SMEs - forgotten people of Sri Lanka?

SRI Lanka’s economy has turned around from a contraction of 7.8% in 2022 toa +5.2% growth in 2024 which is the resilience of the country. An important point to note is that this comes at a backdrop of the IMF and World Bank projecting a growth of 3-3.3%. This is the power of brand Sri Lanka that the world needs to comprehend. The export community contributed $ 16.7 billion whilst the tourism sector crossed a $ 3.1 bil- lion performance which is a +53% growth over last year. But a point that Sri Lanka has forgotten is that over 70% of both the sec- tors — tourism and exports are contributed by MSMEs and SMEs.

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SME - reality in 2025

The backdrop of Sri Lanka’s economy are MSMEs/SMEs account for 52% of the GDP of Sri Lanka. Way back in 2018 this sector contributed around § 48 billion and the Non performing loans (NPLs) was at a mere 3.4%. In 2019 the sector contrib- uted $ 46 billion and the NPLs moved up to 10.4% given that the country was feeling the heat due to the impending financial cri- sis. Even during the year 2020, the MSMEs/SMEs sector gave the Sri Lankan economy $ 45 billion but the NPLs hit 13.9%. But it was manageable. Then came the financial crisis but the sector stood still and contributed $ 46 billion with the NPL% going up to 14.1%

But with the announce- ment by the Central Bank that Sri Lanka being bank- rupt spiked the overall NPLs to a stagger- ing 36% and then the sector was deeply in the red. As at now the NPL stock is valued at Rs. 680 billion which is unman- ageable. The 4.5 million workforce is now vulnerable whilst 39% of the SMEs are owned by women that adds to the com- plexity. This will be the next challenge for Sri Lanka.

Some speculate that the debt stock at NPL is as high as Rs. 1.3 trillion. Be that it may the Government has identified the MSMEs challenge and recommended that existing loans must be re-structured at a modest 10% concessionary rate notwith- standing the current Non Performing Loans (NPLs). This includes waving off the interest accrued on the existing loans for the last five years. The Government has indicated that 50% of the accrued interest will be shouldered by the State whilst as per the circular No. 4 of 2024 of the Central Bank of Sri Lanka, the unpaid interest of eligible SME borrow- ers will be waived off on the accumulat- ed interest between 1 April 2019 and 15 December 2024, subject to certain restric- tions.