How Financial Strategy Can Turn Sri Lanka from a Perpetual Borrower into an Economic Fortress—and End Its Exclusion from the Global Wealth Club
By Jithendra Antonio
In the sterile corridors of the Central Bank of Sri Lanka, where foreign reserve monitors once displayed catastrophic readings of $50 million in 2022—a 99% collapse from $7.6 billion just three years prior—a fundamental question haunts policymakers: Why does a nation with $84 billion in GDP, strategic Indian Ocean positioning, and diverse revenue streams remain perpetually vulnerable to external economic storms while smaller economies like Timor-Leste quietly amass $18.6 billion in sovereign reserves?
The answer lies not in Sri Lanka’s resources, which are substantial, but in its financial architecture—or rather, the absence of one critical component that 118 nations have deployed to transform volatile revenues into permanent wealth: a Sovereign Wealth Fund.
The Architecture of Economic Sovereignty – A Global Exploration
The global sovereign wealth ecosystem, managing $11.5 trillion in assets as of 2025, represents the world’s most exclusive financial club—one from which Sri Lanka remains conspicuously absent. This investigation reveals how this exclusion has cost the nation not merely money, but economic sovereignty itself.
Norway’s Government Pension Fund Global, established in 1990, now commands $1.74 trillion in assets—larger than the economies of most nations. In 2023 alone, it generated $222 billion in returns, creating fiscal space equivalent to three times Sri Lanka’s entire GDP. China’s twin funds—China Investment Corporation ($1.35 trillion) and SAFE Investment Company ($1.09 trillion)—have transformed foreign exchange reserves into global investment power, acquiring strategic assets from London real estate to African infrastructure.
But the most instructive lessons emerge from economies comparable to Sri Lanka. Botswana, with a GDP of merely $20.4 billion, operates the Pula Fund with $4.1 billion in assets—a 20% GDP-to-fund ratio that has insulated the diamond-dependent economy from commodity price volatility. Trinidad and Tobago’s Heritage and Stabilization Fund, with $5.7 billion under management, contributes an estimated $5,104.57 per capita annually to real GDP, with cumulative welfare impact of $107,196 per capita over 30 years.
Even more striking: Timor-Leste, with a GDP of just $3.2 billion, has accumulated $18.6 billion in its Petroleum Fund—nearly six times its annual economic output. This fund finances 80% of the state budget, transforming a post-conflict nation into one with greater per-capita sovereign savings than many developed economies.
The Anatomy of Sri Lanka’s Fiscal Vulnerability
Sri Lanka’s 2022 sovereign default—the first in its post-independence history—exposed structural weaknesses that a sovereign wealth fund could have mitigated. External debt reached $67.7 billion (80% of GDP), while foreign exchange reserves plummeted to levels insufficient to purchase three days of essential imports. Interest payments consumed over half of government revenue, creating a vicious cycle where new borrowing financed old debt rather than development.
The human cost remains visceral: poverty rates surged to 24.5%, malnutrition doubled, skilled workers fled in unprecedented numbers. Citizens queued for fuel under scorching sun, inflation vaporized lifetime savings, and hospitals operated without essential medicines. This wasn’t merely an economic crisis—it was a sovereignty crisis, where external creditors dictated domestic policy and international bailouts came with conditions that constrained national decision-making.
The Hidden Revenue Streams – The Untapped Potential
This investigation has uncovered multiple revenue streams currently flowing through Sri Lanka’s economy without strategic capture—potential funding sources for a sovereign wealth fund that could transform the nation’s fiscal architecture:
- The Cess Tax Anomaly
Sri Lanka’s Export Development Board cess income reached Rs. 49 billion in 2009, yet only Rs. 277 million—less than 0.6%—was credited to the designated export development fund. This systematic diversion reveals both the scale of available resources and the institutional failures preventing their strategic deployment. Current cess applications span multiple sectors:
- Petroleum Products: Variable rates on fuel imports generating substantial revenue
- Port and Airport Development: 7.5% levy on various imports
- Export Industries: Rs. 10-35 per kilogram on tea, rubber, and other commodities
- General Imports: 10-35% ad valorem on “non-essential” items
Conservative estimates suggest proper channeling of cess revenues could generate $200-300 million annually for sovereign wealth accumulation.
- Tourism – The Unutilized Gold Mine
Tourism revenue reached $3 billion in 2024, recovering from pandemic lows of $500 million. Yet this volatile sector—contributing 5% of GDP—lacks mechanisms to convert peak earnings into permanent wealth. Strategic interventions could include:
- Tourism Development Levy: A $5-10 per visitor fee would generate $50-100 million annually based on current arrival figures
- Luxury Tourism Bonds: Targeting high-net-worth tourists with investment products offering residency benefits
- Heritage Site Partnerships: Public-private ventures at sites like Sigiriya could yield $10-15 million annually for the fund
- Eco-Tourism Revenue Sharing: 10% of national park revenues allocated to sovereign wealth
- The Remittance Opportunity
Diaspora remittances—$7.1 billion in 2020 from 1.8 million migrant workers—represent another underutilized resource. Through diaspora bonds and voluntary contribution schemes, even 5% participation could channel $350 million annually into sovereign wealth.
