Corporate strategy meets national policy: Path to sustainable recovery for Sri Lanka

To attract meaningful FDI, the Government must undertake a comprehensive reform agenda

A private-equity-inspired approach can empower policymakers to develop robust capital markets that facilitate the monetisation of investments. This involves enabling local investors to take ownership of national assets—including partial stakes held by a sovereign fund—allowing for non-dilutive shareholding for the Government/sovereign fund with the capacity for earnings redistribution via dividends

In the high-stakes world of corporate turnarounds, leaders act swiftly to stabilise finances, streamline operations, and reposition brands for growth. Sri Lanka, grappling with economic crisis, could apply these same principles to national policymaking. By embracing fiscal discipline, public sector reform, export-led growth, and strategic FDI attraction, the island nation can chart a path toward sustainable recovery. Here’s how.

Stopping the bleeding: Fiscal stabilisation as a priority

In corporate turnarounds, the initial step is halting financial losses—similarly, Sri Lanka must focus on stabilising its fiscal health. While increasing tax revenue as a share of GDP is critical, experts caution against regressive taxation that could aggravate brain drain and undermine growth. Instead, the emphasis should be on broadening the tax base through policies that foster economic expansion.

Tax revenue should grow organically from economic activity, not through punitive measures. This entails incentivising businesses to scale operations and enhance exports, creating a virtuous cycle of growth. A progressive taxation system that encourages enterprise expansion will cultivate an environment where economic activity flourishes, ensuring fiscal sustainability.

Mirroring corporate cost-cutting measures, Sri Lanka’s bloated public sector—often inflated by politically motivated recruitment—must undergo urgent reform. For example, Vietnam’s strategic layoffs (https://economynext.com/vietnam-passes-us1-7bn-for-layoffs-rejecting-sri-lanka-style-revenue-based-fiscal-consolidation-221331/) in public employment offer a precedent. Excess labour could be redeployed into sectors facing skills shortages abroad, transforming a fiscal liability into a source of remittance income and economic contribution.

A leaner, data-driven public sector is fundamental. Excessive public employment hampers fiscal sustainability and economic dynamism. International collaborations to retrain redundant workers—particularly in sectors facing skills gaps—can convert potential liabilities into assets. However, such reforms require strong political will, given their sensitive nature.

Export-led growth: Building a national brand

Corporate strategies focused on market penetration and diversification are highly relevant as Sri Lanka seeks to expand its export basket. The nation’s unique commodities—like rubber and cinnamon—are underexploited global assets. For instance, rubber, thriving near the equator, remains underutilised; maximising this advantage could open new export opportunities.

A cohesive national branding strategy, akin to successful tourism campaigns, can elevate Sri Lanka’s products on the global stage. Initiatives like “Made in Sri Lanka”, “Ceylon Product”, “should be complemented by targeted branding efforts for “Invest Sri Lanka,” promoting existing and new economic zones.

To attract foreign investment, Sri Lanka must shift from protectionism towards expansive trade agreements. Modernising Export Processing Zones (EPZs) via public-private partnerships (PPPs) can revitalise infrastructure, offer competitive tax incentives, and integrate these zones into global supply chains.

Building trade relationships with large emerging markets will grant Sri Lanka and future FDIs easier access to growing consumer bases. Viewing imports not merely as threats but as vital intermediates for added-value exports can foster a more open trade environment, that would have an invariable impact on the eventual trade balance. 

Enhancing Foreign Direct Investment (FDI)

FDI is essential—it injects capital, technology, and market access, reducing reliance on debt. To attract more FDI, policies should focus on providing attractive tax incentives, ensuring transparent governance, and establishing high-tech free trade zones through PPPs. These measures can position Sri Lanka as a formidable global investment hub.

Debt-to-equity transformation: The FDI mandate 

Corporate restructuring teaches us that prioritising equity over debt is a prudent strategy for risk mitigation. Translating this to a national context, Sri Lanka must shift from excessive debt reliance to attracting sustainable Foreign Direct Investment (FDI). FDI not only infuses capital but also brings in technological innovation, operational expertise, and access to global markets. To attract meaningful FDI, the Government must undertake a comprehensive reform agenda: streamlining labour laws, enhancing ease-of-doing-business rankings, and establishing high-tech economic zones that serve as magnets for foreign investors. Additionally, privatisation or Public-Private Partnership (PPP) models for underperforming state-owned enterprises (SOEs) could unlock substantial value—akin to corporate divestments of non-core assets. 

