Is Sri Lanka ready for the long road to sustained recovery?

IN my article “Is Sri Lanka’s recovery sustainable?” published in the Daily FT on 18 January 2024, I argued that Sri Lanka’s economy could rebound relatively quickly, despite the severe economic collapse and loss of market confidence in 2022.

- By Dr. P.K.G. Harischandra

Drawing on international evidence, I noted that recoveries following debt restructuring are often delayed when accompanied by banking crises. However, I contended that Sri Lanka avoided such a crisis due to the careful design of its domestic debt operation and effective communication by the Central Bank—factors that could support a faster recovery.

I also challenged concerns about a renewed foreign exchange crisis following the resumption of external debt servicing, pointing to debt sustainability analysis (DSA) that does not support such fears.

In this article, I cautiously suggest that Sri Lanka is now on the right path, driven by strong reform momentum from the Government and independent institutions. With improved economic and political stability, the country must now shift from crisis management to long-term planning. I outline key risks to sustaining this recovery and propose policy measures to address them.

Looking ahead, Sri Lankans must balance optimism with realism—remaining patient and committed to long-term goals rather than declaring early victory. With national elections now concluded, the country has a valuable window of opportunity to advance difficult reforms and ensure their benefits reach all citizens in the years to come.

Overcoming ‘reform fatigue’ is key

Thanks to strong political leadership and broad public support, Sri Lanka has reached the halfway point of its 48-month IMF Extended Fund Facility (EFF) program, launched in March 2023. This milestone marks a shift from economic stabilisation to a phase where people are beginning to expect real, visible improvements in their daily lives—though global economic uncertainties and domestic shocks could pose challenges.