Personal Byline Archive
Bylined Writing & Opinion
Third-party editorial columns, commentary, and institutional research authored by Fathhi Mohamed on scaling Asian market enterprises.
Import bill setting Sri Lanka's scale ceiling
The Central Bank's June external sector data showed a current account deficit of US$149 million, the third consecutive monthly deficit, taking the first half of 2026 to a cumulative US$245 million against a surplus a year earlier. The merchandise trade deficit widened to US$5.5 billion from US$3.3 billion. The Central Bank named one cause four separate times in a single release: the conflict in the Middle East. The column's argument is that the goods deficit is not the news. Sri Lanka has run one for decades. The news is that the current account, the wider balance adding remittances and tourism to the goods trade, has stopped covering it. That cushion held for three years and deflated from the outside. What makes this structural rather than unlucky is that the cushions moved together. Tourism earnings fell 11.8 percent to US$1,511 million and the services surplus came in 22.4 percent below the previous year. Remittances held at US$4.6 billion, up 23.2 percent, and they are the reason the deficit reads as US$245 million rather than a multiple of it. One household transfer is carrying an entire national buffer. This is not an import spree. Motor vehicle imports fell to US$1,254 million for the half from US$1,572 million in the second half of 2025. The gap widened anyway, because the deficit is energy and energy is not discretionary. Three responses follow and all three transfer cost rather than change structure. Price adjustment moves the burden to the factory floor. Rupee-financed relief cushions a month against a dollar constraint. The third is deferral, which happens quietly inside companies, and two years later the capacity is not there while the competitor who did not defer holds the order book. The operating threshold is 30 to 40 percent imported inputs as a share of cost of goods sold. Above that line, landed cost and letter-of-credit timing begin setting the production schedule.
Sri Lanka's labour depth is now its real scale ceiling
On August 3 an official of the National Chamber of Exporters, a body representing around 700 companies, said publicly what members had been saying privately for a year: they cannot find or keep workers at any skill level, least of all in the specialised trades that export manufacturing and agriculture depend on. The Chamber described firms running at half the workforce they need. At that level a factory does not scale. It survives the month. The column argues this is not a hiring problem dressed up as a national one. Sri Lanka spent three years rebuilding order books and market access, and the binding constraint has moved. Capital is no longer the first thing to run out. People are. Over 143,000 Sri Lankans left for overseas employment during the year against a State placement target of 250,000, so the country is exporting the capability its export sector is short of. The numbers do not describe a shortage of people. Unemployment ran at 3.7 percent in the first quarter, but labour force participation was 49.2 percent, meaning barely half the working-age population is economically engaged. Youth unemployment stood at 16.1 percent, higher for young women, against more than 400,000 open private sector vacancies. That is a failure of architecture, not of supply. In boat building, a designated priority sector, attrition in fiberglass moulding and marine electrical roles has been reported near 80 percent. The three standard responses each buy a quarter and expand nothing. Wage rises move scarce technicians between competitors without adding one to the national pool. Short training programmes disconnected from any order book do not complete. A foreign worker window is a legitimate instrument but not a substitute for domestic skills formation. The break point sits at SME scale, where an order requiring a second shift hits the wall at roughly fifty to a hundred specialised roles, precisely the transition from small business to scaled business.