Except for national security-sensitive sectors, SOE reforms should centre on boosting economic viability, whether through infusion of private-sector expertise or restructuring for export competitiveness. These reforms should be assessed based on two primary criteria:

• Fiscal contribution: Which options maximise revenue and reduce costs?
• External sector impact: Which reforms enhance the net export balance?

Achieving positive outcomes in these areas will generate dividend benefits for the public—through skill development, increased human capital, and broader economic participation.

Embedding private equity principles: Building capital markets and asset monetisation

A private-equity-inspired approach can empower policymakers to develop robust capital markets that facilitate the monetisation of investments. This involves enabling local investors to take ownership of national assets—including partial stakes held by a sovereign fund—allowing for non-dilutive shareholding for the Government/sovereign fund with the capacity for earnings redistribution via dividends.

Crucially, establishing SOE listings—potentially on USD-denominated exchanges—would provide foreign investors with currency risk mitigation and increased confidence. These specialised platforms would enable:

• Foreign investment into forex-earning SOEs
• ** IPOs of promising export-oriented firms with foreign ownership**

Such reforms would not only attract capital but also deepen market liquidity and resilience, positioning Sri Lanka as a strategic investment destination.

Investing in the future: Education and innovation as growth foundations

No corporate turnaround is complete without a robust focus on R&D. For Sri Lanka, fiscal austerity should be redirected toward education, technological development, and innovation. Countries like Vietnam and South Korea experienced transformative growth by investing heavily in human capital—Sri Lanka must follow suit.

Universal access to quality education, particularly through the expansion of English-medium curricula, can empower students to access global content, markets, and opportunities confidently. This shift would also foster national cohesion—bridging socio-economic divides through improved communication and understanding.

Long-term prosperity hinges on nurturing a knowledge-driven economy—by channelling fiscal savings into high-quality education, research, and STEM initiatives. Building a skilled labour force will position Sri Lanka to thrive in high-value industries like IT, advanced manufacturing, and emerging sectors.

Addressing monetary and structural challenges

While there is no direct parallel between corporate restructuring and monetary policy, it’s important to recognise Sri Lanka’s deeper structural issues related to the external sector. Our import basket is heavily weighted towards intermediary and capital goods—along with consumer goods—which are predominantly used for domestic production and consumption rather than export-oriented activities. This contributes to a persistent trade deficit.

In recent times, attempts to artificially lower interest rates through policy interventions or money printing have exacerbated these issues. Such measures tend to lead to higher imports, a widening trade deficit, depreciation of the Sri Lankan Rupee, and rising inflation—further destabilising the economy. 

In my view, monetary policy alone cannot sustain long-term growth. Instead, sustainable progress depends on comprehensive fiscal reforms and strategic public policies, alongside corporate-led initiatives. A more effective approach might involve managing the monetary base through currency reserves and allowing interest rates to find their natural market level—an area warranting further debate. Such a strategy could help restore balance and promote healthier economic fundamentals.

A capitalist perspective: Growth or governance?

Critics often point to capitalism’s shortcomings—such as corruption, inequality, and excessive subsidies. However, as Ruchir Sharma argues in What Went Wrong with Capitalism, the real issue lies in governance deficiencies and distorted policies. Capitalism itself isn’t inherently flawed; its benefits are hindered by poor governance and cronyism.

Sri Lanka’s path forward must balance market-driven growth with transparent, accountable governance. Eliminating oligarchic tendencies and curbing protectionism will ensure that economic development benefits all citizens, fostering inclusive prosperity.

The road ahead

Sri Lanka’s path to recovery demands a holistic strategy: corporate-style fiscal austerity, export-led branding, FDI-driven equity infusion, and monetary policy that prioritises stability over short-term fixes. No single lever—whether interest rates, tax reforms, or privatisation—can suffice. Only through synchronised structural overhauls can the nation break free from the cycle of deficits, depreciation, and debt. It requires disciplined execution, unified vision, and unwavering commitment to reform. Only then can Sri Lanka transform its economic strategies into tangible, lasting prosperity. 

(The writer is the CEO of a mid-sized exporter and a Strategy/Investment advisor to companies. He can be contacted through: https://www.linkedin.com/in/saminda-weerasinghe-cfa-a3333358/. The views expressed are the writer’s own and do not represent institutional endorsements.)