fragility of Sri Lanka’s rice economy — one long cushioned by decades of price controls aimed at shielding consumers. But in doing so, these policies have distorted incentives across the value chain, discouraging investments in production, storage, and distribution.. The result is a system that perpetuates the very instability it seeks to prevent. It is time to ask whether these controls genuinely strengthen food security, or merely preserve inefficiency in one of the country’s most sensitive markets.

The recent shortage of keeri samba rice lays bare the structural weaknesses in Sri Lanka’s rice production system. Favoured by urban consumers in the Western Province for its distinct taste and texture, keeri samba receives little state-level production support. Government-supplied seed paddy through the Department of Agriculture and the Paddy Marketing Board (PMB) is dominated by Nadu and other high-yielding varieties, prioritised for their productivity and lower cost. This bias is reinforced by a glaring data gap — the government lacks consumption data by variety. While the Household Income and Expenditure Survey (HIES) offers some insight into rice consumption patterns, it does not break down demand by type, leaving policymakers blind to shifts in consumer preference.

As a result, farmers often respond to the availability of subsidised inputs rather than to actual market demand. The acreage under keeri samba has steadily declined, making up only 14% of paddy cultivation during the 2024 Yala season (Figure 1). The problem is compounded by the infrequent nature of the HIES — conducted just once every five years — which fails to capture fast-changing consumption trends. Without targeted seed distribution or data-driven planning, keeri samba production remains limited and highly vulnerable to weather shocks, storage losses, and opportunistic stockpiling.

Figure 1: Keeri samba percentage of all cultivated paddy.

Sri Lanka’s rice market remains heavily tilted in favour of a few powerful millers who wield disproportionate control over both supply and price. With the capital and storage capacity to buy up large volumes of paddy right after harvest, these millers can influence availability and set the tone for prices during the off-season. This imbalance is compounded by the state’s chronic data deficit. The lack of accurate, up-to-date consumption data — especially by variety — leaves policymakers reacting to crises rather than preventing them.

While government interventions like price controls and import openings are often made in the dark, private millers operate with a distinct advantage: they have their own market data, financial liquidity, and logistical foresight. They can anticipate demand surges and time the release of stocks to their benefit, effectively steering the market. What emerges is a predictable cycle of shortages — not due to an actual lack of rice, but as the by-product of distorted policy incentives and concentrated market power.

The continued preference for keeri samba, despite its limited cultivation, has elevated it to a premium rice variety — one whose price now reflects both scarcity and status. In the aftermath of the economic crisis, as incomes recover and consumption habits shift, the price gap between Nadu and keeri samba has only widened. Yet, when the government steps in with price controls during shortages to “protect consumers,” the outcome is often the opposite. Controlled prices, especially when set below market-clearing levels, discourage traders from selling and create artificial shortages.

As supply dries up, demand intensifies, fuelling informal markups and the rise of black-market channels. When official price ceilings make open retail trade unprofitable, rice quietly flows through backdoor networks where millers, wholesalers, and retailers sell keeri samba at inflated prices. The result is a system where a handful of well-positioned players — those with the means to buy, store, and distribute — reap windfall profits while ordinary consumers face higher prices and fewer choices. In the process, transparency and trust in the rice market erode, leaving the illusion of control but little real stability.

The distortions extend to imported rice as well. A recent gazette introduced price caps for various imported varieties in response to the keeri samba shortage. But such ceilings, imposed without easing import restrictions or cutting tariffs, only worsen scarcity. Traders cannot import or sell at controlled prices when costs exceed the mandated ceiling. To make matters worse, the government often lacks the data needed to determine the true selling price, resulting in arbitrary controls that miss the mark. Ultimately, the persistent shortages of rice — across all varieties — are not a reflection of agricultural failure, but of regulatory misalignment that rewards market manipulation over genuine efficiency.

The keeri samba shortage is not merely a story of poor harvests, but of systemic policy distortions that undermine market responsiveness. By favouring uneven seed paddy distribution and enforcing rigid price controls, the government has created a rice market that ignores both consumer demand and production realities. At the same time, limited data transparency allows well-positioned players to exploit information gaps, while ordinary consumers face recurring scarcities and soaring prices. To restore stability, policy must shift from control to coordination, investing in variety-specific data, liberalising pricing, and fostering competition across the value chain, so that the rice market serves both farmers and consumers efficiently.

