President Gotabaya Rajapaksa’s administration has widely promoted pro-business positions, including announcing tax breaks for new investments to attract foreign direct investment (FDI), the 2021 investment climate statement said. US State Department.
As indicated in its electoral manifesto, the economic objectives of the Rajapaksa government include positioning Sri Lanka as an export-oriented economic pole in the center of the Indian Ocean, improving trade logistics, attracting FDI oriented towards export and strengthen the ability of enterprises to compete in global markets. However, COVID-19 and the lockdowns that followed brought new economic challenges, forcing the government to adapt its policies to the situation on the ground.
Here are excerpts from that statement: âAfter 30 years of civil war, Sri Lanka is transitioning from a predominantly rural economy to a more urbanized economy focused on manufacturing and services. Sri Lanka’s export economy is dominated by exports of clothing and cash crops, mainly tea, but exports of technological services are an important growth sector. Prior to the Easter Sunday attacks of April 21, 2019, the tourism industry was booming, with Lonely Planet naming Sri Lanka its number one travel destination in 2019. However, the attacks resulted in a significant drop in tourism which grew. is continued in 2020 due to COVID. -19 and the related government decision to close its main international airport for commercial passenger arrivals in March 2020. The airport reopened for a limited number of commercial passengers in January 2021, but the newly reimposed travel restrictions cause serious contractions for the tourism and clothing export sectors. with potential repercussions in related sectors including services, construction and agriculture. Tourism revenues fell 73% year-on-year (YoY) in 2020 while clothing exports fell 15.6% during the same period. However, official migrant worker remittances figures, another major source of foreign exchange, jumped to $ 7.1 billion in 2020 due to the collapse of informal money transfer systems during the pandemic, despite job losses for Sri Lankan migrant workers, especially in the Middle East. .
âIn April 2020, the Ministry of Finance restricted imports of luxury and semi-luxury consumer products such as durable consumer goods, motor vehicles and the import of certain agricultural products in order to save reserves of change and create jobs in labor-intensive agriculture. With a debt-to-GDP ratio now above 100% (including 60% external debt), Sri Lanka faces a potential liquidity crisis, exacerbated by the decline in export earnings due to the pandemic. Exports of goods fell 15.6% to $ 10 billion in 2020, from $ 12 billion in 2019. Exports of services fell about 60% to $ 3 billion in 2020, from 7.5 billion dollars in 2019.
âIn recent years, FDI in Sri Lanka has largely been concentrated in tourism, real estate, mixed development projects, ports and telecommunications. With a growing middle class, investors are also seeing opportunities in franchising, IT services, and light manufacturing for the domestic market. The Board of Investment (BOI) is the primary government authority responsible for investment, particularly foreign investment, aimed at providing âone-stop-shopâ services to foreign investors. The BOI is committed to facilitating FDI and can offer incentives for projects, organize public services, help obtain resident visas for expatriate staff, and facilitate import and export customs clearances. However, Sri Lanka’s import regime is one of the most complex and protectionist in the world. Sri Lanka ranks 99th out of 190 countries on the World Bank’s Doing Business Index and ranks very poorly in several areas, including contract enforcement (164 out of 190); pay taxes (142/190); registration of property (138/190); and obtaining credit (132/190). Sri Lanka ranks well in minority investor protection, with 28/190 in 2020.
Sri Lanka’s GDP contracted 3.6% to around $ 81 billion in 2020 due to COVID-19, an improvement over International Monetary Fund (IMF) projections for a 4.6% contraction . FDI fell to around $ 550 million in 2020, significantly less than $ 1.2 billion in 2019 and $ 2.3 billion in 2018. The IMF projects growth of 4% in 2021.