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Saturday October 10th, 2026

Indian consent important to reform Provincial Councils

The social media has become a site for the battle for hearts and minds.  It contains both hate speech and edifying examples. There was recently on social media an image of a president of a western country on foot in the midst of a milling crowd who paid him no special notice with a backpack on his shoulders and carrying a brown paper bag in which was said to be his lunch.  President Gotabaya Rajapaksa’s style of dressing is likewise unpretentious and simple though he may not be able to walk the streets in that same manner due to the different security and social conditions in Sri Lanka. Nevertheless, the president has won public commendation for the many positive actions he has been taking to streamline governance which are a break from the past. 

The most significant reform is to restrict the size of the cabinet to fifteen ministries which would have been a difficult task in a polity where the expectation is a minimum of thirty to forty cabinet ministers.  Other reforms include reducing the staff assigned to his office and continuing to live in his home and not in the presidential residence. These can be seen as steps to take governance away from feudal trappings and as part of the movement intended to give Sri Lanka an efficient and cost-effective modern state.  His latest directive that the chairpersons and board members of state corporations should be chosen on the basis of their qualifications is another positive indication of the movement towards a meritocracy which is an indicator of a modern state.

The president’s directive that his portrait should not be on government buildings like his predecessors have done, and only the state symbol should be placed there, is another indication of a desire to take the country in the direction of a modern state. In drawing this distinction between the state and the government, President Rajapaksa is following the spirit of the advice given by the Lessons Learnt and Reconciliation Commission appointed by former President Mahinda Rajapaksa in 2011, which addressed the issues of the three decade long civil war, and stated that the rule of law ought to prevail over the rule of men.

POPULAR REFORMS

The reforms that President Rajapaksa is currently putting in place and noted above are popular ones that are also good for the country.  On the other hand, there could also be other reforms that are popular but which may be more problematic. There will need to be caution in moving forward on them. The support of the majority of people may be a necessary condition for successful reform but it is not a sufficient reason.  One such reform being proposed is to abolish the provincial council system in which the central feature is the devolution of power to enable power-sharing by the ethnic minority communities who are the majority in two of the country’s nine provinces.

The provincial council system came into being in November 1987 as a result of the 13th Amendment to the constitution which was itself an outcome of the Indo Lanka Peace Accord of July 1987.  The signing of the Peace Accord was accompanied by the entry into Sri Lanka of the Indian army, known as the Indian Peacekeeping Force. This was one part of the agreement by which India pledged to disarm the LTTE while Sri Lanka pledged to provide a limited amount of democratic self-rule to the Tamil majority provinces of the North and East.  The unfolding of events was tragic and unexpected, in that neither did the Indian army succeed in disarming the LTTE nor did the Sri Lankan government properly devolve the promised powers.

Today, more than three decades after their establishment, the provincial councils are criticized by most of the Sri Lankan people as being white elephants, wasteful of financial resources and inefficient. There is dissatisfaction within the Tamil polity that they are not given the full powers envisaged in the 13th Amendment.  They are seen by the Sinhalese majority as being a potential line of division of the country into two or more separate states and therefore as a potential security threat. However, over the years there have been many proposals, including by the newly appointed cabinet minister Douglas Devananda from the North, as to how their workings can be improved to make them an asset rather than a burden to the country.

PROVINCIAL COUNCILS

There is much that is deficient in the workings of the provincial councils.  Even politicians who contested provincial council elections and had become chief ministers of provinces have complained about the shortcomings in its implementation.  Despite these deficiencies, it is important to keep in mind that the provincial council system is an outcome of an agreement with India. It is also a concession to the longstanding demand of the Tamil people of the North and East for some extent of self-rule. Therefore, it is best that any reform or abolition of the provincial councils should be done in consultation with India and with the political parties that represent the Tamil and Muslim people of the North and East. 

President Rajapaksa’s visit later this week to India where he will be meeting with Indian Prime Minister Narendra Modi could set the stage for such a change.  It is important that the Tamil polity too should downscale its expectation from the maximalist demands it placed before the presidential candidates as a condition for their support.  The 13 point demand added to the immediacy of the Sinhalese nationalist response that gave President Rajapaksa his victory. These demands included evolving a political solution through a federal arrangement, with a recognition of a right to self-determination and conducting an international probe into war crimes.

