• There is an air of optimism following the NPP Party’s election on an anti-corruption platform.
• GDP grew by 5% last year, and GDP per capita exceeded US $5,000 for the first time.
• The drop in corruption was a significant story among the people we spoke to.
• Sri Lanka has a very high literacy rate of 97% with almost no gender gap. However, labour force participation is low at 50% due to a low female participation rate of 35%.
• English literacy at 22% is a weakness, especially in rural areas and estates, and has harsh consequences.
• Unemployment is higher for educated youth, and youth unemployment is 22%.
• Low university capacity means that 90% of students who pass the entrance examination can’t pursue higher studies.
• The country is well-positioned to grow due to its highly literate population and tourism potential
• Perhaps, finally, Sri Lanka will fulfil its promise to become an island paradise.

We recently visited Sri Lanka after 8 years. There was an air of optimism largely absent since independence 75 years ago. Optimism that the government elected 18 months ago on an anti-corruption platform would be a platform for progress. It’s early days, but good intentions and hope are in abundance.

This is a bird’s-eye view from a fleeting visit.

Sri Lanka has a chequered history so far. The first post-independence leaders, Oxford/Cambridge-educated elite, failed to put the country on a good footing. This was followed by two decades of disastrous flirting with socialism and communism. The shift to capitalism and free trade, unfortunately, clashed with corruption on an industrial scale, a short-lived armed insurrection and a ruinous 26-year civil war.

Post-Civil War optimism was wrecked by corruption and nepotism. Past parliaments were rife with thugs and drug dealers. For most politicians, entering the parliament was seen as a ticket to loot the country. This brought the country to its knees, mass hunger and an economic crisis the likes of which we hadn’t experienced before. And ultimately to the country’s bankruptcy.  The election of the NPP Party on an anti-corruption platform was a result of the crisis, and hopefully one that wouldn’t go to waste.

Even bad governments do a few good things. A highway between the main airport and the main tourist areas in the south reduced travel time from 4-5 hours to 1.5-2 hours. There is a vibrant free press, the only good that came out of a government that promised “good governance”.  A good Central Bank Governor has reduced inflation from near 100% at the height of the crisis to 2.2% for the year to March 2026. GDP grew by 5% last year despite the impact of Cyclone Ditwah.

GDP per capita exceeded US $5,000 for the first time. (Sri Lanka’s GDP per capita is nearly double that of its highly touted neighbour, India and almost four times that of Nepal). Salaries of professionals had increased significantly, and their buying power was visible at hotels and restaurants.

The drop in corruption was a significant story among many of the people we spoke to. A taxi driver put it colourfully that if you get proof, video a bribe being taken and send it to officials, action would be taken. We were astounded by the excellent service we received, even in retail outlets like supermarkets.

Tourism has been a significant part of economic development. The number of tourist arrivals, stuck at around 400,000 during the 26-year civil war, was 2.3 million last year. The number of hotels required to cope with the increase, as well as small businesses like restaurants and guest houses, was a significant boost to development.

Unemployment at 4.3% compares favourably with advanced countries. However, labour force participation, while growing, remains relatively low at 50% due to a low female participation rate of around 35%. Many of our educated female friends have not returned to the workforce after having children. Higher female participation could significantly increase productivity (GDP per capita). South Korean economist Ha-Joon Chang famously argued that the washing machine (and other household appliances) was a better productivity tool than the internet! The entry of high numbers of women into the workforce from the 1960s turbocharged economic growth in rich countries. Youth unemployment is quite high at 22%. Improving job opportunities for youth, especially educated youth, should be a priority.

Sri Lanka has a very high literacy rate of 97% with almost no gender gap. However, major constraints remain due to mismatches with the job market. Science and Technology education and opportunities remain low, and only a third of university enrolments are in STEM (Science, Technology, Engineering and Mathematics). English literacy, estimated at 22%, is another weakness, especially in rural areas and estates, and has harsh consequences. The lack of employment opportunities for arts graduates (and those lacking English literacy) is a long-standing problem and a source of frustration, leading to higher unemployment rates among GCE Advanced Level-qualified individuals than among those with lower levels of education.

Also, the low capacity at universities means that 90% of students who pass the university entrance examination don’t have the opportunity to pursue higher studies. Education is a focus area for the new government, and the Prime Minister, who holds this portfolio; however, improving access to English and Science education in rural areas and estates will be challenging.

The technology sector is still quite small (less than 0.5% of GDP) and, with high literacy, arguably has significant growth potential. With the country still in bankruptcy, foreign direct investment is low, and the government is offering tax incentives to attract investors.

Hurricane Ditwah hit Sri Lanka last November, flooding a large section of the country and the government’s swift response was praised by many. Early warning systems were poor due to deficiencies from previous governments. The recovery efforts, however, were beset by delays. The government responded promptly to the Iran War, reinstating the rationing system in place during the bankruptcy crisis. The country faces the same challenges as other Asian countries, with tourism and remittances from workers in the Middle East under threat.

Sri Lanka has to balance geopolitical interests. Both China and India are active compete for influence in the country. A previous government invited Chinese investment, including two white elephant vanity projects. The much-publicised Hambantota port, which the Chinese government took over, now handles imports of motor vehicles. The 2^nd airport still gathers dust, with the government desperately trying to attract an operator.

The new government is attracting a few scandals of its own, the most prominent being the import of sub-standard coal from South Africa. Sanctions against Russia necessitated the change but were poorly executed. The Minister for Energy has resigned, and a Presidential Commission of Inquiry is underway. The government’s tardy response has been criticised. A US$2.5 million payment to the Australian government has gone to hackers, allegedly due to incompetence.

On our visit, we met many hardworking people making exceptional efforts to put food on the table. Many had come to the capital to work, leaving their families in the provinces. My nephew works for the London Stock Exchange’s business unit in Sri Lanka, which runs the software for its trading platform. This was a software startup that won the contract to develop the trading platform and was subsequently acquired by them. Now they are customising the software for other stock exchanges, such as the Johannesburg Stock Exchange.

We also ran into problems we didn’t expect, like traffic lights that worked on and off, even on the busiest roads. On some roads, traffic police stepped in to manually direct traffic with old-fashioned hand signals. On others, we felt like we were risking our lives to cross the road.

The country is under IMF strictures and will begin loan payments to international creditors only in 2028. The country has to move away from the IMF, which can be a debt trap. (Sri Lanka has been to the IMF for loans 18 times.) As an economist put it, the IMF’s austerity policies are meant to be a last resort for a country in crisis, not to propel a growing economy forward. The current government’s approach to ailing state-sector enterprises is to improve their efficiency and competitiveness rather than privatising. This is probably the correct approach, as many of these are in monopolistic industries. The country is well-positioned to grow once it emerges from bankruptcy, thanks to its highly literate population and tourism potential (for example, Thailand had 35 million tourist arrivals in 2025 compared to Sri Lanka’s 2.3 million), provided it has strong leadership. Perhaps, finally, Sri Lanka will fulfil its promise to become an island paradise.