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The Institute's research programme over time has addressed many of the key socio-economic issues that have an impact on the country's development process. While many of the research findings have been brought out as IPS publications, research highlights below give key insights from more recently completed and/or on-going research studies.

Female Entrepreneurship and the Role of Business Development Services in Promoting Small and Medium Women Entrepreneurs in Sri Lanka

Authors: Kaushalya Attygalle, Dilani Hirimuthugodage, Sunimalee Madurawala, Athula Senaratne, Anushka Wijesinha and Chopadithya Edirisinghe

Small and Medium Enterprises (SMEs) are of vital importance to the socio-economic growth of a country. In Sri Lanka, SMEs contribute to 50% of GDP and employ 26% of the labour force. Unfortunately, these SMEs face a number of constraints that hinder their growth, including both financial and non-financial constraints. Non-financial services (also known as Business Development Services - BDS) have a crucial role to play in creating a business friendly environment for SMEs, especially for Women owned SMEs.

Since promoting female entrepreneurship can be regarded as an effective way of attracting more females into the labour force, IPS undertook this study with the objectives of examining the socio-economic and cultural barriers which hinder women’s progression to SME sector. It also looks at the existing and future opportunities for women to enter and lead SMEs, with a special focus on access and availability of women-friendly BDS. Increasing awareness on available BDS, improving access to BDS, improving social acceptance and recognition for female entrepreneurs, and having a nationally accepted uniform definition for SMEs are some of the key recommendations coming out of the study.

This is a joint publication by IPS Sri Lanka and Oxfam GB Sri Lanka.

(PDF of Publication)

Intersectoral Action for the Health in Addressing Social Determinants of Health through Public Policies in Sri Lanka: Health in All Policies

Authors: Samanthi Bandara, Naomi Jayaratne, Sunimalee Madurawala

Health permeates all aspects of social life. This factor is now being recognized in public policies, with health being included as a policy concern in every governance sector. Health in All Policies (HiAP) is well recognized as a Policy Practice, which emphasizes the need of including and integrating the health component in other policies during the policy formulation, implementation, and evaluation. Consequently, this policy practice requires a mechanism with the joint leadership within governments, across all sectors, and between levels of government. Therefore, many countries within the region and out have made concerted efforts to integrate health considerations into other public policies which have an impact on health. Sri Lanka currently does not have an integrated governance tool which deals with health in other public policies through policy formulation, implementation and evaluation at a national level. However, it is observed that there are fragmented committees and task forces which address various health issues at different levels. 


English(PDF Format 1000 KB)

Impacts of 2011 Tax Reforms on Tax Revenues and Redistribution in Sri Lanka

Authors: Nisha Arunatilake, Priyanka Jayawardena and Anushka Wijesinha

The need to reduce budget deficits by increasing government revenues has been a challenge faced by the Sri Lankan government for some time. The 2011 tax reforms basically aimed to increase tax revenues by expanding the tax base - particularly by removing tax exemptions for public sector employees - while keeping the tax rates “competitive”. At the same time, tax rates have been reduced with the aim of improving tax compliance of PAYE (new reformed tax scheme) tax payers.

This study uses National Household Income and Expenditure Survey Data (2006/07) to assess how the 2011 tax reforms affect tax revenue and the distribution of income within the country.

English(PDF Format 1000 KB)

Eradicating Child Malnutrition in Sri Lanka: Looking Beyond Health

Author: Priyanka Jayawardena

Despite countless initiatives to alleviate malnutrition over the years, it affects hundreds of thousands of children in Sri Lanka. Understanding the determinants of malnutrition, as well as causes of higher childhood malnutrition amongst lower socio-economic groups is important for improving the effectiveness of policies aimed at reducing childhood malnutrition, especially in severely affected populations. This policy brief examines the socio-economic determinants of childhood malnutrition as well as causes of higher childhood malnutrition amongst lower socio-economic groups. The study uses the nationally representative Demographic and Health Survey 2006/07 data compiled by the Department of Census and Statistics.

