Sri Lanka's Hard Lessons Could Help Other Asian Economies

COLOMBO (News 1st); Sri Lanka's experience in navigating the 2022 economic crisis and implementing wide-ranging public finance reforms offers valuable lessons for other South Asian countries pursuing digital transformation and stronger financial governance, senior government officials said at an International Monetary Fund forum.

Speaking in response to a question from at an IMF event in Thailand, Director General of Fiscal Policy at the Ministry of Finance Dr. Kapila Senanayake outlined what he described as five key lessons from Sri Lanka's reform journey.

He said the first lesson was to use a crisis as an opportunity for change. According to Senanayake, Sri Lanka's economic collapse in 2022 exposed structural weaknesses that had existed for decades while also creating the political momentum required to enact significant reforms, including the Public Financial Management Act.

The second lesson, he said, is that countries must focus on solving problems before introducing technology. While digital systems often attract attention, Senanayake stressed that technology alone cannot fix weak processes, arguing that governance reforms and institutional improvements must come first.

He noted that data quality and data architecture are equally important, explaining that Sri Lanka's reforms to fiscal reporting systems and government accounting structures were developed alongside technological upgrades to ensure accurate and useful information.

A fourth lesson was the importance of less visible reforms, including stronger commitment controls that help ensure government spending remains within approved budget limits.

Senanayake also highlighted the value of investing in institutional capacity, praising the IMF's South Asia Regional Training and Technical Assistance Center (SARTTAC) for helping strengthen local expertise rather than creating dependency on external assistance.

He said more than half of the IMF technical assistance missions received by Sri Lanka since January 2023 have involved SARTTAC, which has supported the country's public financial management reform agenda.

"The broader lesson is that digital public financial management is not simply an IT project. It is an institutional reform process that combines technology, sound governance, effective systems, skilled personnel and strong local ownership," he said.

Responding to a separate question on tax administration and artificial intelligence, Senanayake said Sri Lanka is currently accelerating efforts to modernize and digitize tax collection systems rather than attempting a rapid shift to advanced AI-based platforms.

He noted that initiatives announced in recent budgets, including the introduction of Point-of-Sale (POS) systems and the planned implementation of e-invoicing, form part of a broader effort to improve tax compliance and revenue collection.

The Finance Ministry is also working to integrate multiple tax and revenue collection platforms that currently operate independently, a move expected to improve efficiency and strengthen oversight.

Senanayake acknowledged that digitalization requires substantial investment and said the Government is therefore adopting a phased approach rather than pursuing all reforms simultaneously.

He revealed that Sri Lanka's Medium-Term Revenue Strategy identifies digitalization as a central pillar of future tax administration reforms, and said the importance of technology-driven revenue collection is expected to receive further emphasis in the forthcoming national budget.

While acknowledging that significant progress has already been made since the country's economic crisis, Senanayake said Sri Lanka still has a long road ahead in building a fully integrated, digitally driven tax administration system capable of supporting sustainable economic growth and stronger public finances.