By: Staff Writer
October 11, Colombo (LNW): Sri Lanka’s claims of robust foreign direct investment (FDI) inflows have come under scrutiny, with the International Monetary Fund (IMF) subtly but firmly challenging the government’s attempt to inflate figures and mislead the public. The latest IMF comments underscore the growing concern that the Board of Investment (BOI) — once envisioned as the country’s investment promotion engine — has become a vehicle for distorting data rather than facilitating genuine foreign investment.
According to official figures released by the BOI, Sri Lanka has attracted a total of US$787 million in FDI during the first nine months of 2025, including US$121.8 million from new projects and US$665.2 million from existing companies registered under the BOI. However, the IMF has questioned these numbers, noting that much of the reported inflow includes intra-company loans, reinvested earnings, and commercial borrowings, rather than new capital injections. Analysts note that this practice artificially inflates FDI figures, masking the country’s real investment performance.
IMF Mission Chief Evan Papageorgiou, in his recent statement, emphasized that genuine FDI—not accounting adjustments or internal corporate transfers—is essential for Sri Lanka’s macroeconomic recovery and long-term growth. He described FDI as a “cornerstone of the nation’s economic framework” and a vital barometer of investor confidence. While acknowledging Sri Lanka’s progress under the Extended Fund Facility (EFF) programme—especially in debt restructuring and macroeconomic stabilization—Papageorgiou urged the government to ensure transparency and policy consistency to attract credible investors.
The IMF’s analysis exposes a key structural weakness: Sri Lanka’s overdependence on tax holidays and exemptions as the main tool for attracting investors. Papageorgiou warned that these incentives have limited long-term benefits, often eroding fiscal revenues without ensuring technology transfer or job creation. “Tax exemptions should not be the only tool used to attract FDI,” he stated, adding that sustainable investment depends on a competitive, transparent, and rule-based business environment.
The Fund also highlighted the importance of labour market flexibility, improved infrastructure, digital connectivity, and the expansion of logistics and port access. These, it said, are the real drivers of competitiveness—not artificially boosted FDI statistics.
Given these observations, economic analysts argue that it may be time to scrap or overhaul the BOI, as proposed by the previous administration. Once instrumental in attracting major foreign projects, the institution is now seen as outdated and bureaucratic, contributing more to statistical manipulation than investment facilitation.
In the current context, the IMF’s intervention serves as a wake-up call. Genuine foreign investment, policy credibility, and institutional reform—not inflated figures or tax giveaways—are what Sri Lanka truly needs to rebuild investor confidence and sustain economic growth.
