Sri Lanka Economic Transformation Act, No. 45 of 2024 — foundational post-default FDI and trade-institutional rewrite repealing BOI Law

Mechanism

The Economic Transformation Act, No. 45 of 2024 is Sri Lanka's most consequential trade-and-investment statute since the original BOI Law of 1978. It was passed by Parliament on 25 July 2024 without a vote (consensus passage after debate and amendments) and published in the Official Gazette as a Supplement to Part II on 9 August 2024, giving it immediate legal effect.

BOI repeal and institutional succession (Section 194)

Section 194 repeals the Board of Investment of Sri Lanka Law, No. 4 of 1978, which had been the primary gateway for inbound FDI since the liberalisation era. The BOI is replaced by the Economic Commission of Sri Lanka (ECSL), which assumes BOI's core functions — investment promotion, enterprise registration inside special zones, and strategic-project facilitation — while being restructured for a narrower, more supervisory mandate. The split into distinct bodies (ECSL + Zones SL + OIT) is intended to resolve the structural conflict-of-interest under the old BOI, where the same agency both promoted and regulated investments.

Five new institutions

Fiscal targets (IMF EFF alignment)

The Act codifies five binding macroeconomic objectives that mirror the IMF Extended Fund Facility (2023–2027) programme conditionality:

• Primary fiscal surplus ≥ 2.3% of GDP by 2032
• Revenue ≥ 15% of GDP from 2027 onward
• Debt-to-GDP ≤ 95% by 2032
• GDP growth ≥ 5% per annum by 2027
• Female labour force participation ≥ 50% by 2040

Embedding fiscal targets in primary legislation is unusual and signals that the post-default reconstruction framework is designed to be legally binding across government cycles, not merely a cabinet commitment.

Investment protections

The Act guarantees foreign investors protection against expropriation without compensation and fair treatment, with access to Sri Lankan courts. This replaces the patchwork of bilateral investment treaties that had been the primary legal protection under the BOI framework.

Relationship to sub-instruments

The ETA is the parent statute under which the Colombo Port City Economic Commission Act No. 21 of 2021 continues to operate (CPCEC Act remains in force; ETA reorganises the wider institutional framework around it). Sub-instruments operating under the reorganised ETA architecture:

• 2025-07-14-sri-lanka-cpcec-bsi-designations-four-projects — first Primary BSI

designations under the CPCEC-ECSL transition

• 2025-09-20-sri-lanka-cpcec-regulation-1-2025-bsi-incentive-rollback — subsequent

BSI incentive compression driven by IMF fiscal-review pressure

• 2025-01-01-sri-lanka-customs-nitg-2025-national-imports-tariff-guide — tariff

codification exercise under the OIT/ECSL institutional split

Downstream implications

• Transition risk: BOI-era enterprise agreements and arbitration clauses were

tied to the BOI Law entity; successor-entity mapping under the ECSL introduces legal uncertainty for legacy FDI agreements pending ETA transitional regulations.

• SEZ incentive sequencing: Zones SL's administrative separation from ECSL means

SEZ tenants now face two regulatory counterparties; the CPCEC-Regulation 1/2025 rollback (35-year → 15-year incentive compression) illustrates how quickly the new architecture can revise incentive terms under IMF review pressure.

• Trade-policy independence: The creation of OIT as a standalone body is

structurally significant for negotiating future FTAs; it mirrors WTO best-practice separation but also creates a new single point of failure for trade-policy capacity.

• Fiscal target credibility: Codified targets in statute raise the political cost

of abandoning consolidation but do not eliminate the risk — the 2032 targets are approximately 3-4 IMF review cycles away and depend on sustained GDP growth that Sri Lanka has not yet demonstrated.

Open questions

• When will the ECSL and Zones SL publish their operating regulations replacing

BOI Regulation No. 1 of 2019?

• How will the OIT resolve the current multi-ministry fragmentation of Sri Lanka's

FTA negotiating mandates (currently split between MoFP, MoT, and MoFA)?

• Will the statutory fiscal targets survive a change of government, given that the

ETA was passed under the Wickremesinghe administration and AKD's NPP government has operational control from late 2024?