Sri Lanka Information

FOREIGN POLICY 

2025 Vision


Vision 2025 is a high level strategy document which was published by the Government of Sri Lanka (GoSL) which sets out its’ economic vision of making Sri Lanka a prosperous and developed country by year 2025. Please click here for the full document .

This is a summary which follows the flow of the document itself focusing on points which will be of interest to those looking at Sri Lanka as a potential investment destination as well as those who see trade opportunity here:

  • The economic vision of the GoSL is outward looking, with development initiatives focused on transforming Sri Lanka into hub of the Indian Ocean region with an export oriented market. With its domestic market capped at 20 million, it is imperative that Sri Lanka needs to look beyond its’ borders for sustained growth.

           The GoSL has made a pledge to crack down on corruption and encourage transparency and fair competition to give its entire                          population an equal attempt at prosperity.

  • The report goes on to identify constraints to economic growth, notable among which is that the export growth of Sri Lanka has been weak especially due to protectionism as well the fact that the export strategy upto date has focused on low technology products and services which add limited value. The regulatory barriers which constrain both foreign and local investment, the rigid border taxation which hinders foreign trade and the lack of access to finance for industry have been identified as key issues which have to be rectified.
  • The 3 year economic delivery program has some specific targets which the strategies of the GoSL hopes to achieve to make Sri Lanka and upper middle class economy:

a. Raise per capita income to USD 5000 pA.

b. Create a million new jobs.

c. Increase FDI to 5 Bn USD pA.

d. Double exports to 20 Bn USD pA.

  • The new approach to growth proposed by the GoSL is underpinned by the focus on making Sri Lanka a “social market economy” model. The GoSL has promised to partner with the Private Sector to make the economy more competitive in the global arena. A strong middle class has been identified as imperative for this matter and there is substantial legal reforms which are identified, notable among which for a business are – Inland Revenue Act, Foreign Exchange Act, Ports and Airports Act, Lands Act and the Sustainable Development Act.
  • The Macroeconomic Framework of Sri Lanka is to be strengthened, focusing on three main areas fiscal consolidation, price stability and a market based exchange rate:

a.  Fiscal consolidation for sustainable growth – increasing the portion of government revenue from taxation as opposed to external borrowing is a key focus, as taxation revenues have been in decline. Also, the debt to GDP ratio is to be brought down to 70% by 2020. A detailed Public Investment Programme (PIP) has been published, which can be consulted by Investors and other interested parties.

b.  Tightening fiscal excesses to create a stable monetary policy and avoid frequent short duration “boom & bust” cycles – stabilizing food prices, allowing a market determined exchange rate as opposed to expensive currency defense techniques so that real prices are reflected across the economy are some of the policies mentioned in the document.

c.  Empowering growth through the private sector – private investment has been identified as the key growth driver, complimented by domestic and foreign investment into the same. Stable, predictable and consistent prices of goods within the country and a market determined exchange rate are also identified as important for growth.

  • The Private sector has been identified for growth focused investment. The GoSL aims to incentivize domestic and foreign investment, revamp trade policy and develop an export led economy and facilitate service driven expansion.

a.   As Private Investment has been identified as the key driver of growth, the GoSL aims to move the country up the ‘ease of doing business’ index to within the top 70 from its current place of 110. Investment incentives will be clarified and reformed to improve investment policy predictability. Public Private Partnerships (PPP’s) are to be supported and a clear guideline on the same will be created and published.

b.  The investment incentive policies have to be revised and clarified. The GoSL is considering alternatives to the traditional form of investment incentives such are tax holidays and are in the process of developing a new framework where incentives will be directly linked to physical investments in the form of capital allowances with special incentives for industries in high technology and innovative sectors.

c.   New infrastructure frameworks to integrate SME’s into the formal sector via the financial system so that more progressive and inclusive methods of finance are practiced, for example – project based lending as opposed to collateral based lending.

d.  Sri Lanka to date has a very basic export framework, where export markets are undiversified and para tariffs have contributed to a complex and protectionist regime. This is to be revised with a new trade policy and the original National Export Strategy. This is aimed at gaining more export oriented FDI and boost the ability of firms to compete in the global markets. Para tariffs will be adjusted to boost competitiveness but will be announced with sufficient time for industry to make adjustments.

e.   FTA’s (both existing and new ) will be utilized widely and the agreements with China, India and Singapore will be finalized while other similar opportunities are explored. (Note - The FTA with Singapore was finalized and signed on 23 January 2018 for further information, Please click here 

f.    The GoSL is focused on encouraging the diversification of exports into services.

g.    Sri Lanka is to be positioned as a global logistics hub, and with expansion of port infrastructure and a new Customs Act, the logistics processes within Sri Lanka will be made efficient by digitalization.

h.   Tourism has not achieved its full potential in Sri Lanka, and the GoSL plans to develop tourism according to the new tourism strategic plan aiming to establish Sri Lanka as a high value destination while creating a conducive institutional framework for SME’s in this industry to flourish.

i.   The GoSL will work with the private sector to develop tourist attractions around the country – which will be a great opportunity for investors.

