A roadmap for reducing regional economic disparities

While Sri Lanka’s regional economic disparities continue to narrow, the Western Province still retains dominance. According to the Central Bank of Sri Lanka’s (CBSL) most recent statement on the country’s Provincial Gross Domestic Product (PGDP), while the Western Province continued to hold the largest footprint in the country’s nominal GDP in 2024, the combined share of the other provinces increased in the same year.

In order to narrow this further in the years to come and to increase the contributions to nominal GDP from the other provinces, experts have urged the need for spatially targeted development, restrategising sector growth, as well as regional value addition.

Regional infrastructure growth needs strengthening

Speaking to The Sunday Morning Business, University of Colombo (UOC) Department of Economics Professor K. Amirthalingam highlighted the need for development across the board to mitigate economic disparities.

Since regional economic disparities were closely linked to disparities in other aspects, such as infrastructure and access to services, especially between the Western Province and other parts of the country, he noted that the concentration of industries, services, roads, schools, hospitals, and universities in the province continued to attract people from other regions, resulting in increased internal migration.

Thus, he explained that unless development was taken to villages and regional centres, villagers themselves would continue to move towards cities, as people followed access to jobs and services. According to him, addressing economic disparities therefore requires addressing infrastructure and service-related disparities alongside income and employment gaps.

For instance, while tourism remains a key revenue generator and an economic activity in the country, beyond the Bandaranaike International Airport (BIA), which is in the Western Province,  resources at other international airports in Sri Lanka, especially those relating to the Mattala Rajapaksa International Airport (MRIA), are significantly underutilised, as also pointed out by the CBSL Annual Economic and Social Infrastructure Digest 2025. 

The digest states that developing the domestic aviation industry, especially through facilitation of the private sector, could help in efficiently connecting such regions with capital and to diversify tourism penetration to other regions, while addressing the underutilisation issue at other airports in the country. Further, there persists a massive gap in total cargo handling, total container handling, and ship arrivals between the Colombo Port and others.

Meanwhile, Prof. Amirthalingam also pointed out that many provinces remained heavily dependent on agriculture, where growth, modernisation, and technological advancement were slow. As a result, unemployment and poverty levels remain high in these areas. By comparison, the Western Province benefits from stronger infrastructure and more developed industrial and service sectors.

Thus, reducing economic inequality requires expanding industrial and service sector development beyond the Western Province, for which a clear and coordinated national plan is key.

Commenting on regional growth potential, Prof. Amirthalingam said that the Central Province could be developed much further through tourism, while the Southern Province held more rapid growth potential due to its harbour and existing infrastructure, as did the Eastern Province, especially due to the harbour, an airport, and its agricultural sector. 

Regarding the Northern and Eastern Provinces, he noted that there was scope to strengthen industrial and service activities in these regions if infrastructure development were prioritised.

Spatially targeted interventions 

Speaking to The Sunday Morning Business, University of Peradeniya (UOP) Department of Economics and Statistics Professor Wasantha Athukorala said that Sri Lanka’s regional economic disparities needed to be understood across multiple dimensions, including income, health, education, and access to basic infrastructure.

The Western Province continues to dominate economic activity, contributing 42.4% to GDP in 2024. While provinces such as the Central Province and North Western Province contributed over 10% to GDP, others lagged behind, with the least being the Northern Province at 4.4%.

Prof. Athukorala added that disparities were also evident in the sectoral composition of provincial economies, with some provinces heavily dependent on agriculture, while industrial and service sector contributions remained low.

At the same time, poverty levels and access to water, electricity, and basic infrastructure vary significantly across provinces and districts. He said that reducing these provincial-level disparities in the future would require spatially targeted industrial policy interventions, including sector-specific industrial zones outside the Western Province. He further noted that most industrial and export-oriented activities remained concentrated in the Western Province, while contributions from other regions were marginal.

“The Government must pay attention to these areas. For example, in agriculture, rather than being limited to agricultural production, we can develop agro-processing industries, export processing zones, and sector- or area-specific industrial zones, which could help link other provinces to global markets,” he added.

