Sri Lanka’s Strategic Trade Revisions: A Roadmap for Economic Transformation

Sri Lanka’s State Minister of Finance, Shehan Semasinghe, has announced the country’s intentions to renegotiate its free trade agreements (FTAs) with key bilateral partners. This move is part of Sri Lanka’s strategy to boost its economic growth and reduce external debt by promoting market access, foreign direct investment, and export-oriented initiatives.

Prioritizing Negotiations with India, China, and Thailand

• Sri Lanka’s initial focus in this trade renegotiation effort will be on engaging in discussions with three pivotal partners: India, China, and Thailand.
• The objective is to successfully conclude the ongoing negotiations with these countries before advancing to a broader regional trade agreement.

Joining the Regional Comprehensive Economic Partnership (RCEP)

• Sri Lanka’s ultimate goal in the renegotiation process is to become a member of the Regional Comprehensive Economic Partnership (RCEP).
• This agreement involves 16 Asian countries and seeks to enhance trade and economic cooperation within the region.

Addressing Economic Challenges

• Minister Semasinghe emphasized that Sri Lanka has largely overcome the economic difficulties it faced in 2022.
• The government’s strategy revolves around positioning the country for sustainable growth driven by non-debt generating inflows.
• These inflows include exports of goods and services, foreign direct investment, and tourism, with the aim of achieving a healthier external balance and servicing external liabilities.

Market Access for Foreign Investment

• The renegotiation of FTAs is expected to significantly expand market access for foreign direct investment in Sri Lanka.
• This, in turn, will act as a catalyst for local manufacturing, export growth, and attracting investments into the country.

Addressing Supply-Side Bottlenecks

• Sri Lanka is also actively addressing supply-side bottlenecks to enhance productivity.
• Initiatives include a recently drafted labor bill to rectify inefficiencies in the labor market, opening government-owned land for productive commercial activities, and gradual easing of capital market restrictions as external imbalances are resolved.

Expert Opinion on Sri Lanka-India FTA

• Dr. Ajay Sahai, CEO of the Federation of Indian Export Organizations (FIEO), commented on Sri Lanka’s desire to renegotiate its FTA with India.
• He suggested that the existing FTA was heavily in favor of Sri Lanka and that Sri Lanka might seek to expand its scope into an Economic and Technology Co-operation Agreement (ECTA).
• Dr. Sahai believed that such renegotiations would likely involve compromises and did not foresee any significant issues from India’s perspective.

This comprehensive strategy by Sri Lanka reflects its commitment to strengthening its trade relationships and boosting economic growth while addressing internal economic challenges.