  • Land, Labour and Capital Market reforms are recognized as imperative to facilitate growth.

a. Land law is underdeveloped in Sri Lanka and the process is inefficient, leading to many discrepancies and underdevelopment. A dynamic land market is to be developed, and as the GoSL is the largest landowner in Sri Lanka this is a substantial move. It is also pledged that land policies are aligned with the broader development agenda, and that scientific land management practices are brought into place.

b.   Labour markets are identified as having a significant potential for revamp – a number of factors combine to create a bleak outlook for the Sri Lankan labor market. The rapidly ageing population in Sri Lanka limiting the number of active labor force participants, outward migration of skilled labor mesh together with inflexible and archaic laws in the organized sector to create a deadlock. The GoSL plans to facilitate higher female participation in the labor force, for private sector to facilitate training for large swatches of youth, balance migration of skilled labor and invite Sri Lankans around the globe to actively contribute to the growth of the country.

c.  Shallow and inefficient capital markets are another aspect of the GoSL’s development plan – it is planned to encourage market based reforms, improve the capital market regulatory environment and develop centers such as the Colombo International Financial Center within the Colombo Port City Development.

  • The GoSL recognizes that social factors such as education and skill development plays an integral role in the development of a social market economy. Thus, the GoSL is focusing on inclusive growth from major infrastructure development, technological optimization and digitalization. This initiative will run key themes such as :

a.   Making 13 years of education available to all

b.   Increasing access to tertiary education – with a PPP model for non-state universities.

c.   Vocational training with private sector support.

d.   Strengthening the entrepreneurial capacities of youth.

e.   Skills development programs with sectors likely to create employment opportunities.

f.   Improving healthcare services for all Sri Lankans focusing on Non Communicable Diseases, Chronic Kidney Diseases –indicating that there is significant potential for investment in the healthcare space in Sri Lanka with the additional option of partnering with the GoSL.

g.   Physical infrastructure services, such as expressways, roads and bridges are planned to see a sustained growth with the GoSL planning to invest significantly in logistics. There will be economic corridors that will be established, connecting the entire island. Also, the GoSL is encouraging the growth of Vertical Housing projects and is planning to overhaul the public transport system. These should be of significant interest to businesses in the construction and logistics spaces, as both PPP’s and Build-Own-Transfer (BOT) models are in consideration for these projects for a number of sectors.

                (a visual depiction of proposed major projects extracted from the Vision 2025 document)

  • Improving technology and digitalization which has lagged behind significantly compared to peer countries. This is a significant opportunity for businesses in high technology industries to come into Sri Lanka as the GoSL is compiling a plan of action to encourage transfer of appropriate technology into Sri Lanka. Also, it is proposed to promote the private sector investment in digital technology, ICT and digitalization related technologies.
  •  Also, social safety nets to protect the most vulnerable populations in Sri Lanka is also a focal point of the document.
  • Agriculture and sustainable development are also key foci which can be significant interest to investors, as the document has identified that the present agri sector is inefficient and thus is prone to food insecurity. Here too, there are PPP’s promoted and the GoSL is pushing for a proposed Agriculture Sector Modernization Project and a plantation sector modernization project. Another notable point for a businessperson is that the report mentions that the new Inland Revenue Act provides for significantly enhanced capital allowances for investments in the Northern Province, to provide incentives for development in those districts.
  • The governance and institutional mechanism is also identified for development. With the GoSL committing to strengthen the policies of good governance, strengthen the ongoing reconciliation efforts to ensure the rights of all citizens and to uphold and strengthen the citizen’s right to information.
  • The strengthening of Coordination, Monitoring and Implementation are also focused upon in the document, with the GoSL pledging to implement a consistent and predictable economic policy framework as well as a framework for monitoring and evaluation of the country’s development strategies. 

          Source: Ministry of Foreign Affairs of Sri Lanka