From Crisis to Recovery: Can Sri Lankans Afford to Own in a Post-Default Economy?

From Crisis to Recovery: Can Sri Lankans Afford to Own in a Post-Default Economy?

The economic breakdown in Sri Lanka of 2022 is the largest and most severe in the history of the country. Caused by the combination of fiscal mismanagement, fading tourism, pandemic caused shocks, and high levels of external debt, the country became the first in the Asia-Pacific in the past 20 years to default on its sovereign debt. The results were fatal: blackouts, fuel crises, bare supermarket shelves, and the overthrow of a government by popular uprising.

It was not mere default, but a death of the social contract. The common services were turned into luxuries, the inflation rate skyrocketed and there was the loss of confidence in the institutions. The result of this dislocation was not only that purchasing power was swept away, but that the average citizen was re-determined in his or her conception of economic security and pre-possession.

The default in Sri Lanka posed the important question, how can the regular people afford anything, a stable future, a house, a car in the economy after default?

It has started recovering on the tickets of IMF-backed reformation, fiscal stabilization and a mere stabilization of the markets. However, the path to effective recovery rate, in particular, affordability and ownership, is unclear. In answer to the question as to whether Sri Lankans can afford to own in this emerging economic reality it is necessary to look at the building blocks of the crisis, and the factors which are shaping the recovery

Inflation, Interest Rates, and Purchasing Power: The Trilemma of Affordability

It was causing inflation in Sri Lanka, which reached almost 70 percent in late 2022, one of the highest in the global world. Although inflation has subsided since then, it is still very high especially on staples, fuel, and utilities. The effect of this in the lives of most Sri Lankans was that the costs of living had tripled without salary increment.

In spite of the fact that the Central Bank has tried to regulate inflation by raising interest rates to high levels, such antidote also had its side effects. Funding charges rose up. The personal and business loans were no longer accessible to many people particularly the lower and middle classes. Consequently, a sizeable portion of the population could no longer afford to purchase assets be it homes, vehicles or even investments in business establishments

Real Wages and the Cost of Living

Real wages had stayed constant or dropped in Sri Lanka specifically in sectors such as manufacturing and services, and this can be attributed to labor statistics. Most workers depend on remittances that are received overseas or informal income as a way of sustaining livelihoods. The price of basic commodities, such as rice, gas, fuel, medicine has been kept exorbitant to a lot of families. In such a premise, ownership becomes a right of the classes, and households supported by the diaspora.

Middle-Class Squeeze

The middle class whose aspiration included ownership of a home, a vehicle and education of their children overseas, is being eroded under the traditional Sri Lankan middle classes. Due to inflation resulting in loss of savings, and increased taxation as a part of the fiscal reforms, their pattern of consumption has changed significantly. Frills have been turned to luxuries and the desire to own has been confined to the future.

Home Ownership: A Distant Dream or a Delayed Goal?

Owning a home is not a new practice in Sri Lanka and part of the long-standing financial identity and intergenerational wealth. However, the housing industry has changed a great deal in the aftermath of default.

• Real Estate Pricing and Construction Costs

The prices of property in the urban regions such as Colombo have become steady or slightly dropping as compared to the rise in the prices of the building materials. The cost of cement, steel, wiring and imported fittings are all quoted in dollars and with the depreciation of the currency it is very near to twice as expensive to construct. The case with most households is that construction of a house without substantial external aid costs them dearly where this is largely through remittances.

• Mortgage Accessibility

Housing loans interest rates stand at 14-20% (this is in early 2025), with even the scrutiny banks give to credit situations. The mortgage lenders have become risk averse and so the required down payments are increased and the time taken to be approved has also increased. Consequently, the penetration of mortgage has declined. Most of the would-be home-owners are choosing to stay longer as tenants or stay in joint families, putting off their home-ownership dreams.

• Urban vs. Rural Divide

The situation is worse in the rural setting. Formal credit access is worse and wages are even more depressed and unemployment is more. Nevertheless, land prices are cheaper and community-based lending by cooperatives (or microfinance) continues to have a purpose. Unfortunately, it is possible to observe the recurring phenomenon of microfinance debt traps, especially when it comes to women borrowers, high-interests loans as well as predatory practices.