SriLankan Airlines: Flying in circles with no flight plan

By Dhananath Fernando

Originally appeared on the Morning

SriLankan Airlines (SLA) is not a new name in the country’s long list of financial headaches. It is our National Carrier, a symbol of pride when it flies, and a source of embarrassment when it falls into losses and political meddling. Governments have changed, but the story has remained the same.

Today, the situation is worse than ever. The airline is practically impossible to rescue in its current form. The previous Government invited investors to take over or partner with the airline, but not a single credible party showed interest. The reason is simple: the balance sheet is deeply negative.

Last year, SriLankan Airlines made a profit of about Rs. 7.9 billion. This year, it has reported a loss of about Rs. 2.7 billion. Some argue that the airline should remain under State control. But even if the Government wanted to divest, the question is who would want to buy an airline buried in debt.

The truth is, the problem is more serious than it appears. The saddest part is that there is no restructuring plan at all. The Government seems to have accepted the airline’s own proposals and continues to operate without a clear direction.

According to the National Audit Office, continuous Government support is required just to keep the airline running. Last year alone, taxpayers injected Rs. 20 billion into it.

Let us look at how much public money has been spent over the years:

2010: Government buys back Emirates’ 43.6% stake for $ 53 million

2011/’12: Capital infusion of Rs. 14.3 billion through Treasury bonds

2014: Treasury settles Rs. 26.11 billion owed to the Ceylon Petroleum Corporation (CPC) for unpaid fuel bills

2016: Cabinet approves absorbing Rs. 461 billion of SLA liabilities

2023–2024: Government agrees to absorb $ 510–553 million of SLA debt

H1 2024: Equity top-up of Rs. 5 billion for cash flow support

Budget 2025: Rs. 20 billion allocation for legacy debt service

Since parting ways with Emirates, we have repeatedly returned to the Treasury for help.

Even though the airline shows an operating profit, it is not enough. The load factor is around 70%, while the break-even point is about 76%. The main losses come from finance costs, which are roughly Rs. 30 billion each year — a huge amount compared to revenue.

To stay competitive, the airline needs investment to modernise its fleet and improve efficiency. But the Government has no funds, and no investor or lender will come forward without a Treasury guarantee. The new Public Debt Management Act makes such guarantees more difficult and costly.

Revenue and passenger numbers have also declined compared to the previous year, even as tourism recovers. According to the Sri Lanka Tourism Development Authority, SriLankan Airlines carries only about 27-30% of tourists, while nearly 70% arrive through other airlines. This suggests that service issues, repair delays, and stronger competition are taking away loyal passengers.

At the group level, monopoly businesses such as ground handling and catering help to cover some losses, but they also make the entire aviation industry less competitive.

Even if the airline were liquidated today, it would still need Rs. 379 billion to settle its debts. Around Rs. 90 billion is owed to State banks such as Bank of Ceylon and People’s Bank. Writing off those loans would hurt the stability of the banking sector.

Despite its financial troubles, SriLankan Airlines still operates on important routes and has an excellent safety record. The brand has emotional value for many Sri Lankans, which is why restructuring will face resistance from employees, trade unions, and politicians.

So what can be done?

Option 1: Dress up the balance sheet once and for all. Inject the required taxpayer money, absorb the liabilities, and then look for a strategic investor.

We have tried partial fixes for years, taking over some debt and hoping the airline will perform better, but that approach has failed. If we want to attract a serious investor, we must clean it up completely and find a partner with deep experience in aviation.

However, this must be done with a clear legislative direction and timeline. Otherwise, once the debt is absorbed and the airline begins to show a profit, a new debate will arise questioning the need to privatise a profit-making National Carrier. The political economy will then move quickly to block reform, forgetting that the taxpayer had already paid for the cleanup.

Option 2: Package SriLankan Airlines with other State assets such as the Mattala or Ratmalana airports to make it more attractive to investors.

This might require relocating some Air Force operations and preparing a comprehensive restructuring plan. But such an approach takes time, and time is exactly what we do not have. The longer we wait, the deeper we fall, and the more political and geopolitical interests get involved.

There is no point blaming the airline or its employees. The problem is not in the sky but on the ground. We simply have no plan.

It is time to get our act together, because a national airline without a flight plan can only keep flying in circles.

