US Tariff Challenges, Export Pressures, and Political Balancing Test Dissanayake’s Economic Strategy
Sri Lanka’s fragile economic recovery is facing mounting pressure as the country attempts to sustain a 5% growth rate in the face of tightening US tariff challenges and the need to boost dollar earnings. A recent report by Bloomberg highlights the country’s growing vulnerabilities as it navigates critical export dependencies and complex geopolitical trade dynamics.
With approximately a quarter of Sri Lanka’s exports headed to the United States, the possibility of new or reinstated tariffs—such as those floated during President Donald Trump’s previous term, which included a steep 44% rate on Sri Lankan goods—poses a serious threat to export revenues. Such a move would severely undercut the economic agenda of President Anura Dissanayake, who is already balancing multiple high-stakes demands.
“Maintaining the recovery momentum won’t be easy,” Bloomberg noted. “Sri Lanka needs to earn more dollars, both to buy imported fuel and to pay down debt.” The country has seen improvements, including a 5% growth rate and a significant rise in tax revenue relative to GDP, but the path ahead remains uncertain.
Adding to the pressure, the European Union’s Generalised Scheme of Preferences (GSP), which currently allows duty-free access for Sri Lankan goods, is subject to regular review. Continued eligibility depends on economic vulnerability and progress in areas such as human rights. Should Sri Lanka lose this privilege, it could cost the country over a billion dollars annually.
To safeguard access to European markets, President Dissanayake has pledged to repeal some of Sri Lanka’s harshest anti-terrorism laws—part of a broader effort to demonstrate social progress and political reform.
The economic stakes are high. Sri Lanka is currently under its 17th IMF bailout, with Dissanayake vowing it will be the last. But fulfilling that promise means more than just meeting fiscal benchmarks—it involves maintaining access to Western markets, calming internal dissent, and reforming the powerful military, all without destabilizing the country.
In short, Sri Lanka’s road to sustained growth is being shaped not just by domestic reforms, but by how it manages the looming US tariff challenges and shifting international trade conditions.