The Hon. Kathiravelu Shanmugam Kugathasan

¶ 01 Hon. Deputy Speaker, I wish to contribute to the debate on the Adjournment Motion regarding Sri Lanka’s current economic situation.

¶ 02 Sri Lanka, a middle-income country, has long relied on plantation products, tourism, remittances, garments, construction and services. Since 2020, we battled fiscal deficits, debt and structural weaknesses, culminating in the historic 2022 crisis—marked by debt overhang, foreign exchange shortages, inflation and social unrest.

¶ 03 I will compare key changes in 2023, 2024 and 2025. These were years of rescue—policy reforms, international cooperation and public support have put us on a recovery path.

¶ 04 - Goods export earnings were US$ 11 billion in 2023. Tea, rubber and apparel saw weakness. Agriculture, industry and services, especially tourism, were subdued by fuel shortages. - With reforms and domestic production support, 2024 goods exports rose to US$ 12.7 billion; services (tourism and IT) improved. - In 2025, goods exports are expected to exceed US$ 14 billion. SMEs, fisheries and services have opened new growth avenues.

¶ 05 Construction has expanded steadily and is a key growth driver. The Purchasing Managers’ Index for construction moved from 52.7 in 2023 to 57.2 in 2024 and 58.6 by June 2025. Construction contributed significantly to the 5 per cent GDP growth in 2024.

¶ 06 In 2024, total exports were US$ 12.8 billion while imports were US$ 18.8 billion, leaving a US$ 6 billion trade deficit. In 2025, total exports are expected to rise to US$ 18.2 billion. Unless domestic imbalances are addressed, the current account and reserves will face pressure. Strengthening export contributions from the Northern and Eastern Provinces is essential.

¶ 07 Remittances were US$ 6 billion in 2023, depressed by reduced migrant labour and low financial sector confidence. With confidence measures and overseas job placement, remittances rose to US$ 6.5 billion in 2024 and are expected to exceed US$ 7 billion in 2025—crucial for foreign exchange.

¶ 08 Inflation performance has been notable: since September 2024, headline inflation turned negative—minus 4.2 per cent in February 2025; minus 0.7 per cent in May; minus 0.6 per cent in June—reflecting price stability and effective monetary policy. In 2023, consumer inflation exceeded 50 per cent, severely squeezing living standards. With IMF-supported reforms, inflation fell and GDP growth reached 5 per cent in 2024, surpassing the IMF’s 4.5 per cent projection—driven by industry and services—marking a sharp turn from the 2022 FX crisis depths.

¶ 09 Between 2018 and 2023, Sri Lanka recovered half the lost output within just 18 months. The World Bank notes stabilization has improved the short-term outlook. The ADB projects GDP growth at 3.9 per cent in 2025 and 3.4 per cent in 2026—moderate yet sustained. Public debt fell from 111.7 per cent of GDP in 2023 to 99.4 per cent in 2024 and 96 per cent in 2025 due to restructuring and growth.

¶ 10 Reserves improved from US$ 4.4 billion in 2023 to US$ 6.0 billion in 2024, and exceeded US$ 6.2 billion by June 2025. Gold reserves rose from US$ 40 million in 2024 to US$ 50 million by June 2025, strengthening buffers.

¶ 11 Unemployment declined from 4.7 per cent (2023) to 4.4 per cent (2024) and to 3.8 per cent in early 2025, indicating a stronger labour market. Per capita income rose from US$ 3,800 (2023) to US$ 4,500 (2024), with the Human Development Index resuming growth; poverty eased from 26 per cent to 24 per cent, and is projected at 22.7 per cent in 2025, with consumption indicators improving.

¶ 12 However, the proposed US tariff—even if reduced from 44 to 20 per cent—could still hurt apparel exports. About 24 per cent of our total exports go to the US, so the macro impact warrants attention.

¶ 13 Productivity is constrained by skilled labour outflows, brain drain, skill mismatches and low participation. We must diversify exports beyond traditional baskets, reduce dependence on narrow markets, restructure loss-making SOEs, promote PPPs, and strengthen social protection while improving education, health and nutrition to build human capital.

¶ 14 We must also align with global trends—digital transition, AI adoption and green investment. The next two years are crucial. Sustainable recovery depends on balancing economic resilience with social equity and sustaining political consensus for reform. Without firm reforms and inclusive, regionally balanced policies, supported by international partners, recovery may be short-lived.

¶ 15 The World Bank stresses that sustaining recovery requires fiscal consolidation, sound monetary policy, macro stability and structural reforms to lift medium- to long-term growth. Poverty reduction must accelerate so that recovery reaches all.

¶ 16 Durability will depend on meeting social needs while maintaining reform momentum, reducing external dependence, diversifying the economy, ensuring inclusive growth and building shock-resilience. As analyst Yathindra notes, economics alone cannot lift Sri Lanka out of crisis—coherent foreign policy is vital. When we plunged into crisis, apart from India, no country acted as a true friend. India extended over US$ 4 billion without preconditions—more than the IMF’s US$ 3 billion EFF. India has also extended the US$ 1 billion credit facility by one year. Realistically, debt sustainability should be built with India’s close cooperation.

¶ 17 Working with India brings Sri Lanka closer to meeting regional connectivity and economic expectations. Air, sea, energy and trade-connectivity proposals are already on the table. In July 2023, President Ranil Wickremesinghe and Prime Minister Narendra Modi outlined a cooperation framework. Though the new Government agreed in principle, progress has been slow. The Government should prioritize negotiations to implement: - ETCA, - Trincomalee oil tank farm, - Kankesanthurai Port, - Petroleum pipeline project, and other economic and technological collaborations. These would offer real hope for transformation.