Sri Lanka’s investment climate constrained-U.S. report says

Colombo, Sept. 29 (Daily Mirror) - Despite the government's rhetoric, the country's investment climate remains constrained, and investors report that doing business remains difficult, frequently citing concerns about project reversals, regulatory shifts, slow decision-making, and inadequate support for established businesses, according to the U.S. Department of State.

The Department of State, in its report on investment climate in Sri Lanka, said while five per cent GDP growth in 2024 exceeded expectations, the country’s investment climate remains challenging.

The sweeping electoral victories of President Anura Kumara Dissanayake and his National People’s Power (NPP) parliamentary coalition in late 2024 have provided political stability. The NPP’s commitment to the country’s $3 billion, four-year (2023-2027) Extended Fund Facility IMF programme reassured investors, but many remain wary given the NPP leadership’s historically anti-Western, Marxist-influenced ideology, the report said.

Foreign Direct Investment (FDI) remains constrained, with most transactions in the modest $3 to $5 million range. The sectors that attracted the most foreign investment in 2024 were:

• Tourism
• Information and Communications Technology (ICT)
• Renewable energy
• Manufacturing and real estate.

Despite the government’s $5 billion FDI target for 2025, experienced investors emphasise that policy stability, regulatory reform, and improved transparency must precede any significant uptick in large-scale investments.

U.S. firms continue to explore opportunities in sectors such as:

ICT, Energy, Aviation, and Defence.

However, regulatory unpredictability, bureaucratic hurdles, and selective transparency continue to limit broader participation.

The government’s institutional capacity to encourage an open investment environment remains limited despite positive rhetoric. The IMF and local business chambers stress the need for comprehensive structural reforms, including trade facilitation, digitisation, and stronger governance mechanisms, the report said.