Digital Reforms Risk widening Inequality in Sri Lanka’s Economy

Sri Lanka’s rapid push toward Digital Public Infrastructure (DPI) and accelerated trade liberalisation is being promoted as the backbone of a modern, competitive economy.

However UNDP Country Economist Dr. Vagisha Gunasekara warns that the country’s reform pathway may entrench inequality unless deep structural gaps in access, capability, and labour mobility are addressed before policies take full effect.

Her analysis, delivered in response to a CEPA discussion on the World Bank’s regional report on trade, AI, and labour markets, highlights the risk of digital and trade reforms benefiting only those already positioned to take advantage of them.

Sri Lanka’s digital fundamentals remain weak. More than one third of households are offline, only 37% of adults use the internet, and computer literacy stands at just 34%.

Only one in five households owns a desktop or laptop, leaving most people dependent on low-capability mobile devices for economic participation. The urban–rural divide in adult internet access is nearly 20 percentage points.

These gaps mirror regional figures showing that only 13% of South Asia’s workforce is employed in export-linked sectors, typically younger and more skilled workers concentrated in industries such as apparel, IT, logistics, and tourism.

The divides intensified during the COVID-19 education disruptions. While 63% of children accessed some form of remote learning, 15% received none at all. Children in internet-enabled households had a 90% participation rate, compared with only two-thirds in households without connectivity.

Children from better-educated households were far more likely to access online schooling, reinforcing long-term inequality. “Those children are the ones competing for AI-complementary work a decade from now. Inequality is being wired into the system today,” Dr. Gunasekara noted.

Gender and disability add another layer of exclusion. Women are one-third less likely than men to use the internet, hold only about a third of ICT jobs, and face household and mobility constraints that limit digital participation.

Only 7% of persons with disabilities have used the internet, compared with 24% of the general population. Micro-data from the Vanni region shows that while basic phone use is nearly universal, advanced digital skills correlate strongly with household wealth. Only 17% had ever used the internet for job searches and 70% had never used a Government website.

These disparities come at a critical moment as Sri Lanka rolls out digital identity, digital payments, e-Government, e-procurement, digital customs, and digital education systems. The Government aims to expand the digital economy from its current 3% of GDP to 10% in the medium term and 15% within a decade.

 Payments form the core of the upcoming DPI ecosystem, with future phases enabling open banking, open lending, and interoperable financial services. But Dr. Gunasekara warns that without low-bandwidth platforms, multilingual interfaces, offline access options, and targeted support for rural and low-income users, digital systems will simply “reinforce where growth is least accessible.”

Removing tariffs prematurely, she cautions, could trigger import surges, currency pressure, and stress on post-crisis industries. More importantly, mobility barriers weak transport links, lack of affordable housing in growth centres, skills mismatches prevent workers from moving into expanding sectors.

Sri Lanka, she argues, must first reduce non-tariff barriers improving logistics, customs automation, standards recognition, and digital trade systems before lowering tariffs.