Guidance

Overseas Business Risk: Sri Lanka

Updated 19 June 2023

Read Department for Business and Trade’s Exporting to Sri Lanka guide for information on developing your overseas trade in Sri Lanka.

Doing business in Sri Lanka is not without risks, but lots of companies successfully export to and invest and operate in Sri Lanka. Those companies that successfully navigate the risks below are usually well prepared and have strong company policies relating to their behaviour overseas.

1. Political and economic

1.1 Political landscape

Sri Lanka saw significant political change in 2022, driven by an acute economic crisis. Former President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa resigned from their roles in government. Ranil Wickremesinghe was appointed President on 20 July 2022, following a vote by members of parliament. The next Presidential election is scheduled to be held in 2024 and the current parliamentary term expires in 2025. Local and provincial council elections have been delayed.

More information for British nationals visiting Sri Lanka, including on the political situation, is in FCDO Travel Advice.

1.2 Economic situation

In 2022, the Sri Lankan economy registered its deepest economic contraction since independence. This reflected external shocks such as the impact of the Easter Sunday terrorist attacks in 2019, the COVID-19 pandemic, and Russia’s invasion of Ukraine; combined with long-running structural challenges facing the economy.

In April 2022, Sri Lankan authorities announced that it had suspended normal debt servicing of several categories of external debt, including bonds issued in international capital markets, foreign currency-denominated loan agreements, and credit facilities with commercial banks and institutional lenders.

In December 2022, Fitch Ratings downgraded Sri Lanka’s long term local currency Issuer Default Rating (IDR) to ‘CC’, from ‘CCC’, and affirmed the long term foreign currency IDR at ‘RD’ (Restricted Default).

The Sri Lankan economy contracted by 7.8 percent (year on year) in 2022 and inflation reached unprecedented levels. A contraction of 3% to 4% is forecasted for 2023, and a modest recovery is expected in 2024 (the IMF projects a growth of 1.5%).

In March 2023, the IMF Executive Board approved a 48-month Extended Fund Facility (EFF) of approximately US$3 billion to support the government’s reform programme. This followed a Staff-Level Agreement and financing assurances from all major creditors. Several structural reforms have been announced or initiated, including new revenue measures, the reform of state-owned enterprises (SOEs), and legislative proposals for a new central bank law and a public financial management law.

The prospects for economic growth will depend on the progress of debt restructuring and the efficient implementation of fiscal consolidation and growth-enhancing structural reforms. Further to the IMF support agreed, additional resourcing from bilateral and multilateral partners will be needed to close the external financing gap.

The Sri Lankan government’s priorities for economic development could offer business opportunities for UK firms in the following sectors in particular:

• development of sustainable and renewable energy
• infrastructure development including expressway development, rural bridges, water
• developing a digital economy, including improving cyber security and technology in government
• improving education and healthcare

UK Export Finance (UKEF) financing remains limited. Infrastructure and energy projects are likely to be commissioned on a public-private partnership or build-operate-transfer basis.

Sri Lanka ranked 99 out of 190 countries in the Ease of Doing Business Index of the World Bank in 2020, advancing by 1 position from the ranking in 2019. In terms of the Global Competitiveness Index compiled by the World Economic Forum, Sri Lanka was positioned at the 84th place in 2019 out of 141 countries, an advancement of 1 place from the previous year.

2. Commercial guidance, risks, and legal disputes

The UK government can offer advice on commercial opportunities, and any relevant risks of operating in Sri Lanka. Firms engaging in commercial projects in Sri Lanka will need to follow their own risk assessments and due diligence, drawing on legal advice as required.

The UK government does not provide legal advice to private companies and individuals in relation to their commercial activities. There are various options available to settle a commercial dispute, principally litigation, arbitration and mediation. The most appropriate option will depend on the relevant circumstances, and companies should seek the advice of a lawyer with specialist knowledge of Sri Lanka’s laws and legal environment.

