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Monday November 9th, 2026

Sri Lanka above target primary budget surplus partly due to central bank ‘deflation’

ECONOMYNEXT – Sri Lanka has recorded primary surpluses above International Monetary Fund targets, after steep rises in tax rates, despite large state salary hikes and welfare payments, with low inflation amid (largely) deflationary policy that kept inflation below the central bank’s target.

(This column was originally published in the Echelon Magazine in November 2025)

The primary expenditure is all expenses before interest costs. A country that runs a primary surplus has interest costs bigger than the budget deficit.

The high interest bill is not only due to the size of the debt but also the nominal interest rate which is a function of monetary instability and destruction of domestic capital from depreciation and inflation – which is basically the same thing.

By September 2025, Sri Lanka had run a primary surplus of 1,465 billion rupees, over 4 times the 300 billion rupee target in the IMF program.

By September a 6 billion rupee surplus was run in the current account of the budget, which includes interest. That means a part of the capex was financed by taxes.

Sri Lanka lost this ability after 1987.

The current account surplus seems like a revolution but before high levels of inflation created by macro-economists, it was pretty normal and in fact overall budget deficits were also possible. Before macro-economic policy and inflation, the budget went to deficit in war.

Deflationary Policy

Sri Lanka’s large primary surplus and the ever so small current account surplus by September could not have been possible if the central bank had not kept the exchange rate stable and run deflationary policy to miss its 5 percent inflation target.

A 5 percent inflation target means that non-interest current spending which is about half the current spending will go up by 5 percent a year.

Of course, the US Fed also helped, keeping coal and fuel prices down.

Before floating rate and positive inflation targeting it was not difficult to run budget surpluses and bring deficit and debt down absolutely.

In the age of inflation – after the collapse of the gold standard – the debts are not reduced absolutely as there is no possibility of running budget surpluses.

Instead, the debt to GDP ratio is brought down even as deficits – hopefully trimmed from earlier levels, continue.

However that was not the case before the collapse of the gold standard.

World Wars

After the deficit budgeting during the First World War, the Treasury Secretary Andrew Mellon was able to return to budget surpluses even as the Federal Reserve invented inflationary open market operations.

He was able to run budget surpluses until the Great Depression hit. Then stimulus and all kinds of state interventions began, worsening and extending the Great Depression leading to the birth of Keynesian stimulus.

GRAPH : US BUDGET SURPLUS AFTER WORLD WAR I

Similarly, Treasury Secretary John Snyder also ran budget surpluses, during the Korean War, after World War II to reduce the public debt.

Budget surpluses were also operated in the middle of what is falsely called the Korean war bubble.

Inflation rose due to the purchase of Federal Reserve of old Liberty Bond-style war debt with the yield capped at 2.5 percent (to maintain the secondary market value at 100 percent), amid a private credit recovery after World War II.

It was wrongly blamed on the Korean war, a tiny conflict compared to World War II, which was already financed by tax hikes amid fears that deficits were causing the inflation.

Congress in fact refused a second tax hike because the budget was in surplus, showing that macro-economists spread false narratives that budgets were responsible for monetary stability even then, only now.

It was in fact Governor Marriner Eccles, a former banker who insisted on raising rates, which then led to the Fed Treasury Accord and so-called independence of the Fed.

It was using this independence of the Fed that macro-economists busted the Bretton Woods, created Great Inflation, the Housing bubble and the post 2008 stimulus and the destruction of public finances that the West is left with.

The same ideology drives the potential output and the high inflation target in Sri Lanka.

Long Term Debt, Low Interest Rates

The insistence by John Snyder that the Fed continue to the wartime agreement to keep government debt yields down shows another stark fact.

The 40-year Liberty Bonds were issued to finance World War I. Snyder insisted on the Fed keeping rates down to protect the secondary market value of the bonds, because war widows held the bonds.

Before the creation of the Fed and its ‘tightening and easing cycle’ (like the printing of money in 1950) generated high interest rates ordinary people had been buying very long-term bonds, not just pension funds.

In Sri Lanka people were buying 20 year government loans below 3 percent when the central bank was created and it started to manipulate rates, triggering balance of payments pressure.

The problem also started during the same Liberty Bonds Bubble as the central bank did not allow rates to go up and printed money, triggering the first balance of payments problems in 1952 even as the US tightened policy.

The Central bank never looked back.

<b>Post-Gold Standard</b>

The US government also lost the ability to run budget surpluses after the collapse of the Bretton Woods led to Great inflation and floating rate.

