In a comprehensive assessment of Sri Lanka’s economic journey, Dr. Sujeetha Jegajeevan, Director of Economic Research at the Central Bank of Sri Lanka, stated that the nation’s profound crisis was the culmination of decades-long structural weaknesses that were amplified by the combination of external shocks and domestic policy missteps. However, decisive reforms supported by the current International Monetary Fund (IMF) programme and complementary measures from other multilateral agencies have established a foundation for recovery, with a credible chance that this could be Sri Lanka’s final IMF programme, if discipline is maintained during the programme and beyond.
Speaking at the 27th Annual Tax Oration organised by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) on the topic, “From Crisis to Confidence: Reimagining Sri Lanka’s Economic Landscape,” Dr. Jegajeevan outlined the roots of the crisis, the ongoing stabilisation, and the critical shift now required towards growth-oriented reforms.
The event was attended by a large number of Chartered Accountants, including President Mr. Heshana Kuruppu, Vice President Mr. Tishan Subasinghe, Chairperson of the Faculty of Taxation Ms. Sarah Afker, and Chief Executive Officer Ms. Lakmali Priyangika.
Dr. Jegajeevan identified the core causes of the crisis as persistent fiscal and external deficits over decades, leading to unsustainable borrowing. “The debt burden became unmanageable not merely due to its size, but due to the inability to service it,” she explained.
This was exacerbated by a weak revenue base, high interest costs, policy misstepsand global shocks like the COVID-19 pandemic.
In response to the crisis, Sri Lanka embarked on a fundamentally different path: late but decisive engagement with the International Monetary Fund (IMF), leading to the 17th programme, as well as a debt standstill and the restructuring of external obligations, along with emergency fiscal and monetary measures to halt the economic freefall. The focus was on critical institutional reforms, including the Public Financial Management Act and the Central Bank of Sri Lanka Act, which legally entrench fiscal discipline and central bank independence and accountability to prevent future policy slippages, as well as a strong governance agenda through several measures, including the Governance Diagnostic, the Anti-Corruption and Proceeds of Crime Acts and strengthening CIABOC.
“Unlike in the past, the most difficult reforms were front-loaded, not postponed,” Dr. Jegajeevan emphasised. “Strong legal reforms and a strengthened institutional framework now limit discretionary policy reversals, and there is greater public acceptance of reforms due to the lived experience of the crisis.”
These actions have yielded clear results, she explained such as inflation has been tamed from a peak of around 70% to low single digits, the exchange rate volatility is stabilised, the primary budget balance has turned positive, debt restructuring has reduced near-term debt servicing pressures, and improved market confidence is reflected in sovereign rating upgrades and compressed bond yields.
While acknowledging the hard-won stabilisation, Dr. Jegajeevan stressed that “stability alone is not enough.” Sri Lanka must grow faster now to recover lost output and catch up with its regional peers.
She outlined key priorities, ranging from short-to-medium term focusing on boosting services exports (tourism, logistics), increasing female labour force participation, accelerating digitisation and AI adoption, and enhancing trade facilitation for private sector-led growth. On the medium-to-long term, she highlighted the need to implement deep structural reforms in labour, land, education, and capital markets, while fostering innovation, R&D, climate resilience, and deeper global integration.