English(PDF Format 2690 KB)
Sinhala(PDF Format 2570 KB)
Tamil(PDF Format 2620 KB)

Multiple Facets of Food (In) Security in Sri Lanka : An Input to Food Policy

Author: Parakrama A. Samaratunga

Agriculture in South Asia and many other parts of the world is apparently caught in a low equilibrium trap. The features of this trap are low productivity of staples, supply shortfalls, higher prices, low returns to farmers, product diversification, causing further shortage of staple food. The question of food security has a number of dimensions that go beyond production, availability and demand for food. Food availability does not ensure food security. Thus, distribution and access of population to food is equally important for food security. Food availability can be achieved through better distribution mechanisms and alternatively through imports to ensure food security.

The study identifies major issues of food security in Sri Lanka. It throws light on issues such as initiatives and policies taken up to achieve the goal of food security, and critically evaluate the effectiveness of these policies. The study also suggests measures to overcome the current constraints and make the policies more effective.

Publications: Mittal, S. and Deepti Sethi (2011), “Policy Options to Achieve Food Security in South Asia”
(PDF)(PDF Format 2220 KB)

Sri Lanka - Articulating Trade Related Support Measures for Agriculture

Authors: Deshal de Mel and Suwendrani Jayaratne

This study is an output of the FAO project, articulating and mainstreaming agricultural trade policy and support measures, implemented during 2008-2010. With a view to maximizing the contribution of trade to national development, a process has been underway in many developing countries to mainstream trade and other policies into national development strategy such as the Poverty Reduction Strategy Paper (PRSP). A similar process of mainstreaming is strongly advocated, and underway, for trade-related support measures, including Aid for Trade. In view of this, there is a high demand for information, analyses and advice on best approaches to undertaking these tasks. It was in this context that the FAO project was conceived. Its three core objectives are to contribute to: i) the process of articulating appropriate agricultural trade policies consistent with overall development objectives, ii) the process of articulating trade support measures; and iii) the process of mainstreaming trade policies and support measures into national development framework.

Publications:de Mel, D. and Suwendrani Jayaratne (2011), “Articulating and Mainstreaming Agricultural Trade Policy and Support Measures”.
(PDF)(PDF Format 165 KB)

The Impact of Information Technology in Trade Facilitation on Small and Medium-sized Enterprises in Sri Lanka

Authors: Janaka Wijayasiri and Suwendrani Jayaratne

In both developed and developing countries, small and medium-sized enterprises (SMEs) have been a driving force in the domestic economies, bringing about innovation,growth and employment opportunities. According to a recent UNCTAD study, SMEs account for about 99 per cent of all enterprises worldwide, contributing to 50 per cent of manufacturing output and generating between 44 per cent and 70 per cent of employment.Nevertheless, active participation by SMEs in international trade has been hampered, due largely to bureaucracy rather than tariff barriers. High transaction costs resulting from excessive documentation requirements, lengthy clearance times, a lack of coordination between relevant bodies, and outdated customs techniques have hindered their full participation in international trade. In this context, trade facilitation (TF) has been widely recognized as an important means of expanding commerce, thereby providing benefits to SMEs.

Publications: Wijayasiri, J. and Suwendrani Jayaratne (2011) “The Development Impact of Information Technology in Trade Facilitation”, Un-ESCAP.


Equity in Education Services in Sri Lanka.

Authors: Nisha Arunatilake with Priyanka Jayawardena

A recent IPS study funded by the ADB finds that, to achieve the government policy objectives of full access to primary and secondary education, more needs to be done to improve service delivery to most vulnerable groups and to remote areas. The study finds that access to education is inequitable at all levels, although it has improved over time. The opportunity for education participation and the access to education decreases across class for higher levels of education. The government expenditure on general education is strongly progressive at the primary level. But expenditure on general education and on teacher salaries is only weakly progressive at other levels. For main out-of-pocket expenditure items on education, such as tuition, boarding fees, transport and stationery, the poor pay a higher percentage of their incomes.