Moreover, according to him, infrastructure development needs to better include reliable electricity, water supply, waste management, and digital connectivity to support economic activity in less-developed areas.

Prof. Athukorala also highlighted the importance of targeted investment incentives, noting that the majority of these incentives went to the Western Province. He said that target-oriented, area-specific, and industry-specific incentives could help ensure that economic benefits reached grassroots levels as well.

With nearly 80% of Sri Lanka’s population still living outside urban centres, he also noted that developing skills and entrepreneurial capacity in rural communities was essential to shift people from being employment seekers to becoming entrepreneurs.

On governance, he explained that Local Government institutions did not function well most of the time and lacked adequate resources and capacity. He added that empowering these bodies, along with training officials to better utilise local resources, was necessary to support regional development.

Commenting on specific regions and areas for rapid potential growth, Prof. Athukorala said that the Central and North Western Provinces had strong prospects, especially in agro-processing, logistics, food manufacturing, and related industries, provided land-use reforms and investment constraints were addressed. 

He added that the Southern Province had potential in tourism diversification, fisheries, boat building, logistics, and renewable energy, while the Eastern Province showed promise in agro-industry, fisheries, tourism, trade, and renewable energy.

“Sri Lanka has many underutilised resources, including the coastline. While tourist arrivals have improved, this figure still remains low compared to regional peers, especially when measured against population size. We must focus on provincial strengths and resources for faster growth,” he added.

Moreover, Prof. Athukorala noted that narrowing regional disparities meant ensuring economic benefits were more evenly distributed across regions and communities. He said achieving this would require resilient growth, broader sectoral coverage, physical sustainability, and social and political stability to further reduce disparities in the years ahead.

Using Colombo’s growth to drive regional growth

In terms of activity-wise contribution from the provinces, the Western Province remained the major contributor to industry and services activities, accounting for 47.6% and 44.5% of their total values, respectively.

Colombo Chamber of Commerce (CCC) President Saranga Wijeyarathne noted that Sri Lanka’s economy had been “Colombo-centric” for too long, with the Western Province usually contributing nearly 40–45% to the GDP.

“Strong capital is essential, but sustainable national growth cannot rely on a single cylinder. My view is that Colombo’s success should be the catalyst, not the container, of national wealth,” he added.

Thus, to move the needle on regional GDP, he noted the need to shift from a model of extraction to regional value addition. According to him, at present, regions mostly supply raw materials such as labour, agriculture, and minerals which are processed and exported mostly via the Western Province, resulting in their value being retained in the western regions of the country. He noted the need to reverse this through three specific measures.

“The first is the establishment of specialised agro-industrial zones. We need to stop transporting raw harvest to Colombo and must incentivise the setting up of processing, canning, and packaging factories at the source, such as in the North Central and Uva Provinces. This will result in the industrial margin being retained within that province. The Government should offer tax holidays specifically tied to the location of the factory, not just the volume of investment,” he said.

Moreover, on digital decentralisation, especially the work-from-anywhere economy, Wijeyarathne highlighted that the service sector was the fastest way to distribute wealth. With decent 4G/5G coverage, he added that there was no reason why Business Process Outsourcing (BPO) and IT clusters could not thrive in Tier 2 cities like Kandy, Galle, or Kurunegala. For this, he advocated for a policy that encouraged Colombo-based tech firms to set up offices in these regions, perhaps subsidised by lower utility rates.

The CCC President also highlighted Small and Medium-sized Enterprise (SME) supply chain integration. While the large conglomerates are in Colombo, most of their supply chains are regional.

“We need a linkage programme where tax benefits are given to large Colombo-based corporations that verifiably source 60–70% of their intermediate goods from regional SMEs, forcing technology transfer and standard setting from the capital to the village level,” he added.

Commenting on high-potential regions, Wijeyarathne further highlighted that the Northern Province, specifically Mannar and Pooneryn, was poised to be the battery of Sri Lanka. According to him, with the focus on renewable energy, these regions have the wind and solar potential to attract billions in Foreign Direct Investment (FDI). 

