Sri Lanka leverages Geneva forum for digital reform

Sri Lanka’s Geneva dialogue positions digital transformation as a policy lever for macro stability amid persistent vulnerability. The review of the 2021–2030 Digital Economy Roadmap occurred against reserves steady at USD 3.7 billion (three months’ cover), a fiscal deficit of 9% of GDP, a current account shortfall of nearly 3%, and public debt at 107% of GDP (Q3 2025). With digital sector value added at 3.8% of GDP—well behind Vietnam (7.3%) and Malaysia (9.8%)—Sri Lanka faces subdued FDI inflows and ICT employment growth under 3% annually, constraining recovery prospects and external rebalancing.

High funding costs shape the digital pivot. Yields on Sri Lanka’s 2030 USD bonds (SLBUSD=BG) remain at 10.8–11.2%, underscoring market concern over fiscal durability and reform credibility. These spreads compress fiscal space for direct digital infrastructure investment, requiring policy to crowd in external funding and concessional capital. The Geneva forum put regulatory harmonisation, trusted data frameworks, and e-government at the centre of reform. National 4G/5G coverage, still below 85%, and SME e-commerce integration, with over 60% of firms lacking digital capability, are priority gaps. The government’s target is SME e-commerce penetration above 50% and digital GDP above 5.5% by 2027, contingent on aligning with EU and ASEAN standards and unlocking cross-border capital.

Causal transmission is measurable. Investment in digital infrastructure and regulatory interoperability can raise aggregate productivity and reduce external deficits by expanding exportable digital services. Broader fintech and e-commerce adoption formalises payments, expands the tax base, and compresses credit spreads. If digital GDP rises to 5.5–6% by 2027, modelled fiscal multipliers suggest annual real GDP growth could accelerate by 0.5–0.7 percentage points, tightening the current account and stabilising reserves. SME digitalisation lowers credit risk, compressing lending spreads by 50–100 basis points and reducing systemic vulnerability. These shifts feed back into sovereign pricing: sustained progress should drive SLBUSD=BG yields below 9% and allow reserves to build above USD 5 billion.

Regional benchmarks and global investor positioning frame the challenge. Sri Lanka underperforms on both digital scale and momentum relative to Asian peers, with lagging FDI, employment, and export diversification. Geneva’s alignment of policy with international standards is designed to anchor external confidence and attract investment into tradable services, fintech, and SME ecosystems. The credibility of the pivot will be determined by delivery against quantifiable metrics—broadband penetration, SME integration, digital FDI inflows—within the next 24 months. Policy must also navigate potential crowding-out risks as fiscal deficits persist and external conditions tighten.

The forward test is clear, time-bound, and globally relevant. By end-2027, success will be evidenced by SME e-commerce penetration above 50%, 4G/5G coverage over 95%, digital GDP surpassing 5.5%, and SLBUSD=BG yields compressing into single digits alongside reserves exceeding USD 5 billion. Meeting these metrics would reposition digital as a macro anchor, tightening risk premia and enabling convergence with regional digital leaders. Failure to deliver will widen the performance gap, sustain elevated funding costs, and leave Sri Lanka exposed to external shocks and tightening global liquidity.