The study recommends strengthening existing efforts to enrol children in schools at appropriate ages and to provide community level support – financial as well as mentoring and tutoring services to keep most vulnerable children in school. Existing programmes for improving school quality and to make them more child friendly must be made more effective.

The distribution of public expenditure on education can be improved, especially at higher education cycles. Priority should be given to expenditures on essential learning spaces and human resource needs of poor schools, when distributing public funds. The existing policies on the provision of free text books and uniforms should be continued, especially for children coming from poorer communities. In addition, subsidized transport and scholarships for boarding fees should be provided to deserving children from poorer families so that they can continue their education. The need for private tuition should be minimized, through improving quality of education at the collegiate level and through reducing competitiveness of the A-Level exam.

Publications: RETA 6461 ‘Equity in the Delivery of Public Services in Selected Developing Member Countries: Sri Lanka Country Report’ April 2010, ADB, Manila.

How Can Sri Lanka’s Integration with its Neighbours and the Wider Regional Economies be Improved?

Although the extent of Sri Lanka’s trade and investment relations links with South Asia and East Asia are still rather limited, they indicate both the potential and the manner in which future developments will occur in a rapidly integrating trading and investment environment in Asia. East Asia is a significant source of FDI to Sri Lanka – both in the early stages of concentration in the garments industry, and latterly diversifying into services related activities such as telecommunications. More recently, Sri Lanka’s economic relations with India have been transformed on the back of improved bilateral political relations between the two countries. Supporting such developments, Sri Lanka has already entered into several bilateral and regional trade agreements across South Asia whilst being a party to on-going negotiations on agreements that include countries of the East Asian region.

The most significant change in Sri Lanka’s trade and investment relations recently has been the emergence of India as a major trade and investment partner for Sri Lanka. It opens up a strong possibility whereby the expansion of the Indian economy can be viewed as a potential link to strengthen Sri Lanka’s trade and investment relations with the rest of Asia. India with its ‘Look East’ policy is already well on the way to cementing stronger engagement with the economies of East Asia, particularly China. In view of such developments, this study reports on an initial exploration of these and related issues, documenting the nature of Sri Lanka’s trade and investment relations with East and South Asia, and emerging trade and investment linkages within regional groupings with particular attention to India-Sri Lanka links.

Improving School Performance through Educational Decentralization

The education sector in Sri Lanka has recognized the importance of decentralized decision making as a means of effectively responding to local needs and improving the performance of schools. The Education Quality Inputs (EQI) scheme in Sri Lanka was one of the first schemes launched to improve school performance through decentralized financial decision making. In the EQI scheme schools are allocated a budget based on a formula for purchasing educational resources. Is this scheme an improvement on the earlier funding and management models? Is resource allocation under this scheme equitable? A study using the school census and other primary and secondary data seeks to find answers to the above questions.

The study finds that the distribution of EQI allocation and expenditure is progressive at the primary and lower secondary levels and it is equitable at the senior secondary level. However, at the collegiate level, especially science stream, it is regressive.

Descriptive analysis of EQI expenditure shows that as intended smaller schools, rural schools and more disadvantaged schools receive and spend a higher per capita allocation per student. However, around 20 per cent of these funds are left unspent. This shows that allocating funds equitably is not sufficient, in improving school resources, the funds need to be properly utilized. Some of the same factors that affected uneven distribution of funds under the earlier funding models results in uneven utilization of funds under formula based funding. This shows that fundamental management resources are a necessary condition to improve resources at the school level, under any funding model. The findings show that state level monitoring and support, effective local management capacity and adequate and competent human and physical resources is needed for the success of education management at the school level.

Is Sri Lanka Ready for further Liberalization of the Services Sector?

