Sri Lanka’s Information and Communication Technology (ICT) and Business Process Management (BPM) sector recorded export earnings of approximately $ 581.7 million in the first four months of 2026, a Year-on-Year (YoY) increase of over 22%.
While the country’s digital economy still accounts for around 5% of GDP, the Government’s ambitious target is to reach $ 15 billion by 2030. Beyond incremental growth, reaching these goals requires coordinated and consistent policy, expanded investment, and an increasingly digitally enabled economy.
In an interview with The Sunday Morning Business, Federation of Information Technology Industry of Sri Lanka (FITIS) Chairman Dr. Dayan Rajapakse explained the factors driving current growth, the structural barriers holding the sector back, and initiatives required to keep these digital ambitions on track.
Following are excerpts:
Sri Lanka’s ICT/BPM export earnings grew by over 22% YoY to around $ 581.7 million in the first four months of 2026. What were the key drivers, and how sustainable is this momentum?
The National Digital Economy Strategy for Sri Lanka 2030 has set a direction for the country, which includes plans for export revenue, capacity development, and startup spiralation, among others.
This strategic approach driven by the industry together with the Government has collectively contributed to this growth. I also believe that the encouragement given to boost the ICT industry, both by the Government and by industry bodies like FITIS, has played a key role as well.
One significant factor was the tax incentives offered for ICT companies incorporating in the Port City. This attracted several large players during the relevant window, and some local companies also restructured to take advantage of these benefits. Unfortunately, the window has since closed due to policy changes.
In addition to that, Sri Lanka has invested considerably in capacity building, working closely with academia to produce graduates with practical skills in data science, cybersecurity, and Artificial Intelligence (AI)-infused coding. That has made a difference. Startups are also contributing to the numbers, and freelancers, including international digital nomads operating from Sri Lanka through the digital nomad visa, add another layer to the picture.
On sustainability, however, I have certain reservations due to certain policy inconsistencies. Hence, whether those benefits will continue to flow is uncertain.
Companies that secured the advantage during the window will continue to operate, but whether that base is sufficient to sustain the growth trajectory and meet our $ 5 billion export target is a genuine question. Policy shifts happening in an ad hoc manner are detrimental in building the kind of confidence the industry needs to plan and invest in the long term.
Sri Lanka’s digital ambitions go beyond software exports. Which segments have the strongest growth potential over the next few years?
We must think carefully about how our economy is structured rather than simply replicating success stories of other countries. Software and BPM exports have contributed significantly, but Sri Lanka is no longer a low-cost destination, as our labour rates are not the lowest in the region, and we lack the scale to compete solely on cost in services exports. That is becoming a real challenge for companies trying to scale on price alone.
That said, Sri Lanka has proven that the country can produce world-class technology products. Companies like WSO2 and the London Stock Exchange Group are examples of the kind of exits Sri Lankan product engineering is capable of generating. Product engineering can deliver significant economic value and is an area where the country has massive potential.
Cybersecurity is another promising space. Globally, the volume of spending around cyber risk is enormous, and there is notable scope for Sri Lankan companies to build on that through security consultancy.
IT infrastructure is also a growing contributor. Many companies, including FITIS member companies, are already doing regional infrastructure rollout projects in other countries, including consultancy, configuration, and setup work. Our share of those projects may not always be the largest component, but it is a growing revenue stream.
At the same time, freelancers make up a significant yet largely unquantified part of the picture. Their remittances often do not get classified correctly in official records, meaning the sector’s real contribution is likely higher than official figures show. Given the current oversupply of IT graduates and limited large-scale corporate recruitment, more people will move towards freelancing and startups, and both will add meaningfully to the economy.
What are the main barriers preventing local tech companies from scaling into internationally competitive businesses?
A main barrier is that we have not been able to attract and retain principal companies in the country – the large global players like Google or Microsoft – to operate and be based here. Our market is also simply not large enough to make that commercially obvious.
Without a compelling reason, whether a long-term tax holiday or other effective incentives, companies have to resort to accessing Sri Lanka through regional intermediaries, often India. Thus, Sri Lanka’s share ends up being marginal.
Countries that have achieved real IT momentum took exceptional routes to attract major players. Vietnam is a recent and instructive example of this. While Sri Lanka tends to approach these situations in a standard, conventional way, attracting a significant global company requires going further, through tailored negotiation and targeted incentives that make Sri Lanka genuinely attractive as a base for regional operations.
For the Sri Lankan tech sector to play a dominant role in regional IT services and infrastructure, such positioning is not optional. Therefore, scaling is a significant issue for the country, and our limited domestic market remains a constraint.
Sri Lanka regionally competes with countries such as India, Vietnam, and the Philippines for technology investment and talent. What are the competitive disadvantages that need to be addressed?
Our market size, labour costs, and current tax structure do not put us in an immediately advantageous position relative to our competitors. However, our talent pool is a genuine strength. Product engineering capability is high, and our graduates adopt new technologies quickly.
Language is also an advantage that should not be underestimated. Our teams are usually capable of communicating well with foreign clients, especially native English-speaking clients, without significant barriers, which matters considerably in services-based work.
However, what Sri Lanka lacks is a coordinated national push to put the country on the global technology map, especially in terms of connecting our diplomatic missions. It would be beneficial if our diplomatic missions could expand focus on more promotion as we need to be present at major international technology exhibitions, to run roadshows, and to have a Sri Lankan pavilion at the right global platforms. Industry alone cannot carry that cost or that weight.
For example, for FITIS, as a nonprofit sustained by membership revenue, there is a ceiling to what we can do unilaterally. We need the Government, particularly through the Digital Economy Ministry, to take ownership of that international outreach. It has done this effectively for tourism. There is no reason the same approach cannot work for ICT, and the returns could be just as significant, if not more.
