Sri Lanka’s economic recovery faces a crucial test that cannot be measured only through inflation rates, reserves, or fiscal targets. The next indicator of progress will be whether businesses begin investing again.
Former Planning Commission of India Deputy Chairman Montek Singh Ahluwalia has identified private sector confidence as the missing link between economic stabilisation and long-term growth, warning that foreign investors are unlikely to arrive in large numbers unless domestic businesses first demonstrate confidence in the economy.
Addressing the ‘India Calling’ forum organised by the Lanka India Business Association, Ahluwalia said Sri Lanka had successfully restored macroeconomic stability after its economic crisis but now needed to tackle deeper structural barriers holding back investment.
“Most foreigners, when they’re looking at countries, are quite impressed with macro stability. I think you have that. Booming private investment. That you don’t have yet,” he said.
The former Indian policymaker argued that investor confidence is built through consistent policies, reduced uncertainty, and an environment where businesses can operate competitively.
He cautioned against the belief that attracting foreign investors alone could solve Sri Lanka’s investment challenges. Instead, he said reforms benefiting domestic companies would also make the country more attractive to international capital.
One of the key issues requiring attention, according to Ahluwalia, is excessive regulation. He pointed to neighbouring economies such as Vietnam, Malaysia, Thailand, and Indonesia as examples of countries competing successfully for investment through more business-friendly frameworks.
Sri Lanka, he suggested, must examine whether its regulatory environment places it at a disadvantage compared with regional competitors.
Land availability emerged as another major concern. Ahluwalia said improving access to land for businesses could significantly strengthen investment prospects, while acknowledging that land reforms would always require careful balancing of economic and social considerations.
He also encouraged policymakers to examine reform experiences within India, particularly states such as Tamil Nadu, Karnataka, Telangana, and Kerala, where different approaches to investment promotion and economic development provide useful comparisons.
With limited government finances, Ahluwalia said Sri Lanka should explore greater use of public-private partnerships to develop commercially viable infrastructure projects. Such arrangements could allow public funds to focus on areas where private investment is less likely to emerge.
However, he warned that economic reforms cannot depend solely on governments. Businesses, he argued, must actively participate in policy discussions rather than waiting for governments to design solutions.
He also cautioned against reversing policies whenever political administrations change, saying policy instability could discourage investors and weaken economic credibility.
Sri Lanka’s recovery, therefore, will depend on more than repairing economic damage caused by crisis. The country must now convince entrepreneurs and investors that the next chapter will be defined by predictable policies, stronger competitiveness, and a commitment to long-term reform.
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