With Sri Lanka’s economy heavily reliant on a narrow band of exports such as apparel and tea, recent tariff threats from the United States have exposed a structural vulnerability that has long haunted the nation’s trade profile.
For Deputy Minister of Economic Development Dr. Anil Jayantha Fernando – a technocrat-turned-politician with deep roots in development economics and industrial policy – the crisis is also an inflection point.
In this interview with the Sunday Observer, Dr. Fernando outlines the Government’s urgent efforts to diversify exports, rebuild international trade partnerships, and reposition Sri Lanka as a competitive player in the global industrial economy.
Q: A Sri Lankan delegation visited the U.S. to discuss lowering tariffs imposed by President Trump last week. Several meetings were held with U.S. officials. What were the outcomes?
A: The Sri Lankan delegation led by Deputy Minister of Finance and Planning, Harshana Suriyapperuma, was in the U.S. for two main purposes. The first was to engage with the International Monetary Fund (IMF), and the second was to meet U.S. trade officials. Our discussions with the IMF aimed to reach a staff-level agreement on economic policies to conclude the Fourth Review of Sri Lanka’s reform program under the IMF’s Extended Fund Facility. This was successfully achieved. Central Bank Governor Dr. P. Nandalal Weerasinghe, Treasury Secretary K.M. Mahinda Siriwardana, and senior officials were also part of the delegation. We also met officials of the U.S. Trade Representative (USTR) Office in Washington, D.C.
In the first week of April, President Donald Trump announced reciprocal tariffs on about 90 countries. Initially set to take effect on April 9, these tariffs were subsequently paused for three months. These measures were imposed across the board and are beyond our immediate control.
However, we anticipated such developments, as President Trump had said during his campaign. In response, we had already appointed a committee that included academics, bureaucrats, and business leaders to study and prepare for potential tariff implications. After the announcement, we strengthened this committee further. On April 3, we held a virtual meeting with representatives of the USTR. That meeting was productive and was followed by another Zoom session the following week, during which we presented a comprehensive analysis of bilateral trade and proposed several solutions. The U.S. officials responded positively and invited us for in-person discussions.
During the visit, our delegation first met U.S. Trade Representative Ambassador Jamieson Greer. This was followed by meetings with Director for South and Central Asia at USTR, Emily Ashby and Assistant USTR for South and Central Asia, Brendan Lynch who oversee trade in our region.
Our overarching goal is to foster a bilateral trade agreement between the two countries. We export goods to the value of around $3 billion to the U.S. while importing goods to the value of around $370 million. The U.S. is keen on reducing this trade imbalance. Sri Lanka’s tariffs on U.S. goods range from five percent to 20 percent, and we do not impose any duties on several key imports such as pharmaceuticals. We are considering reducing these tariffs further, including para-tariffs. We are also exploring the potential to import oil and LNG from the U.S., and we aim to attract more American investment.
I believe our efforts to initiate a bilateral trade agreement have been successful. So far, only India and Sri Lanka have sent delegations for direct discussions with the U.S.
Q: What kind of tariff concession are we expecting from the U.S.?
A: At present, the U.S. has imposed a 44 percent tariff, which poses a serious challenge for our exports. Our aim is to bring that down to 10 pertcent or less.
Q: The IMF has said that the staff-level agreement is subject to Executive Board approval, contingent on prior actions such as restoring electricity cost-recovery pricing and ensuring the proper functioning of the automatic pricing mechanism. Given that the NPP has emphasised industrial growth, how do you balance these demands with our already high energy prices?
A: If we wish to promote industry, we must reduce input costs, energy being a major one. Sri Lanka’s electricity prices are indeed high, and we need to bring them down. We strongly believe that renewable energy offers a low-cost, sustainable solution. Technological trends show that the cost of producing a unit of electricity using renewables has been declining rapidly. At present, it is about five U.S. cents per unit, and projections indicate it could drop to two cents by 2050.
We need to systematically expand the share of renewables in our energy mix. In the past, licences for solar projects were issued without a coherent strategy, and some power purchase agreements were highly unfavourable to the State. We are reviewing all these arrangements. Our goal is to reduce electricity prices by one-third in the coming years. While we are adhering to cost-reflective pricing as required by the IMF, our long-term objective is to lower electricity costs, at least by one-third, to boost industrial growth.
