Sri Lanka, the teardrop-shaped island in the Indian Ocean, has long been known for its natural beauty, rich diaspora, and cultural heritage. In recent years, despite serious economic hardships, the country is showing signs of rebound with opportunities emerging for investors, innovators, and sustainable development.

Quest Ventures was privileged to be invited by the Sri Lanka government to share our ideas on building the startup ecosystem as part of Disrupt Asia 2025 – Sri Lanka’s startup conference and innovation festival. It was organized by the Ministry of Digital Economy (MDE), and the Information and Communication Technology Agency of Sri Lanka (ICTA), and other partners.

Highlights of the visit included discussions with the political leadership of the MDE, senior management at the Board of Investment of Sri Lanka, Sri Lanka Association for Software and Services Companies (SLASSCOM), and other ecosystem actors. We are amazed to hear what Sri Lanka has been through, witness what it has now, and imagine what lies ahead.

From Crisis to Fragile Stabilization

Compared to other countries in Asia, Sri Lanka has been through many economic hardships. In 2022, Sri Lanka experienced one of the most severe economic crises in its history. The country’s GDP contracted by 7.3 %(The World Bank Group, 2025), inflation soared to nearly 70 % (Central Bank of Sri Lanka, 2023), and foreign‑exchange reserves dwindled to just $1.9 billion (EconomyNext, 2022), forcing the government to suspend debt repayments and face acute shortages of essential goods such as fuel, food, and medicine. Households were hit hard, with poverty rising sharply and unemployment spiking, particularly among the youth. The crisis sent shockwaves through the economy, exposing vulnerabilities in public finances, dependence on imports, and structural weaknesses in state-owned enterprises.

The Sri Lankan government recognised the urgent need for reforms. Fiscal consolidation, domestic debt restructuring, and the reform of state-owned enterprises have helped stabilize the macroeconomy, while efforts to rebuild foreign reserves and encourage remittances have improved liquidity. Early signs of recovery are emerging. Sri Lanka’s GDP grew by 5% (World Bank, 2025) in 2024, and the currency has appreciated following its severe depreciation. Yet the recovery remains fragile. Poverty hovers at 24.5 % (Agence France-Presse, 2025), fiscal deficits are still high, and the country remains highly exposed to external shocks such as commodity-price volatility and climate change risks.

Strategic in South Asia

Sri Lanka offers several strategic advantages that make it an attractive destination for investment and innovation. Its strategic location along major maritime shipping lanes in the Indian Ocean, combined with ongoing port expansion projects such as the Colombo West International Terminal, positions the country to become a regional hub for shipping, transshipment, energy, and trade. Beyond logistics, Sri Lanka boasts a rich tourism and cultural appeal, with its biodiversity, heritage sites, beaches, and hill country offering strong potential for sustainable tourism, including eco-tourism and community-based initiatives, as global travel continues to recover. Complementing these assets is a well-educated and relatively skilled workforce, particularly in sectors such as services, ICT, hospitality, and apparel. With continued reforms, this human capital can be further leveraged to support growth in higher-value industries.

Opportunities for Sustainable Tourism

During our visit, we had the opportunity to immerse themselves in the country’s diverse landscapes and cultural heritage. From the vibrant cityscapes of Colombo to the golden beaches of Mirissa, we saw firsthand the array of experiences that Sri Lanka can offer travelers.

Among these opportunities, surf tourism is emerging as an exciting highlight. Locations such as Arugam Bay, Hikkaduwa, and Mirissa are drawing international surfers and adventure travelers, offering waves and experiences that rival more established destinations like Bali. With the global surfing tourism market projected to grow at 6% CAGR to reach USD 95.9 billion by 2030 (Grand View Research, 2025), Sri Lanka is well-positioned to attract both niche travelers and adventure tourism startups.

There is growing demand for eco-tourism, cultural tourism, wellness retreats, and rural homestays. These cater to travelers who value sustainability and unique experiences over mass tourism. Infrastructure improvements, including upgraded roads, regional airports, and enhanced transport connectivity, are opening up previously hard-to-reach areas, making these authentic experiences more accessible. By emphasizing sustainable and community-focused tourism, Sri Lanka can ensure that the benefits reach local communities while protecting its natural and cultural heritage.

For startups and social enterprises in the travel sector, this represents a fertile opportunity to develop innovative offerings — from eco-lodges and adventure tours to cultural workshops — that appeal to conscious travelers seeking meaningful and memorable journeys.

Sri Lanka Could Shine: ICT/ Digital Service Investment

Sri Lanka’s relatively high literacy and strong education levels, coupled with a growing pool of skilled and semi-skilled professionals, provide fertile ground for ICT, digital services, and innovation. Despite some uneven connectivity across regions, the country is increasingly embracing digital transformation, creating opportunities in software development, fintech, e-commerce, digital platforms, and remote services.

We engaged with local entrepreneurs and tech leaders, and discovered a budding startup ecosystem eager to innovate but constrained by regulatory hurdles and limited access to venture capital. There is clear potential for startups to flourish if the government and private sector continue to increase the ease of doing business, streamline digital infrastructure, and provide mentorship and funding support. Investment in this space could not only accelerate the growth of homegrown tech ventures but also position Sri Lanka as a regional hub for digital solutions, catering to both domestic and international markets.

Moreover, there is significant opportunity to leverage emerging technologies such as AI, blockchain, and cloud services to enhance financial inclusion, logistics, health services, and education. By fostering innovation-driven startups and enabling cross-border collaboration, Sri Lanka could transform its ICT sector into a key driver of economic growth and employment, particularly for its youth population, which represents more than 30% of the country.

Outlook

Sri Lanka is at a pivotal point. From the depths of its crisis, it began the hard work of reform. If it can sustain momentum, attract investment in its priority sectors, and manage risk, there is potential for it to emerge stronger.

It may not (yet) be the star of South Asia, but like a resilient seed waiting for better soil, Sri Lanka has qualities – geographic, cultural, human – that suggest it is undervalued. Those who look past headlines might see that Sri Lanka could become a “Cinderella” of South Asia: not yet in the limelight, but stepping towards growth, and ready to take its time on stage.

References

1. The World Bank Group. (2025, October 7). The World Bank Group in Sri Lanka: Overview. https://www.worldbank.org/en/country/srilanka/overview
2. Central Bank of Sri Lanka. (2023, April 27). Annual report 2022: Volume I – Economic, price and financial system stability, outlook and policies [PDF]. https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2022/en/Full_Text_Volume_I.pdf
3. EconomyNext. (2022, April 7). Sri Lanka forex reserves drop to US $1.9 bn in March 2022 [Article]. https://economynext.com/sri-lanka-forex-reserves-drop-to-us1-9bn-in-march-2022-92738/
4. World Bank. (2025, April 23). Sri Lanka’s economy outpaces growth projections, more efforts needed to reduce poverty, boost medium-term growth [Press release]. https://www.worldbank.org/en/news/press-release/2025/04/23/sri-lanka-s-economy-outpaces-growth-projections-more-efforts-needed-to-reduce-poverty-boost-medium-term-growth
5. Agence France-Presse. (2025, April 23). Poverty rate in Sri Lanka remains ‘alarmingly high’ at 24.5%. Daily Sabah. https://www.dailysabah.com/business/economy/poverty-rate-in-sri-lanka-remains-alarmingly-high-at-245
6. Grand View Research. (2025, April 23). Surfing tourism market size & share | Industry report, 2030. https://www.grandviewresearch.com/industry-analysis/surfing-tourism-market-report