An economy for more than 1,000 people

The Daily FT article of August 2026, «Sri Lanka economy ‘a racket’: Economists,» laid out a stark picture. Advocata Institute Chairman Murtaza Jafferjee described an economy shaped for roughly one thousand people.  Moreover, Verite Research Executive Director Dr. Nishan de Mel goes on to note how a few individuals benefit enormously while the majority see little return. This echoed my own writing in December 2025 to Daily FT called, «Big business must reform now”, where I cited practices harmful to the economy, people, and the environment.  These include but are not limited to: short-termism, low wages, precarious work, price gouging, bribery, lobbying, illicit financial flows, import-export fraud, tax and VAT evasion, pyramid schemes, pollution, and safety violations.

The recent arrest of four managers from four separate commercial banks over an alleged $ 1 billion transfer—orchestrated by a Colombo Fort-based money changer without any corresponding goods being imported—is a typical example of national wealth being siphoned off for private gain.  This is a stark illustration of an unlawful transaction that needs to be tackled head on.

The 17th IMF program undertaken by Sri Lanka was necessary for immediate financial stability.  However, IMF conditionalities and their need to prioritise financial creditors failed to guarantee the social, political and environmental sustainability that Sri Lanka needs. The NPP Government elected on a progressive manifesto now faces the challenge of transforming existing state institutions to strategically navigate the market to promote social and environmental justice by facilitating regulatory frameworks that strengthen the potential of a redistributive market economy.

Market engagement in Sri Lanka cannot mean a blind faith in unbridled capitalism, nor can it ignore the reality of private sector malfeasance—including the routine bribery of public officials to tilt commercial outcomes. The market is a potentially efficient mechanism for resource allocation and innovation. However, this requires a strong, strategic, and progressive State.  Even Nobel Laureate Prof Joseph Stiglitz argues that the limitations of markets are a primary reason for Government regulation, a concept he has strongly reiterated, especially following the 2008 financial crisis. His critique focuses on how markets often fail to self-correct and require rules to function properly; in fact, many Western countries and East Asia relied on strong states and institutions to facilitate a redistributive market economy.

Industrial pollution

The NPP Government elected on a progressive manifesto now faces the challenge of transforming existing state institutions to strategically navigate the market to promote social and environmental justice by facilitating regulatory frameworks that strengthen the potential of a redistributive market economy

In Sri Lanka, industrial pollution is real — an example is the contamination of the Kelani River, affecting water quality and public health from two major industrial zones, Biyagama and Seethawaka. The market doesn’t price these costs. A progressive state focused on ecological wellbeing steps in with pollution taxes or regulations to correct this. Similarly, education and healthcare are public goods the market commodifies to the detriment of social and public welfare. Sri Lanka’s past investment in human capital—from public universities to primary healthcare—is a direct investment in a more productive workforce and has long been the foundation of its success stories - the apparel sector and value added production exemplifying this strength.

Unholy alliance of corruption

The value of a strong State where the unholy alliance of corruption between the existing private sector and the state needs attention because strong and clean state institutions are the potential and impartial arbiters that can facilitate equitable development.  Take for instance, the issue of natural monopolies. Water distribution, the electricity grid, and major rail and digital infrastructure are sectors where competition is often wasteful. These should be managed through reformed and empowered state-owned enterprises. Owning the infrastructure publicly ensures universal, affordable access to essential services, preventing private monopolies from extracting high rents as has taken place with Thames Water in the UK, where the state is having to step in to clean up the costs of environmental pollution and underinvestment in water and sewage infrastructure. 

Another area that state institutions have a productive role to play is in agriculture.  The State’s role in paddy purchasing, milling, storage, and distribution is vital for food security, acting as a buffer against price volatility and market failures. The argument that state participation in strategic sectors distorts the market often ignores the reality that the market is rarely a level playing field. State ownership and regulation are tools to steer the economy toward shared prosperity in Sri Lanka.

Beyond monopolies, the Sri Lankan State must manage negative externalities like pollution. This means more than just carbon taxes; it means that the state and its agencies must be resourced to hold polluters accountable.  For instance, the Ambuluwawa cable car project, led by a foreign company, was suspended earlier this year after the Central Environmental Authority directed the developer to repair environmental damage caused during construction. The project was halted following complaints from local residents and environmental activists, and the developer is not permitted to proceed with any construction until the restoration work is completed and reviewed.

Forging pathways

In a fractured global system, the 

Sri Lankan Government and state institutions need to take an active role in forging pathways to address intersecting and growing crises. Unilateral actions from major powers—tariffs, predatory trade practices, financial sanctions and undermining of a rules based order —demand a strategic response. Sri Lanka must protect its domestic economy with border tariff adjustments, anti-dumping duties, and macro-prudential regulations to curb volatile capital. 

Market engagement in Sri Lanka cannot mean a blind faith in unbridled capitalism, nor can it ignore the reality of private sector malfeasance—including the routine bribery of public officials to tilt commercial outcomes. The market is a potentially efficient mechanism for resource allocation and innovation. However, this requires a strong, strategic, and progressive State  

A well-regulated nation with strong institutions is better equipped to navigate this turbulence. The lessons of the 2022 economic crisis, partly triggered by external shocks, widespread corruption and odious sovereign debts, underscore this need.

To execute this strategy, Sri Lanka must invest in well-resourced institutions. Underfunded agencies are susceptible to capture by vested interest groups, including from the private sector. The Central Environmental Authority, the Competition Commission, the Consumer Affairs Authority, the Financial Crimes Investigation Division, the Commission to Investigate Allegations of Bribery or Corruption (CIABOC), the Attorney General’s Office, and other institutions need robust budgets, skilled personnel, and political independence to hold powerful public and private sector actors accountable and tackle the corruption within, given alliances with the corporate world.

The Central Bank has imposed penalties on banks and financial institutions for anti-money laundering lapses and acted against unauthorised deposit-takers. The Central Environmental Authority has closed 41 factories for operating without valid licences and is pushing for legislative amendments to make environmental offences arrestable without warrant. Planned reforms include establishing a Digital Economy Authority and amending the Electricity Act to increase state control over generation and distribution.   CIABOC is investigating the Airbus bribery scandal, involving an alleged $2 million payment linked to SriLankan Airlines aircraft procurement. 

The value of a strong State where the unholy alliance of corruption between the existing private sector and the state needs attention because strong and clean state institutions are the potential and impartial arbiters that can facilitate equitable development

These illustrations highlight evidence that points in the direction that matters to all Sri Lankans.  Empowered state institutions are indispensable for correcting market failures and ensuring that economic outcomes align with the broader public interest.

A strong regulatory and enforcement environment anchors markets within social and ecological limits. It transforms the economy from a machine enriching a thousand people at the expense of the twenty-two million into a shared inheritance.

(The author is a co-founder of the Institute of Political Economy (ipe-sl.org) and a former local councillor in London. He can be reached at [email protected].)