By Sugath Amarasekera –

Sugath Amarasekera

Sri Lanka faces a pivotal economic moment. Following a severe financial collapse, the nation has adopted a stabilization strategy guided by the IMF—enforcing strict fiscal policies, raising taxes, and implementing structural reforms to restore debt sustainability. On the surface, indicators seem positive: inflation has decreased, the currency remains stable, and external confidence is gradually returning.

However, beneath this surface lies a more troubling reality—one that policymakers appear hesitant to address.

The current economic approach is based on a global policy framework that emerged in the late 20th century, emphasizing

market liberalization, privatization, and fiscal austerity. Although these policies have historically helped restore macroeconomic stability, they often lead to increased inequality, especially when safeguards are absent. The policy that has resulted in a massive debt bubble—characterized by unpayable fiscal and household debts—risks causing discontent among the majority of workers, both in mature economies and in countries like Sri Lanka, even if it is not fully correct to attribute our economic issues solely to neoliberalism.

Sri Lanka is now repeating these patterns

The burden of adjustment is mainly falling on the wider population. Over 70% of government revenue comes from indirect taxes like VAT, which disproportionately impact lower- and middle-income households. Meanwhile, wealthier groups—

those with access to financial assets and capital—continue to benefit from high interest rates and relatively lower direct taxes.

This situation reflects not just economic imbalance but a structural injustice.

Supporters of the current system claim these sacrifices are necessary to regain investor confidence and promote long-term growth. But the fundamental question remains: growth for whom?

An economy cannot sustain itself if its workforce is systematically weakened. When real wages stagnate, consumption declines. When credit mainly fuels consumption rather than productive investments, long-term capacity is limited. When public assets are privatized without a comprehensive development strategy, economic control consolidates rather than disperses.

Therefore, Sri Lanka’s challenge isn’t just stabilizing its economy but redefining what that stability should serve.

A recovery focused solely on debt repayment at the expense of human development risks creating a fragile balance: stable in numbers but unstable in society. History shows such imbalances eventually undermine political trust and economic resilience.

The path forward isn’t rejection of reform but rebalancing it

Fiscal consolidation should be paired with fairer taxation. Reforms in the financial sector should encourage lending to vital sectors like manufacturing and exports. Privatizations, when needed, must be transparent and aligned with national development goals. Crucially, policies need to focus on boosting real incomes, not just controlling inflation.

Sri Lanka doesn’t require blind adherence to any economic doctrine. What it needs is a pragmatic, balanced approach that values both stability and fairness.

Without this balance, recovery will remain an illusion for most and a privilege for the few.