A cornerstone of Sri Lanka’s recovery strategy has been stringent fiscal consolidation. The government aims to reduce the budget deficit to 5.2% of GDP by 2025, down from a target of 7.6% in the previous year(Debt Management) . This involves enhancing public revenue and achieving a primary surplus of 2.3% of GDP, aligning with IMF stipulations. Notably, the government has set an ambitious goal to elevate the revenue-to-GDP ratio to 15.1% by 2025, up from 11.4% in 2023 . Such measures are pivotal in ensuring debt sustainability and restoring investor confidence.
Monetary Policy and Inflation Control
Monetary policy has been adeptly managed to maintain economic stability. After experiencing a deflation of 4% in January 2025, inflation is projected to stabilize around the central bank’s target of 5% by the third quarter of 2025 . This stability is essential for fostering a conducive environment for investment and consumption.
Digital Transformation and Technological Advancement
Embracing the digital age, Sri Lanka has embarked on a comprehensive digital transformation strategy. The 2025 budget allocates LKR 3 billion towards digital investments, underscoring the government’s commitment to transitioning into a cashless economy and generating $15 billion in revenue through the digital economy by 2030 . Initiatives such as the establishment of a Digital Economic Authority and the Sri Lanka Unique Identity Project (Digital ID) are central to this vision, aiming to enhance efficiency, transparency, and inclusivity.
Industrial Growth and Entrepreneurship
The Ministry of Industries and Entrepreneurship Development has been proactive in revitalizing the industrial sector. Plans are underway to introduce environmentally friendly products rooted in green energy over the next two years, promoting sustainability and reducing reliance on imports . Furthermore, the establishment of a state development bank dedicated to supporting small and medium-sized enterprises (SMEs) is set to bolster entrepreneurship and drive economic diversification.
Social Welfare and Poverty Alleviation
Despite macroeconomic gains, challenges persist on the social front. Poverty levels have nearly doubled to 23.4% in 2024, with many households grappling with high inflation and declining incomes . To address this, the government has prioritized social welfare programs, ensuring that economic growth translates into tangible benefits for all citizens. The IMF program includes a “social spending floor,” mandating that 0.6% of GDP be allocated to social security programs, although this remains below the developing countries’ average of 1.6% .
Tourism Revival and Environmental Conservation
The tourism sector, a vital component of Sri Lanka’s economy, is on a path to recovery. The government has initiated wildlife censuses to address agricultural damage caused by species like monkeys, peacocks, and squirrels, aiming to balance ecological conservation with agricultural productivity . Such measures are expected to enhance the country’s appeal as a sustainable tourism destination.
Governance and Anti-Corruption Measures
The current administration, led by President Anura Kumara Dissanayake, has placed a strong emphasis on governance reforms and anti-corruption measures. The president’s commitment to transforming the political landscape is evident from his electoral promises and subsequent actions . These efforts are crucial in building public trust and ensuring that economic policies are implemented effectively.
Future Outlook
Looking ahead, sustaining the momentum of economic recovery requires a multifaceted approach:
Diversifying Exports: Reducing dependency on traditional exports by exploring new markets and products can mitigate external shocks.
Enhancing Human Capital: Investing in education and vocational training will equip the workforce with skills aligned with emerging industries, fostering innovation and productivity.
Strengthening Infrastructure: Developing robust infrastructure, including transport and energy, is vital for supporting industrial growth and attracting foreign investment.
Promoting Sustainable Practices: Balancing economic growth with environmental conservation ensures long-term sustainability and resilience against climate-related challenges.
In conclusion, Sri Lanka’s economic strategy moving forward is anchored in fiscal prudence, technological advancement, industrial revitalization, and social equity. By addressing existing challenges and capitalizing on emerging opportunities, the nation is poised to embark on a trajectory of inclusive and sustainable growth.
