Prediction of export earnings for Sri Lanka in 2025

 

Key facts

§ Export growth in Sri Lanka has been volatile and shows a downward trend, despite occasional peaks (e.g., 24% in 2020–2021).

§  In Sri Lanka, exports accounted for 13% of GDP in 2024.

§  From 2010 to 2024, Sri Lanka’s exports grew only 49%, compared to 119% growth in South Asia and 370% in Vietnam.

§  In the first half of 2025, exports reached USD 8.3 billion, rising to USD 9.99 billion by July.

§ Exports earning of USD 16.6 billion can be projected for 2025 with a 30% growth rate.

 

1.Introduction

Exports play a vital role in a country's economic growth and development, contributing to technological advancement, foreign exchange earnings, and job creation. However, expanding exports has become increasingly challenging in the modern global economy due to various factors. These include technological innovation, capital flows, international trade relations, trade barriers, rising quality standards, differences in productivity, and the availability of labor—all of which contribute to significant disparities between countries.

In terms of economic indicators, exports accounted for 13% of GDP in 2024. Between 2018 and 2024, this figure generally fluctuated between 12% and 14%, with the exception of 2022, when exports peaked at 17% of GDP.

 

2. Export performance

Chart 1: Export performance from 2010 to 2024.

The country’s export performance has shown significant volatility over the years. In 2010, the value of exports stood at USD 8.6 billion, rising to USD 12.8 billion by 2024—an increase of only 49% over the 14-year period. In contrast, according to World Bank Group data, total exports from South Asia grew by 119% during the same timeframe.

Country-level comparisons further highlight the underperformance: between 2010 and 2024, exports from Bangladesh grew by 155%, India by 121%, and Nepal by 113%. Notably, Vietnam recorded a remarkable 370% increase in exports, from USD 80 billion in 2010 to USD 375 billion in 2024.

However, there is a positive sign in early 2025, with export earnings reaching USD 9,992.53 million within the first seven months.

 

Chart 2 : Quarterly change of export values from 2022 to 2024.

 

Chart 2 illustrates the quarterly movement of exports in Sri Lanka. The data shows relatively stable export values across all four quarters, with no significant fluctuations. On average, for the period from 2022 to 2024, the quarterly contributions to annual export earnings are fairly balanced: 25% in the first quarter, 24% in the second, 26% in the third, and 25% in the fourth quarter.

Chart 3 presents the monthly export earnings and their average trends between 2022 and 2024. The chart reveals noticeable month-to-month variations in export performance. Typically, the lowest export earnings are recorded in April, while August sees the highest figures. Export values tend to be relatively lower from September to May, with a noticeable increase during the May to July period.

When considering the quarterly averages over the three-year period, exports demonstrate a near-even distribution throughout the year, further confirming the findings shown in Chart 2.

Chart 3 : Movement of monthly exports from 2022 to 2024.

Chart 4 illustrates the annual export growth rates of Sri Lanka from 2011 to 2024. The data reveals significant volatility in export growth during this period. Furthermore, a clear downward trend is evident, indicating a gradual decline in export growth over time.

Chart 4 : Movement of monthly exports from 2022 to 2024.

3. Composition of exports

In 2024, around 86% of Sri Lanka’s exports came from five major categories: Garments and Textiles, Other Industrial Products, Tea, Rubber Products, and Petroleum Products. Chart 6 illustrates the sectoral contributions to total exports, while the following table compares export performance between 2023 and 2024. In addition to that, table 1 and 2 compares the change in industrial and agricultural exports from 2023 to 2024, respectively.

Chart 5 : Composition of exports in 2024.

4. Export prediction for 2025

According to the Sri Lanka Export Development Board, the total value of merchandise and service exports reached USD 8,338 million during the first half of 2025. By the end of July 2025, this figure had further increased to USD 9,992 million. Over the past 15 years, the highest annual export growth rate was 24%, recorded between 2020 and 2021, despite the global market not having fully recovered from the COVID-19 pandemic. In the first half of 2025 alone, export earnings amounted to USD 8,338 million, and historical patterns suggest that the second half could generate even higher revenues. Based on current trends and past performance, total exports in 2025 are projected to reach approximately USD 16.6 billion, reflecting a 30% growth compared to 2024.

Deveconomics

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Introduction to fiscal policy

 

1. Introduction

Fiscal policy is one of the most important tools available to governments for managing the economy. It refers to the deliberate use of government spending and taxation to influence the level of economic activity, achieve macroeconomic objectives, and promote overall national welfare. The concept is rooted in Keynesian economic theory, which emphasizes the role of government intervention, especially during times of economic downturn or excessive inflation.