Vehicles, Education, and Business Ownership: Other Dimensions of Affordability

• Vehicle Ownership

After the much-noticed ban of the same in 2020 on imported cars and motorcycles, the car and motorcycle market in Sri Lanka became massively inflated in terms of cost. Even second-hand cars became two-fold expensive and ownership of car was a challenge to middle level citizens. Reliable means of transportation is lacking in most areas that makes movement and economic activities difficult.

Even though commuted ban of imports has made some impact in stabilizing the prices to some extent, it is still very expensive. It currently takes over two times more money to purchase a small car than it does before the crisis and the bank funding is either unavailable or far out of reach as the interest rates are extremely high.

• Financial Liability of Education

International and privatized education which was long considered a means to social upward mobility has turned out to be a financial burden. People are finding it hard to raise school fees or university tuition fees be it locally or abroad. Foreign education is also hit by the depreciation of the currency since it makes the dollar prices astronomical.

People borrow and invest some few things and education is just one of them; in fact since education is an expensive thing, people even apply on personal loans that yield high interests hoping to get a better future. Yet again this brings about queries on prolonged affordability and vulnerability.

Business and Entrepreneurship

Entrepreneurship and digital start-ups, as well as, export-led growth have been given focus in post-crisis economic reforms. This is encouraging but a big challenge is access to capital. The costs of formal loans are very high, venture capital is scarce, and investor confidence is still low.

The small and medium enterprises (SMEs), which form the core of the economy of Sri Lanka, have been running on wafer-thin margins after being overwhelmed by the tax burden and supply chain shocks coupled with still-depressed demand. Although theoretically, ownership in this field a possibility, it is significantly limited due to a number of structural impediments and risk-aversion.

The Path Forward: What Will It Take to Rebuild Ownership?

Nevertheless, not everything is as dark as some may think. Hard reforms are returning some fiscal credibility, but there are still some huge problems with reforms as they are painful, and foreign aid as well as IMF tranches are coming in to aid in stabilization of the economy. Affordability and ownership, although, have to be rebuilt using specific strategies, inclusive mechanisms.

• Accessibility of Affordable Credit and Financial Inclusion

Sri Lanka needs to devise low cost financing programs like subsided home-loans, low interest-education loans, and micro grants to small and medium enterprises, especially to the bottom 60 percent of the income earners. Inclusion of underserved populations can be achieved through expansion of digital banking, mobile finance and cooperative credit.

• Middle Class Support

Any kind of recovery plan that will leave out the middle earners will fail. The base of population in middle-income may be restored like the tax relief, subsidized mortgages and savings schemes connected with the inflation rates. Gaps can also be addressed using encouragement of remittance-backed investments such as housing and education.

• Price stabilization and Anti-Inflation Policy

This will help in reviving economic confidence by ensuring food and fuel prices remain stable. Although the commodity prices are fluctuating, local supply chains will have to be improved, so that there is limited need of imports. The important thing is to invest in agriculture, local production, and resilience in energy.

• Youth and women Empowerment

The economic crisis hit the averagely disproportionately a section of the youth and women. A culture of inclusive ownership can be strengthened through specific programs aimed at entrepreneurship among young people, digital up skilling, and women ownership.

• Rebuilding Institutions and the Trust of the People

Finally, the issue of affordability is also linked to trust, or to put it differently, markets, institutions and the outlook. Sri Lanka has to restore this trust by being transparent, launching war on corruption and carrying out of policies all the time. Once people have faith in the system, people invest in the system- in terms of money and emotions.

The Role of the Sri Lankan Diaspora: Remittances, Investments, and Rebuilding Hope

The diaspora has been one of the most stable sources of foreign earnings of Sri Lanka. There are more than 3 million Sri Lankans who are residing in foreign countries-mainly in the Middle East, Europe, North America and Australia and remittances have become an essential pillar in the household economy and national stability especially after the economic meltdown.

This was despite the fact that most financial inflows to the country were declining during these two years but in regards to remittances, when most sources of revenues decreased through various flows, the same was supplementing the preceding sectors such as education, housing, and healthcare among others. In many families, the home ownership or the ability to send a child to college level education was achievable only because another member of the family was working abroad and therefore supported them.

• Beyond Survival: Remittances as Investment Capital

There has come an emerging prospect to interpret remittances no longer as consumption reinforcement, but as investment finance. Incentivizing diaspora supported housing programs, and education savings accounts would allow the country to transition off of crisis mode and into economic take off.

