Strengthening Investor Protection and Policy Stability
In a decisive move to restore investor confidence and ensure long-term policy stability, the Government of Sri Lanka has approved the drafting of a new Investment Security Act, designed to prevent arbitrary nationalization of private enterprises and safeguard both domestic and foreign investments.
The proposal, presented to the cabinet by President Anura Kumara Dissanayake in his capacity as Minister of Finance, Plan Implementation, and Economic Development, aims to establish a stronger legal foundation for investment protection and dispute resolution.
The Cabinet of Ministers has already granted approval for the Legal Draftsman’s Department to begin preparing the bill, following recommendations from a high-level committee of officials who developed the initial concept paper.
The Act is expected to include provisions that guarantee the protection of private property, create an Investment Security Board to handle disputes, and enhance transparency in government dealings with investors.
This landmark legislation was first proposed in the 2025 National Budget, reflecting the administration’s effort to rebuild investor trust shattered during the economic crisis of 2022.
During that period, Sri Lanka’s economy contracted by 7.8%, inflation surged above 70%, and foreign direct investment (FDI) inflows fell to below US $800 million one of the lowest levels in over a decade.
The uncertainty surrounding property rights, ad-hoc taxation, and frequent policy shifts further discouraged new investors and prompted several multinationals to postpone or withdraw expansion plans.
Rebuilding Confidence Amid Economic Recovery
However, in the first nine months of 2025, signs of gradual recovery have emerged. According to the Central Bank, Sri Lanka recorded FDI inflows of approximately $950 million, marking a 15% year-on-year increase compared to 2024.
The rupee has stabilized around Rs. 310 per dollar, inflation has eased to 5.2%, and GDP growth is projected at 2.8% for the year. Yet, economists warn that without consistent policy frameworks and legal assurance, this recovery remains fragile.
The proposed Investment Security Act is thus seen as a critical step toward creating a predictable investment climate. It will legally prohibit the arbitrary seizure or nationalization of private enterprises fear that resurfaced during past political transitions and ensure that any state intervention occurs under transparent, compensatory frameworks.
Economic analysts argue that the Act could also help Sri Lanka improve its ranking in the World Bank’s Ease of Doing Business Index, attract long-term investors, and position itself as a stable investment hub in South Asia.
The new Investment Security Board will serve as a dispute resolution mechanism, enabling investors to settle grievances without lengthy litigation, thereby speeding up decision-making and reducing bureaucratic risks.
If implemented effectively, the Act could complement the broader economic stabilization program under the IMF’s Extended Fund Facility and reinforce the government’s pledge to maintain a liberal, rules-based economy.
As Sri Lanka transitions from crisis management to growth revival, ensuring investor protection through robust legislation will be vital to attracting capital, creating jobs, and sustaining confidence in its economic future
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