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Sri Lanka is turning the corner after pitching into a severe social and economic crisis that’s required intervention by the International Monetary Fund. Negotiations around debt restructuring are ongoing, but the economy is forecast to rebound in 2024 after two years of contraction.
Known as “the teardrop of India”, the island nation has increasingly positioned itself as a quality, niche destination for ICT services, leveraging its geographical position as well as its relatively high-skilled, low-cost workforce. The government has ambitious plans for the sector, one of the country’s largest export earners, but an exodus of talent offshore has put some strain on the tech workforce.
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Before the pandemic, Sri Lanka’s IT industry employed more than 120,000 people and was the fifth-largest export earner, on track to become the top exporter within the next five years and double its employees. The country’s economic crisis derailed those goals. Cutbacks were seen across the sector and some companies set up temporary offices in neighboring countries, relocating staff to maintain business continuity.
As the economy shows signs of recovery, government initiatives such as tax incentives, infrastructure development, and the establishment of technology parks are encouraging both local and foreign investment in the sector. The Ministry of Education plans to introduce artificial intelligence and coding to the school curriculum with an emphasis on robotics, machine learning, data mining, computer vision and related technologies.
By the end of 2024, Sri Lanka’s ICT sector aims to become a $3 billion dollar industry, and by 2030 it is projected to contribute $15 billion to the country’s digital economy, the Vice Chairman Federation of Information Technology Industry Sri Lanka, Indika De Zoysa, told an industry conference. “Sri Lanka will enter the third wave of technology during the digital transformation, with 750 tech companies, 1,000 IT and IT-infused startups and 500 other technology startups in place.”
Sinhala (or Sinhalese) and Tamil are the two official languages, but Sri Lankan engineers and developers are highly proficient in communicating in English, which is widely used in education, science and commerce. Overall, about a quarter of the population speak English, especially in urban areas and among the younger generations, a legacy of Sri Lanka’s history as a British colony prior to gaining independence in 1948.
Sri Lanka is out of intensive care but still in the trauma ward, reported one of the more colorful news headlines as the country began to emerge from its worst financial crisis in more than seven decades. Now, two years after announcing a debt default, the economy is showing the first signs of recovery. Inflation is falling after hitting a peak of 70%, interest rates are edging downwards and the highly volatile currency is fluctuating within an acceptable range. The fiscal deficit is also expected to gradually fall over the medium-term due to consolidation efforts and a strong recovery in tourism.
A $2.9 billion International Monetary Fund reform program commenced in late March 2023 with approval of an Extended Fund Facility. The tax burden is deeply unpopular, but Sri Lanka’s ability to deliver on its commitments will be crucial to tapping further budgetary assistance from multilateral financial institutions and retaining the goodwill of its sovereign creditors, reports the East Asia Forum. “While tax increases, market-based pricing on fuel, a shake-up of the welfare system and a clampdown on spending are repairing the country’s public finances, the average citizen has suffered deeply.” A severely damaged policy infrastructure is also hampering the revival of Sri Lanka’s textiles industry.
Two years on from mass protests and the forced resignation of President Gotabaya Rajapaksa in response to Sri Lanka’s deepening economic crisis, the tangled landscape of Sri Lankan politics persists. The next presidential and parliamentary elections are set for late 2024, but the prospect has been raised of potential collusion between the incumbent Ranil Wickremesinghe, who is eligible to run for re-election, and the ruling Sri Lanka People's Front (SLPP) party to delay going to the polls in light of their waning popularity.
A recent survey by the Institute of Health Policy on voter intentions in the presidential election shows Wickremesinghe languishing at 13% and a left-wing Janatha Vimukthi Peramuna candidate sitting on a slight majority. Wickremesinghe, who was in office as prime minister when he took on the presidency, is the sole surviving MP from his United National Party and seen as the man who saved the SLPP from being ousted from power.
However, his moves towards closer relations with India – resuming a ferry service between the two countries after a 40-year hiatus and raising the possibility of accepting the Indian rupee as common currency – have been viewed with some concern by Sri Lanka’s dominant ethnic Sinhalese, whose middle class has been courted by the SLPP through an appeal to nationalistic sentiment. Human rights groups have criticized the use of police and the military to crack down on protests and moves by the government to restrict free speech.