Sri Lanka is experiencing an economic crisis stemming from an unsustainable debt load and perennial deficits on both the international balance of payments and the government budget, resulting in a severe shortage of foreign currency exchange (forex). The forex shortage has led to difficulties importing essential goods, such as food, medicines, and fuel. Trade and commercial activities have been impacted by the lack of forex, banking restrictions put in place to conserve forex and the country’s poor credit rating. Inconsistent and unpredictable policies, including taxation, customs procedures, and regulatory approvals, are common concerns for U.S. and foreign companies. U.S. and foreign companies also raised concerns regarding opaque public tendering processes and widespread corruption. U.S. franchise holders have also raised concerns about delays in remitting profits and franchise fees by the banking system due to a severe shortage of forex. Importers find it difficult to obtain Letters of Credit (LC) from local banks due to the currency shortage and often suppliers insist that the LCs be guaranteed by a reputable international bank outside of Sri Lanka.
The government generally supports import substitution. Importers to Sri Lanka face high import duties and other taxes. Additionally, in April 2020 the government introduced what have proven to be indefinite suspensions on a wide variety of goods deemed non-essential in a bid to preserve forex. Agricultural and consumer goods imports face stiff health regulations that sometimes exceed global standards. For example, genetically modified (GMO) regulations restrict imports of U.S. agriculture commodities. In April 2021 the government banned all agrochemical imports in favor of organic farming without warning or consultation with the private sector. The government reversed the ban in November 2021.
Congested roads and rampant fuel shortages slow the movement of goods throughout the island, although the Government of Sri Lanka is working towards improving road infrastructure and prioritizing fuel delivery to the transportation sector. Unreliable power supply, particularly outside the capital, force manufacturers and service providers to install on-site generators. Many manufacturers find it difficult to source the fuel they need for their generators to maintain production.
Businesses cite a lack of sufficient labor supply as a major hindrance for operating in Sri Lanka. Qualified workers are in short supply as a result of the education system producing too few engineers, technicians, scientists, and English speakers. Initial indicators suggest that the economic crisis is prompting an increased number of skilled workers to leave Sri Lanka and seek employment abroad, further agravating the shortage of qualified labor. Business representatives complain that the rigid labor laws, including exceptionally high severance pay regulations, make it difficult to adjust staff size and composition to market conditions. There are also numerous and overlapping labor regulations that are often difficult for investors to understand.
Piracy is a problem for U.S. rights-holders in music, film, software, and some consumer products. Sri Lanka also lacks anti-competition laws.