Structural growth is emerging as the cornerstone of Sri Lanka’s economic recovery, according to the IPS “State of the Economy 2025” report. The think tank emphasizes that the nation must move beyond short-term cyclical gains and build long-term productivity through technology, reform, and innovation.
IPS urges policymakers to drive Sri Lanka’s post-crisis rebound through structural growth and reforms.
Sri Lanka is standing at a pivotal economic crossroads as the nation moves from a short-term rebound toward sustainable structural growth. The Institute of Policy Studies (IPS), in its flagship State of the Economy 2025 report, stresses the urgent need to transition from a cyclical upswing to a long-term, productivity-driven growth model. This transformation, it argues, will require deep reforms to economic institutions, regulatory frameworks, and investment structures.
The country is currently experiencing stronger-than-forecast economic performance, with GDP growth recorded at 4.9% in the first half of 2025. This rebound reflects improved macroeconomic fundamentals and the positive impact of predictable policy measures. However, IPS highlights that cyclical recovery alone is not sufficient. To sustain momentum, Sri Lanka must prioritize structural growth strategies that strengthen the foundation of the economy rather than relying on temporary boosts.
At the heart of this shift is the recognition that technology infusion and digitalisation can unlock new levels of productivity. While computer literacy currently remains low—averaging just 39% with even lower rates in estate communities—IPS notes that digital inclusion represents one of the most powerful levers for transformation. Expanded access to technology can improve healthcare, education, and government services, enabling more equitable economic opportunities.
Sri Lanka’s digital potential is already visible in key sectors. Nearly 42% of adults in the poorest 40% of households are using digital payments, signalling the early stages of a vibrant e-commerce ecosystem. By lowering trade costs and improving product traceability, digital solutions can help exporters meet increasingly strict global standards. Additionally, strengthening digital platforms in transport and agriculture can enhance service delivery, boost efficiency, and create new growth avenues.
IPS also points to structural reforms in land and labour markets as necessary steps for sustainable expansion. These measures, while politically challenging, can lead to more efficient resource allocation and long-term productivity gains. Policymakers, however, often face pressure to address immediate social demands, making it difficult to push through transformative reforms. IPS cautions that delaying these changes would risk undermining the current recovery.
Another key recommendation of the report is fostering a stable and transparent investment environment. A reliable regulatory framework will attract both domestic and foreign investors, enabling Sri Lanka to diversify its economic base. Digital transformation is a catalyst here too, enabling faster, cheaper, and more transparent transactions, reducing bureaucratic inefficiencies, and boosting competitiveness in the global marketplace.
IPS argues that external uncertainties — from shifting trade dynamics to geopolitical pressures — should accelerate, not delay, domestic policy actions. By anchoring its economic strategy in structural growth, Sri Lanka can reduce vulnerability to external shocks and create a more resilient economy.
The report calls on policymakers to build a cohesive narrative around inclusive digital transformation and innovation. It notes that technology is not merely a sectoral upgrade but a strategic enabler of national competitiveness. The combination of digital literacy programs, investment incentives, and regulatory clarity can unlock new employment opportunities, enhance productivity, and secure sustainable growth.
Sri Lanka’s post-crisis journey presents a valuable opportunity. By embedding structural growth strategies now, the nation can position itself for a decade of stable, inclusive, and innovation-driven development. IPS concludes that without such structural change, the impressive cyclical rebound may remain temporary, vulnerable to external pressures and policy stagnation.
As Sri Lanka prepares to resume its debt service obligations, the urgency to fortify its economic foundations has never been clearer. IPS envisions a future where the nation is not just recovering, but thriving through a modernized economy powered by technology, innovation, and reform.