April 16, 2012 (LBO) - Private investment in post-war Sri Lanka has not risen as anticipated because it still lacks a "predictable policy environment" which creates uncertainties for businesses, the Asian Development bank has said.The outlook is for moderate but still strong growth in Sri Lanka in 2012, the bank forecast in its Asian Development Outlook report released last week.
While the government has been trying to reduce bottlenecks to growth not enough has been done to cut red tape, the report said.
"Investor confidence is a key factor in attracting investment and this requires a predictable policy environment as articulated and reinforced through the legal, regulatory, and institutional framework," the ADB said.
"Thus the lack of such an environment for the private sector is a major obstacle to private sector development.
"Developing that framework will reduce uncertainties in the business environment and avoid unplanned actions that may send mixed signals to potential investors."
The government wants to see a greater role for the private sector through increased investment by both domestic and foreign investors, as investment is needed to bolster growth after the end of the 30-year ethnic war in 2009.
"Yet despite the improved political and economic environment, growth in private investment—domestic and foreign—is falling below planned levels," the ADB said.
"One reason is that the government has taken only a few steps to reduce red tape and improve the business climate, needed to create the conditions for ramping up private investment."
Although Sri Lanka’s position in the World Bank’s Doing Business index has improved in 2012 to 89 (out of 183 countries) from 98 in 2011, some "challenges" still deter private investment, especially paying taxes, the report said.
Sri Lanka also started to expropriate businesses again last year violating property rights of both citizens and non-citizens, which analysts, economists and rating agencies have warned will have a negative effect on investment and growth.