While Sri Lanka has not been active in services negotiations under the Doha Round of Trade talks, it has engaged in negotiations on a bilateral basis in Geneva largely on the account of interests of other countries. So far, Sri Lanka has received requests from other countries in telecommunications, financial, educational and logistical services. There has not been any overt pressure to open up the services sector in the country and services negotiations seem to have been sidelined by negotiations in agriculture and NAMA. Nevertheless, when the round is finalized, it is likely that there will be requests for further liberalization of the services sector in countries like Sri Lanka. Thus it would be crucial for the country to be prepared to undertake and implement any liberalization commitments made at the multilateral level.

In this context, this study examines the issue of domestic preparedness to face the liberalization of trade in services. The study focuses on the telecommunication sector as this sector has already been committed under GATS and there have been requests for Sri Lanka to further liberalize the sector under the current round of trade talks.


De Mel, D and J. Wijayasiri (2008), “Domestic Preparedness of Sri Lanka with respect to Services Trade Liberalization: A Case Study of the Telecom Sector”, in S. Raihan (ed.), Domestic Preparedness for Services Trade Liberalization: Are South Asian Countries Prepared for further Liberalization?, CUTS International, Jaipur.


Prospects and Challenges of Japan Joining the BIMSTEC for Trade and Investment: A Sri Lankan Perspective

Bay of Bengal Initiative for Mulit-sectoral Technical and Economic Cooperation (BIMSTEC) is one of many regional trade agreements that Sri Lanka has membership. Current membership of the BIMSTEC includes seven countries from South and South East Asia - Bangladesh, Bhutan, India, Myanmar, Nepal, Thailand, and Sri Lanka. At present, the potential for benefits from the BIMSTEC agreement for Sri Lanka are limited to increased access to markets of Thailand and Myanmar since Sri Lanka already has access to India, Bangladesh, Bhutan, and Nepal through the Indo-Lanka Free Trade Agreement and South Asian Free Trade Agreement (SAFTA). In this context, the addition of a new country, Japan to BIMSTEC would increase the potential benefits for Sri Lanka. However, considerable amount of work needs to be done to get BIMSTEC’s own house in order before countries like Japan would even be interested in getting involved in such an agreement. This paper looks at the opportunities and challenges to BIMSTEC-Japan cooperation in trade and investment from the perspective of Sri Lanka.


Wijayasiri, J. and D. de Mel (2008), BIMSTEC-Japan Cooperation in Trade and Investment:    A Sri Lankan Perspective” (PDF format 324Kb), CSIRD Discussion Paper #38, May,

Does Trade Lead to Innovation? The Case of Textile and Clothing Industry in Sri Lanka

This study looks at how intensified competition in light of the Multi-Fibre Arrangement (MFA) phase-out has led to a number of innovative measures being undertaken in the textile and clothing industry in Sri Lanka, in particular, among some of the leading companies, to face the challenges of a quota free environment. Despite stiff competition from low cost producers from other countries, Sri Lanka has managed to survive due to a number of innovative initiatives undertaken by the industry with support from the Sri Lankan government. These included innovations in products, production processes, marketing, and even organization structure as a means of remaining competitive.

The key lessons that can be learnt from the case study are that: (1) competition in the export market can act as a catalyst to innovate, (2) a liberal investment and trade environment facilitates flows of FDI and technology transfer to the country and provides the right incentives for technology adoption and innovation, (3) efforts on an industry basis can be important drivers of innovation, and (4) government does have a role to play in supporting the industry’s innovation efforts.


Wijayasiri, Janaka and Jagath Dissanayake (2008), “Trade, Innovation and Growth: The Case of Sri Lanka’s Textile and Clothing Industry”, IPS Working Paper Series No. 12. Available for sale from Publications and Communications Unit of the IPS and leading bookshops


Fishery Sector Development in a Conflict Environment: The Findings of a Value Chain Analysis


Sri Lanka has been affected by a prolonged armed conflict and chronic governance failures in the past several decades. A better understanding on how these conflicts have affected different productive sectors is critical towards improving their performance. This study uses value chain analysis methodology to identify and understand constraints and opportunities faced by the ocean fishery sector given the conflict context in the country. The study finds that the constraints imposed by the continuing conflicts far outweigh the opportunities generated by the conflicts. The constraints imposed by these conflicts are present throughout the value chain. These include the lack of access to and the lack of competitiveness in the end market, sluggish or dormant firms and poor quality supporting markets, need for firm-level improvements and the poor business enabling environment. The study makes several recommendations on how these constraints can be overcome.

