The World Bank has issued a stark warning to Sri Lanka, highlighting a significant shortfall in foreign direct investment (FDI) inflows, which are crucial for the nation’s economic objectives. The institution emphasizes the urgent need for a series of rapid structural reforms to achieve its economic goals.
Massive FDI Gap
According to World Bank representatives, while FDI should ideally constitute 1.5% of Sri Lanka’s Gross Domestic Product (GDP), the country currently attracts a mere 0.5%. This figure is deemed woefully inadequate for the nation’s development aspirations.
This decline is particularly concerning given that regional peers like Vietnam and Malaysia are attracting significantly higher FDI, with inflows reaching 3% of their respective GDPs. Sri Lanka’s FDI has further deteriorated from its previous level of 1%.
Speaking at a media briefing today to update the country’s situation, Richard Walker, the World Bank’s Country Manager for Maldives and Sri Lanka, stated that Sri Lanka would need to implement “numerous significant changes” to achieve the government’s target of attracting US$36 billion in FDI by 2030.
Major Barriers Deterring Investors
Mr. Walker specifically drew attention to two key structural barriers that are discouraging investors:
1. Difficulty in Accessing Land:
- Foreign investors are deterred by the fact that 80% of the country’s land is state-owned and remains under bureaucratic and ministerial control.
- This situation has particularly negative impacts on investments in the agricultural sector.
2. Outdated Labor Laws:
- Labor laws, more than six decades old, restrict business flexibility, posing another significant challenge.
- Mr. Walker also pointed out that these laws limit employment opportunities for women in certain sectors, thereby hindering economic growth.
Mr. Walker sternly warned that if these structural issues are not addressed promptly, Sri Lanka will be unable to compete globally for foreign investment.
Therefore, the World Bank underscores that improving land governance, modernizing labor regulations, and creating a more investor-friendly business environment are absolutely critical steps to boost FDI inflows and achieve economic targets.