Tax without tricks

By Dhananath Fernando

Originally appeared on the Morning

Any budget is about two things. How much the government spends and how it raises the money.

In a national budget, most revenue comes through taxes and tariffs. Ahead of budget day, it helps to revisit the basic principles of good taxation, because businesses and households worry not only about new taxes, but also about shifts to thresholds, exemptions, holidays, and border tariffs.

The President has indicated that the new Budget does not plan to impose new taxes, which is welcome. But tax is a technical field. Even without new taxes, changes to rates, bands, and holidays can reshape the burden. All this happens while Sri Lanka is in its 17th International Monetary Fund (IMF) programme with agreed benchmarks.

Govt. spending today is tax tomorrow

There is a blunt truth about public finance. Every rupee the Government spends must be paid for by someone. If it is not collected this year, it will be collected in the future. When we borrow to fill the deficit, interest and repayments still come from taxpayers.

Unlike a household, a sovereign can also create money. That route does not make costs disappear. It shifts them into inflation, which works like a hidden tax. This is why every expenditure line in a budget is, in effect, a future claim on citizens. Discipline on spending is the foundation for a lighter, fairer tax system.

Taxes at the border are the worst kind

Among ways to raise revenue, tariffs at the border are generally the most damaging. They raise prices for consumers, protect inefficiency, invite lobbying, and complicate trade.

This column has often examined tariff policy, so today the focus is on core tax principles that should guide the Budget.

Simplicity

Tax rules should be simple to understand and simple to administer. Complexity breeds loopholes, evasion, and higher compliance costs. Multiple bands, special cases, and technical fine print frustrate honest payers and overwhelm administrators.

Sri Lanka’s personal income tax already has several thresholds and special treatments, including differences by source and currency. The direction of travel should be towards fewer bands, clearer definitions, and straightforward filing.

Transparency

People comply more willingly when they can see the rules and the results. Transparency has two sides.

First, taxpayers must know what is taxed, how it is calculated, and how decisions are interpreted. Second, citizens should see where the money goes.

Publishing timely, readable accounts of ministries, departments, and State enterprises is part of this. Clarity in the law and clarity in spending both strengthen trust.

Neutrality

A good tax system does not pick winners or punish losers. It does not tilt the field with ad hoc holidays, selective exemptions, or retroactive changes.

Sri Lanka has seen cases of both, and we paid a price in credibility and lost revenue. Neutrality means the same rules for all, with limited, clearly justified exceptions. When policy favours the connected or penalises the unfavoured, investment shifts from serving customers to seeking favours.

Stability

Frequent tinkering is costly. When rates and thresholds change too often, compliance burdens rise and planning becomes guesswork.

Sri Lanka has repeatedly altered Value-Added Tax (VAT) rates and income tax thresholds in short spans. Stability does not mean never changing. It means changing seldom, with notice, and for clear reasons. Bad policy made in haste is expensive to unwind. The economy needs a steady hand more than clever new tweaks.

Tax competitiveness

Firms and talent look across borders. Our personal and corporate tax burdens should be in line with the region if we want to attract investment and retain skills.

Competitiveness cannot be achieved by wishful thinking. It comes from controlling spending so that rates can be kept moderate. If outlays keep rising, taxes must follow, or inflation will. Either way, growth suffers.

The Sri Lankan context

We are living with the bill for years of high spending and borrowing. Interest costs crowd out other priorities and the system leans on distortionary tools such as border taxes.

The Budget must therefore do three things at once. Hold the line on expenditure, simplify and stabilise the core taxes, and reduce reliance on tariffs and discretionary incentives that undermine neutrality and transparency.

A checklist for the Budget

Are spending commitments realistic, prioritised, and affordable without hidden inflation taxes later?

Do the tax proposals reduce bands, special cases, and compliance steps?

Are all changes clearly explained, with drafts and guidance published early?

Do measures avoid retroactivity and selective holidays?

Do the overall rates and rules keep Sri Lanka competitive in the region?

The bottom line

Revenue matters, but expenditure discipline matters more. If we keep spending under control and align with the basic principles of simplicity, transparency, neutrality, stability, and competitiveness, Sri Lanka can raise what it needs with less harm to growth. If we ignore these principles, we will pay through weaker investment, fewer jobs, and slower incomes.