One of the stark features of the recently concluded presidential election was the polarization in votes between the North and East of Sri Lanka, in which the ethnic and religious minorities predominate, and the rest of the country.  This is a line of division that needs to be healed early, so that Sri Lanka can take the leap to the next level of development as a polity that is united in heart and mind. At the present time, Sri Lanka’s economic growth is at the bottom of South Asia, only above war-torn Afghanistan.  If Sri Lanka is to benefit maximally from the modernizing vision of President Gotabaya Rajapaksa it needs to be united internally and it also needs the internationally supportive environment that India can help to provide.

Sri Lanka Central Bank stubbornly defends 5% inflation target

ECONOMYNEXT – Sri Lanka Central Bank stubbornly defended the 5% inflation target it recommended and signed with the government for the next three years citing that it was the only “optimal solution” and rubbished claims that the target is high and erodes the purchasing power of the general public.

Economists and monetary policy critics have strongly advocated that the Central Bank lower its official inflation target from 5% to 2%, emphasizing that a lower target is essential to break the country’s historical cycle of currency instability.

Proponents of the 2% target argue that a 5% baseline implicitly embeds a continuous, compounding erosion of domestic purchasing power, increasing price levels by over 15% across a three-year window.

In a country recovering from hyperinflation, critics contend that a targeted 5% annual inflation creates an environment where nominal prices and living costs permanently outpace real wage growth, continually straining lower- and middle-income households.

However, the Central Bank recommended to the government and signed a three-year agreement to maintain the 5% inflation target for the three years through October 2029.

Central Bank Governor Nandalal Weerasinghe explained at a panel discussion with his junior officers that countries choose inflation targets depending on their growth potential and ability to grow.

“So, this is where one can argue, why 2% inflation, is it better? Looking at the purchase power, it looks better, but it’s not better,” he told the gathering in response to a question.

“It is worse, because it will create a country that can grow, much lower below its potential…. It’s not welfare optimization. It will make a lot of people worse off than it will make a lot of people better off.”

A primary structural argument for adopting a 2% inflation target centers on external stability and protecting the Sri Lankan rupee.

When Sri Lanka maintains a 5% inflation target while its key international trading partners such as the United States, Eurozone, and major Asian economies  aim for 2%, a structural inflation differential of around 3% is built directly into the economy.

According to economic theory and historical precedent, this persistent inflation gap exerts steady downward pressure on the domestic currency, forcing nominal exchange rate depreciation.

Advocates argue that lowering the target to 2% would align Sri Lanka with global standards, anchor long-term exchange rate expectations, and prevent recurring balance-of-payments vulnerabilities.

Only 5%

However, Weerasinghe said the 5% target has the “right balance” and the Central Bank had conducted extensive research before arriving at the decision.

“I think, we don’t see any other counterfactual to say, it’s not 5%, it’s 4%, or 2%, or 3%, or 6%, or 7%,” he said.

“A lower inflation target can make the solution worse than what we think…. It won’t be better because everyone can be benefited out of higher growth.”

“If you are coming to a solution, where inflation can drag down the growth below potential, that won’t be the optimal solution.”

“We are all convinced and that’s why we have made the recommendation, government also agreed.”

He said the central bank will reassess and come up with the right level that could be lower in the future and that decision will be data-driven and evidence-based.

Analysts have stressed that a 2% inflation target is critical for lowering long-term interest rates and encouraging capital investment.

Under a 5% target, which carries an allowed accountability band of 2 percentage points, permitting inflation to fluctuate between 3% and 7%, lenders and foreign bondholders demand a higher inflation risk premium to compensate for potential price volatility.

This inflates domestic borrowing costs for both private enterprises and the government. By committing to a tighter 2% anchor, the central bank would provide greater policy credibility, reduce nominal interest rates across the yield curve, and foster a far more predictable environment for long-term private sector investment and debt sustainability.