In the early 1980s, Paul Volcker brought inflation under control, potentially allowing the deficits to be narrowed.

Though the Margarat Thatcher was keen on reducing the deficit, the Reagan Administration, advised by monetarists, decided to run deficits.

As a result Volcker had to raise interest rates close to 20 percent to balance credit.

The UK managed with very much lower interest rates under Alan Walters and Thatcher.

The UK managed to run good budgets until the eve of the ERM crisis in 1991 which led to collapse of the Pound.

The UK also managed to run good budgets up to 2000 when macro-economists in the US, led by Ben Bernnake in particular, claimed that there was ‘deflation’ and misled Alan Greenspan to print money.

The Reflated Housing Bubble

In the so-called ‘deflation’ of the late 1990s, the US was also able to operate budget surpluses, for the first time since the collapse of the gold standards.

In fact some East Asian central banks bought Fannie Mae and Freddie Mac paper due to the scarcity of Federal paper, amid a global rise in savings and low rates triggered by the lowered inflation.

By 1999/2000 gold was 284 dollars an ounce and gold 16 dollars compared to around 800 dollars for gold and 35 dollars for oil when Volker started to tighten money.

After the collapse of the housing bubble, fired in the course of reflation from 2000 to 2007, a great crisis was created by macro-economist without war, just like the roaring 20s bubble fired by the invention of the open market operations led to the Great Depression.

Stimulus

After the housing bubble, without tightening policy like Sri Lanka did after the 2022 crisis triggered by the earlier rate cuts, which led to a quick recovery in economic activities after inflation was squeezed out, the US engaged in stimulus.

Now the budgets and national debt of all Western governments have been destroyed by macro-economists who misled politicians into deficit spending.

Persistent inflation is making the public unhappy and nationalism is on the rise like in interwar Germany, which was also hit by the spread of open market operations and the onset of the Great Depression.

Sri Lanka’s budgets deteriorated in the 1980s as the rupee collapsed from IMF and other technical advice for competitive exchange rates, even as the US and UK tightened policy.

In fact in the UK, energy utilities also made large profits as inflation was brought down in the 1980s and newly privatized electricity firms made windfall profits.

The UK government taxed them, earning revenues to reduce the deficit.

There is no benefit for the people or the government in the insistence of high inflation. Five percent a year inflation is around or more than the Great Inflation the world and Sri Lanka suffered in the 1970s.

In the 1980s, unfortunately Sri Lanka’s budgets deteriorated due to Greater than Great inflation from currency depreciation even as East Asia with their fixed exchange rates benefited from the tighter policies of the UK and US.

The tighter policies also made free trade possible and great prosperity came to East Asian countries that ran deflationary policies and invested their savings in the US, also benefiting the Western nations.

If the central bank insists on creating 5 percent inflation and depreciating the currency, all the gains made over the past two years will disappear. (Ends)

Sri Lanka stocks close up 1.37-pct, banks lead turnover

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed up on Monday, CSE data showed, with the benchmark All Share Price Index moving up 1.37 percent.

The ASPI was up 291.72 points at 21,531.37, while the more liquid S&P SL20 was up 1.67 percent, or 100.96 points, at 6,146.34.

Positive contributors to the ASPI were Commercial Bank of Ceylon (up 2.86 percent at 216.00 rupees), Hatton National Bank (up 1.52 percent at 399.75 rupees), Asiri Hospital Holdings (up 12.86 percent at 31.60 rupees), Tokyo Cement Company (up 5.22 percent at 84.70 rupees), and Access Engineering (up 3.93 percent at 81.90 rupees).

Carson Cumberbatch (down 4.24 percent at 712.00 rupees), Richard Pieris and Company (down 2.43 percent at 28.10 rupees), LOLC Holdings (down 0.62 percent at 400.00 rupees), Renuka Holdings (down 2.63 percent at 37.00 rupees), and Chevron Lubricants Lanka (down 0.61 percent at 204.25 rupees) were top negative contributors.

Market turnover was 3.33 billion rupees. The S&P/CSE Banks Industry Group led turnover with 667.76 million rupees.

The session saw heavy crossings, according to Raynal Wickremeratne, Head of Research and Strategy at NDB Securities. Significant crossings included Keells (23 million rupees), Distilleries Company (27.7 million rupees), Sunshine Holdings (30.6 million rupees), Commercial Bank (32.4 million rupees), Ceylon Tobacco Company (35.6 million rupees), Hatton National Bank (39.5 million rupees), Prime Lands (40.5 million rupees), and HAS Holdings (41.5 million rupees).