As the Budget approaches, the call is simple. Keep taxes clean and predictable. Keep spending honestly and affordably. Keep Sri Lanka competitive. That is how a budget serves the people, not just the balance sheet.

Two simple tests for a good budget

By Dhananath Fernando

Originally appeared on the Morning

How should the President judge whether his upcoming Budget is good or bad? A budget is not only about income, expenditure, and the gap in between. A national budget sets policy direction while balancing the books.

In Sri Lanka there is limited control on the expenditure side in the short term. The largest item is interest payments. Most of the rest is recurrent spending on salaries, pensions, and transfers. Even when capital allocations are made for public infrastructure, they are often underspent to plug rising recurrent bills.

So how do we judge the numbers fairly when interest costs are so high? Take interest out and see if our revenue covers all non-interest spending. That is the primary balance. If revenue exceeds non-interest expenditure, we have a primary surplus.

Interest payments are largely inherited liabilities, and there is very little a finance minister can change quickly. This means the first test of a sound budget is whether the primary balance improves credibly.

But budgets are also about policy signals. Do they show a pro-poor, pro-growth direction that reduces people’s cost of living and helps businesses invest? On that front, this Budget will tell us whether the President is serious about lowering the cost of construction.

Before being elected, while presenting the National People’s Power (NPP) economic manifesto, President Anura Kumara Dissanayake said the price of tiles was too high and that import controls had pushed construction costs up. Now there is an opportunity to correct this.

Among many inputs, four items matter for any basic building: cement, steel, tiles, and sanitary ware. If the Government wants growth, policy should aim to bring these costs down.

A practical way is to cut para tariffs like cess and the Ports and Airports Development Levy (PAL), and to rationalise Customs duties where possible. Border taxes hurt cash flow because they are paid upfront.

When you import cement or tiles, cess and PAL are charged at the point of entry, so the project’s cost is frontloaded. That pushes financing needs up on day one, raises interest costs on working capital, and can make projects unviable. House builders delay, small contractors scale down, and factory expansions stall.

Today a bag of cement in Sri Lanka often costs nearly twice what it does in Thailand, and other materials show similar gaps. The result is visible in half-built houses and delayed renovations across the country. Lowering these input costs will help families finish a home, schools stretch their budgets further, and firms add floor space to expand production.

So here are the two simple tests to judge this Budget.

First, does the primary balance improve in a way that is believable and sustained?

Second, does the Budget lower the cost of construction by cutting para tariffs, simplifying taxes, and allowing more competition and supply?

If both tests are met, the Budget will be pro-poor and pro-growth. If not, the numbers may look tidy for a year, but homes will stay unfinished and investments will remain on hold.

One year in: Taking stock of the Govt.’s performance

By Dhananath Fernando

Originally appeared on the Morning

The President celebrates one year in office this week. Anniversaries are not just milestones for celebration but moments for reflection. After the first year, it is important to pause, assess performance, and take a look back at how the Government has fared.

We can measure it in two ways: against the promises made in the manifesto or against the real impact it has created. Manifestos, however, are written in a different time and often fail to account for the speed at which global dynamics shift.

What matters more is how a government adapts to unexpected events and whether it can remain steady in its commitments while being flexible in its tactics.

Navigating global shocks

For this Government, the most immediate test came in the form of external tariffs imposed by the United States. For an export-dependent country like Sri Lanka, this was no small matter. Yet, through negotiations and careful positioning, the Government managed to secure rates comparable to those faced by competitors such as Vietnam, Indonesia, Thailand, and Bangladesh.

This outcome was not perfect; Sri Lanka did not secure special exemptions or a breakthrough advantage, but in relative terms, it ensured that exporters were not left at a severe disadvantage. Given our vulnerability, parity itself can be considered a modest success.

Staying the course on economic anchors

The more significant achievement, however, has been in what the Government chose not to do. In Opposition, it was deeply critical of the International Monetary Fund (IMF) programme, debt restructuring, and even institutional independence. In office, it resisted the temptation to reopen these debates.

The IMF agreement is not a magic pill for growth, but it is an anchor of credibility. Bilateral and multilateral partners are only willing to extend support if Sri Lanka remains within the framework. Re-negotiating or exiting would have shattered fragile investor confidence. The decision to stay the course despite earlier political rhetoric is one of the Government’s strongest moves.

