SRI LANKA Trends and Developments Contributed by: Ayanthi Abeyawickrama, Varners
Investment Climate and Market Access Despite the reforms, challenges remain. Sri Lanka still ranks low in global ease-of-doing-business metrics, particularly in contract enforcement and construction permits. High borrowing costs and lingering exchange rate risk also weigh on investor sentiment. However, the establishment of the Colombo Port City Special Economic Zone offers a unique platform. Under a separate legal and regulatory framework governed by the Colombo Port City Economic Com - mission, this zone offers: • tax incentives for strategic businesses; • streamlined registration and licensing; and • regulatory sandboxing for financial services. Licensed commercial banks have already received approval to operate within this zone, paving the way for a modern offshore service and financial hub. Digitalisation and Starlink Launch In response to increased digitalisation, the govern - ment continues to work towards comprehensive cybersecurity legislation, a long-anticipated measure that has yet to be enacted. Such a framework would complement the existing Personal Data Protection Act and would strengthen safeguards against cybercrime and financial fraud.
In addition, the digital economy has gained momen - tum, reinforced by the launch of Starlink in Sri Lanka, which is expected to expand internet access to under- served regions. The 2026 Budget allocated further resources to digitalisation, including the Sri Lanka Unique Digital Identity project and the continued modernisation of the Inland Revenue Department’s Revenue Administration Management Information System (RAMIS), alongside the wider digitalisation of investment-facing agencies such as the Inland Reve - nue Department and the Registrar of Companies, with the objective of streamlining approvals and enhancing transparency. Conclusion Sri Lanka’s trajectory remains cautiously optimistic. While risks remain – particularly in debt sustainability, global trade policy and exposure to external shocks, as the impact of Cyclone Ditwah and the conflict in the Middle East has underscored – the country has made visible strides in stabilising its economy, enhancing fiscal discipline, and undertaking long-overdue struc - tural reforms. The completion of the combined Fifth and Sixth IMF reviews, record tourism arrivals, strong revenue performance and renewed investor interest all point towards a slowly improving investment climate, even as growth is expected to moderate in 2026. Investors should continue to monitor legal and poli - cy developments (especially in the Port City regime, labour law and tax reform) as the country repositions itself as a competitive and rules-based investment destination in South Asia.
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