In corporate news, Hayleys Retail Holdings Ltd announced it has partnered with supply chain software provider Blue Yonder to build and scale an AI-native grocery supermarket chain across Sri Lanka. (Colombo/Nov09/2026)

 

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Sri Lanka’s Hayleys Retail to launch supermarket chain with Blue Yonder

ECONOMYNEXT — Hayleys Retail Holdings Ltd has selected supply chain software provider Blue Yonder to build its grocery retail operations from the ground up, the two companies said in a joint statement.

Hayleys Retail, a member of Sri Lanka’s diversified conglomerate Hayleys Group, plans to open several stores in the near future to serve consumers across the country. The agreement marks Blue Yonder’s first retail customer in Sri Lanka.

“Our entry into supermarket retail is about bringing that same commitment to quality and reliability closer to everyday Sri Lankan consumers,” Mohan Pandithage, Chairman and Chief Executive of Hayleys PLC said.

“With Blue Yonder, our teams will have AI-driven insight to deliver a seamless, consistent shopping experience across every store,” he said.

Hayleys, which accounts for approximately 5 percent of Sri Lanka’s export income and operates across 17 business sectors, is entering the large-scale supermarket space by drawing on its group strengths in manufacturing, logistics, and services.

The company selected Blue Yonder to connect its data across merchandising and shelf space, deploy artificial intelligence agents to catch operational issues early, and scale its business into a national network without changing platforms.

The rollout will begin with merchandise operations to manage suppliers, items, costs, and pricing, followed by machine learning capabilities to forecast demand and balance store inventory during seasonal peaks.

“Hayleys Retail is choosing one where AI is the foundation rather than an add-on—connected data and agentic AI built into core merchandising operations, and planning that learns as the business grows,” Antonio Boccalandro, President, APAC at Blue Yonder said.

The retailer plans to use the platform to automate routine store tasks and adjust inventory according to real-time sales and local market trends as its store footprint grows. (Colombo/Nov09/2026)

 

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Sri Lanka’s Citrus Leisure extends Lotus Tower management pact

ECONOMYNEXT – Sri Lanka listed hospitality firm Citrus Leisure said it has extended an agreement to manage consumer-facing and entertainment spaces at the Colombo Lotus Tower, which includes revolving restaurant Blue Orbit, until June next year.

The initial agreement signed between Citrus Leisure and Colombo Lotus Tower Management Company (Private) Limited (CLTMC) is due to expire on December 11.

“The Board of Directors of CLTMC at meeting held on 2nd November 2026 has resolved to extend the term of the Management Agreement and continue the existing Management Agreement until 30th June 2027, to which the company has given its concurrence,” the company said in a market filing.

Citrus Leisure Plc opened its revolving restaurant at the Lotus Tower in December 2023.

The company signed a 3-year agreement with CLTMC in May 2023 to provide services in the management of (l) the banquet hall 1 on the 25th floor, (2) the banquet hall 2 on the 26th floor, (3) the revolving restaurant on the 27th floor, (4) the 6 suites situated on the 28th floor and the kitchen in the basement floor of the Colombo Lotus Tower.

The 350-meter or 1,150-feet tower, the tallest in South Asia, was built at a cost 104.3 million US dollars with 80 percent of the money borrowed from Exim Bank of China.

Located in the commercial heart of Colombo, the tower has been called a symbolic landmark of Sri Lanka as well as a colossal white elephant and has been mired in controversy for years. (Colombo/Nov9/2026)

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CIC Holdings Sept quarter net profit rises 20-pct to Rs1.7bn

ECONOMYNEXT — Sri Lanka conglomerate CIC Holdings recorded a net profit of 1.66 billion rupees for the quarter ended September 30, rising 20.3 percent from 1.38 billion rupees in the same quarter last year, interim accounts showed.

The group posted basic earnings per share of 0.87 rupees for the September quarter, up from 0.73 rupees a year earlier.

Quarterly revenue grew 3.4 percent to 20.89 billion rupees from 20.20 billion rupees, supported by broad-based growth across industrial solutions, livestock, and healthcare segments, which counterbalanced relative demand moderation in agricultural inputs.

Cost of sales rose 5.3 percent to 15.20 billion rupees, outpacing revenue growth and causing gross profit to contract marginally by 1.2 percent to 5.68 billion rupees.

