Friday Oct 02, 2026
Friday Oct 02, 2026
Friday, 2 October 2026 00:22 - - {{hitsCtrl.values.hits}}
President Anura Kumara Dissanayake
The US State Department has toned down its assessment of the ruling National People’s Power (NPP), but not of Sri Lanka’s investment climate. A Daily FT comparison of the Department’s 2025 and 2026 Investment Climate Statements shows it has dropped all reference to the NPP leadership’s ideology. Its verdict that the climate remains challenging, and much of the criticism behind it, is repeated word for word.
Last year’s statement said many investors remained wary given the NPP leadership’s ‘historically anti-Western, Marxist-influenced ideology.’ The 2026 statement instead attributes investor caution to the leadership’s ‘mixed messages on the openness of the country’s market.’
Its description of senior officials has also been tempered. “Some senior Government officials regularly castigate private sector-led economic growth and publicly promote State-owned collectivism as the country’s preferred investment model,” the 2025 statement said.
This year’s version reads: “While the Government has sought to attract foreign investment, certain senior officials have publicly advocated a larger role for State-owned enterprises (SOEs) and State participation in economic activity.”
The State Department’s overall verdict, however, is unchanged. Both statements describe the investment climate as remaining challenging. Its criticism of regulatory unpredictability, bureaucratic hurdles, and selective transparency is repeated word for word, as is its observation that the Government’s institutional capacity to encourage an open investment environment remains limited despite positive rhetoric.
Notably, the 2026 statement makes no reference to US tariffs on Sri Lankan exports, even though the US is Sri Lanka’s largest single-country export market and trade policy features prominently elsewhere in the assessment, including Sri Lanka’s own import duties, para-tariffs, and free trade agreements (FTAs).
Large parts of the 2026 statement are carried over from last year verbatim or with only minor edits. They include the passages on the Board of Investment’s (BOI) failure to function as a ‘one-stop shop’ and investors’ difficulty in maintaining a consistent dialogue with it. Also repeated are the complaints of high transaction costs, unpredictable policies, and opaque procurement, and the absence of a legally mandated consultation process for new laws. The same goes for the trade facilitation impediments, including reliance on para-tariffs and manual processes at Sri Lanka Customs, the Sri Lanka Ports Authority (SLPA), and the BOI, and for weak contract enforcement and the lack of a corporate reorganisation alternative to liquidation.
The repetition extends to the problems of the 527 SOEs under Government control, and to tender practices such as accepting unsolicited project proposals and tailoring specifications to favour specific companies. The section on vague conflict-of-interest provisions is also repeated.
The Political and Security Environment section is reproduced in full, still citing a 2023 World Food Programme (WFP) assessment that nearly two-thirds of Sri Lankans borrow or deplete savings to meet basic nutritional needs. In the Labour section, trade union membership, collective bargaining figures, and the estimate of 6,000 skilled Sri Lankans working in Bangladesh’s garment industry are all unchanged.
The softer tone does not extend to corruption. In 2025, the State Department said high-level political bribery solicitation appeared to have diminished under the new administration. That observation is absent from the 2026 statement, which says corruption risks remain in certain sectors and concerns persist over the influence of politically connected interests.
The institutional overhaul flagged last year has also disappeared from the assessment. The 2025 statement described the Economic Transformation Act, passed in July 2024, which set parameters to abolish the BOI in favour of five new agencies. It noted that implementation had stalled after the NPP’s election victory. The 2026 statement does not mention the Act, citing instead the launch of the BOI’s Ready to Invest digital platform in May 2026.
The Government has retained the Strategic Development Projects (SDP) Act, which the 2025 statement said it had announced plans to repeal. The Act allows special incentives, including tax concessions, for large-scale projects. It was instead amended in December 2025 to introduce stricter project evaluation, enhanced monitoring, and shorter tax holidays.
Last year’s statement had contrasted the February 2025 Budget’s removal of tax exemptions for service exporters with the extensive exemptions enjoyed by Colombo Port City projects. A January 2026 amendment to the Port City framework now limits tax holidays, harmonises employee taxation, and tightens regulatory oversight.
On labour, the 2025 statement said the Government had shelved a proposed investor-friendly reform of labour law. The Government now intends to align labour law with international standards, though contacts lament the slow pace of reform and lack of transparency, the 2026 statement said. The national minimum wage was raised in July 2025 to Rs. 30,000 a month and Rs. 1,200 a day, from Rs. 17,500 and Rs. 700 set in March 2024.
Foreign portfolio investors retreated during the year. The Colombo Stock Exchange’s All Share Price Index rose 42% in 2025 and the S&P SL20 Index 27%, yet foreigners were net sellers of $ 128 million. In 2024, they had been net buyers of $ 66.5 million, according to the previous statement.
The composition of foreign direct investment (FDI) also shifted. Renewable energy, among the top five sectors in 2024, is absent from the 2025 list, where port development appears alongside manufacturing, tourism, information technology and business process outsourcing, and real estate. In February 2025, Adani Green Energy withdrew from a $ 400 million, 484 MW wind power project in the North, citing Government efforts to renegotiate the previously awarded contract.
FDI reached $ 1.06 billion in 2025, about 1% of GDP, against the 3% to 4% commonly seen in emerging economies. The 2025 statement had cited a Government target of $ 5 billion for the year. This year’s version refers only to ‘the Government’s FDI targets’, without naming a figure.
A replacement for the 2003 Intellectual Property Act, expected in 2024 or 2025 according to last year’s statement, remains at the intention stage. Sri Lanka Customs launched an intellectual property recordation system in November 2024, allowing rights holders to register trademarks, patents, and industrial designs for border enforcement, though it is not yet fully operational, the 2026 statement said. It also notes that Sri Lanka is progressing through formal accession to the Regional Comprehensive Economic Partnership (RCEP).
Major projects remain stalled. In January 2025, President Anura Kumara Dissanayake committed to finalising Sinopec’s $ 3.7 billion oil refinery near Hambantota, which the State Department describes as the largest FDI project in Sri Lankan history. The project remained pending as of June 2026 due to disagreements between the Government and Sinopec. In December 2025, the Government ended negotiations with China Harbour Engineering Company on a floating liquefied natural gas (LNG) terminal days before the contract was due to be signed, the report said.
Gross official reserves rose to $ 6.8 billion at the end of 2025 from about $ 6.1 billion a year earlier. The increase was supported by $ 2 billion in Central Bank of Sri Lanka (CBSL) foreign exchange purchases, down from a net $ 2.8 billion in 2024, and swap transactions. Workers’ remittances reached a record $ 8.1 billion, from an estimated $ 6.6 billion.
The banking sector’s total capital adequacy ratio, which measures banks’ capital buffers against potential losses on their lending, eased to 18% at the end of 2025 from 20% a year earlier, even as profits after tax rose 19% to about $ 1.2 billion.
The statement also notes that the current Government generally avoids providing sovereign guarantees for FDI projects, unlike previous administrations.
The State Department’s Investment Climate Statements cover more than 170 economies and are prepared by economic officers at US embassies.
