Sri Lanka’s investment climate remains challenging despite the country’s economic recovery and five percent economic growth recorded last year, according to the latest 2026 Investment Climate Statement issued by the US Department of State.
The report says the electoral victories of President Anura Kumara Dissanayake and the National People’s Power (NPP) parliamentary coalition in late 2024 provided greater political stability. It also says the NPP government’s commitment to Sri Lanka’s US$3 billion, four-year Extended Fund Facility programme with the International Monetary Fund has reassured investors. However, concerns remain over what the report describes as mixed messages from the government regarding the openness of the economy and the role of the state in commercial activity.
According to the report, Sri Lanka attracted US$1.06 billion in foreign direct investment (FDI) in 2025, equivalent to about one percent of GDP and below the three to four percent commonly seen in emerging economies. Manufacturing, port development, tourism, information technology and business process outsourcing, and real estate were among the sectors that attracted the most foreign investment.
The report says investment experts have identified policy stability, regulatory reform, skilled labour, access to industrial land, efficient logistics and streamlined trade procedures as areas requiring greater attention if Sri Lanka is to meet its FDI targets. It also highlights the importance of preferential export markets and free trade agreements, which can improve export competitiveness and reduce the cost of imported raw materials and intermediate goods.
Regulatory unpredictability, bureaucratic hurdles and concerns over transparency continue to restrict broader investor participation, according to the report. Investors reportedly remain concerned about project reversals, regulatory changes, slow decision-making and inadequate support for established businesses.
The US State Department says the Board of Investment (BOI), Sri Lanka’s principal investment promotion agency, has struggled to function as a genuine “one-stop shop” because authority remains divided among several government departments. This has contributed to lengthy approval procedures that can discourage potential investors. The BOI launched its Ready to Invest digital platform in May 2026 to promote sector-specific investment opportunities, but investors continue to cite unnecessary regulations, legal uncertainty and slow bureaucratic responses as major obstacles.
The report also points to inefficiencies in state-owned energy enterprises, particularly the Ceylon Electricity Board, saying these can hinder the development of cost-effective energy supplies needed for industrial operations. Investors have also reported high transaction costs, unpredictable policies and concerns over the transparency of procurement procedures.
The State Department cited several major investment projects as examples of the challenges facing foreign investors. It said President Dissanayake committed in January 2025 to finalising a US$3.7 billion Sinopec oil refinery project, described as the largest proposed FDI project in Sri Lanka’s history. However, the project remained pending as of June 2026 due to disagreements between the government and Sinopec, according to the report.
The report also referred to Indian company Adani Green Energy’s withdrawal in February 2025 from a proposed US$400 million, 484-megawatt wind power project in northern Sri Lanka. It said the company withdrew amid government efforts to renegotiate a previously awarded contract.
The report further said the government ended negotiations with China Harbour Engineering Company in December 2025 over a proposed floating liquefied natural gas terminal shortly before the contract was due to be signed. It also noted that the NPP government had halted plans to privatise several state-owned enterprises and instead opted for turnaround and restructuring measures.
Despite these concerns, US companies continue to explore investment opportunities in Sri Lanka, particularly in information and communications technology, energy, aviation and defence, the report said.
The US State Department noted that Sri Lanka permits 100 percent foreign ownership across most economic sectors and provides constitutional protections for investments, including the repatriation of earnings, fees and capital. However, it said investors continue to face challenges related to regulatory uncertainty, bureaucratic processes and the consistency of government policy.
The report said the IMF and local business chambers have stressed the need for comprehensive structural reforms, including improved trade facilitation, digitisation and stronger governance mechanisms, to strengthen Sri Lanka’s investment environment.