Results from operating activities dropped 7.3 percent to 2.66 billion rupees from 2.87 billion rupees, impacted by higher operating overheads.

Selling expenses expanded 6.8 percent to 2.15 billion rupees, and general and administrative expenses climbed 5.8 percent to 1.07 billion rupees, while other operating income dropped 29.6 percent to 117.40 million rupees.

However, operating profits were cushioned by an impairment reversal on trade receivables of 85.83 million rupees, turning around from an impairment provision of 23.38 million rupees in the corresponding quarter last year.

Net finance costs climbed 35.4 percent to 712.25 million rupees from 526.01 million rupees.

The increase was driven by a 30.8 percent rise in finance expenses to 771.46 million rupees, primarily reflecting higher interest expenses on loans to finance elevated working capital and inventory requirements.

The quarter’s bottom line was strongly bolstered by CIC’s equity-accounted investment in John Keells Holdings PLC (JKH).

Share of profit from equity-accounted investees surged more than fourfold to 590.50 million rupees from 257.87 million rupees, driven by JKH’s strong profit expansion during the period.

The group also recognized a gain on bargain purchase of 55.59 million rupees during the quarter resulting from additional share purchases in JKH where the proportionate net asset value exceeded acquisition cost, compared to no such gain a year earlier.

With associate income gains offsetting operating margin contraction and higher borrowing costs, group pre-tax profit held virtually flat at 2.59 billion rupees, down 0.11 percent.

Income tax expense fell 29.4 percent to 606.24 million rupees from 858.71 million rupees, driving total group profit for the period up 14.1 percent to 1.98 billion rupees.

Total group assets stood at 108.58 billion rupees as of September 30, up from 99.75 billion rupees at the end of March 2026.

Group net asset value per share increased to 25.52 rupees from 22.10 rupees a year earlier.

CIC Holdings’ ordinary voting shares closed at 27.80 rupees at the end of September.(Colombo/Nov09/2026)

 

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Sri Lanka stocks trend up; ASPI gains 0.78-pct

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange was trading higher on Monday, CSE data showed, with the benchmark All Share Price Index moving up 0.78 percent.

The ASPI was up 165.73 points at 21,405.38, while the more liquid S&P SL20 was up 0.61 percent, or 37.04 points, at 6,082.42.

Positive contributors to the ASPI were Commercial Bank (up 1.55 percent at 213.25 rupees), Ceylon Cold Stores (up 2.61 percent at 128.00 rupees), Asiri Hospital Holdings (up 10.00 percent at 30.80 rupees), Hemas Holdings (up 1.27 percent at 32.00 rupees), and Ambeon Holdings (up 6.02 percent at 37.00 rupees).

Namunukula Plantations (down 3.92 percent at 63.70 rupees), LOLC Holdings (down 0.62 percent at 400.00 rupees), and Chevron Lubricants Lanka (down 0.12 percent at 205.25 rupees) were top negative contributors.

Market turnover was 428.31 million rupees. Capital goods led turnover with 82.53 million rupees. (Colombo/Nov09/2026)

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Sri Lanka rupee at 332.54/58 to US dollar spot, bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee was quoted at 332.54/58 to the US dollar spot on Monday, stronger from 332.55/60 Friday, while bond yields held broadly steady, dealers said.

A bond maturing on 15.09.2029 was quoted at 10.90/95 percent, up from 10.85/95 percent.

A bond maturing on 01.08.2030 was quoted at 11.00/10 percent, down from 11.05/10 percent.

A bond maturing on 01.02.2031 was quoted at 11.10/20 percent, up from 11.10/15 percent.

A bond maturing on 15.12.2032 was quoted at 11.58/68 percent, up from 11.55/65 percent.

A bond maturing on 01.06.2033 was quoted at 11.80/95 percent, up from 11.80/85 percent.

A bond maturing on 15.10.2034 was quoted at 12.08/15 percent, up from 12.05/12 percent.

A bond maturing on 15.08.2036 was quoted flat at 12.30/40 percent.

The telegraphic transfer rate for the dollar was 328.05 buying, 337.05 selling; the euro was 363.3528 buying, 377.1336 selling; pound was 437.5954 buying, 451.7038 selling.

On the Colombo Stock Exchange the All Share Price Index was up 0.78 percent, or 165.42 points, at 21,405; while the S&P SL20 was up 0.58 percent, 35.19 points, at 6,080.

90,000 million rupees Treasury bills are to be issued through an auction on November 11. (Colombo/Nov9/2026)

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