Spatial Inequality and the Public Investment Programme (2026–2030): A Critical Assessment of Inclusive Growth in Sri Lanka

1. Introduction: Sri Lanka’s economic recovery, while remarkable in its stabilization, faces a profound structural challenge: the persistence of deep-seated spatial and distributional inequalities. The Public Investment Programme (PIP) 2026–2030 is presented as a blueprint for "inclusive and resilient growth," yet the geography of its proposed investments raises critical questions about whether it will bridge the regional divide or further entrench the dominance of the Western Province [3]. Inclusive growth, as defined by the World Bank and the Asian Development Bank (ADB), requires not only an increase in aggregate output but also a reduction in the disparities of opportunity and outcome across different segments of society and geographic regions. This analytical article critically assesses the PIP 2026–2030 through the lens of Spatial Inequality and Regional Convergence Theory, examining whether the planned allocations for infrastructure, education, and regional development are sufficient to dismantle the "urban bias" that has historically characterized Sri Lanka’s development trajectory.

2. The Geography of Public Investment: A Critical Mapping: The starting point for any analysis of spatial inequality in Sri Lanka is the overwhelming economic concentration in the Western Province. As of 2024, the Western Province continues to account for 42.4% of the national nominal GDP, a slight decline from 44.0% in 2023 but still indicative of a massive geographic imbalance [4]. In contrast, lagging regions such as the Northern, Eastern, and Uva provinces contribute disproportionately less to the national economy, despite possessing significant untapped resources and potential.

Infrastructure Concentration and Urban Bias

The PIP 2026–2030 allocates a substantial 50.1% of its total investment (LKR 4,303 billion) to physical infrastructure, including roads, transport, and urban development [3]. While infrastructure is a necessary condition for growth, its spatial distribution determines who benefits. Historically, Sri Lanka’s infrastructure development has exhibited a strong "urban bias," focusing on connecting the Western Province to major ports and airports while leaving the "last mile" connectivity in rural and lagging regions underdeveloped. The PIP’s focus on "Integrated Spatial Planning" and "National Land Council" updates is a positive step, but without a clear mandate to prioritize infrastructure that specifically links lagging regions to global supply chains, the current plan risks reinforcing the existing "ribbon development" pattern—where growth is confined to narrow corridors radiating from the capital [3].

Agglomeration vs. Spread Effects

From the perspective of Regional Convergence Theory, growth should eventually "spread" from prosperous centers to lagging peripheries. However, in Sri Lanka, agglomeration economies—the benefits of firms and people being near each other—remain "sticky" in the Western Province. The PIP’s target to increase the regional GDP contribution of non-Western provinces to 65% by 2030 is highly ambitious [3]. Achieving this requires more than just building roads; it requires creating "growth poles" in lagging regions that can compete with the Western Province for investment and talent.

Province	2024 GDP Share (%)	PIP 2030 Target (Non-Western Share)
Western Province	42.4%	-
All Other Provinces	57.6%	65.0%
Table 1: Provincial GDP Share vs. PIP Regional Targets [3] [4]

3. Human Capital and Spatial Disparities: Human capital accumulation is the bedrock of inclusive growth, yet in Sri Lanka, it is characterized by significant spatial unevenness. The PIP documents "disparities in human and physical resources among schools" and "inequalities of offering science, mathematics, and language education" across districts [3].

Teacher Distribution and Quality Gaps

A critical indicator of spatial inequality in education is the student-to-teacher ratio and the distribution of qualified STEM teachers. The PIP notes a "shortage of teachers across provinces, especially science, technology, engineering, and mathematics (STEM) teachers" [3]. Causal reasoning suggests that the concentration of high-quality educational institutions in urban centers (particularly Colombo and Kandy) creates a self-reinforcing cycle of inequality: urban students receive better instruction, perform better in national examinations (O/L and A/L), and are more likely to enter the 26% of students admitted to state universities [3]. Rural students, conversely, face higher dropout rates—40,000 before O/L and 80,000 after O/L—often due to the lack of accessible, high-quality secondary education in their regions [3].

The "Brain Drain" and Regional Depletion

The migration of 300,000 skilled professionals in 2022 is not just a national loss; it is a regional one [2]. Lagging regions, which already struggle to retain talent, are disproportionately affected by this "brain drain." When the most educated individuals from Uva or the Northern Province migrate—either to Colombo or abroad—the regional economy loses its most productive agents, further stalling convergence. The PIP’s allocation of 12.4% to Human Resource Development must be strategically deployed to ensure that vocational training and higher education facilities are decentralized, providing opportunities for youth to thrive within their own regions [3].

4. Regional Development Targets: Ambition vs. Reality

The PIP 2026–2030 sets out several specific targets for regional development, including achieving 85% financial inclusion by 2028 and ensuring that 75% of finance companies operate outside the Western Province [3].