- The Santiago Principles – A Blueprint for Governance
International best practices, codified in the Santiago Principles, provide a clear framework for SWF governance. Norway’s model—limiting annual withdrawals to 3% of fund value—has created sustainable fiscal space while preserving capital for future generations. Singapore’s dual-fund approach—GIC for long-term reserves and Temasek for strategic investments—demonstrates how sovereign wealth can serve multiple objectives without compromising either.
For Sri Lanka, governance architecture must include:
- Independent Board: Comprising financial experts, economists, and international advisors
- Parliamentary Oversight: Bi-annual reporting with full transparency
- Investment Mandate: Clear guidelines prioritizing diversification and risk management
- Withdrawal Rules: Constitutional limits on annual drawdowns
- Audit Requirements: International standard compliance with public disclosure
The Implementation Pathway – From Vision to Reality
- Phase One: Legislative Foundation (2025-2026)
- Draft and pass the Sri Lanka Sovereign Wealth Fund Act
- Establish governance structures insulated from political interference
- Create legal frameworks for revenue allocation
- Target initial capitalization of $500 million through SOE privatization
- Phase Two: Revenue Stream Integration (2026-2028)
- Implement tourism development levies
- Reform cess tax collection and allocation
- Launch diaspora investment products
- Build operational capacity with international expertise
- Target $2 billion in assets under management
- Phase Three: Strategic Deployment (2028-2030)
- Diversify into global equities (60%), bonds (30%), alternatives (10%)
- Establish stabilization and development sub-funds
- Create domestic infrastructure investment windows
- Target 5-6% annual returns, reaching $5 billion AUM
The Sovereignty Equation – Beyond Financial Returns
The establishment of a sovereign wealth fund transcends financial engineering—it represents a fundamental reimagining of Sri Lanka’s economic sovereignty. In an era where economic power increasingly determines geopolitical influence, nations without strategic reserves operate at permanent disadvantage.
Consider the counterfactual: Had Sri Lanka established a sovereign wealth fund in 2010, capitalizing it with just 10% of annual remittances and tourism revenues, the fund would today hold $8-10 billion—sufficient to have prevented the 2022 foreign exchange crisis entirely. The economic collapse, with its attendant human suffering, was not inevitable but rather the predictable consequence of operating without strategic buffers.
Recommendations and Strategic Imperatives
Immediate Actions (2025)
- Establish SWF Task Force: Appoint committee of economic experts, Central Bank officials, and international advisors to draft enabling legislation
- Revenue Stream Audit: Comprehensive assessment of all potential funding sources, including cess taxes, tourism levies, and SOE assets
- Public Consultation: Launch national dialogue on sovereign wealth objectives and governance principles
- International Partnerships: Engage with successful SWF nations for technical assistance and capacity building
Medium-Term Implementation (2025-2027)
- Legislative Package: Pass comprehensive SWF Act with constitutional protections against political interference
- Institutional Architecture: Establish Sri Lanka Sovereign Investment Corporation with professional management
- Revenue Allocation Mechanisms: Implement automatic transfer systems for designated revenue streams
- Investment Strategy Development: Create diversified portfolio approach with clear risk parameters
Long-Term Vision (2027-2035)
- Scale Achievement: Build fund to $10 billion through disciplined accumulation and investment returns
- Sectoral Development: Use SWF returns to fund strategic infrastructure and human capital development
- Regional Leadership: Position Sri Lanka as South Asian pioneer in sovereign wealth management
- Intergenerational Compact: Ensure today’s revenues benefit future generations through permanent wealth creation
The Moment of Decision
Sri Lanka stands at an inflection point. The choice is not between competing economic theories but between perpetual vulnerability and strategic resilience. Every month of delay represents foregone revenues that could compound into generational wealth. Every tourism season without levy capture, every cess tax diverted from strategic investment, every remittance dollar spent rather than saved—these are not mere missed opportunities but acts of intergenerational negligence.
The global evidence is unequivocal. From Norway’s trillion-dollar fund to Kiribati’s modest but vital Revenue Equalization Reserve Fund, sovereign wealth mechanisms work. They transform volatile revenues into stable returns, episodic windfalls into permanent wealth, and external dependence into economic sovereignty.
For a nation that has endured the humiliation of fuel queues and medicine shortages, that has seen its brightest minds flee for foreign shores, that has mortgaged its ports and airports to foreign creditors—the establishment of a sovereign wealth fund is not a luxury but an existential necessity.
The blueprint exists. The revenue streams flow. The global precedents shine. What remains is the political will to transform Sri Lanka from a nation that perpetually borrows to one that strategically saves, from an economy that reacts to crises to one that prevents them, from a country that consumes its present to one that invests in its future.
The sovereign wealth fund is not merely a financial instrument—it is a declaration of economic independence, a fortress against future storms, and a covenant with generations yet unborn. The time for its creation is not tomorrow, not after the next election, not when conditions improve.
The time is now. The alternative is permanent subordination to the kindness of creditors and the mercy of markets. Sri Lanka deserves better. Its people demand better. And with a sovereign wealth fund, better is not just possible—it is inevitable.
(The writer, Jithendra Antonio is a Consultant specialized in Data Analytics with a special focus on Sri Lanka’s Future Direction, and in the fields of Sustainable Energy, ESG, Public Policy, Investments and Telecommunications. He can be reached at jithendra.antonio@gmail.com.)