With the same understanding, the government has brought incentives such as the opening of foreign currency deposit accounts, real estate investment platforms, or tax concessions to diaspora-funded projects. However, uptake is relatively low because people lack trust in finance services and institutions, there is excessive bureaucracy, and political instability.

To have a more significant role to rebuild the ownership pathways in Sri Lanka, the diaspora will have to gain some trust and transparency. A digital dashboard to monitor funds used by diaspora investors would greatly change the nature of engagement or public-private partnerships to model co-investments could create a revolution.

• Real Estate and Dual Ownership Models

Diaspora investment in real estate has already caused the boom in high-rise apartments in Colombo and suburbs. Nevertheless, such improvements are beyond the reach of locals. The development of more inclusive forms of property in terms of ownership spirit may be encouraged through the introduction of schemes such as co-ownership or rent-to-own schemes, where the diaspora members are both able to co-invest with other relatives in Sri Lanka.

Beyond this, as the amount of remittance money reaches more than 5 billion a year, the policy frameworks may be used to employ some of this money towards long-term national development, beyond mere consumption, which may support infrastructure building, employment generation and (access to) credit.

Challenges of Brain Drain

Although, there is economic relief that comes with diaspora, the brain drain issue is an increasing concern one. Skilled professionals including doctors, engineers and educators have left their countries in droves through emigration as a result of economic uncertainties, which has resulted in deep talent shortages within the country. Unless there are incentives to make these citizens come back or reinvest, the gap of human capital will continue to widen

The Sri Lankan diaspora is no longer a lifeline but it has emerged as a reconstructive lever. When properly incentivized, part of the diaspora capital can become immensely helpful in making housing and property affordable and possessed by millions of citizens. However, it will take working/partnering, creativity and a foresight that views overseas citizens as permanent partners in national rebuilding - and not merely part time remittance senders.

Digital Transformation and Innovation: Can Technology Bridge the Ownership Gap?

Digital innovation in Sri Lanka has been seen as a way of coping with the economic hardship or as a means of spurring growth. As well as mobile banking, e-commerce or other digital banking services, the post-default environment has experienced a tacit and very significant digitalisation that provides an opportunity in line with financial inclusion and the possibilities of owning assets.

The emergence of the fintech platforms is considered one of the most notable changes. The mobile banking, electronic wallets and P2P lending services have been spreading very fast especially among the young generation and the underserved. There are platforms such as FriMi, Genie and Sampath Vishwa that are making banking more convenient and allowing people to keep money, monitor spending, and obtain small loans.

Such a transition is essential in reparation of tenure tracks. Fintech can offset the shortcoming whereby traditional banks are unwilling to lend especially to the low-income population. Loan apps as well as income earners linked savings accounts that provide small, behavior-led loans can empower people to own such necessities as telephone devices, motorcycles, and so on without putting themselves in debt traps.

Additionally, modern blockchain-based land registries (such as the pilot program undertaken in 2024) will greatly decrease corruption rates in the decision of the property transaction, and will increase affordability of real estate to first owners. Upon successful scaling this may change the face of land ownership in the country as it may radically democratize land ownership in the country.

With the proliferation of such platforms as PickMe, Daraz, Kapruka, and TikTok Shop, thousands of Sri Lankans have been empowered to launch a small enterprise on the basis of very little capital input. Home-baking, online tutoring, delivery services are some of the ways through which many earn additional income now and may afford digital gadgets gradually, cars, and even land.

Digital platforms, especially among women, have been a liberating movement, where through it, women are able to work at the comfort of their homes, avail of (mobile) payments, and develop small brands. Digital possession of marketplaces is becoming, in the case of these micro entrepreneurs, physical possession - of goods, services and financial resources.

Conclusion: A Question of Time and Policy

Are Sri Lankans able to own in a post default economy?

It is not a yes-no answer. At least temporarily, ownership has been limited to small numbers of people, deferred to others, and unavailable to others. However this is achievable when one has the right policies, inclusive finance and willingness to have equitable development.

The resurgence of Sri Lanka out of the crisis should be a people-focused process. Ownership, ownership of the land, ownership of houses, ownership of education, ownership of enterprise, ownership is more than an economic question. It is an issue of dignity, security and hope. And then to restore that hope is the true test of the post default era.

Also Read: Housing Finance in Sri Lanka