On talent, how significant a concern are skills gaps and talent retention for the industry at the moment?
I don’t think there is an issue in talent retention. However, there is an oversupply of talent. Thus, some of the talent is looking for opportunities outside Sri Lanka.
Given that we are now in a global economy, where people operate from is not problematic. However, there should be proper mechanisms in place to ensure value is brought to the country and this is where the gap lies.
I believe our ICT industry generates more value; however, there is a lack of incentive to ensure that value is remitted back to the country. To ensure this, providing forward-thinking policies and attractive benefits is key.
In terms of talent development, there is an oversupply of talent which came about since institutions expanded graduate output in anticipation of industry growth that did not materialise at the expected rate. The AI-driven job cuts across major companies accelerated this further, an aspect none of us fully anticipated when planning for sector growth.
However, I actually see this as an opportunity rather than a problem. This talent pool can drive digital transformation across sectors well beyond exclusively the IT industry, from agriculture and food to transport, financial services, and education. This can boost GDP growth significantly.
Currently, Sri Lanka’s digital economy hovers below 5% of GDP, while regional benchmarks suggest it should be above 10% and could realistically reach 20% with the right conditions. Getting there requires embedding IT talent across the entire economy, not just within technology companies. This would also pave the way for an increase in IT value-added exports as well as digitally enabled platforms and solutions, while ultimately ensuring a holistic growth of the economy. This is a realistic way forward for Sri Lanka.
As for the skills gap argument, I disagree with the severity of how it is often framed, claiming that the average graduate is not ready for the industry. If you look at how local startups source their teams, they are not importing talent from overseas, as they find what they need here. Graduates today are capable of self-learning and adapting to new platforms and tools in a short period.
Hence, the available talent is strong and the oversupply can be utilised to transform all aspects of the country’s economy to become more digitally enabled.
What are the essential policy reforms that would have the greatest impact on attracting investment and accelerating digital growth for the industry to sustain momentum?
Several aspects are in the process of active discussion with the Government. One area is grey markets operating in Sri Lanka, hindering fair play within the industry.
For example, there is a significant volume of IT equipment entering the country through non-transparent channels, undervalued and outside the normal supply chain. This gives those operators an unfair pricing advantage, harms legitimate industry players, and creates real cybersecurity risks since counterfeit or cracked software carries vulnerabilities that can be exploited.
We are working with the ministry to establish a functional unit, with industry involvement, that brings together Customs, Inland Revenue, and the Treasury to address this systematically. This is critical to ensure digital trust as well, and the digital transformation drive will not be successful if people are faced with uncertainty and safety complications.
Another area in discussion is regarding taxes. Currently, Sri Lanka’s Value-Added Tax (VAT) collection is self-declared. With the technology already available, there is no reason the Government cannot integrate point-of-sale systems to capture VAT in real time rather than depending on voluntary reporting.
This is also an instance where public-private partnerships can play an effective role in order to ensure that the ecosystem functions in a more reliable, integrated manner, where each player has the ability to operate at an equal level, without selective, undue advantages. Thus, policies enabling tax benefits, at least for a transitional period of time, would be highly beneficial for the industry to grow.
Fintech deregulation is another important area. Financial licences are only accessible to financial institutions, which largely excludes technology companies from operating meaningfully in that space. However, we should provide infrastructure for fintech companies to grow. If we do not create pathways for fintech companies to compete, we will not see the kind of innovation that genuinely drives digital payment adoption at scale.
The Government has established several progressive instruments in this area, such as QR payments and enabling PayPal. These are steps in the right direction, but more is needed. A more competitive fintech space will ultimately benefit citizens and accelerate the shift away from cash-based transactions.
Can you highlight key FITIS initiatives driving Sri Lanka’s digital economy growth forward?
Our overarching goal is Sri Lanka’s $ 15 billion digital economy by 2030.
As part of a FITIS Board initiative, the FITIS team conducted significant research on global digital economy trends and benchmarks and formulated a strategic approach, combining discussions with stakeholders. We are pleased that the Government has adopted this approach as a vision for 2030.
We continue to work in collaboration with the Government. Moreover, progress on Government services digitalisation has been positive, and growing public familiarity with digital platforms is an encouraging sign.
On the industry side, our Digital SME project is one of our most active programmes at present. We work regionally, through several industry chambers, to bring technology transformation to the Small and Medium-sized Enterprise (SME) sector by introducing e-commerce platforms, Enterprise Resource Planning (ERP) solutions, payment systems, and relevant compliance standards such as the General Data Protection Regulation (GDPR), since export markets increasingly expect those standards as a baseline.
Digital citizen empowerment is another area of focus. Building a fully digital environment without bringing everyone along leaves behind people who are not technology-literate, particularly middle-aged and older populations. We are working through our training chapter to address that gap deliberately.
Alongside this, we are engaging the Government on procurement reform. Technology prices, especially for high-performance chips, are highly volatile at present due to the high global demand from the AI and electric vehicle industries. Standard Government procurement timelines of 60–90 days are simply incompatible with a market where prices can shift significantly within that window. Thus, we are working with procurement authorities to find a practical solution.
Moreover, FITIS is deeply engaged in digital transformation in the education sector. More recently, the federation donated a large number of devices from our members to schools affected by Cyclone Ditwah, and we continue to work with the Government on digital education.
We have missed technology waves before, and we cannot afford to miss the AI wave. Equipping our children to match the same technology benchmarks as their peers in more advanced regions is one of the most consequential investments Sri Lanka can make at the moment.