Business · Sri Lanka Bureau
Sri Lanka grapples with surge in shadow economy and graft concerns
Economists and officials are increasingly concerned about the expansion of Sri Lanka's informal economy and its correlation with corruption, raising questions about revenue loss and enforcement challenges. Experts warn that unchecked growth in shadow transactions threatens fiscal stability and institutional integrity.
LSN Sri Lanka ·
Sri Lanka's informal economy has expanded significantly in recent years, creating a parallel financial system that operates outside regulatory oversight and tax collection mechanisms. The shadow economy encompasses unregistered businesses, cash-based transactions, and illicit trade, representing a substantial portion of economic activity that escapes government accounting.
Experts attribute the growth of the black economy partly to corruption within state institutions, where officials allegedly facilitate illegal transactions in exchange for personal gain. This symbiotic relationship between informal commerce and corrupt practices undermines transparency and weakens governance structures already under strain from economic challenges.
The expansion of the shadow economy has direct fiscal consequences for the government. Revenue leakage from untaxed transactions reduces funds available for public services and development initiatives, while also distorting official economic measurements and policy effectiveness.
Anti-corruption agencies and revenue authorities have intensified efforts to combat the problem through enhanced monitoring and enforcement mechanisms. However, experts suggest that addressing the root causes—including improving public sector accountability, streamlining business registration processes, and creating incentives for formalization—remains critical to reversing the trend.