 

Financial Inclusion and MSME Financing

Spatial inequality is often exacerbated by "financial exclusion," where rural entrepreneurs lack access to the credit necessary to scale their businesses. The PIP’s target to increase access to loans for regional MSMEs by 50% is a critical component of inclusive growth [3]. However, the effectiveness of this policy depends on the structural conditions of the regional banking network. If regional banks remain merely "deposit-taking" branches that funnel rural savings into urban investments, the spatial divide will persist. The PIP must ensure that the "National Credit Guarantee Institution" and the "Secured Transaction Registry" are leveraged to de-risk lending to rural MSMEs, particularly in the agriculture and tourism sectors [3].

The Infrastructure Trap

There is a risk of what economists call the "Infrastructure Trap" in lagging regions. Building high-speed roads in a region with weak human capital and low industrial base may not lead to growth; instead, it may simply facilitate the faster out-migration of people and resources to the capital. The PIP’s strategy of "Harnessing Provincial Economic Drivers" must, therefore, be integrated: infrastructure must be accompanied by regional-specific industrial policies and skills development to ensure that the "connectivity" leads to local value addition rather than regional depletion.

Regional Development Target	PIP 2026-2030 Goal
Regional GDP Contribution	Increase to 65% by 2030 [3]
Financial Inclusion	85% by 2028 [3]
Finance Companies	75% located outside Western Province [3]
MSME Loan Access	50% increase [3]
ICT Parks & R&D Centers	Established in 4 provinces by 2026 [3]
Table 2: Key Regional Development Targets in PIP 2026-2030 [3]

5. Causal Reasoning: Why Regional Convergence Stalls

The persistence of regional disparities in Sri Lanka, despite decades of "balanced growth" rhetoric, can be attributed to several causal factors that the PIP must address more aggressively.

1       Institutional Weakness at the Local Level: While the PIP is a national document, its implementation in lagging regions depends on the capacity of provincial and local governments. The PIP notes "weak institutional support" in rural areas [3]. Without significant capacity building and fiscal decentralization, regional plans will remain top-down mandates with little local ownership.

2       The "Ribbon Development" Constraint: Sri Lanka’s urbanization is characterized by low-density, ribbon-like development along major roads [5]. This pattern is inefficient for providing public services and fails to create the "density" needed for vibrant regional economies. The PIP’s focus on "Integrated Spatial Planning" must move towards creating compact, high-density regional urban centers that can serve as genuine alternatives to Colombo.

3       Uneven Labor Absorption: As analyzed in previous diagnostics, the 40% skills gap is not uniform [3]. It is most acute in lagging regions where the education system is least aligned with market needs. This creates a "spatial mismatch" where jobs may be created in urban centers, but rural youth lack the skills to access them, leading to persistent regional unemployment and poverty.

6. Conclusion: Advances or Entrenchment?

The Public Investment Programme 2026–2030 represents a significant effort to formalize a medium-term development vision for Sri Lanka. It correctly identifies the "lagging provinces" (Northern, Eastern, and Uva) as priorities and sets ambitious targets for regional GDP contribution and financial inclusion [3]. However, the heavy concentration of investment in physical infrastructure (50.1%) and the persistent disparities in human capital accumulation suggest that the risk of entrenching spatial inequality remains high.

To advance equitable development, the PIP must evolve from a "Rolling Plan" of projects into a Spatial Equity Framework. This requires:

•        Decentralizing High-Value Services: Moving beyond "agro-based informal livelihoods" to establish ICT parks and R&D centers in lagging regions, as targeted for 2026 [3].

•        Targeted Human Capital Investment: Prioritizing the deployment of STEM teachers and the upgrading of vocational training centers in the Northern, Eastern, and Uva provinces to bridge the quality gap.

•        Fiscal and Institutional Empowerment: Strengthening the capacity of local governments to manage and monitor regional development projects, ensuring that public investment is responsive to local needs.

In conclusion, the PIP 2026–2030 provides the tools for regional convergence, but its success will be determined by the government’s willingness to challenge the "urban bias" and ensure that the benefits of growth are spatially distributed. Without a deliberate and sustained focus on spatial equity, Sri Lanka risks a "two-speed" recovery where the Western Province prospers while the rest of the country remains structurally excluded.

References

[1] ADB. (2025). Sri Lanka: Improving the Rural and Urban Investment Climate. https://www.adb.org/sites/default/files/publication/30216/sri-lanka-rural-urban-investment-climate.pdf

[2] World Bank. (2025). Sri Lanka Development Update 2025: Urgent Structural Reforms and Efficient Public Spending Key for Long-Term Growth. https://www.worldbank.org/en/country/srilanka/publication/sri-lanka-development-update-2025

[3] Department of National Planning, Ministry of Finance, Planning and Economic Development. (2025). Public Investment Programme 2026–2030. file:///home/ubuntu/upload/PIP2026-2030final_new.pdf

[4] Central Bank of Sri Lanka (CBSL). (2025). Provincial Gross Domestic Product (PGDP) - 2024. https://www.cbsl.gov.lk/en/news/provincial-gross-domestic-product-2024 [5] World Bank. (2025). Status of Urbanization in Sri Lanka: A Comprehensive Review.