According to the Government, Sri Lanka received US dollars ($) 650 million in Foreign Direct Investment (FDI) during the first quarter of this year. Minister of Industry and Entrepreneurship Development Sunil Handunnetti delivered the good news in Parliament yesterday with much gusto. The statement is a feather in the cap of the NPP Government and the progress it indicates is commendable. 

The minister stated that this investment supports 64 projects and that these figures are a significant increase compared to previous years. “In this quarter alone, $ 650 million in Foreign Direct Investment has come in. In 2023, only $ 483 million was received for the entire year. In 2024, only $ 724 million was received. But that’s for only 93 projects in the whole year. According to the BOI Chairman, we have already received 64 projects in this quarter alone, with an investment of $ 650 million.”

While the Government does deserve a pat in the back for announcing the FDI figures. The situation in Sri Lanka remains largely unchanged. The NPP inherited an economy which was already undergoing the IMF bailout plan and was stabilising. It is widely acknowledged that Sri Lanka has achieved stabilisation of its economy. However, this is not the time for a victory lap and to rock the boat with significant change in direction. Sri Lanka must continue the planned reforms process and quickly move to achieve economic growth. If this vital second phase of the recovery is not implemented effectively and managed, Sri Lanka risks sliding backwards into crisis, and may have no choice but to return to the IMF once again and seek another programme, where austerity measures will likely be tougher than what the island endured over the last three years. 

The need to push Sri Lanka towards achieving economic growth is not only about balance sheets and government savings. We should not forget that during the 2019-2024 period, poverty in Sri Lanka rose from nearly 14% to above 25%. Unemployment remains high and cost of living has not changed in a significant way which is felt by the public. Households are grappling with multiple pressures from high prices, income losses, and unemployment. This has led to households taking on debt to meet food requirements and maintain spending on health and education, the World Bank has observed. “Sri Lanka’s economy is on the road to recovery, but sustained efforts to mitigate the impact of the economic crisis on the poor and vulnerable are critical, alongside a continuation of the path of robust and credible structural reforms,” emphasised World Bank Country Director for Maldives, Nepal and Sri Lanka Faris Hadad-Zervos. “This involves a two-pronged strategy; first, to maintain reforms that contribute to macroeconomic stability and second, to accelerate reforms to stimulate private investment and capital inflows, which are crucial for economic growth and poverty reduction,” he added.

Also on the horizon is that Sri Lanka will commence debt repayment in 2028, which is now less than two and a half years aways. The repayment programme will also impact Sri Lanka’s economy significantly and it will also impact state expenditure. As such gaining economic growth now is vital to keep Sri Lanka on track to recovery. Concern is growing that the transition from stabilisation to growth is taking a long time and that the reforms agenda, which is an enabler and is visibly losing steam. The former Wickremesinghe-SLPP Government grudgingly developed a strong reforms programme which was aimed at fixing State enterprises, improving revenue raising and streamlining red tape. However, the Government has yet to push through with the reform’s agenda which the previous Government commenced, and seem to be dragging its feet. Further still, reversal of reforms by the Government is a major concern. With financial sector vulnerabilities still remaining, Sri Lanka cannot afford to experiment with reforms. This is a bitter pill to swallow, both for the public, the JVP-led NPP Government and the State as a whole. Nevertheless, it is a bitter medicine which we must take to improve our economic health and improve governance which we need to get done soon, so that we walk into 2028 better prepared for the next phase of debt repayment.