Government pushes FDI despite global, local challenges
Emerging from one of the worst economic crises in its history, Sri Lanka is fast-tracking the push to attract foreign direct investment (FDI), fuelled by far-reaching reforms under the newly passed Economic Transformation Act (ETA).
The ETA, today’s most important investment law in the country, seeks to overhaul obsolete systems, streamline approval processes, and provide a more investor-friendly environment.
The law’s key provisions are the replacement of current investment regulations, setting up new institutional frameworks, and enhanced transparency and efficiency in approvals.
According to a senior Finance Ministry official, one of the Act’s primary goals is to slash the average time required to green-light investments — from a staggering 269 days to just 82. A significant focus is also being placed on Public-Private Partnerships (PPPs), with the government planning to introduce a separate Investment Management Act.
This would offer incentives like the Accelerated Depreciation Allowance (ADA) to attract private sector interest in public infrastructure projects.
President Anura Kumara Dissanayake, while addressing the international conference “Sri Lanka’s Road to Recovery: Debt and Governance” here this week, revealed that talks are underway with the International Monetary Fund (IMF) to offer extra incentives to overseas investors.
But even with all these protective measures, there are still problems. Eminent Prof. Wijitapure Wimalaratana Thera, Chairman of Sri Lanka Economic Association, cautioned that geopolitical instability — the war between Iran and Israel — has a tendency to drive investors into safer assets like gold or US Treasury bonds and divert capital away from emerging economies like Sri Lanka.
As far as actual inflows are concerned, the government figures have come under scrutiny. Industry and Entrepreneurship Development Minister Sunil Handunnetti stated that Sri Lanka received $650 million of FDI in the first quarter of 2025.
But according to Board of Investment (BOI) of Sri Lanka, the first quarter of 2025 realised FDI amounted to $203 million, marking a significant 90 per cent increase compared to $107 million recorded in the first quarter of 2024.
As per finance experts, the difference in FDI data of the finance ministry, BOI and other relevant state agencies such as the ministry of industries most probably arises from using different methodologies: one could be total committed investments — approved projects that have not been disbursed yet — while the other is realised inflows, i.e., actual cash that has flowed into the economy.
Such numbers need to be clarified, economists say, for transparency and investor confidence. With Sri Lanka seeking $2 billion in FDI this year and looking to receive $4 billion from the tourism industry, consistency in the presentation of official numbers will be key to figuring out the reliable economic turnarounds.
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