📈 SL Global Competitiveness Hampered by Low Domestic Demand & Supplier Gaps

• Strategic Focus: Sri Lanka must shift from passive production to global brand ownership by fostering demanding local consumers and upgrading local suppliers across vital sectors like apparel & textiles and hospitality & tourism. • Sector Dynamics: • Apparel & Textiles: Sector remains strictly buyer-driven by Western corporations due to a domestic market flooded with cheap imports, stifling local design innovation and original R&D. • Hospitality & Tourism: Inconsistent quality and "dual service standards" between foreign and local guests dilute national competitive advantages. • SMEs: Facing a compliance squeeze as the VAT/SSCL annual registration threshold is slashed from Rs. 60 Mn to Rs. 36 Mn. • Budget 2026 & Policy Metrics: • Enhanced Capital Allowance threshold aggressively reduced from US$ 3 Mn to US$ 250,000, subsidizing 100% to 200% of automation/AI investments. • Rs. 35.6 Bn allocated for digital transformation, including a National Trade Window. • Only Rs. 8 Bn allocated for new credit schemes, leaving a massive funding gap for the 1.5 Mn SME sector. • Resilience & Risks: A US$ 4.1 Bn economic blow from Cyclone Ditwah underscores the absolute urgency for climate-ready industrial zones and pre-emptive parametric insurance to protect export reliability against competitors like Vietnam and India.