Growth needs reform, not rhetoric

Sri Lanka, having endured a severe financial crisis that culminated in sovereign default in 2022, is now at a critical juncture. The country is under the care of the International Monetary Fund (IMF), which offers some breathing space. But this is by no means a permanent cure. The real challenge lies in whether Sri Lanka can generate sustainable growth and become a prosperous country. 

The reason for the current stalemate is not purely external. The government’s own policy orientation is also to blame. The latest U.S. Investment Climate Report on Sri Lanka lays bare the bitter truth. The country continues to struggle with the very bottlenecks that have deterred foreign investment for decades. High tariffs and non-tariff barriers, customs inefficiency, unpredictable taxation, rigid labour laws, and an over-politicised bureaucracy all feature prominently in the report. These are not minor irritants; they are systemic weaknesses that leave Sri Lanka trailing behind its regional competitors in attracting investment. 

The report further notes that the government’s prevailing left-leaning ideological approach stands in the way of meaningful policy reforms. The National People’s Power (NPP) administration, guided by a socialist mindset, continues to place faith in state dominance, welfare-heavy populism, and a deep-seated suspicion of markets. In doing so, it risks pushing Sri Lanka into stagnation at the very moment when reforms are most urgent. 

The hallmarks of this approach are evident in several key areas. Most telling is the government’s reluctance to restructure state-owned enterprises (SOEs) in any meaningful way. The IMF has repeatedly flagged SOE reform as critical, yet the political leadership hesitates to move beyond superficial measures. Strategic enterprises such as the Ceylon Petroleum Corporation, SriLankan Airlines, and the Ceylon Electricity Board continue to be insulated from genuine competition. 

The government believes in left-leaning populism. It does earn some credit for addressing corruption involving politicians. However, much more remains to be done. Current bottlenecks continue to choke foreign direct investment (FDI), which in turn constrains job creation and blunts growth. Sri Lanka, as a country, has unique advantages. It offers an educated labour force, a strategic location, and untapped potential. Yet these advantages are undermined by bureaucracy, policy inconsistency, and political risk. For the private sector, the key question remains simple: why risk capital in Sri Lanka when alternatives in Asia offer smoother processes, greater predictability, and higher returns? 

Delays in finalising the much-publicised Sinopec refinery investment, the limbo surrounding India’s Adani energy projects, and the sluggish pace of approvals for smaller ventures all testify to a climate of uncertainty. Foreign investors do not expect perfection. But they do expect credibility. 

It is not our intention here to question the cost quoted by the Adani Company. The issue is far more fundamental: if a Cabinet decision taken by one government is undone by another, it amounts to a serious indictment of the country’s policy consistency. Such reversals erode investor confidence. This has happened under past governments, and unfortunately, the current administration does not appear to have learnt from those mistakes. The government also tends to draw inspiration from the communist model of governance in countries like Vietnam and China, attempting to replicate such structures here by placing the party above the government. 

But the communist model in Vietnam and China applies only to their political structures. Economically, these countries have married state oversight with market openness. Vietnam’s Communist Party remains firmly in charge politically, but its economic policies have been guided by reforms that have delivered sustained growth and rising living standards. 

Beijing, for example, has pursued an economic model that aggressively courts investment, liberalises targeted sectors, and invests heavily in competitiveness. By contrast, Sri Lanka borrows the political control aspect of these models but fails to adopt the reform pragmatism that made them successful. 

Sri Lanka simply cannot afford to cling to ideological dogmas. Workers will not be protected by rigid labour laws that scare away investment. National control over SOEs will not generate prosperity if those enterprises remain inefficient and loss-making. 

What the country needs is a pragmatic shift. Tariffs must be rationalised to encourage trade. Labour laws must be modernised to allow flexibility without stripping workers of core protections. SOEs must be restructured with private partnerships and professional management. Tax policy must be predictable, transparent, and geared toward broadening the base rather than overburdening the few who already comply. 

Most importantly, the government should shed its suspicion of markets and private enterprise. Growth does not emerge from political slogans; it is driven by innovation, investment, and productivity.