In modern economies, fiscal policy is used alongside monetary policy (managed by the central bank) to steer economic growth, stabilize prices, reduce unemployment, and ensure a sustainable balance of payments. However, while monetary policy works through interest rates and money supply, fiscal policy directly affects aggregate demand through public expenditure and tax changes.

 

2. Definition of Fiscal Policy

Fiscal policy can be defined as the use of government revenue collection (taxation) and expenditure to influence a country’s economic performance.”

It involves decisions about:

• · Government expenditure: Spending on infrastructure, public services, defense, education, health, and welfare
• ·  Government revenue: Primarily taxation but also including fees, tariffs, and income from       state-owned enterprises

 

3. Objectives of Fiscal Policy

Governments design fiscal policies to achieve a range of economic and social objectives, including:

·    Economic Growth

Stimulating economic activity through investment in infrastructure, technology, and human capital

·    Price stability

Pr  Preventing high inflation or deflation by adjusting spending and taxation to manage demand

· 

E   Employment Generation

Creating jobs through public works and incentives to private enterprises

·    Redistribution of Income

Reducing inequality through progressive taxation and welfare programs

·    Correction of Balance of Payments Deficits

Influencing imports and exports through taxes, subsidies, or public investment

·    Sustainable Public Debt Management

Ensuring that government borrowing does not exceed the economy’s capacity to repay.

 

4. Types of Fiscal Policy

Fiscal policy can be categorized in several ways depending on its stance, timing, and approach.

4.1 Based on Economic Conditions

Expansionary Fiscal Policy: 

Expansionary fiscal policy will be implemented during recessions or periods of low growth. It involves increasing government spending, reducing taxes, or both, to boost aggregate demand.

Contractionary Fiscal Policy:

Contractionary fiscal policy will be used to reduce excessive demand and inflationary pressures. It may involve reducing government spending or increasing taxes.

4.2 Based on Nature of Changes

Discretionary Fiscal Policy:

Deliberate changes in government spending and taxation aimed at influencing economic activity can be considered as discretionary fiscal policy. Examples include stimulus packages or tax reforms.

Automatic Stabilizers:

Automatic stabilizers are the built-in mechanisms that work without deliberate government action. Examples are progressive income taxes (which reduce tax burdens automatically during downturns) and unemployment benefits (which increase spending power when jobs are lost).

 

5. Instruments of Fiscal Policy

The two primary instruments are:

5.1 Government Expenditure

Government spending can be recurrent expenditure (e.g., wages, subsidies, welfare benefits) or capital expenditure (e.g., infrastructure, research & development). Increasing expenditure injects money into the economy, boosting demand and employment.

5.2 Government Revenue

Taxation is the primary source of government revenue. Types of taxes include:

Direct Taxes: Levied directly on individuals and organizations (e.g., income tax, corporate tax).

Indirect Taxes: Levied on goods and services (e.g., VAT, customs duties).

 

By adjusting tax rates or introducing new taxes, governments can influence disposable income, consumption, and investment.

 

6. Theoretical Basis of Fiscal Policy

6.1 Keynesian Perspective

John Maynard Keynes argued that during recessions, private sector demand is insufficient to maintain full employment. The government must intervene by increasing spending or reducing taxes to stimulate demand.

6.2 Classical Perspective

Classical economists generally prefer minimal government intervention, emphasizing that markets self-correct over time. They caution against fiscal deficits and inflationary effects of excessive spending.

6.3 Supply-Side Economics

This school of thought emphasizes that fiscal policy should focus on creating incentives for production and investment—through lower taxes, deregulation, and infrastructure improvements—to increase long-term economic growth.

 

7. Fiscal Multipliers

The fiscal multiplier measures the impact of a change in government spending or taxation on total economic output (GDP). For example, if the multiplier is 1.5, a $1 billion increase in spending will increase GDP by $1.5 billion. Multipliers tend to be higher during recessions and lower when the economy is near full capacity.

 

8. Budget Deficits, Surpluses, and Public Debt

8.1 Budget Deficit occurs when government expenditure exceeds revenue in a given fiscal year. It can be financed through borrowing (domestic or external) or drawing on reserves.

 

8.2 Budget Surplus occurs when revenue exceeds expenditure. While it can reduce public debt, persistent surpluses might indicate underinvestment in public goods.

 

8.3 Public Debt is the cumulative total of past deficits minus surpluses. Excessive public debt can burden future generations through interest payments and reduced fiscal flexibility.

