Sri Lanka can no longer rely on debt-financed spending, tax concessions or import-intensive consumption to drive growth and must instead lean on higher productivity, private investment and more competitive exports, the Institute of Policy Studies of Sri Lanka has said in the 2026 edition of its flagship annual report.
The report — Sri Lanka: State of the Economy 2026: Policy Choices for Durable Growth — frames the central challenge as accelerating growth without reopening the fiscal and external vulnerabilities that contributed to the 2022 crisis, the Daily FT reported. With limited fiscal and external space, the IPS argues, growth has to come from private investment, a more diversified export sector, better-quality jobs and more effective use of scarce public resources rather than from consumption.
The recovery is real — and the IPS says that is the easy part
The think tank credits the recovery with restoring a measure of stability:
| Indicator | Position |
|---|---|
| Real GDP growth | 5% in both 2024 and 2025 |
| Real GDP growth, 1H 2026 | 4.7% |
| Inflation | Eased substantially from its 2022 peak |
| External debt restructuring | Advanced |
| Foreign reserves | Rebuilt to more comfortable levels |
Converting that into lasting growth, it says, would require stronger productivity, greater resilience to shocks and broad-based improvements in household living standards — a different and harder set of problems than the stabilisation task of the past three years.
The framing lands the same week the government addressed the same question from the other direction. President Anura Kumara Dissanayake told the Ceylon Chamber’s investment summit on Monday that stability had been the current IMF programme’s objective and that the next phase must deliver growth while holding that stability — and the Deputy Finance Minister had earlier described the sought-after successor arrangement as a shift towards “long-term growth-targeted engagement”. The IPS is making the parallel case that the instruments available for that growth are narrower than they were.
Two-thirds of the workforce is informal
Labour is the report’s sharpest finding. Two-thirds of Sri Lankan workers are employed informally, without formal contracts or social security coverage. The IPS calls for reforms to create better-quality jobs, close skills gaps and protect vulnerable groups, alongside stronger human capital and social protection.
That compounds a problem this desk has reported from the official statistics: the Department of Census and Statistics’ second-quarter Labour Force Survey recorded unemployment easing to about 4% while youth and graduate joblessness stayed far above it. A headline unemployment rate counts whether people have work, not whether the work carries a contract or a pension — and on the IPS’s figure, for two in three workers it does not.
Resilience as a growth input, not a cost
The IPS argues that resilience must be central to development strategy rather than treated as a separate line item, citing recent climate disruption including Cyclone Ditwah and global energy shocks. It identifies investment in renewable energy, food systems, infrastructure and disaster preparedness as ways to safeguard growth and reduce vulnerability, and examines how infrastructure investment, regional development and changing population dynamics bear on inclusive growth.
Its recommendations span trade, fiscal management, labour markets, urbanisation, energy, agriculture, social protection and human capital development. The conclusion is conditional: Sri Lanka can meet its long-term development ambitions, but only through reforms that build competitiveness, strengthen resilience and spread the benefits of growth.
The underlying research, previewed three weeks ago
The IPS trailed parts of this report in a piece published by EconomyNext on 23 September, when it was still described as forthcoming. That preview carried the specific findings behind the export argument, and they are blunter than the summary language:
- Nearly 95% of export growth since 2008 came from selling more of existing products. Of nearly a thousand new products introduced over that period, only 43 proved competitive.
- Agricultural total factor productivity grew just 0.3% a year over the past decade, against 1.6% across South Asia — roughly a fifth of the regional rate.
- Government revenue rose from 8.2% of GDP in 2022 to 16.6% in 2025, but the tax system remains consumption-tax dominant, with a direct-to-indirect ratio of 40:60.
That last pair of figures is the fiscal argument in miniature. Revenue has roughly doubled as a share of the economy, but the structure still leans on taxing consumption — which is the growth driver the report says the country can no longer depend on.
These figures come from the September preview, not from Monday’s launch coverage, and are cited here as context. That article is older than this desk’s sourcing window and is linked rather than counted as a source.
Sourcing note
This report rests on a single verified newsroom. A search across EconomyNext, the Daily Mirror, NewsFirst, Lanka Business Online, the Island and Daily News found no other verified outlet carrying the 2026 report’s launch at the time of writing; the hits returned were earlier editions of the same annual report and unrelated IPS research. The report’s own launch coverage may broaden over the next day.
Not reported
The filing does not say when or where the report was launched, who presented it, or whether any minister or official attended — nor does it give its price, page count or publication format, or say whether the full text is publicly available.
No growth forecast is attributed to the IPS for 2026 or 2027, and the report’s own target or projection for where productivity-led growth would take the economy is not stated. The specific policy recommendations are listed only by sector, not by content: the filing names trade, fiscal management, labour markets, urbanisation, energy, agriculture, social protection and human capital as areas covered without reporting what is proposed in any of them.
It also carries no government response to the argument that tax concessions are no longer a viable growth driver — a direct challenge to incentive-led promotion, which the administration was marketing at the Ceylon Chamber summit the same week.