Equally important was continuity in the bureaucracy. Retaining senior officials like the Treasury Secretary and the Central Bank Governor, despite earlier criticism, signalled stability. The Central Bank’s independence — once challenged in court by the same political actors — was not overturned. In a country where ad hoc shifts in policy have been the norm, these decisions represent a break with the past.

Policy consistency and digitisation

The Government has also placed a clear emphasis on digitisation. This is not glamorous politics, but it is critical for modernising the State.

Investment in digital platforms, citizen-facing services, and e-governance can reduce corruption, cut red tape, and improve trust. Execution here will matter more than announcements, but the focus is right.

Where it fell short

Yet, the record is mixed. The first 100 days, a period traditionally reserved for hard reforms, lacked decisive moves on growth. This was a lost window. Early political capital is invaluable, and reforms delayed are often reforms denied.

On electricity, the amendments pushed through were poorly thought out. While the sector desperately needs investment to modernise the grid, the structure presented remains too complicated to attract private capital. This has left both investors and consumers uncertain. The result: more delay in a sector central to growth.

The casino regulation bill was another missed opportunity. Instead of a carefully designed framework to maximise foreign exchange inflows and create predictable tax revenues, the rushed bill left loopholes and generated criticism.

Properly regulated gaming could have been a valuable source of revenue, especially given the need for fresh dollar inflows, but haste undermined credibility.

A mixed scorecard

Looking at the first year as a whole, the Government can claim several wins:

• Managing global tariff shocks without falling behind competitors

• Staying in the IMF programme and pushing debt restructuring forward

• Maintaining institutional continuity and not reversing Central Bank independence

• Prioritising digitisation as a long-term reform

At the same time, its shortcomings are notable:

• Failing to push through bold, growth-driven reforms in its first 100 days

• Weak design in critical reforms like electricity

• A poorly structured casino bill that squandered an opportunity for new revenue

The road ahead

The next stage will be harder. Stabilisation was the first priority; growth must now take centre stage. Without growth, fiscal adjustment will remain politically painful, and social patience will wear thin. The Government must focus on reforms that can unleash private investment by simplifying tariffs, unlocking land titles, and modernising State enterprises.

Above all, it must resist the temptation of short-term populism. Stability has been bought at a cost, but it will only pay off if the Government uses this breathing space to create conditions for long-term expansion.

Anniversaries are for both reflection and recommitment. As the Government marks one year, the people expect not just steadiness in storms but boldness in calm. If the first year was about survival, the second must be about growth.

Land: Sri Lanka’s forgotten asset

By Dhananath Fernando

Originally appeared on the Morning

The headlines are full of talk about asset declarations of ministers. But while the political class debates what they own, the nation has forgotten its real asset: our land. If the forthcoming Budget is to mean anything for growth, it must finally prioritise the country’s most underutilised resource.

Sri Lanka’s land problem is not new. The Harvard Growth Diagnostics study and many others have identified weak property rights as a binding constraint on growth. About 80% of land, including forests and reserves, is owned by the State. Vast tracts lie idle in the hands of Government agencies. Even private land, though held by millions of families, is often locked away from productive use because it exists only in the form of deeds, not secure, State-backed titles.

This distinction is crucial. A deed records the history of a land transaction but does not guarantee ownership. Multiple deeds can exist for the same plot, leaving ownership contested. A title, by contrast, is conclusive proof. It is recognised by the State, cannot be disputed once registered, and gives families and businesses the security to invest, sell, or borrow against it.

The ‘Bim Saviya’ programme, launched in 1998, was meant to move Sri Lanka from deeds to titles. Nearly three decades later, out of 16 million land parcels, just over a million titles have been issued. At the current pace of around 50,000 per year, the process will take 300 years. By then, the world will have moved on, but Sri Lankans will still be queuing at banks, waiting months for loan approvals while surveyors sift through deed histories stretching back three decades.

The consequences are immense. Without secure titles, banks hesitate to lend. Businesses cannot expand. Farmers cannot unlock capital. Families remain vulnerable to fraud. As Hernando de Soto famously described, Sri Lanka is sitting on mountains of “dead capital”.

Why are we stuck? The law itself is outdated, modelled on Torrens systems that do not reflect Sri Lanka’s complex co-ownership, religious, and customary land arrangements. Institutions are fragmented, with responsibility split between the Survey Department, the Land Title Settlement Department, and the Registrar General’s Department. No single body is fully accountable.