The data showed, the Central Bank missed the inflation targets for most quarters in the three-year period through end September 2026.

The Bank has blamed lower energy prices for disinflation and missing the target below the lower band of 3% and higher energy prices for breaching the target above upper limit of 7%. (Colombo/October 09/2026)

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Sri Lanka rupee closes at 330.85/95 to US dollar spot, bond yields edge up

ECONOMYNEXT – Sri Lanka’s rupee closed at 330.85/95 to the US dollar in the spot market on Friday, from 330.95/331.00 the previous day, while bond yields closed slightly higher, dealers said.

A bond maturing on 01.08.2030 closed at 11.30/35 percent, up from 11.25/35 percent.

A bond maturing on 15.10.2030 closed at 11.37/40 percent, up from 11.30/40 percent.

A bond maturing on 01.02.2031 closed at 11.42/47 percent, up from 11.35/45 percent.

A bond maturing on 15.12.2032 closed at 11.75/85 percent, up from 11.75/80 percent.

A bond maturing on 15.10.2034 closed at 12.10/15 percent, from 12.05/15 percent. (Colombo/Oct9/2026)

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Sri Lanka stocks close up, ASPI gains 0.41-pct

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed higher on Friday, CSE data showed, with the benchmark All Share Price Index moving up 0.41 percent.

The ASPI was up 82.57 points at 20,316.91, while the more liquid S&P SL20 was up 0.45 percent, or 26.19 points, at 5,788.75.

The ASPI ended the week down 496 points from last Friday, amidst a mixed week of trading.

Positive contributors to the ASPI were Dialog Axiata (up 0.91 percent at 44.50 rupees), Hatton National Bank (up 0.93 percent at 379.00 rupees), Commercial Bank of Ceylon (up 0.38 percent at 200.00 rupees), Richard Pieris and Company (up 4.30 percent at 26.70 rupees), and Laugfs Gas (up 7.35 percent at 40.90 rupees).

SMB Finance (down 9.09 percent at 1.00 rupee), LOLC Holdings (down 1.25 percent at 415.25 rupees), Haycarb (down 1.37 percent at 198.50 rupees), and Industrial Asphalts (Ceylon) (down 16.67 percent at 0.50 rupees) were top negative contributors.

Market turnover was 1.05 billion rupees. Diversified financials led turnover with 233.69 million rupees, followed by capital goods with 200.09 million rupees.

During the session, crossings in Lanka Milk Foods (LMF) in the first half of the trading day drew market interest, Raynal Wickremeratne, Head of Research and Strategy at NDB Securities, said.

“Usually 20,000 is also a psychological limit,” Wickremeratne said. “When it comes back closer to that, people also might feel like it’s worth buying, so that’s why sometimes coming close to that you might have a bit of a move.” (Colombo/Oct09/2026)

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Sri Lanka Customs’ September revenue exceeds target by 32-pct

ECONOMYNEXT – Sri Lanka Customs exceeded its September target by 32.1 percent, while the revenue in the first nine months of 2026 jumped around 22 percent compared to the same period last year, official data showed.

Customs’ September revenue target was set at 195.6 billion rupees. However, the revenue-collecting body collected 258.3 billion rupees that month, exceeding the target by nearly a third, according to official data.

It also exceeded the cumulative target for the first nine months by 29.2%, achieving 2,117 billion rupees.

Last year, Customs collected a record 2,551 billion rupees in revenue, exceeding a revised target of 2,241 billion rupees for the year and achieving 64.2% higher revenue than the previous year’s revenue of 1,553 million rupees.

Customs has set a revenue target of 2,207 billion rupees for this year, 13.5% less than last year as it expects a significant decline in car imports. Data showed it achieved 95.9% of this year’s target in the first nine months.

Analysts expect the revenue collecting body to achieve its 2026 full year target by mid-October,

Sri Lanka Customs’ revenue jump is largely due to stronger enforcement, improved valuation practices, and a rebound in import volumes after years of contraction.

Following the 2022 economic crisis, imports fell sharply as the country imposed restrictions to conserve foreign exchange.