Q: One reason Trump’s tariffs hit us hard is because we rely heavily on a few exports such as apparel and tea. What are you doing to diversify our product portfolio and export markets?
A: Diversification is a must. About 25 percent of our exports go to the U.S., and nearly 40 percent of that is apparel. While we address the immediate challenge of tariffs, our long-term goal is to broaden our product base and markets. Although we’ve talked about this for decades, little has been done. In contrast, countries such as Vietnam have dramatically transformed their export portfolios.
Unlike past Governments, we are serious about this. We have recognised the importance of appointing experts as diplomats to key markets. Our new diplomatic postings reflect this, with specialists being appointed to important countries such as Japan, the UAE, and India. These professionals will assume their roles after the May 6 elections and will work to build the relationships needed to promote our goods and services.
We have been exporting the same type of goods for the past 30 years, with very little in the way of technological exports. We’re now placing special focus on integrating into global value chains. A permanent committee on technology and innovation is continuously assessing what products and services we can offer. Previously, we tried to join existing value chains; now, we’re also trying to predict future demand.
Of course, we face challenges. We’re under an IMF program and dealing with capital shortages. But as we stabilise the economy and improve the investment climate, I believe we can attract significant foreign investment.
Q: In January this year, it was announced that Chinese energy giant Sinopec would invest $3.7 billion in a refinery in Hambantota. This facility, capable of refining 200,000 barrels per day, is considered a potential game changer. What is the current status of the project?
A: Sri Lanka has been in discussions with China about this refinery for some time. Initially, it was planned as a $1.9 billion investment with a 100,000-barrel-per-day capacity. Tax concessions were agreed upon under the Strategic Development Projects Act (SDP Act) No. 14 of 2008, and Sri Lanka agreed to permit 20 percent of the output to be sold domestically. However, that plan stalled.
Under the NPP Government, the investment has been revised to $3.7 billion, and the capacity doubled. Our daily fuel consumption is around 120,000 barrels. Sinopec requested permission to release 80,000 barrels per day to the local market, but we believe that is not viable from either a commercial or sustainability perspective. While this aspect is still being negotiated, all other matters have been agreed upon.
Q: So there is an agreement on tax concessions?
A: Yes, both parties have agreed on the tax concessions. The only pending issue is how much Sinopec will be permitted to release to the local market. I’m confident we will reach a final agreement very soon.
Q: The Government has also identified Africa and the Middle East as potential markets. Have you taken any initial steps towards engaging with these regions?
A: These are two regions at different stages of development. The Middle East is extremely wealthy, and we see significant opportunities to export services there. We are also exploring collaborations in port development, refineries, and the sourcing of cheaper fuel. We welcome large-scale investments from these countries.
As for Africa, we have a dual strategy. There are certain goods we can export, and we also see the potential to export our expertise, particularly in areas such as public administration and port operations, where we have a wealth of local talent.
Q: The NPP held a large May Day rally at the Galle Face Green. What does May Day mean for the NPP now that you are in Government?
A: The National People’s Power (NPP) has always marked May Day, even while in the Opposition. We’ve consistently stood with the working people of this country, those who toil for 10 to 15 hours a day and still struggle to meet their basic needs. That reality reflects deep flaws in the system.
In the Opposition, our role was to fight alongside workers for fair treatment and rights. Now, as the Governing party, we must move from advocacy to action. We are duty-bound to build an economy where workers are fairly compensated and their labour is valued.
This involves improving human capital through education and training, and enhancing productivity. Our long-term vision is to integrate Sri Lanka into global value chains. This is essential not only for national development but also for ensuring that our workers earn better wages and are more competitive globally.
This May Day, we sent a clear message: the State is actively working to embed Sri Lanka in global economic networks. If we succeed, the benefits will be shared across the board, by workers, industries, and the nation. But if we fail, we all bear the consequences.
For the first time in five decades, Sri Lanka has a Government that truly prioritises industry, productivity, and sustainable development. This is an unprecedented opportunity for our workforce and our economy. This May Day really marked the beginning of this new journey, towards better industrial relations and a fairer, more prosperous future for workers.
Pic: Malan Karunaratne
