Emerging from one of the worst economic crises in its history, Sri Lanka is fast-tracking the push to attract foreign direct investment (FDI), fueled by far-reaching reforms under the newly passed Economic Transformation Act (ETA).
The ETA, today’s most important investment law in the country, seeks to overhaul obsolete systems, streamline approval processes, and provide a more investor-friendly environment.
The law’s key provisions are the replacement of current investment regulations, setting up new institutional frameworks, and enhanced transparency and efficiency in approvals.
According to a senior Finance Ministry official, one of the act’s primary goals is to slash the average time required to green-light investments from a staggering 269 days to just 82.
A significant focus is also being placed on Public-Private Partnerships (PPPs), with the government planning to introduce a separate Investment Management Act.
This would offer incentives like the Accelerated Depreciation Allowance (ADA) to attract private sector interest in public infrastructure projects.
Foreign direct investment (FDI) inflows to Sri Lanka reached $ 783 million as of 15 September, according to Board of Investment (BOI) Chairman Arjuna Herath.
“We are on track to cross the $ 1 billion FDI mark for 2025. The last time Sri Lanka achieved a billion dollars in FDI was in 2022,” Herath said.
While construction and telecom projects dominated in 2022, this year’s inflows have been more diversified. “We have a good mix with investments in ports, solid tyre manufacturing and the hospitality sector,” he noted.
Some of the inflows in 2022 were from projects that had Strategic Development Project Act concessions, which are no longer available.
In the twelve months to mid-September, the BOI approved 134 projects with a combined value of $ 1.3 billion.
“Investor appetite is improving because they see Sri Lanka has come a long way since the 2022 economic crisis,” Herath said.
Commenting on Sinopec’s proposal to develop a $ 3.5 billion refinery in Sri Lanka, Herath said the project had stalled over the issue of granting the company greater market access. Negotiations are still underway.
“Both sides are committed to reaching an agreement, and we believe a decision will be reached shortly,” he said, while declining to speculate on whether consensus could be achieved.
But even with all these protective measures, there are still problems. Eminent Professor Wijitapure Wimalaratana Thera, Chairman of Sri Lanka Economic Association, cautioned that geopolitical instability say, the war between Iran and Israel has a tendency to drive investors into safer assets like gold or U.S. Treasury bonds and divert capital away from emerging economies like Sri Lanka
As per finance experts, the difference in FDI data of finance ministry, BOI and othe relevant state agencies such as the ministry of industries most probably arises from using different methodologies: one could be total committed investments approved projects that have not been disbursed yet while the other is realised inflows, i.e., actual cash that has flowed into the economy.
Such numbers need to be clarified, economists say, for transparency and investor confidence. With Sri Lanka seeking $2 billion in FDI this year and looking to receive $4 billion from the tourism industry, consistency in the presentation of official numbers will be key to figuring out the reliable economic turnarounds.