Fishery Sector Development in a Conflict Environment: The Findings of a Value Chain Analysis

Reports: Arunatilake, Nisha, Asha Gunawardena, Dilhani Marawila, Parakrama Samaratunga, Athula Senaratne and Manoj Thibbotuwawa (2008), “Analysis of the Fisheries Sector in Sri Lanka: Guided Case Studies for Value Chain Development in Conflict-Affected Environments” (PDF Format 547 KB), USAID, Micro-Report #100,

South Asia: Towards a Viable Free Trade Area

The sluggish pace of multilateral trade liberalization convinced many countries to undertake regional trade agreements. ASEAN, NAFTA and MERCOSUR have made substantial progress in dismantling intra-regional barriers to trade and other economic activities, but South Asia Free Trade Agreement (SAFTA), has failed thus far to make similar progress. In the context of the upcoming SAARC summit due to be held in July 2008 in Colombo, it is prudent to examine the measures that could be taken to enhance economic cooperation in South Asia. This briefing paper deals with internal concerns within SAFTA that have prevented it from reaching its full potential. These include the extensive sensitive lists, non-tariff barriers, high transaction costs and protracted tariff liberalization programmes. The paper makes suggestions as to how these issues can best be dealt within the interest of expediting progress in SAFTA. Furthermore, it examines how SAFTA needs to go beyond trade in goods, particularly with regard to trade in services, where there is tremendous potential for gains through trade within the region.

De Mel, Deshal (2007), “South Asia - Towards a Viable Free Trade Area”, (PDF Format 40kb) Briefing Paper, No. 5, South Asia Watch on Trade, Economics and Environment (SAWTEE), Nepal.

How Will Population Ageing Affect Development? – A Labour Market Perspective

How Will Population Ageing Affect Development?

The fact that Sri Lanka’s population is ageing is well known, but its economic consequences are less well known. Labour market is one of the key channels through which ageing affects the economy. The structure of the labour market institutions can influence how ageing affects the economy. A recent IPS study funded by the World Bank examined how present demographic changes can influence economic growth and welfare in the country through its effects on the labour market institutions. The study finds that the labour market duality continues past retirement age. A large proportion of informal sector workers are not covered by any retirement scheme. These individuals are either forced to work to make ends meet or are totally dependent on families or the government. Globalization has distanced families, breaking traditional family support systems. The study concludes that if these trends are allowed to persist, the elderly poverty rates could increase, putting increasing pressure on government welfare systems and reducing growth

Conference Presentations:

Vodopivec M. and Nisha Arunatilake (2007), “Population Ageing and the Labour Market: The Case of Sri Lanka” (Paper presented at the Economist Forum, World Bank, Washington D.C. 2007).


Vodopivec M. and Nisha Arunatilake (2008), “The Impact of Population Ageing on the Labour Market: The Case of Sri Lanka”, IZA Discussion Paper No. 3456 (Web publication)

Southern Perspectives on Reform of the International Development Architecture: Case Study of Sri Lanka

This study is a part of an overall study on “Southern Perspectives on Reform of the International Development Architecture”. In Sri Lanka, the present Government is pressing for increased policy space from donor imposed conditions in the backdrop of the country’s present circumstances as a conflict country with substantial aid reliance given the urgent requirement for investment in public infrastructure. These conflicting needs of increased funding and greater policy space have pushed the government towards alternative sources of finance, moving beyond the concessional lending of international financial institutions, towards commercial borrowing and emerging bilateral donors. The study explores the opportunities and challenges offered by this new path. It provides some background information on Sri Lanka’s recent relationship with international donors including the roles played by the Bretton Woods institutions, the UN system, bilateral donors, and NGOs.