“We need rapid grid modernisation. It is useless generating power in the north if the transmission infrastructure cannot carry it to the national grid. Regulatory clarity on Power Purchase Agreements (PPAs) is urgent to unlock this. Also, with the development of the oil tank farm and the port, the Eastern Province can become a heavy industry and energy hub. The layout of the dedicated industrial zone there needs to be fast-tracked,” he said.

Wijeyarathne further noted that beyond tourism, the Hambantota District had port and airport infrastructure that was currently underutilised, adding that the district would be the ideal location for an export-oriented industrial zone because logistics costs were lower.

However, he believes the biggest bottleneck for setting up industries in these regions is land acquisition. He also urged for a single-window approval system at the provincial council level and digitising land registries to make land bank identification transparent and fast.

Wijeyarathne further noted the misconception that developing regions meant neglecting Colombo, expressing his belief that Colombo must function as the brain and the bank. For example, Colombo and specifically the Port City must be the gateway for international capital.

“The funding raised in the Colombo Stock Exchange or through international banks in the Port City should be the capital that builds factories in Monaragala or Anuradhapura. By making Colombo the most efficient, digitised port in South Asia, we lower the cost of doing business for a tea manufacturer in Nuwara Eliya or a garment factory in Polonnaruwa,” he said.

The CCC President also highlighted using Colombo to understand global trends and then disseminating that knowledge to regional chambers. Thus, according to him, if the regulatory framework is laid out correctly, especially in relation to land and energy, the regions will drive the next decade of Sri Lanka’s growth.

Re-strategising sector growth

Speaking to The Sunday Morning Business, Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) Vice President Dr. Rohitha Silva addressed how various sectors could be developed for overall growth.

Commenting on agriculture, Dr. Silva noted that Sri Lanka’s focus should be on achieving self-sufficiency using the latest technology. He pointed out that post-harvest losses in fruits and vegetables were extremely high, usually reaching 40–60%. Thus, there is a need for vegetable and fruit drying centres in all agricultural regions.

He also identified regions like Galle, Matara, Hambantota, and parts of the north with land availability as areas with potential for expanded cultivation, value addition, and export, especially home-grown, small- and medium-scale spices, including those such as cinnamon, pepper, and cardamom.

“Sri Lanka also has great potential to position itself as a regional gem and jewellery hub. Jewellery is already being produced for many international luxury brands, but it remains largely unmarketed, with a high-end and mid-range market. Thus, creating awareness globally on a regional basis would improve tourism,” Dr. Silva stressed. 

He also highlighted restrategising development of Port City Colombo, the Hambantota Port, and the MRIA as accelerated development projects, bringing in FDIs and encouraging local investment as well.

“Since our landmass is smaller, districts such as Hambantota could look at foreign investment for Board of Investment projects to manufacture high-end products, especially car accessories, batteries, and similar products that can be offered in the region,” he said. 

On tourism, Dr. Silva observed that Sri Lanka at present catered mainly to low-end tourism and emphasised the need to attract higher-spending visitors, especially through yacht tourism, by developing ports such as Hambantota, Jaffna, and Galle. He also pointed to the need to modernise and automate railway services, ticketing systems, and city transport infrastructure to improve accessibility and visitor experience.

Dr. Silva further pointed to the unrealised potential of railway station development through public-private partnerships, noting that such projects could attract foreign investment while improving transport infrastructure. He explained that strategic locations of railway stations could be converted to have facilities such as supermarkets, mini-hotels, and other amenities.

“We also need to reassess Sri Lanka’s existing free trade agreements and trade with regional countries, and to evaluate how these agreements could be better utilised. We can develop IT parks in the north with its access to India, work closely with the Hambantota Free Trade Zone, and strategise development with investment from the Chinese Government.”

On the fisheries industry, the FCCISL Vice President pointed out the possibility to develop Galle, Hambantota, Jaffna, Negombo, and Colombo as fishing hubs with improved facilities and new technologies.

According to Dr. Silva, sustained economic development requires close cooperation between the private sector and policymakers, supported by political stability, informed decision-making, and strong leadership.

Meanwhile, attempts by The Sunday Morning Business to contact the Ministry of Industry and Entrepreneurship Development for comment proved unsuccessful. 

 Source: The morning