SRI LANKA Trends and Developments Contributed by: Ayanthi Abeyawickrama, Varners
and flexibility in the labour market, an objective that the IMF has identified as important to reducing labour- market rigidities. Tourism Recovery and External Trade Pressures Tourism rebounded strongly through 2025, recording a historic high of approximately 2.36 million arrivals – surpassing the previous peak of 2.33 million set in 2018 – and generating tourism earnings of around USD3.2 billion, notwithstanding the disruption caused by Cyclone Ditwah late in the year. The authorities have set an ambitious target of three million arriv - als for 2026. The country nonetheless continues to face headwinds in external trade. Having initially been assigned a 44% reciprocal tariff by the United States in April 2025, Sri Lanka negotiated successive reductions, to 30% and thereafter to 20% by the end of July 2025. Following the United States Supreme Court’s decision in February 2026 striking down the tariffs imposed under the International Emergency Economic Powers Act, the US administration moved to maintain duties under Section 122 of the Trade Act of 1974, leaving Sri Lankan exports subject to a 10% baseline tariff alongside applicable sector-specific and most-favoured-nation duties. The trade environ - ment accordingly remains fluid. Legal and Regulatory Modernisation The government is preparing a Public-Private Partner - ship (PPP) Bill to support structured, accountable and competitive procurement for infrastructure and ser - vice delivery. To support access to credit – particularly for SMEs – the secured transactions regime govern - ing movable asset-based lending was strengthened through the Secured Transactions (Amendment) Act, No 17 of 2024. The microfinance sector has since been placed on a comprehensive statutory footing: the Microfinance and Credit Regulatory Authority Act, No 9 of 2026 establishes the Sri Lanka Microfinance and Credit Regulatory Authority, brings money-lend - ing and microfinance businesses (including online lending) within a single licensing regime, and repeals the Microfinance Act, No 6 of 2016. Until recently, Sri Lanka’s insolvency framework was fragmented and outdated. This has now been addressed by the Rescue, Rehabilitation and Insol - vency (Corporate and Personal) Act, No 12 of 2026,
which was passed by Parliament in May 2026 and repeals the Insolvency Ordinance (Chapter 97). The Act consolidates and modernises the regime across both corporate and personal insolvency, introducing structured procedures for the rehabilitation of viable but distressed companies, a fresh start for honest individual debtors, and provisions addressing receiv - ership and cross-border insolvency. The emphasis on enabling viable businesses to restructure rather than liquidate aligns Sri Lanka with international best practice and is intended to enhance predictability and confidence in the credit market. In addition, the government has strengthened the legislative architecture underpinning public financial management. The Public Debt Management Act, No 33 of 2024 and the Public Financial Management Act, No 44 of 2024 have been enacted, marking a signifi - cant step forwards in Sri Lanka’s fiscal governance. These laws establish comprehensive frameworks for prudent debt management – including, under the for - mer, the establishment of the Public Debt Manage - ment Office – and for disciplined public expenditure, enhancing transparency and accountability in fiscal operations. In parallel, the government is developing the Public Asset Management Bill and the Public Enterprise Reform Bill, which aim to optimise the use of state- owned assets and improve the performance and gov - ernance of state-owned enterprises (SOEs). These instruments, together with the forthcoming legislation on public–private partnerships and public procure - ment, are expected to be brought forward in a manner consistent with the Public Financial Management Act. Once enacted, they are expected to enhance fiscal discipline, improve accountability, and support more The Colombo Stock Exchange (CSE) is actively pro - moting sustainability through ESG-aligned instru - ments such as green bonds and sustainable finance products. These efforts aim to position Sri Lanka as a responsible and attractive destination for impact investors. efficient allocation of public resources. Green Finance and ESG Integration
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