 

9. Fiscal Policy in Different Economic Situations

9.1 During Recession

 Expansionary fiscal policy is used to stimulate demand. It increases government spending on infrastructure and services.

Tax cuts causes to encourage consumption and investment.

 

9.2 During Inflation

 Contractionary fiscal policy is applied. It reduces government expenditure. Increased taxes cause to reduce disposable income and curb demand.

 

10. Challenges in Implementing Fiscal Policy

10.1 Time Lags

Fiscal policy takes time to design, approve, and implement. By the time measures take effect, economic conditions may have changed.

10.2 Political Constraints

Fiscal decisions often involve political trade-offs, which can delay or dilute necessary measures.

10.3 Crowding Out Effect

Excessive government borrowing can raise interest rates, discouraging private investment.

10.4 Inflationary Pressures

Large-scale spending in an economy already near full capacity can lead to inflation.

 

10.5 Debt Sustainability

Persistent deficits can lead to high public debt, reducing future fiscal space.

 

11. Fiscal Policy and Economic Stabilization

Fiscal policy contributes to economic stabilization by:

·     Smoothing the Business Cycle: Counteracting booms and busts

·     Reducing Volatility: Stabilizing income, prices, and employment

·     Ensuring Predictability: Providing a stable economic environment that encourages private investment

 

12. Fiscal Rules and Responsibility

To ensure discipline, many countries adopt fiscal rules such as

·     Balanced Budget Rules: Limiting deficits.

·     Debt Brakes: Capping public debt-to-GDP ratios.

·     Expenditure Ceilings: Controlling growth in public spending.

These rules aim to prevent excessive deficits while allowing flexibility during economic downturns.

 

13. Coordination with Monetary Policy

For maximum effectiveness, fiscal policy must be coordinated with monetary policy:

During a recession, expansionary fiscal policy works best if monetary policy is also accommodative.

During inflation, contractionary fiscal measures are more effective if the central bank also tightens monetary policy.

Poor coordination can lead to conflicting signals—such as government spending increases coinciding with central bank interest rate hikes.

 

14. Environmental and Social Dimensions

Modern fiscal policy also integrates environmental and social considerations:

Green Fiscal Policy: Using taxes, subsidies, and spending to promote sustainable practices (e.g., carbon taxes, renewable energy subsidies).

Social Inclusion: Targeting spending towards marginalized groups to promote equity.

 

15. Conclusion

Fiscal policy remains an indispensable tool for economic management. By influencing demand, investment, and income distribution, it plays a central role in achieving macroeconomic stability and long-term growth. However, it is not without challenges—timing issues, political pressures, and debt constraints can limit its effectiveness.

The key to successful fiscal policy lies in balance:

·       Using it decisively when needed (e.g., during crises)

·       Maintaining fiscal discipline over the long term

·       Aligning short-term stabilization goals with long-term development objectives

When well-designed and coordinated with other economic policies, fiscal policy can drive sustainable growth, reduce inequality, and enhance resilience in the face of economic shocks.

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Projections for Tourism Growth in Sri Lanka (2025-2030)

 Publication details: Deveconomics - Analytical Report 4/2025, 01st September 2025

Title: Projections for Tourism Growth in Sri Lanka (2025-2030)

Key highlights

 Economic Importance – Tourism is a critical sector for Sri Lanka, contributing significantly to foreign exchange earnings, job creation, and economic development.

 Pre-Crisis Growth – From 2014 to 2018, tourist arrivals grew at a 13.2% cumulative average growth rate, peaking at 2.3 million in 2018.

 Crisis Impact – Due to internal and external shocks, arrivals plummeted dramatically to 0.1 million in 2021.

 Recovery Phase – The sector began recovering in 2022, with 2 million arrivals in 2024, including a near doubling of arrivals between 2022 and 2023 and a 38% increase from 2023–2024.

 Future Outlook – Projections suggest 2.35 million arrivals and USD 3.8 billion earnings in 2025, with the potential to reach 4.1 million arrivals and USD 10.9 billion earnings by 2030 through clear policies and strategic actions.

1.  Introduction

The tourism industry is one of the main sources of foreign exchange earnings and plays a significant role in Sri Lanka’s economic development. It is also a key contributor to employment generation in the country. By the end of 2024, tourist arrivals surpassed 2 million. As of July 2025, the number of tourist arrivals reached approximately 1.4 million, accounting for 70% of the total arrivals recorded in 2024. According to the Annual Statistical Report 2023 by the Sri Lanka Tourism Development Authority, total employment in the tourism sector at the end of 2023 stood at 204,591. Furthermore, as per the Annual Statistical Report 2024, there were 4,346 registered establishments and 54,226 hotel rooms by the end of 2024.