Capacity gaps are crippling: more than half of surveyor posts remain vacant. Dispute resolution has collapsed, with only 11% of mediation boards functioning by 2023. Even where land has been surveyed and gazetted, hundreds of thousands of titles remain in limbo.

This is not simply a funding issue. It is a leadership issue. Unless the Cabinet elevates land titling to a national priority, progress will continue to crawl.

The 2026 Budget is the moment to act. Three bold steps can change the game.

First, modernise the law. A legal taskforce must redraft the 1998 act within 12 months, clarifying co-ownership, religious, and State land, and establishing a proper compensation mechanism.

Second, make conversion compulsory. Every sale, mortgage, or inheritance should automatically become a title transaction. Within 15 years, the deed registry could be phased out entirely.

Third, fill the gaps with private capacity and smart financing. Licensed private surveyors can be engaged under Government oversight. Modest registry surcharges and optional fast-track services can reduce reliance on Treasury allocations, while donor or Public-Private Partnership support can be tied to performance milestones.

These reforms would more than pay for themselves. Banks report that title-backed loans can be processed in as little as a week, compared to two or three months for deeds. That is not just about efficiency. It is the difference between a farmer missing a planting season and being able to grow, or a small business waiting months for credit versus expanding immediately.

Most importantly, titles provide ordinary citizens what deeds cannot: security, credit, and peace of mind.

While airtime is wasted on politicians’ asset declarations, Sri Lankans are waiting for their real assets, their land to be recognised and freed. Accelerating ‘Bim Saviya’ is not a technocratic exercise. It is a once-in-a-generation reform that can unlock growth, empower citizens, and give the economy the lifeline it so badly needs.

This budget should finally deliver it.

Housing for presidents vs. housing for people

By Dhananath Fernando

Originally appeared on the Morning

The past week’s talk has been about curtailing housing facilities and other perks for former presidents. Many Sri Lankans are rightly interested in where former leaders live. But here is the real question: why are millions of ordinary Sri Lankans struggling to build their own homes?

Housing is a basic human need. Yet in Sri Lanka, it is not only the poor but even the middle class who fight an uphill battle.

Look around any neighborhood: countless homes remain unfinished. The ground floor is barely complete, steel rods jut out of columns waiting for a first floor that never comes. Walls stand unplastered, kitchens are bare, and curtains are unaffordable. For many families, building a house is a lifelong project, and they often finish only when they are close to retirement.

A few years ago, Advocata research showed just how bad the situation was. Sri Lanka’s housing affordability is among the worst in the world, worse than New York, Tokyo, or London. We rank only behind Shanghai. In simple terms, compared to how much we earn, our housing costs are higher than in some of the richest cities on earth.

Even lifetime savings don’t take us far. A Sri Lankan in the 70th income percentile can only afford a 500 sq ft house. To buy a modest 1,000 sq ft house, you need to be in the top 20% of earners.

Why is housing so expensive? The answer is simple: construction materials are outrageously costly because of sky-high import tariffs. Wall tiles, floor tiles, cement, steel, bathroom fittings, you name it, are all slapped with layers of taxes: CESS, PAL, Customs duty, VAT. Sometimes these add up to over 100%.

Some argue tariffs don’t matter since Sri Lankan companies make many of these products locally. But if that’s true, why do we need tariffs at all?

The reality is that imported materials are often 50–75% cheaper than local products. Once tariffs block competition, local manufacturers raise their prices too. And when tariff rates cross 70% or 100%, imports stop coming in entirely. So the Government doesn’t earn much revenue either; most Customs income actually comes from vehicle imports, not construction materials.

Take the numbers: cement in Sri Lanka costs about 120% more than in China. Steel is 48% more expensive than in Singapore. Tariffs on tiles and bathware are above 70%.

This is not just about houses. High construction costs spill into the whole economy.

Every industry needs buildings and energy. When our costs are higher than the region, our businesses become uncompetitive. Since most construction is financed through bank loans — often at interest rates around 12% — these inflated costs also bleed into debt burdens for families and companies alike.

The Government itself pays the price. Each year, capital expenditure is a major budget item, and inflated costs mean taxpayers get less value for every rupee spent. The tourism sector suffers too. Hotels are expected to renovate every five to seven years, but when construction is so costly, they either delay upgrades or pass the expense onto visitors, hurting competitiveness.

