In the wake of the 2022 financial crisis, Sri Lanka’s path to recovery has been paved with tough decisions. With the backing of the International Monetary Fund (IMF) and the implementation of a host of fiscal and structural economic reforms, the government has been working to stabilize the economy, curb inflation, and restore investor confidence. But while some indicators show signs of macroeconomic recovery, a pressing question remains: Are these reforms actually benefiting the average Sri Lankan—or deepening the divide between rich and poor?(Economic Stability)
The IMF Program: A Necessary Lifeline? (Economic Stability)
After defaulting on its foreign debt for the first time in history, Sri Lanka turned to the IMF for a $3 billion Extended Fund Facility (EFF). The deal came with clear conditions: fiscal discipline, increased tax revenue, restructuring of state-owned enterprises (SOEs), and improved transparency in public finance.
On paper, the results are promising:
- The Sri Lankan Rupee (LKR) has stabilized.
- Inflation has significantly dropped from highs of 70% in 2022 to below 10% by mid-2025.
- Foreign reserves are gradually improving.
- The country is slowly regaining access to international credit markets.
- But while economic indicators flash green, many Sri Lankans feel like they’re stuck in red.
Tax Reforms: A Middle-Class Burden?
A key IMF requirement was to increase government revenue through direct taxation. In response, the government introduced steep personal income tax slabs, removed tax holidays, and expanded the Value Added Tax (VAT) base.
For salaried professionals, SMEs, and middle-income earners, these reforms have been painful:
Take-home pay has reduced significantly, especially for those earning over Rs. 100,000 a month.
Many young professionals feel they’re being penalized for staying in the country rather than migrating.
Informal sectors and ultra-wealthy elites, on the other hand, often escape scrutiny.
The result? A shrinking middle class, with some quietly pulling out of the formal economy, while others look for overseas opportunities.
Cost of Living: Stabilized But Still High
While inflation has eased, food prices and utility bills remain high. Electricity and water tariffs were revised upwards to reflect cost-reflective pricing models—again, a condition of IMF-backed reforms.
Even though supply chains have normalized and fuel queues are gone, many essential items remain unaffordable for low-income households.
A 2025 study by Verité Research showed:
Over 45% of urban households still spend over 60% of income on food and transport.
The poverty rate has increased from 13% in 2021 to over 25% in 2024, particularly in estate and rural sectors.
Public Sector Cuts and SOE Reforms: Necessary or Cruel?
State-owned enterprises like SriLankan Airlines, CEB, and CPC were highlighted as major financial drains. The restructuring efforts—privatization, downsizing, or listing shares on the stock market—have been met with resistance from unions and fear among workers.
Public sector retrenchment might improve fiscal performance on paper, but job security for thousands of state workers is at risk.
The government promises that these moves will eventually create a leaner, more efficient public sector. But many workers feel abandoned in a shrinking job market that isn’t producing enough private-sector jobs to absorb them.
Inequality in Recovery: Colombo vs. the Rest
Colombo has bounced back faster than the rest of the country:
- Tourism is recovering strongly.
- The Port City Colombo project is attracting interest from international investors.
- Real estate and high-end retail are showing strong activity.
- But outside the capital, the story is very different:
Small farmers are still recovering from the aftermath of the organic fertilizer ban and global price shocks.
Youth unemployment in places like Monaragala, Kilinochchi, and Anuradhapura remains high.
Access to healthcare and education in rural areas has worsened due to spending cuts.
This urban-rural divide poses a long-term threat to national unity and social cohesion.
The Dollar Trap: A Recovery Built on External Dependency?
Critics argue that Sri Lanka is not truly recovering—it’s just floating above water using borrowed oxygen. With repayments to the IMF and restructuring talks with China and other creditors still ongoing, the debt-to-GDP ratio remains above 110%.
The export sector—especially garments and tea—is struggling to stay competitive due to global demand fluctuations and higher energy costs. Meanwhile, foreign remittances, a key economic pillar, are vulnerable to geopolitical risks in the Middle East.
Without long-term domestic industry revival, Sri Lanka may fall into the same debt-reliant cycle again in a few years.
Is There a Way Forward?
Yes—but it won’t be easy.
Sri Lanka’s recovery must shift from being macroeconomic to human-centric. That means:
- Targeted social safety nets for the most vulnerable.
- Better tax compliance enforcement—not just more tax collection.
- Supporting SMEs with access to affordable credit.
- Investing in education, vocational training, and regional development.
- Ensuring policy transparency and genuine public consultation—not just top-down technocratic fixes.
- The economy cannot stabilize if the people do not feel secure.
Final Thoughts: Who Is Recovery For?
The core question remains—who are we really recovering for? If GDP grows but social inequality worsens, if Colombo thrives while the village starves, then the stability we claim is just an illusion.
Sri Lanka’s path to economic stability must not come at the cost of its people’s dignity. The reforms must evolve—not just to appease lenders, but to uplift every Sri Lankan, from the executive in Nugegoda to the fisherman in Mannar.