2. Trend in tourist arrivals (2014-2024)

Over the past decade, from 2014 to 2024, three distinct patterns in tourist arrivals to Sri Lanka can be observed:

1.     A period of growth leading up to 2019,

2.     A sharp decline from 2019 to 2021, and

3.     A phase of recovery beginning in 2022.

Following Table 1 presents a comparison of key tourism sector indicators between the years 2018 and 2024.

2.1.  A period of growth leading up to 2019

From 2014 to 20118 period, tourism industry of Sri Lanka showed a 13.2 % cumulative average growth rate with 17.8% in 2015, 14.0% in 2016, 3.2% in 2017 and 10.3% in 2018. Following table 2 compares the key parameters of tourism industry between 2014 and 2018.

2.1.  Degenerating from 2019 to 2021

Sri Lanka's tourism industry experienced a continuous decline from 2019 to 2021, driven by a series of internal and external shocks. The downturn began with the Easter Sunday bombings in Colombo in April 2019, followed by ongoing political instability throughout 2019 and 2020, and was totally collapsed due to the COVID-19 pandemic in 2020 and 2021. As a result, tourist arrivals fell sharply from 2,333,796 in 2018 to just 194,495 in 2021. Correspondingly, foreign exchange earnings from tourism dropped from USD 4.4 billion to USD 0.5 billion. Notably, during this period, tourist arrivals declined at a compound annual rate of -31% between 2018 and 2021.

 

2.2.    A phase of recovery beginning in 2022

Despite facing political instability in 2022, the country’s tourism sector began to revive in line with the gradual global recovery of tourism in the post-pandemic period. Tourist arrivals rose sharply from 194,495 in 2021 to 2,053,465 in 2024, while foreign exchange earnings increased from USD 0.5 billion to USD 3.2 billion over the same period. Notably, between 2023 and 2024, tourist arrivals grew by 38%, underscoring the rapid recovery of the industry. Following chart 1 further elaborate the change of tourist arrivals from 2014 to 2024.

2.      Growth projections

3.1 Growth prediction for 2025

Between 2014 and 2018, Sri Lanka’s tourism industry recorded a cumulative average growth rate of 13.2%. The highest number of tourist arrivals during this period was in 2018, with a monthly average of 194,483 visitors. More recently, from 2023 to 2024, tourist arrivals grew by 38%, bringing the monthly average for 2024 to 171,122. By the end of July 2025, total arrivals had reached 1,368,288, raising the monthly average to 195,470. This figure surpasses the monthly average recorded in 2018, which marked the peak of the decade since 2015. Compared with 2024, the monthly average in 2025 reflects a growth of 14.23%.

Taking into account seasonal patterns, the expansion of the global tourism industry, and favorable market expectations, tourist arrivals in Sri Lanka are projected to grow by 14.5% in 2025, reaching approximately 2.35 million visitors. Assuming a 5% increase in average daily spending per tourist (to USD 190.2) and the continuation of the 2024 average stay of 8.42 nights, foreign exchange earnings from tourism are expected to rise to USD 3.8 billion in 2025.

 

3.2 Growth projections for 2030

As highlighted earlier, between 2014 and 2018, tourist arrivals recorded a cumulative average growth rate of 13.2%, while the average duration of stay reached 10.8 nights in 2018. If deliberate measures are taken to raise the average duration of stay back to the 2018 level, it would significantly enhance foreign exchange earnings. In addition, efforts may be required to increase average spending per tourist per day by expanding and diversifying tourism activities within the country. Assuming an annual 5% increase in daily spending per tourist, key assumptions for the period 2026 to 2030 are presented in the following table.

2.  Conclusion

The tourism sector plays a vital role in Sri Lanka’s economy, particularly in terms of foreign exchange earnings, employment generation, and overall economic development. Between 2014 and 2018, tourist arrivals recorded a cumulative average growth rate of 13.2%. However, due to a series of internal and external shocks, arrivals fell sharply from 2.3 million in 2018 to just 0.1 million in 2021. The sector began to recover in 2022, with annual arrivals rebounding to 2 million by 2024. Notably, arrivals nearly doubled between 2022 and 2023, followed by a further 38% increase from 2023 to 2024.

According to this study, tourist arrivals are likely to reach 2.35 million in 2025, generating an estimated USD 3.8 billion in foreign exchange earnings. Looking ahead, with well-defined policies, strategic actions, and clear targets, Sri Lanka has the potential to attract 4.1 million visitors and generate USD 10.9 billion in foreign exchange earnings by 2030.

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