Export basket widening - the scale base under it is not
Sri Lanka's first half export figures landed on July 22, and one line inside them deserved more attention than the headline. Total exports reached US$9.01 billion, up 8 percent year-on-year. Further down the table, exports of electrical and electronic components rose 123.48 percent to US$450.2 million. In June alone the category grew more than fourfold, led by insulated wires and cables, then pumps, engines and industrial equipment, from a base close to zero. The column is careful about that base. A number starting near zero produces spectacular percentages. But the direction is real and not isolated: apparel fell 6.07 percent over the half, tea 5.69 percent, and India passed the United Kingdom to become Sri Lanka's second largest market, up 36.16 percent to US$688.5 million. Regional supply chains are being redrawn around India and Southeast Asia, and component work moves to whoever supplies it reliably. Sri Lanka has been handed a small share of that work. The argument is that a wider export basket is not yet a deeper scale base. Component manufacturing at scale requires an upstream supplier base, testing and certification capacity, uninterrupted power for time-sensitive production, and a technical pipeline producing mid-level engineers in volume. Sri Lanka has fragments of each and a system of none. The trade deficit widened over the same six months because imports grew faster than exports, which is what an economy looks like when it captures assembly work without owning the layers above or below it. The predictable responses are promotional campaigns, duty concessions and calls for value addition. Each supports firms already exporting. A testing laboratory is not an incentive. A polytechnic pipeline is not a tax holiday. Singapore built Jurong and its polytechnics before attracting electronics multinationals. Sri Lanka has taken the order first; the foundation is still optional.
Sri Lanka's scale ceiling now runs through the cost of capital
On July 21, 2026 the Monetary Policy Board of the Central Bank of Sri Lanka held the Overnight Policy Rate unchanged at 8.75 percent, pausing after a 100 basis point increase in May. The Board cited Middle East tensions pushing up fuel prices, faster inflation, and a straightforward discipline: let the last round of tightening transmit before deciding on the next. The following review was set for September 30. The column places this inside a regional pattern. Central banks across South Asia emerging from currency and debt crises have been choosing credibility over stimulus, holding rates even where growth would clearly benefit from cheaper credit. For business owners the headline is not whether the rate moved, but what an extended hold at this level does to the cost of building anything at scale. June inflation rose to 6.8 percent from 5.5 percent in May, driven by energy and food. The Average Weighted Prime Lending Rate reached 10.46 percent for the week ending July 24, the highest reading of the tightening cycle. That gap between the policy rate and what a business actually pays is the real story, and it exposes a structural weakness predating this cycle: Sri Lanka's capital markets are shallow, and most scaling businesses have no route to growth capital that does not run through a bank. The effect is uneven by scale. At SME level, where the prime lending rate is the effective cost of working capital, a threshold has moved, because projects that cleared at 8 percent borrowing do not clear at 10.5 percent. Larger corporates with capital-market access or strong balance sheets continue funding selective growth, sometimes on preferential terms simply for being easier credit risks. Waiting for a September cut treats the symptom. Even if the rate falls, a capital market too thin to offer alternatives to bank debt remains untouched.
Sri Lanka's bond rally, a scale signal, not a victory lap
For three consecutive weeks in July, foreign investors added to their holdings of Sri Lankan rupee bonds, pushing total foreign participation to its highest level since 2023. Offshore investors bought a net US$97.1 million of Government securities in the week of July 9, then a further US$23.2 million the following week. After the 2022 default and the restructuring that followed under an IMF programme, that is a legitimate vote of confidence in the macroeconomic trajectory. The column's argument is that a bond rally is not a scale story on its own. Sovereign inflows measure confidence in the Government's ability to meet its obligations. They say very little about whether the businesses generating exports, jobs and tax revenue can access capital on comparable terms. Walk two floors down from the headline into a commercial bank's SME lending desk and the picture barely moves. SMEs make up over 75 percent of Sri Lankan businesses and close to half of employment, yet loan approvals still lean on fixed asset collateral many small firms do not hold. Bankers point to a further complication: a portion of applicants keep multiple sets of accounts to minimise tax exposure, which strips lenders of the clean statements they would need to lend against cash flow rather than land. The instruments already exist. A Secured Transactions Registry allows businesses to pledge movable assets such as machinery and inventory. An IFC risk-sharing facility worth US$166 million sits with three commercial banks. An ADB credit guarantee line runs through the National Credit Guarantee Institution. None converts sovereign confidence into SME capital by itself, because each requires businesses to formalise and lenders to underwrite against new collateral types. Singapore's bond market deepened because the Monetary Authority spent years building a yield curve, an issuer base and the talent to originate debt. The infrastructure came first, and confidence flowed through it.