However, with the stabilization of reserves, the relaxation of certain import controls, and a steady recovery in consumer demand, customs collections from import duties, excise, and other levies have risen.

Officials note that tighter monitoring of under-invoicing and misdeclaration of goods has also contributed to boosting state revenue.

The combined effect of increased import activity, currency movements, and stricter enforcement has positioned Customs as one of the top revenue sources for the Treasury in 2025, providing a vital cushion as the state works to meet fiscal targets under the IMF-supported program. (Colombo/October 09/2026)

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IESL, Dialog open Sri Lanka entrepreneurs challenge

ECONOMYNEXT – The Institution of Engineers, Sri Lanka (IESL) and Dialog Axiata have launched the IESL National Startup Challenge, for aspiring entrepreneurs to transform innovative ideas into commercially viable, investment-ready startups.

The competition invites Engineering undergraduates, practitioners and participants in an Open Category for Non-Engineers to submit ideas across 12 innovation verticals.

“The IESL National Startup Challenge is designed to turn innovative ideas into viable businesses by connecting aspiring entrepreneurs with industry expertise, mentorship and continuous practical support,” Eng Jasmine Nanayakkara, Chairperson of the Entrepreneurship Forum at the Institution of Engineers, Sri Lanka, said.

“By encouraging our engineers and aspiring founders to create, commercialise and scale solutions, we aim to contribute to new ventures, new opportunities and meaningful job creation for Sri Lanka’s skilled and educated next generation.”

Participants will progress through idea development, pitching, incubation, prototyping, validation, minimum viable product development and business scaling, supported by industry experts, mentors and ecosystem partners.

The programme will culminate in a Top 10 selection, with the first-place winner receiving an award of 1 million rupees.

Each of the Top 10 teams will receive a Dialog Digital Startup Support Package valued at 250,000 rupees, comprising selected Dialog digital products and services.

Dialog is providing technical expertise, mentors and digital resources to help participating teams develop, validate and scale their solutions.

“Dialog is extending its digital capabilities, mentorship and ecosystem support to help promising teams progress from concept to validation and investment readiness,” Dialog Axiata said.

The National Startup Challenge also brings together a network of partners, including The Ceylon Chamber of Commerce as Ecosystem and Mentoring Partner, Helago as Official Mobility Partner, Helakuru as Official Digital News Partner, and Real Life as Official Climate Action Partner.

Applications are now open via www.iesl.lk/announcements, giving aspiring entrepreneurs an opportunity to access the resources and funding they need to succeed. Applications close on 16th November 2026. For more information, contact mgr.pub@iesl.lk / 071 109 4393. (Colombo/Oct9/2026)

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Sri Lanka stocks trend higher, ASPI up 0.86-pct

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange opened higher on Friday, CSE data showed, with the benchmark All Share Price Index moving up 0.86 percent.

The ASPI was up 174.62 points at 20,408.96, while the more liquid S&P SL20 was up 0.86 percent, or 49.77 points, at 5,812.33.

Positive contributors to the ASPI were Commercial Bank (up 0.88 percent at 201.00 rupees), Dialog Axiata (up 1.59 percent at 44.80 rupees), Distilleries Company of Sri Lanka (up 1.76 percent at 52.00 rupees), and Hatton National Bank (up 1.20 percent at 380.00 rupees).

SMB Finance (down 9.09 percent at 1.00 rupee), Haycarb (down 0.75 percent at 199.75 rupees), Malwatte Valley Plantations (down 1.79 percent at 55.00 rupees), and Odel (down 4.04 percent at 9.50 rupees) were top negative contributors.

Market turnover was 343.62 million rupees. Capital goods led turnover with 77.51 million rupees.

E.B. Creasy & Company PLC announced that it has executed a corporate guarantee of 50 million rupees with effect from September 30, 2026, on behalf of its subsidiary, E. B. Creasy Logistics Ltd, guaranteeing banking facilities obtained by the company. The company stated that the delay in making the disclosure was due to a delay in receiving official notification from the bank on the execution of the guarantee. (Colombo/Oct09/2026)

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