Two key thematic issues in the relationship between Sri Lanka and the international aid architecture are highlighted – leadership and legitimacy. The study examines the extent to which donors drive the development agenda in the country. It finds that whilst in theory aid projects are very much government driven, in practice donors exert significant influence through project proposals, donor research, and consultancy. The extent of donor influence is very much contingent on the capacity of line ministries, and in many cases the lack of capacity at this level has resulted in a donor driven agenda. This paper outlines issues emerging from the political conditionality of aid, questioning the use of “development assistance” as a political tool. Sri Lanka’s unsatisfactory experience with general budgetary support during the PRSP implementation is touched upon, as well as the relatively lower levels of macroeconomic conditionality associated with project-based lending that is preferred today. The study also looks at emerging issues in project-based lending, in particular the impact of loan covenants and safeguards, and debates the role played by donors in such matters.

Sri Lanka’s perspectives on donor reform initiatives including the Paris Declaration are reflected upon in the paper. A key finding is the very low level of awareness of the Paris Declaration in Sri Lanka – resulting in a failure to take advantage of opportunities provided to recipient governments through this agreement. However, it was also found that many of the initiatives have been implemented unilaterally in Sri Lanka, particularly donor coordination and harmonization efforts. Other key aid reform issues such as the scaling up of aid, the use of performance-based allocations, and technical assistance are discussed from a Sri Lankan perspective in the paper. To conclude, the study provides recommendations for reform – both from a donor perspective and recipient country perspective.


Kelegama, Saman and Deshal de Mel (2007),Southern Perspectives on Reform of the International Development Architecture: Case Study of Sri Lanka” (PDF Format 328kb) (first published through NSI and the Southern Perspectives Project)

Education Participation in Sri Lanka – Why all are not in School

Despite being a signatory to the “World Declaration on Education for All” in 1990, Sri Lanka has not achieved universal functional education. The need for functional literacy requires 10-11 years of general education. This means, starting at five years a child should be in school at least till 14 years. However, only 93 per cent of the children in the 5-14 year-old age group were in school by the year 2000 in Sri Lanka. This study examines the reasons for school non-participation, using household, community and school-level information obtained from an island-wide survey.

The study finds that poverty, direct and indirect costs of schooling, and cultural factors as well as poor quality of schools keep children away from school. Policies facilitating compulsory education at present give prominence to awareness building, monitoring and improvements in education delivery. The results show that these efforts need to be complemented by other supply side improvements and income transfer measures, especially for the poorest, to achieve universal school attendance.


Arunatilake, Nisha (2006), “Education Participation in Sri Lanka - Why all are not in School”, International Journal of Education Research, 45, 137-152.

Arunatilake, Nisha (2005), Education Participation in Sri Lanka - Why all are not in School” (PDF Format 43kb), Global Conference on Education Research in Developing Countries, (Web Publication)


Regoverning Markets initiative: Small scale producers in modern Agri- Food Markets

As a response to this weak competitiveness of smallholders MA'S Tropical Food Company has introduced an innovative business model that assists smallholders. According to this model the growers are helped in organizing themselves (alone and in farmers' organizations); company's procurement system is shifted from decentralized to centralized purchasing; extension officers are provided with training to support farmers; private standards are set and premium prices are paid for higher quality and logistics and inspection are improved. This model has mutually benefited the parties involved in the supply chain. For the company, it has improved corporate income, volume of trade and turnover. For smallholders, it has improved farm income, created more jobs and enabled other non-monetary benefits.

This model has been in existence for about a decade. The company has not yet reached its potential capacity. Some limitations of this "business model" can already be identified: 1) high transport cost; 2) high labour cost; 3) delayed payments. The company has a low production capacity and therefore is unable to absorb the production of all the farmers. However on the whole, this business innovation has enabled the smallholders to actively participate in dynamic markets.


Samaratunga, A. Parakrama (2006), “Innovative Practice in integrating small farmers into dynamic Supply Chains: A Case Study of MA’s Tropical Food Company”, (PDF Format 557kb) (download)


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