Experts warn Economic Transformation Bill may deter foreign investments

• Absence of clearly spelt out investment concessions likely to  create uncertainty among foreign investors  
• Experts stress external debt restructuring and foreign investment policies cannot be paired together 

By Nishel Fernando

The Economic Transformation Bill could create an oasis in an island of bad governance, sparking uncertainty among foreign investors and threatening the flow of crucial investments, warn legal and investment experts.

The recently gazetted impractical Economic Transformation Bill is set to repeal the Board of Investment (BOI) of Sri Lanka Law, No. 4 of 1978, and replace the BOI with the Economic Commission of Sri Lanka. It will also provide for a National Policy on Economic Transformation and establish the Economic Commission, Investment Zones in Sri Lanka, the Office for International Trade, the National Productivity Commission, and the Sri Lanka Institute of Economics and International Trade.

Speaking at an expert discussion organised by the All Union Alliance of BOI in Colombo yesterday, President’s Counsel Avindra Rodrigo pointed out that the government has failed to clearly state the concessions to be granted for investments, which is likely to create uncertainty among foreign investors.

“We don’t know where the country is going with these concessions because the concessions aren’t spelled out. Concessions are left open for regulations, and one thing we all know is that an investor wants certainty. They need to know if they put in this amount of money and sign an agreement, this is what they get,” he said.

Meanwhile, President’s Counsel Harsha Fernando warned that this proposed legislation could result in more corruption and bribery.

“The way this Act seems to regulate investment zones and the formation of them requires much more thinking and operationalising. They have left room for regulations, but the problem is that Sri Lanka is famous is for ad-hoc regulations and even for midnight regulations. In this Act, the power given to the Minister and the discretion given to the Minister are still there. My final thought is that we need a different way to attract investments. This is good, provided it is operational and all these issues are sorted, and we operate only the rest of the country in the same way. This is like putting an oasis on an island of bad governance,” he elaborated.

Rodrigo highlighted that the main reason behind this open-ended nature of concessions is to leave room for making required changes demanded by the IMF and others based on the progress of the external debt restructuring process.

“They want to make it up as they go along. We tweak it, adjust it to what’s happening on the ground. So, if the debt restructuring doesn’t go well, you tweak it. That can’t be good for a long-term investor. It can’t be good for a first-time investor. It’s not good to begin with,” he said.

As per the bill, it targets maintaining the Public Debt to Gross Domestic Product ratio below 95 percent by 2032, and thereafter, the central government Annual Gross Financing to Gross Domestic Product ratio will be kept below 13 percent by 2032 thereafter, and the central government’s Annual Debt Service in foreign currency to Gross Domestic Product ratio will be below four and a half percent by 2027 and thereafter.

However, Rodrigo argued that external debt restructuring and foreign investment policies cannot be wedded together in one policy package.

“The State is going to use this (proposed) Act to fashion economic targets to keep to the IMF or whatever the foreign agencies telling us what we ought to be doing. We are giving those agencies the power to dictate or adjust or change policies as we go along. Now that may be good overall for the debt restructuring process, but that is something that you can marry with what BOI presently has or the policies of attracting foreign investments per se. This is not only overambitious, but it’s also a mixture of upholding two different agendas, which will create greater difficulty than we already have,” he warned.

Pix by Waruna Wanniarachchi