Capital controls choke Sri Lanka’s hub ambitions, warns former CB Chief

​Sri Lanka’s ambitions to transform into a vibrant regional economic hub would remain stunted unless the current capital restrictions and exchange controls are systematically rolled back, former Central Bank Governor Dr. Indrajit Coomaraswamy warned. 

Speaking during a high-level panel discussion at the Sri Lanka Institute of Directors Chairman’s and CEO’s Forum held at Colombo Port City this week, he emphasised that while the country has made painful but necessary strides in macroeconomic stabilisation, these foundational improvements must now translate into a more open financial architecture.

​Providing context to the nation’s recent economic trajectory, Dr. Coomaraswamy acknowledged the severe adjustments the economy has endured over the past few years. 

He noted that significant strides have been made in fiscal consolidation, primarily driven by the revenue-enhancing measures, while inflation has been successfully brought under manageable control from its crisis peak. 

“Macroeconomic stability is the absolute bedrock for any future progress and we must move beyond the current restrictions, if we are to realise our potential,” he stated. 

He cautioned that maintaining strict discipline over state expenditure remains non-negotiable to sustain and build investor confidence, warning that the country simply cannot afford any fiscal slippage at this critical juncture.

​However, Dr. Coomaraswamy argued that stabilisation is not an end in itself and the focus must shift towards long-term structural competitiveness.

“The current capital controls hold back our hub status by deterring long-term foreign direct investment and stifling the cross-border corporate integration required for a modern economy,” he explained. 

He stressed that to truly capitalise on the nation’s geographic advantages, a regulatory paradigm shift is necessary.  “A true regional hub thrives on the seamless movement of capital, talent and services, all of which are currently bottlenecked by the stringent regulatory controls and regulatory unpredictability enacted during the crisis,” Dr. Coomaraswamy observed.

​Detailing the practical implications of these restrictions, he pointed out the contradiction between the country’s logistical aspirations and its current financial framework. 

“We cannot market ourselves as a logistics and financial nexus in the Indian Ocean if the multinational corporations cannot freely move capital across our borders, to manage their regional operations,” he asserted.

This sentiment was echoed during the forum by AIA Group Chairman Sir Mark Tucker, who reiterated that the international investors looking to deploy capital over a 10 to 30-year horizon prioritise absolute policy consistency and predictable regulatory environments over short-term tax incentives.

​Charting the path forward, Dr. Coomaraswamy outlined the immediate hurdles that must be cleared before financial liberalisation can begin in earnest. 

“The ongoing debt restructuring processes must be completed transparently to restore Sri Lanka’s sovereign credit ratings and fully reopen access to international financial markets,” he said. 

Once this critical milestone is achieved, he advised that the focus must quickly pivot to regulatory easing. 

“Once we finalise the external debt restructuring, the policymakers must prioritise a carefully calibrated, sequenced easing of restrictions on capital flows,” he noted. 

He concluded that this next phase of economic recovery must involve this measured liberalisation of the capital account, combined with deep structural reforms, to successfully position Sri Lanka as a highly competitive destination for both regional and global capital. 

(NF)