SRI LANKA Trends and Developments Contributed by: Ayanthi Abeyawickrama, Varners
enue compared to the prior year. However, the country continues to face headwinds in external trade. In early 2025, Sri Lanka was hit with a 44% tariff under the US “Trump Tariff” policy, which was subsequently reduced to 10% and temporarily suspended until July 9th. Legal and Regulatory Modernisation The government is preparing a Public-Private Partnership (PPP) Bill to support structured, accountable and competitive procurement for infrastructure and service delivery. To support access to credit, particularly for SMEs, the gov - ernment has enacted the Secured Transactions Act, which will establish a clear legal regime for movable asset-based lending. Simultaneously, a new Microfinance Bill is being developed to regulate lenders and ensure responsible lending. Sri Lanka’s insolvency framework is currently fragmented and outdated. The proposed Res - cue, Rehabilitation and Insolvency Bill is expect - ed to consolidate and modernise the regime. Emphasis is placed on enabling viable business - es to restructure rather than liquidate, aligning Sri Lanka with international best practices. In addition, the government is in the process of formulating several key legislative instruments aimed at strengthening public financial man - agement. The Public Debt Management Act and the Public Financial Management Act have now been enacted, marking a significant step forward in Sri Lanka’s fiscal governance. These laws establish comprehensive frameworks for prudent debt management and disciplined pub - lic 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 per - formance and governance of state-owned enter - prises (SOEs). Once enacted, they are expected to enhance fiscal discipline, improve account - ability, and support more efficient allocation of public resources. Green Finance and ESG Integration The Colombo Stock Exchange (CSE) is actively promoting sustainability through ESG-aligned instruments such as green bonds and sustain - able finance products. These efforts aim to posi - tion Sri Lanka as a responsible and attractive destination for impact investors. 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 inves - tor 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 Commission, 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 gov - ernment is preparing comprehensive cybersecu - rity legislation, which will complement the exist -
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