Takeaways for Sri Lanka from UNCTAD's Investment Reality Check

THE release of UNCTAD’s ‘World Investment Report 2025’ delivers a sobering assessment of global capital flows, which serve both as a warning and opportunity for Sri Lanka’s economic recovery trajectory.

- By Anushka Wijesinha

Global foreign direct investment fell by 11%, marking the second consecutive year of decline and confirming a deepening slowdown in productive capital flows, while revealing a critical disconnect between where capital flows and where development needs are most acute.

The report’s central thesis — that “too many economies are being left behind not for a lack of potential - but because the system still sends capital where it’s easiest, not where it’s needed” — resonates particularly strongly for an economy that is rebuilding its investment credentials.

Investment Reality Check

Renewable International project financeoften crucial for infrastructure fell by 26% in 2024. The drop was especially steep in sectors critical to achieving the Sustainable Development Goals energy (-31%), transport (-32%) and water and sanitation (-30%).

The global pullback from infrastructure finance compounds the challenge of securing the estimated $ 4 trillion annually needed for sustainable development in developing countries worldwide.

Investments into digital projects, the issue is one of concentration where just ten countries accounted for 80% of all greenfield projects in the Global South.

For a country that desperately needs infrastructure investment to support economic recovery and climate resilience, these trends suggest that traditional financing models may prove insufficient. These sobering statistics on global flows come alongside rising investment needs in Sri Lanka to upgrade the power grid, improve transport networks, and enhance water management systems. While domestic savings alone cannot fund these massive capital injections, a refocus on innovative approaches to mobilising domestic capital may be needed. The report's emphasis on blended finance mechanisms suggests that Sri Lanka must become more sophisticated in structuring public-private partnerships that can attract patient capital.