And look at our negative list in trade deals. Most construction materials are excluded, meaning they will stay protected even under free trade agreements. That says a lot about who benefits from keeping costs high.

For small and medium-sized enterprises, the story is even worse. Expanding a workshop, building a new facility, or even basic repairs all become nearly impossible when construction costs are inflated and when credit is tight.

If the Government is serious about helping industries, boosting competitiveness, and giving relief to the middle class, it must bring down the cost of construction. And that means cutting tariffs.

It’s time we cared as much about the housing struggles of ordinary Sri Lankans as we do about the houses of former presidents.

SOE closure is good, but is only the beginning

By Dhananath Fernando

Originally appeared on the Morning

The Government’s recent decision to shut down 33 State-Owned Enterprises (SOEs) is commendable and a step in the right direction. Sri Lanka has far too many SOEs, with the State entangled in almost every sector imaginable – aviation, retail, banking and finance, agriculture, ports, insurance, transport, energy, and even chemical production.

What many people do not realise is that government involvement in business is not just inefficient. It is at the heart of our debt and economic crisis. SOEs are heavily indebted, crowd out credit that should go to the private sector, and operate in areas where private businesses could be far more productive.

Once upon a time, there was an argument that the government should be in business to ensure a ‘level playing field.’ That argument has long expired. Today, SOEs do not level the field, they tilt it. With mounting losses, inefficiency, and distortions, they have undermined competitiveness rather than protected it.

The State already has a stake

It is worth remembering that the Government already has a built-in stake in every business through taxation. Corporate tax is 30% of profits, and once businesses cross the Value-Added Tax (VAT) threshold, a further 18% is levied on value addition. In other words, the State captures a significant share of private profits without having to own or operate businesses.

The problem is that Sri Lanka has too few private businesses because the State has occupied their space and run it unproductively.

The real giants of losses

Closing 33 SOEs is good, but it is only the beginning. Sri Lanka has more than 500 SOEs if one includes subsidiaries and sub-subsidiaries. Some even operate as departments – railways and postal services, for instance, which are technically not SOEs but still run as commercial operations.

In reality, around five large SOEs account for 80% of the losses. These are:

• Ceylon Electricity Board (CEB)

• Ceylon Petroleum Corporation (CPC)

• National Water Supply and Drainage Board (NWSDB)

• Sri Lanka Transport Board (SLTB)

• SriLankan Airlines

Restructuring these giants is critical. Attempts have already been made with the CEB, but as this column has previously argued, reform has been slow and the hurdles to attracting capital remain high.

SriLankan Airlines is another pressing case. Our sovereign credit rating remains partly hostage to the airline’s bond restructuring. The CPC and SLTB are not far behind in the severity of their problems.

A web of loss-making interconnections

One reason Sri Lanka went bankrupt was the unhealthy web of financial interconnections between these SOEs. When the CEB sold electricity below production cost, it borrowed fuel from the CPC, making the CPC loss-making as well.

The CPC, in turn, tried to recover losses by charging SriLankan Airlines higher-than-market prices for jet fuel. The airline was compelled to buy from the CPC since both were Government-owned and it too bled losses.

When all three made losses, they turned to the People’s Bank and Bank of Ceylon for loans, exposing depositors’ money to undue risk. With large amounts of credit guaranteed by the Treasury, private businesses were crowded out both by lack of funds and unfair competition.

A tilted playing field

The distortion is not confined to energy and transport. In insurance, for example, the law required all companies to split life and general insurance operations. The only exception? Sri Lanka Insurance – the State player.

In gaming, the new regulatory authority does not cover the National Lotteries Board or the Development Lotteries Board and private players are barred from entering the lottery market.

In ports, the problem is even more blatant. The Sri Lanka Ports Authority is both regulator and operator. It owns shares in private terminals such as Colombo International Container Terminal (CICT) and South Asia Gateway Terminal (SAGT) while running its own Jaya Container Terminal. It is regulator, competitor, and shareholder all rolled into one. That makes the very idea of a level playing field a joke.

Mixed signals

While shutting down 33 institutions, there are also news reports of the Government expanding into new businesses, such as opening outlets for sugar sales. These mixed signals send the wrong message.

