Wednesday Oct 08, 2025
Wednesday Oct 08, 2025
Wednesday, 8 October 2025 00:00 - - {{hitsCtrl.values.hits}}
Economist and Arutha Research Director – Civic Education
Rehana Thowfeek
– Pic by Shehan Gunasekara
Economist and Arutha Research Director – Civic Education Rehana Thowfeek said Sri Lanka must stop repeating the mistakes of the past and commit to an open, outward-looking trade policy if it wants to escape recurring economic crises.
Speaking at the Annual Conference on Public Sector Reforms for Economic Revival, organised by CA Sri Lanka and the Association of Public Finance Accountants of Sri Lanka, she said the country has no choice but to “trade its way to recovery.”
“Trade for Sri Lanka is not just about growth anymore. It is about survival,” Thowfeek said. “The fuel queues, gas shortages, and medicine crises of 2022 were all connected to our inability to earn enough foreign exchange through trade.”
She noted that Sri Lanka has long suffered from a balance of payments deficit because imports have consistently exceeded exports. “Before the default, we spent 30 to 35% of our export revenues just on debt servicing,” she said. “We cannot meaningfully reduce our nominal debt stock, so the only way forward is to grow the denominator, GDP, by expanding industries, exports, and jobs.”
She pointed out that public debt exceeded 100% of GDP before the 2022 default and will still remain around 92% of GDP by 2030, even after debt restructuring.
“While there is some relief from extending debt maturities, the burden is still very high. We must now focus on growing the economy, and that means focusing on exports,” she said.
Thowfeek said Sri Lanka’s economic history offers clear lessons on what works and what fails.
“By 1977, Sri Lanka was a closed and inward-looking economy with high tariffs, rationing, and foreign exchange controls,” she said. “The people were dissatisfied, and the economy had stagnated. Liberalisation changed that trajectory. Exports became the engine of growth and the economy shifted from agriculture to manufacturing.”
But over the past two decades, she said, Sri Lanka has reversed direction.
“There has been a noticeable shift towards protectionism, with para-tariffs and import restrictions that created an anti-export bias, making it more lucrative to sell domestically than to export.”
As a result, the country’s export base has stagnated.
“The share of exports in GDP has fallen from around 30% at the start of the millennium to about 20% in recent years, and our share of global exports has declined sharply,” she said. “Our export basket remains concentrated in three products—apparel, tea and rubber—and our markets are limited to the US, UK, and EU.”
She contrasted Sri Lanka’s experience with countries such as Vietnam and Cambodia, which liberalised later but have since expanded rapidly.
“Vietnam and Cambodia opened their economies nearly 10 years after us, yet their trade has surged since the 1990s while ours has declined,” she said.
“Sri Lanka’s high-tech exports account for only 1.5% of manufactured exports, compared to 46% in Vietnam and more than 50% in Malaysia and Singapore. These countries attracted foreign investment, integrated into global supply chains, and negotiated multiple effective trade agreements. We did the opposite, and the results are clear.”
Thowfeek said that despite being one of the first South Asian countries to open up, Sri Lanka has regressed into a closed and inward-looking economy.
“By 2022, we had import bans, exchange controls, and even talk of self-sufficiency. Exports have stagnated, and our lack of diversification has left us vulnerable,” she said. “Einstein said that doing the same thing over and over again and expecting different results is insanity. That is exactly what Sri Lanka has been doing.”
She argued that people expect simple outcomes from economic policy: better jobs, stable prices, and a decent standard of living.
“Trade is one of the most powerful levers to achieve this,” she said. “But Sri Lanka’s policies have focused on dividing a small pie, not growing it. The question should have been how to make the pie bigger so that everyone benefits.”
Turning to the way forward, Thowfeek said Sri Lanka must make use of trade policy for trade objectives rather than using it to generate revenue or serve narrow interests.
“There is a national export strategy in the works, but the real test will be implementation,” she said. “We need to work on trade facilitation measures, whether that means fewer bureaucratic procedures, more digitisation, or better infrastructure. We should establish a dedicated office to take over trade negotiations and ensure that trade agreements are effectively implemented. Countries that have succeeded in growing their exports all have such institutions.”
She also called for leveraging and expanding Sri Lanka’s limited number of trade agreements, improving education and skill development, and preparing for technological shifts. “We must re-skill people, including in the public sector, and prepare for the Artificial Intelligence (AI) revolution. We need to move up value chains and start targeting high-tech exports,” she said.
Sri Lanka exported $ 12.7 billion in goods and services in 2024 while importing $ 18.8 billion, resulting in a trade deficit of about $ 6 billion. “We can’t close that gap by borrowing. We have to earn our way out by trading more, producing more, and integrating better,” Thowfeek said.
She also warned of growing global risks, including shifting trade patterns and tariff shocks.
“When the US imposed a 44% tariff on Sri Lankan exports earlier this year, later reduced to 20%, it exposed how vulnerable we are because 25% of our exports go to the US. If we are so against the US putting high tariffs on our exports, why do we do it to other countries? Is that fair?” she asked.
Thowfeek warned that reforms are no longer optional but essential. “Sri Lanka has been here before. The 1970s were a lesson, and history shows that openness worked for us. Protectionism has hurt us,” she said. “We cannot borrow our way out of a crisis or protect our way to prosperity. The only sustainable path is to open up, diversify, and trade our way to recovery.”