Before entering into a contract in Sri Lanka you should take appropriate legal advice. Your lawyer should advise you on including dispute resolution clauses and governing law clauses in the contract, including covering in advance how, where and under what law you want any disputes to be resolved.

Should companies experience difficulties in the Sri Lankan market, the British High Commission can offer information on doing business in Sri Lanka and share the contact details for appropriate agencies and legal firms.

The British High Commission cannot become directly engaged in commercial disputes between companies, and cannot intervene directly with the courts or the authorities. Business disputes are primarily a matter for the relevant seat of arbitration or the courts.

3. Business and human rights

Sri Lanka has a predominantly male work force, despite an established framework of equality for women in the labour force. Legislation exists to protect the rights of women and children. While child labour occurs, it is not as widespread in Sri Lanka, as it is in other countries in the region.

The law allows workers to form and join unions of their choice without previous authorisation, with the exception of members of the armed forces and police officers. A union must represent 40% of workers at a given enterprise, before the employer is legally obliged to consult with it. The Department of Labour is authorised to cancel a union’s registration, if the union fails to submit an annual report for three years.

All workers, other than police, armed forces, prison service, and those in essential services, have the right to strike. The law prohibits retribution against strikers in non-essential sectors. In practice, however, employees sometimes are reportedly fired for striking.

The law allows unions to conduct their activities without interference, but there are reports that union activists and officials remain subject to harassment, intimidation, and other retaliatory practices. There are also reports that employers arbitrarily transfer union members, and numerous reports of unfair dismissals of union members.

More broadly, there are concerns around the rights and interests of minorities, including ethnic minorities, LGBTQ+ persons, and persons with disabilities.

For more detail on human rights in Sri Lanka, refer to Chapter 5 of the FCDO Annual Human Rights and Democracy 2021 report.

4. Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national, nor resident in the UK, nor a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Corruption in government procurement processes is a significant issue. Public officials are not compelled to declare their assets routinely, and ‘conflict of interest’ guidance is vague and unenforceable.

Transparency International’s corruption perception index (CPI) measures the perceived levels of public-sector corruption in a given country. From 180 countries worldwide, Sri Lanka was ranked 101 in 2022, with a score of 36. In the South Asia region, Sri Lanka ranks higher than Pakistan at 140 and Bangladesh at 147, but behind India ranked at 85.

In April 2023, Sri Lanka gazetted a new anti-corruption bill after the International Monetary Fund (IMF) approved a loan which required the country to address corruption vulnerabilities. The bill covers new areas of corruption prevention including asset declaration and effective law enforcement.

We would encourage all UK companies preparing to do business in Sri Lanka to consider their strategy for dealing with bribery and corruption. You should consider:

• taking advice from a range of sources including the British High Commission and local business chambers
• carrying out due diligence checks on all potential partners
• ensure you have defined anti-corruption corporate policies

Further information is on our Bribery and corruption page.

5. Terrorism threat

Refer to the latest Travel Advice for Sri Lanka from the Foreign, Commonwealth & Development Office.

6. Protective security advice

Read the information on our protective security page.

7. Intellectual property (IP)

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are considering trading internationally, you should consider registering your IP rights in your export markets.

The National Intellectual Property Office of Sri Lanka (NIPO) was established under the Intellectual Property Act No 36 of 2003, and is mandated with the administration of intellectual property. This includes activities relating to registration and post registration of marks, patents, industrial designs, layout designs of integrated circuits and collective societies.

NIPO also has the remit of facilitating the enforcement of IP rights. However, infringement of IP Laws is prevalent extensively. Most DVD/CD shops sell pirated copies in the open market and counterfeiting of other consumer items such as clothing and accessories is rife. Enforcement of IP laws is not considered a priority by the authorities.

When entering into contracts businesses need to ensure that their IP rights are protected and written out in the contract. Large foreign owned companies might find that the threat of legal action is enough to stop plagiarism.

Read the guidance on our intellectual property page.

8. Organised crime

Read the information on our organised crime page.

9. Contact

For information regarding conducting business in Sri Lanka, contact the Department for Business and Trade team based in the country.