The principle must be simple: the Government should focus on its core mandate – ensuring the rule of law – and let the private sector drive commercial activity. If necessary, regulate. But only when necessary. The State should take its 30% tax share, make tax administration efficient, and leave the rest to entrepreneurs.

The way forward

The next step is the passage of the proposed SOE holding company bill. This will bring most SOEs under a single holding company structure, paving the way for divestiture, Public-Private Partnerships (PPPs), and, where appropriate, outright privatisation.

Some SOEs must be privatised fully. Others should enter PPPs. But the guiding principle should remain the same: let the private sector run businesses, not the State.

Closing 33 SOEs is a start. But unless we confront the inefficiency of the big five and end the distortions that SOEs create across the economy, Sri Lanka will remain stuck in the same cycle of loss, debt, and stagnation.

Tariff hikes on onions and potatoes: Farmers protected, poor forgotten

By Dhananath Fernando

Originally appeared on the Morning

Over the last few weeks, while the Government and Opposition sparred over political theatre, ‘crossing the Rubicon’ as they call it, a decision with far more impact on ordinary people went largely unnoticed. The import tariffs on big onions and potatoes were increased to Rs. 50 and Rs. 80 per kilo, respectively.

The Minister claims that earlier the Special Commodity Levy (SCL) was Rs. 10 for big onions and Rs. 60 for potatoes. The justification? Protecting farmers.

Yes, farmers matter. But protecting them at this cost by placing the full burden on consumers is unacceptable. Sri Lanka is still reeling from its economic crisis. According to a LIRNEasia survey, four million people fell into poverty during the crisis, raising the total to seven million.

World Bank data suggests nearly 25% of Sri Lankans now live below the poverty line. The Department of Census and Statistics (DCS) estimates that one needs around Rs. 17,000 per month just to stay above it. In this context, how do we justify a Rs. 80 and Rs. 50 tariff on two of the poorest man’s dry rations?

When ‘protection’ means higher prices

These tariffs are not unique to onions and potatoes. Similar duties apply to many day-to-day essentials. Take onions: the DCS notes that the retail price is about Rs. 140 per kilo. With the revised SCL, the price will likely hit Rs. 170–180. That means nearly one-third of the price is simply a tax disguised as ‘farmer protection.’

Potatoes tell the same story. At Rs. 300 a kilo, the extra Rs. 20 levy pushes the price to Rs. 310–320. Roughly a quarter of the price is tax. Supermarket shelves already show potatoes at Rs. 340 and onions between Rs. 190 and Rs. 230.

So should we not protect farmers? Of course we must. But let’s remember: farmers already receive fertiliser subsidies, seed subsidies, and other support. If further protection is needed, the better way is direct cash support linked to output. That way, the cost does not cascade to millions of poor consumers who have no escape. After all, the number of onion and potato farmers is tiny compared to the number of people who eat them.

A breeding ground for corruption

Tariffs that change overnight also open space for corruption. Anyone with inside information can import just before the revision and pocket huge windfalls after the levy kicks in. With commodities like onions and potatoes, which last more than a month in storage, the temptation is obvious.

We have been here before. Remember the sugar levy hike years ago? That saga exposed how easy it is to game the system with commodities that have long shelf lives. Garlic, rice, and other essentials are also caught in this cycle of discretionary tariff tinkering.

The vicious cycle

High food tariffs ripple through the entire economy. When essentials become expensive, workers from estate labourers to factory staff inevitably demand higher wages. Over time, these wage pressures erode competitiveness and trap the country in a vicious cycle of high costs and low productivity.

Even the International Monetary Fund’s (IMF) Governance Diagnostic has flagged this issue, urging Sri Lanka to remove discretionary powers over tariffs and taxes. Reforms to the Strategic Development Projects Act are meant to address exactly this kind of arbitrary policymaking.

Who really drowns in the Rubicon?

At a time when taxpayers are already stretched thin, paying some of the highest personal taxes in the region and facing steep border taxes on everything from food to vehicles, an SCL of Rs. 80 on potatoes and Rs. 50 on onions is simply unfair. If farmers are to be supported, it should be done directly, with incentives for productivity, not by inflating the grocery bill of every struggling household.

Politicians may talk about crossing the Rubicon. But for the poorest of the poor, the Rubicon is not crossed; it is drowned in. And they drown in it under the weight of a rising cost of living.