Monday Nov 24, 2025
Monday Nov 24, 2025
Monday, 24 November 2025 06:03 - - {{hitsCtrl.values.hits}}
UNDP Country Economist Dr. Vagisha Gunasekara – Pic by Shehan Gunasekara
Sri Lanka’s current approach to Digital Public Infrastructure (DPI) and trade liberalisation may reinforce inequality rather than reduce it unless access, mobility, and capability gaps are addressed upfront, UNDP Country Economist Dr. Vagisha Gunasekara has warned.
Responding to a Centre for Poverty Analysis (CEPA) guest lecture on the World Bank’s South Asia Development Update on Trade, Artificial Intelligence (AI) and Labour Markets in South Asia, Dr. Gunasekara said: “AI and trade can be very powerful tools for transformation in Sri Lanka, but only if we change who is in that digital queue before we open the gate wide.”
She argued that Sri Lanka’s digital foundations and labour mobility constraints highlight gaps in the country’s readiness for the next phase of economic reforms.
She said the regional report outlines how jobs, AI, and trade shape South Asia’s trajectory, but when applied to Sri Lanka “the gains will mostly accrue to those already positioned to access them.”
More than a third of households remain offline and only 37% of adults use the internet. Digital literacy stands at 57%, computer literacy at 34%, and only one in five households owns a desktop or laptop. “Most Sri Lankans access the modern economy, if at all, through a very limited device,” she said.
By 2021, 61% of households were online, largely via mobile data. The urban–rural gap in adult internet use is roughly 20 percentage points. Only 13% of South Asia’s workforce is in export-linked jobs, and Sri Lanka reflects this pattern in apparel, IT, BPM, logistics, and tourism. “These are younger, better paid, more skilled jobs, but the pipeline into them is already narrow,” she said.
Education and digital access during COVID-19 reinforced that divide.
During school closures, 63% of children accessed remote learning, while 15% received none. In households with internet, 90% of children accessed online education; in households without, only about two-thirds did. Children from better-educated households were 20–30 percentage points more likely to receive online learning.
“These are the workers who will compete for AI-complementary jobs in a decade. The inequality is being pre-wired today,” she said.
Micro-data from the Vanni shows the same structural pattern. Basic phone skills were nearly universal, but advanced skills correlated with household wealth. Only 17% had ever used the internet to look for work and roughly 70% had never used a Government website. “This is a capability gap in even finding and competing for good jobs,” she said.
Gender and disability sharpen these constraints.
Women are one third less likely to use the internet than men and hold only about a third of ICT jobs. Only 7% of persons with disabilities had ever used the internet compared to 24% of the general population. “The potential winners from AI in Sri Lanka are concentrated within a relatively small urban middle class,” she said.
Dr. Gunasekara said this raises questions about the design and inclusiveness of Sri Lanka’s emerging DPI architecture.
AI requires reliable electricity, broadband, and data systems. Sri Lanka’s electricity coverage is 97%, but internet speeds are low, public Wi-Fi is sparse, and effective tax rates on internet services are 17–20%.
At the same time, the country is advancing digital identity, digital payments, e-Government, e-procurement, digital customs, and digital education and health platforms. “These are labour market and trade infrastructure,” she said.
Sri Lanka’s own digital economy ambitions underline the scale of the challenge. The Government aims to grow the digital economy to $ 15 billion, up from the current level of about 3% of GDP, compared with India’s 12%. The national target is to increase this share to 10% in the medium term and 15% over the next decade. As part of this effort, the DPI framework will be opened to developers through a sandbox to test and build applications.
Payments form the core of the emerging DPI ecosystem, with the objective of creating seamless interoperable payment rails across banks, fintechs, and large technology firms. The next phase is expected to move towards account aggregation for individuals and businesses, enabling open banking, open lending, and open insurance. Data sharing and interoperability, supported by proportional regulation, will drive innovation, the Government believes.
However, Dr. Gunasekara cautioned that unless DPI is designed for low-income and rural users, it risks reinforcing structural inequality. “39% percent of households still lack internet. Women face a 34% gap in internet use. Persons with disabilities have 7% use versus 24% for the general population. These foundational rails are missing where inclusive growth is most needed.”
Small and medium enterprise (SME) surveys show similar constraints: only a minority transact online; micro and informal firms rely on social media for marketing, while billing and ordering remain manual. “Cash-on-delivery still dominates e-commerce,” she said. She argued for DPI designed for low-bandwidth use, multilingual interfaces, and mobile-first access, with offline and accessibility features built in.
“DPI must change who can step into the modern economic grid,” Dr. Gunasekara asserted.
Turning to trade reforms, she said sequencing is critical. Across South Asia, tariffs on intermediate inputs are more than twice those in emerging economies. High-tariff sectors like agriculture, food, textiles, and electronics trap many workers, while low-tariff services generated three-quarters of job growth between 2013 and 2023.
Sri Lanka faces additional constraints: thin digital trade systems, offline-first SMEs, and foreign exchange pressures. “Dismantling tariffs too quickly risks a surge of cheap imports, pressure on the rupee, and stress on industries emerging from crisis,” she said.
She pointed out that mobility frictions erase most gains from trade reform when workers cannot move into expanding sectors. Sri Lanka’s mobility barriers include limited affordable housing in growth hubs, weak public transport, poor regional transport links, and mismatched skills.
“Announcing trade reform without fixing these gaps is like lowering tariffs while leaving large parts of your workforce blindfolded at the border,” Dr. Gunasekara said.
She said Sri Lanka should prioritise non-tariff trade costs first: logistics, port and airport efficiency, customs automation, risk-based inspections, single window systems, mutually recognised standards, and cross-border digital trade systems accessible to SMEs.
The next step is investment in skills, reskilling, mobility enablers, childcare, transport, and safety nets. Only then should tariff reforms proceed, starting with intermediate inputs.
“A predictable input-focused tariff path is essential so that firms can retool and workers who are digitally invisible can begin to access new opportunities,” she said.
Delivering the 2026 Budget Speech, President and Finance Minister Anura Kumara Dissanayake said the para-tariff phase out would be gradual: “With the aim of boosting economic growth by increasing the competitiveness of external trade, we expect the gradual phase out of para-tariffs through the proposed revisions in Customs Import Duty rates. We propose to prepare and implement a plan according to a time frame for the phase-out of para-tariffs with a minimal impact on Government revenue,” he said.
“DPI is economic infrastructure. And sequencing matters. If we front-load trade facilitation and DPI and labour market investments, tariff reform can be ambitious and inclusive. If we skip these steps, the divides will only deepen.”
