The US Department of State says Sri Lanka’s investment climate remains challenging despite its recovery from the 2022 crisis, in a country report that credits the government with political stability and IMF discipline while listing a series of large projects that collapsed or stalled.
The 2026 Investment Climate: Sri Lanka statement was shared with Sri Lankan media by the US Embassy in Colombo, the Daily Mirror reported. The State Department publishes these reports for more than 170 countries.
The headline number
Foreign direct investment in 2025 was US$1.06 billion, about 1% of GDP — against the 3% to 4% the report says is commonly seen in emerging economies. Sri Lanka is therefore attracting roughly a third of the investment, relative to the size of its economy, that comparable countries do.
The sectors drawing the most were manufacturing, port development, tourism, information technology and business process outsourcing, and real estate.
Growth of 5% in 2025 exceeded expectations, the report says, and the sweeping late-2024 election victories of President Anura Kumara Dissanayake and the National People’s Power provided political stability. The government’s commitment to the US$3 billion, four-year (2023–2027) Extended Fund Facility with the IMF reassured investors.
But many remain wary, the report says, given what it calls the NPP leadership’s mixed messages on the openness of the market.
Four deals the report names
The report cites specific transactions as evidence of the problem:
- Sinopec, US$3.7 billion. In January 2025 the President committed to finalising an oil refinery adjacent to the Chinese-controlled Hambantota International Port — the largest FDI project in Sri Lankan history. As of June 2026 it remained pending amid disagreements between the government and Sinopec.
- Adani Green Energy, US$400 million. In February 2025 the Indian firm withdrew from a 484 MW wind farm in the north, citing government efforts to renegotiate a previously awarded contract.
- China Harbour Engineering Company. In December 2025 the government quietly ended negotiations on a floating LNG terminal days before the contract was due to be signed.
- State-owned enterprises. The government ceased planned privatisations in favour of turnaround reforms.
On the last point the report notes that while the government seeks foreign investment, certain senior officials have publicly advocated a larger role for state-owned enterprises and greater state participation in the economy.
What investors told the State Department
Sri Lanka permits 100% foreign ownership in most sectors, with constitutional guarantees for investment protection and unrestricted repatriation of earnings, fees and capital. The report’s criticism is of implementation rather than the rules.
It says the Board of Investment struggles to function as a one-stop shop because authority is fragmented across multiple government departments, producing lengthy approval processes, and that investors report difficulty maintaining consistent and open dialogue with it. The BOI launched a Ready to Invest digital platform in May 2026 with sector-specific opportunities.
Named impediments include unnecessary regulation, legal uncertainty, poor bureaucratic responsiveness, high transaction costs and opaque procurement. Inefficient state energy enterprises, notably the Ceylon Electricity Board, are singled out as holding back the cost-effective energy supply industry needs.
US firms continue to explore ICT, energy, aviation and defence, but regulatory unpredictability, bureaucratic hurdles and selective transparency limit broader participation.
Investment experts quoted want progress on policy stability, regulatory reform, skilled labour, access to industrial land, efficient logistics and streamlined trade procedures. Access to preferential export markets through free trade agreements is described as an important factor in investment decisions. The IMF and local chambers are cited as pressing for trade facilitation, digitisation and stronger governance.
A report that repeats annually — this is the 2026 edition
The State Department issues this statement every year and Sri Lankan outlets headline each edition near-identically, which makes the archive a trap. The 2025 edition was reported in late September 2025 with a different set of numbers: 5% growth in 2024, and the government’s US$5 billion FDI target for 2025.
The edition reported here is the 2026 statement, confirmed as such by Newswire. Its distinguishing figures are the US$1.06 billion 2025 FDI total, 5% growth in 2025, and the Sinopec project’s status as of June 2026.
Not reported
Neither account gives the report’s publication date, links to the document on the State Department’s site, or carries any response from the Board of Investment, the Treasury or the government. Neither says whether the $1.06 billion figure is realised or approved investment.
