Sri Lanka’s struggle to position itself as a credible investment destination has been thrown into sharp relief by the impending resignation of Board of Investment (BOI) Chairman Arjuna Herath, less than a year and a half after his appointment.
His departure comes at a time when the country is claiming modest success in foreign investment inflows, yet failing to address the deeper structural issues that deter global investors.
FDI inflows are estimated to have reached about US$1.1 billion in 2025, nearly double the US$614 million recorded in 2024.
While the increase has been welcomed by policymakers, critics argue that the figure remains underwhelming for an economy seeking rapid growth and industrial diversification. More importantly, the uptick has not translated into confidence about Sri Lanka’s long-term investment climate.
The BOI, tasked with spearheading foreign investment promotion, remains bound by an archaic administrative framework ill-suited to modern capital flows.
Investors continue to complain of bureaucratic delays, inconsistent policy interpretation, and a lack of autonomy within the agency. These weaknesses have been exacerbated by Sri Lanka’s ongoing engagement with the IMF, which tightly circumscribes fiscal policy space.
Under the current IMF programme, tax incentives traditionally a key tool used by the BOI to attract investors are viewed with suspicion.
Government officials confirm that nearly all revenue-related proposals submitted to the IMF have been rejected on the grounds that they undermine fiscal consolidation. The result is a policy environment where investment promotion is subordinated to short-term revenue targets.
Officials familiar with negotiations say the IMF has shown little appetite for assessing proposals in terms of their multiplier effects on employment, exports, and future tax revenue. Instead, decisions are made in isolation, reinforcing a perception that Sri Lanka is prioritizing compliance over competitiveness.
This approach was evident in Budget 2026, which offered minimal concessions and instead expanded the tax base by lowering the VAT threshold for businesses. For many in the private sector, the move symbolized a government unwilling or unable to break from austerity-driven policymaking, even as economic conditions stabilize.
Although it remains unclear whether Herath’s resignation is directly linked to these constraints, his exit highlights the limitations faced by BOI leadership in effecting meaningful change. Without authority to offer incentives or streamline approvals, the agency risks becoming a procedural body rather than a catalyst for growth.
As the government signals its intention to remain aligned with the IMF beyond the current programme and floats new taxes such as a property levy by 2027, questions are mounting over strategic direction.
Analysts caution that unless Sri Lanka modernizes its investment framework and empowers institutions like the BOI, investor confidence may weaken undermining both economic recovery and public trust in the administration.