Sri Lanka to roll out new investment law to woo FDI, investors

Getting into a resilient mode after navigating severe economic turbulence, Sri Lanka is doubling down on its efforts to attract foreign direct investment and investors by rolling out a landmark investment law designed “to eliminate the existing complexities.”

The island nation’s State Minister of Investment Promotion Dilum Amunugama said the country of 24 million people is “back on track” after recovering from an economic crisis of unprecedented scale as it continues to make remarkable headway in restructuring its foreign debts as well as the revamping of several public institutions.

Speaking to Khaleej Times during his recent visit to the UAE, the minister said the country has “successfully walked through the initial phase” of the crucial debt restructuring talks with the International Monetary Fund, and is in the process of restructuring public sector institutions including the Department of Petroleum and the Electricity Board and even “scrapping” some other loss-making entities.

“We did manage to address the Covid-19 pandemic quite well albeit its economic impact could not be ably addressed,” said Amunugama. As a result, the country’s borrowing capability was considerably reduced, leading to spiraling inflation. But post-Covid, Sri Lanka has been quite fast in containing the inflation. “It has come down from 67 per cent to four per cent. We have also started to pay back our loan, and are currently holding the second phase of debt restructuring talks with the IMF,” said the minister.

During the worst economic crisis the country has ever faced, the members of Parliament elected Ranil Wickremesinghe as the president directly for the first time in Sri Lanka’s history. “I would like to say that we selected the best pilot to fly us out of the storm,” said Amunugama.

The new investment law, the minister said, will ensure the rights of foreign investors to make Sri Lanka an investment-friendly destination. To be unveiled by the first quarter of 2024, the game-changing law will feature several incentives for foreign investors. Also on the cards is an initiative to give free land ownership rights to foreign investors, he said.

Part of the new measures is the setting up of an Investor Facilitation Centre to provide comprehensive facilities, including addressing investor issues. It will operate in close coordination with various government agencies. The centre would serve as a platform for investors to swiftly address their current challenges. Specific investment zones with the potential to attract investments to Sri Lanka have also been identified, according to the minister.

The FDI target set by the country’s Board of Investments (BOI) for 2023 is $1.5 billion and it had already realized in Q1 of 2023 $ 211 million.

Going forward, Sri Lanka expects to accelerate the recovery process of its $89 billion economy (2021) by focusing primarily on its agriculture sector, followed by tourism and investment sectors, said the minister.

On debt restructuring discussions with the IMF, the minister said he is optimistic of resolving all pending issues although “we cannot meet all their (IMF) conditions in the current situation.”

The debt restructuring is crucial for Sri Lanka to reach a 2.3 per cent primary budget surplus by 2025, the key fiscal target set by the IMF. According to data from the finance ministry, Sri Lanka’s external debt was $36.09 billion at the end of March this year. Once the debt restructuring is completed, Sri Lanka hopes to reduce its overall debt by $16.9 billion.

The country owed about $10 billion to multilateral banks like the World Bank and the Asian Development Bank and $11.33 billion to bilateral creditors, including the Paris Club nations and China, Japan, and India. Commercial loans, comprising of sovereign bonds and other time-bound loans, accounted for $14.75 billion.

Among bilateral creditors, Sri Lanka owed China $4.7 billion with debt to India standing at $1.74 billion. Japan, a part of the Paris Club group, was owed $2.68 billion. Sri Lanka has debt outstanding of $5.65 billion to the ADB and owed $3.88 billion to the World Bank.

An IMF mission team, which last month concluded a visit to the country praised Sri Lanka’s recovery efforts and said the people have shown “remarkable resilience” in the face of enormous challenges. “Sri Lanka has made commendable progress in implementing difficult but much-needed reforms. These efforts are bearing fruit as the economy is showing tentative signs of stabilisation. Gross international reserves increased by $1.5 billion during March-June this year, and shortages of essentials have eased,” said the IMF mission.

Source: Khaleej Times
--Agencies