International economist Prof. Razeen Sally urges Sri Lanka to go beyond IMF prescriptions, warning that without deeper trade and investment reforms, the country could miss a rare chance to integrate into booming South Indian supply chains and risk another economic collapse.
Sri Lanka Must Push Reforms Beyond IMF Program or Risk Economic Setback – Prof. Razeen Sally
Sri Lanka must accelerate structural reforms beyond the current International Monetary Fund (IMF) programme if it hopes to shield its economy from future shocks and unlock growth opportunities, said globally respected economist Prof. Razeen Sally. Speaking at the 13th Capital Market Conference in Colombo, Prof. Sally emphasized that Sri Lanka is at risk of missing a once-in-a-generation opportunity to link into the thriving supply chains of Southern India.
A former Associate Professor at the Lee Kuan Yew School of Public Policy and past Chairman of Sri Lanka’s Institute of Policy Studies (IPS), Prof. Sally warned that while the IMF bailout was necessary, it’s not sufficient. Without sweeping reforms in trade, investment, and regulatory policies, the country could fall back into crisis.
“The danger lies in Sri Lanka’s vulnerability to external shocks be it new US tariffs targeting garments, or oil price surges from escalating conflict in the Middle East. These could quickly tip the economy into another recession,” he said.
Highlighting the potential of India’s rapidly growing southern region, he added, “Sri Lanka must connect to those Indian value chains. But that won’t happen unless structural reforms go well beyond what the IMF programme mandates.”
Prof. Sally, who was in conversation with Daily Mirror Business Editor Shabiya Ali Ahlam, outlined three possible economic futures for Sri Lanka over the next five years: stagnation, relapse, or revival.
- Drift: Continuing with IMF reforms but failing to pursue broader liberalization.
- Relapse: A populist reversal leading to renewed economic turmoil and another possible sovereign default.
- Sustainable Growth: A reform-driven scenario involving trade liberalization, attracting foreign direct investment (FDI), and integrating into global value chains particularly with India.
“The most likely scenario under current politics is drift. But the only viable escape from crisis is a bold reform package cutting import barriers, simplifying FDI laws, and committing to long-term policy stability,” he stressed.
India’s southern states, with their modern logistics, digital infrastructure, and robust industrial networks, offer Sri Lanka the chance to offset any losses in the $5 billion apparel sector, Prof. Sally noted. But that window is narrow.
“Sri Lanka has a ready platform in India to export IT, logistics, and professional services. But without fixing Customs bottlenecks, reforming investment laws, and ensuring political continuity, no serious investor will commit.”
He acknowledged that the political will to implement such reforms may be lacking but emphasized that it remains essential if Sri Lanka is to escape a cycle of economic fragility and declining revenue.
Prof. Sally, now working on an Asia-focused travel and political book, concluded with a strong warning: “In today’s increasingly volatile global landscape, Sri Lanka cannot afford to stumble. It must choose decisive reform over complacency.”
