Sri Lanka’s digital transformation is quietly rewriting the rules of its economy. What began as a survival mechanism during the COVID-19 pandemic has now evolved into a structural shift reshaping how citizens consume, work, and interact with markets. According to the Institute of Policy Studies (IPS) State of the Economy 2025 report, the island’s digital economy has reached Rs. 1,342 billion equivalent to 4.5% of GDP signalling the emergence of a new growth engine at the heart of socio-economic modernisation.
The Numbers Tell a Story
E-commerce and e-services are no longer niche segments. They are now essential pillars of Sri Lanka’s service economy. IPS estimates that e-commerce alone accounts for Rs. 735.2 billion, or 2.47% of GDP, while information and communication activities contribute Rs. 606.7 billion (2.03% of GDP). Together, these sectors form the backbone of a digital economy that is growing at double-digit rates.
E-commerce transactions via debit and credit cards reached Rs. 367.8 billion in 2024. Factoring in the widespread use of cash payments for online orders still the dominant method for many local consumers the total e-commerce value stands at Rs. 735 billion. Projections suggest this figure will grow at 10.8% annually, crossing $3.9 billion by 2029.
Parallel to this, Sri Lanka’s e-services sector ranging from food delivery and healthcare to online education and transport is expected to expand by 15.7% annually, reaching $1.9 billion and 6.4 million users by 2029. By 2025, nearly one in four Sri Lankans will be using an e-service platform.
The Human Behaviour Shift
At the heart of this growth is changing consumer behaviour. More than half of Sri Lanka’s internet users 52% now make at least one online purchase a month. Clothing tops the list at 43%, followed by personal care and beauty products (23%) and electronics (22%).
Crucially, this shift is being driven by digital trust. Improved payment gateways, better delivery networks, and the rapid rise of mobile connectivity have helped transform online shopping from an urban novelty into a nationwide habit.
Digital advertising has emerged as a potent economic lever. The IPS report found that 58% of consumers bought a product after seeing a digital ad, underscoring the reach and conversion power of online marketing in a country where social media is the new marketplace.
Beyond Commerce: The Rise of Digital Services
While e-commerce is the visible face of this transformation, the more profound change is happening in e-services. These platforms are transforming everyday life from students attending virtual classes to patients consulting doctors online, from citizens renewing licences through portals to entrepreneurs managing logistics digitally.
Urbanisation and smartphone penetration have accelerated this shift. As IPS notes, “E-services are becoming increasingly integrated into the daily lives of Sri Lankans, particularly in urban areas.” But the rural story is catching up fast, with government and private initiatives pushing digital inclusion and literacy into smaller towns and villages.
ICT-BPO: The Job Engine of the Digital Era
The ICT-BPO sector exemplifies how digitalisation is reshaping the labour market. Between 2015 and 2020, the number of ICT and BPO firms in Sri Lanka tripled, while the workforce doubled. By 2020, the industry was generating around $850 million in export revenue.
According to the IPS, this trajectory continues upward. The workforce is projected to reach 300,000 by 2025, generating an estimated $2 billion in export earnings. The sector’s ability to foster over 1,000 technology startups highlights its role not only as an income generator but also as an innovation incubator for the wider economy.
This growth has socio-economic implications that go beyond revenue. It is creating high-skilled jobs for youth, encouraging reverse brain drain, and positioning Sri Lanka as a mid-tier digital service hub within South Asia. However, sustaining this trajectory will require steady investment in education, English fluency, and digital infrastructure.
The Digital Divide Challenge
Beneath the optimism lies a structural challenge: inequality of access. Internet penetration and smartphone ownership have improved significantly over 80% of Sri Lankans now own smartphones but quality of connectivity, affordability of data, and regional disparities persist.
The digital divide is not just about access; it’s about capability. While urban youth adopt online banking, freelancing, and e-commerce with ease, older and rural populations remain hesitant. Bridging this gap is essential for ensuring that digital growth translates into inclusive growth.
Public-private collaboration will be vital here. Initiatives like free Wi-Fi zones, affordable data packages, and local-language e-learning resources can ensure that digital opportunity does not remain confined to Colombo or a narrow urban elite.
A New Engine for Economic Efficiency
IPS rightly frames the digital economy as a mechanism for reducing “friction” in transactions. Digital payments, automation, and online platforms cut out intermediaries, lower costs, and improve transparency. For a developing economy with high logistical and bureaucratic inefficiencies, this can be transformative.
Digitalisation also enhances fiscal governance. The growth of e-commerce and electronic payments broadens the tax base and improves traceability of financial flows critical for increasing state revenue without raising rates. The ripple effects extend to logistics, warehousing, marketing, and fintech all of which stimulate secondary job creation and entrepreneurship.
From Growth to Governance
For policymakers, the task ahead is not just to facilitate digital expansion but to govern it effectively. Issues of consumer protection, data privacy, cross-border taxation, and digital fraud are emerging policy frontiers.
As Sri Lanka’s online economy matures, regulation must evolve from ad-hoc oversight to structured governance. The success of e-commerce platforms and e-service providers depends on public confidence in online transactions, dispute resolution, and cyber safety.
Equally important is the state’s own digital transformation. E-Government platforms can reduce red tape, improve citizen access, and set the tone for broader digital modernisation. The IPS report underscores that the expansion of e-services will be key to “enhancing service delivery, improving efficiency, and promoting inclusive digital growth.”
Towards a Modern Digital Nation
The convergence of connectivity, commerce, and creativity is reshaping Sri Lanka’s economic identity. With digital businesses driving innovation, job creation, and exports, the country is laying the foundation for a more resilient and diversified economy.
But for this promise to translate into equitable progress, Sri Lanka must treat digitalisation not merely as a technological shift but as a social transformation. Bridging the divide between those who benefit from the digital boom and those left behind will determine whether the next phase of growth is truly inclusive.
The IPS report offers a clear direction: digitalisation is no longer a sectoral story it is the story of Sri Lanka’s economic future. Harnessing its full potential will require coordination across government, industry, and citizens. Done right, it could be the country’s most powerful engine for sustainable, broad-based prosperity.
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