Getting adequate foreign direct investment (FDI) of the right types has eluded the country for many decades. While former communist countries like Vietnam have attracted sizeable amounts of FDI, Sri Lanka continues to get an inadequate flow of FDI.
The statistics of the amount of FDI received are flawed as they contain other capital inflows. Even the exaggerated figures are low and inadequate. The country has reached a turning point when the attraction of much higher amounts of FDI is vital to sustain the growth momentum.

Obtaining much higher amounts of the right types of FDI will determine the pace of economic growth in the next decade. Much higher FDI is essential as the country’s investment resources are limited and technological capacities have to be augmented to capture export markets.

During the U.S.-Sri Lanka Partnership Dialogue, Washington should elevate Sri Lanka’s transitional justice debate.

The unexpected election of Maithripala Sirisena in Sri Lanka’s January 2015 polls has resulted in the Barack Obama administration’s fervent desire to turn the page on what became a strained, bitter bilateral relationship under the reign of the previous president. Mahinda Rajapaksa had been in power for nearly a decade and oversaw the decisive military defeat of the separatist Tamil Tigers – ending a civil war which lasted from 1983-2009. Rajapaksa’s proclivity for corruption, nepotism, and heightened authoritarianism ultimately led to his unexpected ouster.

Mangala Samaraweera, Sri Lanka’s foreign minister, is currently in Washington, D.C. This high-level visit is due to evolving U.S.-Sri Lanka ties and the commencement of the first ever U.S.-Sri Lanka Partnership Dialogue. An array of issues such as economic and security cooperation, governance, and regional affairs will be discussed on February 26. It remains to be seen whether transitional justice will receive significant attention, either publicly or privately.

The government has asked the International Monetary Fund (IMF) for a bail out facility to resolve the current balance of payments crisis. A loan facility is urgently needed owing to the critical state of the balance of payments. This crisis in the external finances has been brought about by the mismanagement of the economy over several years.

Previous requests

In similar situations in the past, governments resorted to a rescue package from the IMF. In 1977 the government obtained a Structural Adjustment Facility (SAF) to undertake trade liberalisation and economic reforms. In July 2009 the IMF approved a 20-month Stand-By Arrangement (SBA) of approximately US$ 2.6 billion, as a Balance of Payments (BOP) support.

Macroeconomic weaknesses

Once again the severe difficulties in external finances have made the government request the IMF for a loan facility to resolve the critical balance of payments situation. This situation arose owing to fundamental macroeconomic weaknesses: high fiscal deficits, large foreign debt, and widening of the trade and balance of payments deficits. Recent capital outflows that accentuated the balance of payments problem were due to these weaknesses as well as international factors.