Investment climate: U.S. flags urgent reforms for growth

Frequent regulatory shifts and project reversals deter large investors Board of Investment fails to act as a true “one-stop shop”; fragmented approvals The implementation of the 2024 Economic Transformation Act and the restructuring of the BOI have stalled Privatization halted; government promotes state-owned collectivism, unsettling investors Unnecessary regulations, opaque procurement, and poor bureaucratic responsiveness Institutional corruption and non-transparent tenders persist despite the anti-corruption law IMF and business chambers urge trade facilitation, digitization, and stronger governance mechanisms Sri Lanka's projected economic growth for this year is only 3.5 per cent FDI remains constrained, with most transactions in the modest $3 to $5Mn range

- By KELUM BANDARA

The U.S. State Department recently released its 2025 Investment Climate Statements for each country. The statement on Sri Lanka is, once again, an eyeopener. It lays bare a stark reality: mere political will or rhetoric cannot deliver the desired economic growth. What is needed is a genuine improvement in the investment climate-strengthening regulatory mechanisms, removing bureaucratic hurdles, and making the country a truly competitive investment destination.

Sri Lanka's projected economic growth for this year is only 3.5 per cent. Instead, it should be sustained at well over five per cent for the country to become prosperous and to ensure a better quality of life for its people. The attraction of Foreign Direct Investment (FDI) is absolutely essential in this case.

Nevertheless, FDI remains constrained, with most transactions in the modest $3 to $5 million range, according to the statement. This comes at a time when the country is in dire need of FDIs worth billions of dollars.

The sectors that attracted the most foreign investment in 2024 were tourism, information and communications technology (ICT), renewable energy, manufacturing, and real estate. The government has actually set a US$5 billion target for this year.

Despite this ambitious FDI target for 2025, experienced investors emphasise that policy stability, regulatory reform, and improved transparency must precede any significant uptick in large-scale investments, the report notes.

The government has now completed one year in office, yet its performance has not fully lived up to the expectations set by its own rhetoric. Sri Lanka remains a much-sought-after country for investments. Its geo-strategic location in the Indian Ocean, astride major transnational trade arteries, serves as a unique selling proposition in attracting investments.