Enhancing Public Investment to Advance SDGs in Sri Lanka

Sri Lanka's public investment ratio is skewed heavily towards physical infrastructure development. Photo credit: ADB.

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Improve resource allocation, public sector efficiency, and asset maintenance.


To achieve the Sustainable Development Goals (SDGs) by 2030, developing economies like Sri Lanka require significant investment. A recent study by the Institute of Policy Studies of Sri Lanka indicates that the country needs an additional $1.4 trillion or 12.5% of GDP by 2030 to meet the SDGs. Despite allocating 5.4% of GDP for public investment in the 2024 budget, concerns arise due to the historical average of only 3.4% during 2022-2023. This raises questions about the adequacy and effectiveness of the allocated funds in meeting the country's needs and goals.

Challenges like debt repayment commitments, widening primary deficits, and poor domestic resource mobilization hinder development financing. This scarcity of SDG financing isn't unique to Sri Lanka; globally, the SDGs lack adequate financial support.

While fiscal policy has more influence in advanced economies, where public investment and tax revenue increase with per capita incomes, public investment remains crucial in developing economies. It not only stimulates economic activity but also attracts private investments.

Policy makers in Sri Lanka should prioritize initiatives that improve public investments, resource allocation, public sector efficiency and ethical standards, and asset maintenance. 

Bridging the SDG Financing Gap

To bridge the SDG financing gap, Sri Lanka could explore non-debt creating alternative financing mechanisms such as blended financing, international tax reforms, globally earmarked taxes, increased official development assistance, and pledges. Additionally, enhancing governance by combatting corruption and increasing transparency would boost Sri Lanka’s eligibility for these funds, as governance quality positively correlates with investment inflow.

Advanced economies generally make more progress towards achieving the SDGs than other country groups. Sri Lanka's SDG index score was above the world average at 0.72 before the pandemic and 0.16 after. However, the severity of multiple crises raises ambiguity about the sensitivity of Sri Lanka's SDG monitoring and reporting mechanisms. Existing systems may require significant modifications to capture true development challenges. 

Likewise, advanced economies allocate the highest proportions of their GDP to education and health. For example, in 2019, education and health spending averaged 5.2% and 7.8% of GDP in advanced countries, compared to only 1.9% and 1.6% in Sri Lanka, respectively. Sri Lanka's public investment ratio across the three pillars of sustainability—economic, social, and environmental—is skewed heavily towards physical infrastructure development, with the largest share of investment directed towards this sector. These disparities are evident even in the country’s 2024 budget, where the Ministry of Finance, Economic Stabilization, and National Policies receive 62% of total capital expenditures, leaving only 39% to be shared among 29 other line ministries, including health, education, and environment.

Investment spending often fails to support productive asset accumulation due to weak institutions and corrupt bureaucracies in developing countries. Bureaucrats may misrepresent procurement data, resulting in a decline in public investment quality despite escalating spending. To address this, it is essential to deviate from conventional practices and implement positive changes: fostering a culture of evidence-based policy formulation, establishing a science-based project proposal appraisal system, prioritizing budgetary financing for key projects, strengthening monitoring and evaluation mechanisms, integrating project evaluation findings into development project appraisals, and upholding ethical work standards that prioritize the country's development needs.

Frequent institutional changes and duplication can reduce efficiency and waste resources. Continuous capacity improvement in the public sector and cultivating healthy work ethics are more effective in driving positive development change.

The crises encountered by Sri Lanka present an opportunity for development transformations. For example, poor maintenance increases rehabilitation and replacement costs by 50% to 60% in the transportation and water and sanitation sectors. Therefore, prioritizing asset maintenance over new projects would be more cost-effective. However, maintenance budgets are consistently underfunded. By cultivating sectoral expertise within line ministries and local governments, meaningful relevant improvements to existing workflows can be achieved more easily.

Seizing Opportunities for Development Transformation

Sri Lanka aims to become a developed country by 2048. Policy makers can use the Sustainable Development Goals (SDGs) as a foresight planning tool to support this vision. Mainstreaming SDGs into the national development agenda and aligning 2030 targets with national development goals are vital initial steps.

The technical and financial assistance provided through the SDGs should focus on improving the quality of development sectors and enhancing public sector capacity. Understanding the nature and level of change is crucial for policy makers and development practitioners. Leverage external knowledge and expertise to improve local talent to avoid overdependence.

A broader vision extending beyond urban areas is important for achieving SDGs' inclusive and sustainable development aims. Success hinges on a shared development vision that addresses the needs of all, prioritizing long-term sustainable trajectories over short-term economic gains to enhance the quality of life for all citizens.


Lakmini Fernando
Research Fellow, Institute of Policy Studies of Sri Lanka

Dr. Lakmini Fernando specializes in public finance, development economics, and climate change. She holds a BSc in Agriculture from the University of Peradeniya, a Master of Development Economics (Advanced) from the University of Queensland, Australia, and a PhD in Economics from the University of Adelaide, Australia. She is a recipient of the Australia Awards Scholarship from the Government of Australia and the Adelaide International Scholarship from the University of Adelaide.

Institute of Policy Studies of Sri Lanka

The Institute of Policy Studies of Sri Lanka is an autonomous economic research organization, established by an Act of Parliament, in Colombo. Its mission is to conduct high-quality, independent, policy-relevant research to provide robust evidence for policymaking and improve the lives of all Sri Lankans.

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