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Dushni Weerakoon and Nipuni Perera

As an island economy, Sri Lanka’s regional connectivity has been mainly through its main seaport in Colombo, a transshipment hub port for South Asia. Investments to expand capacity at Colombo port are under way as part of Sri Lanka’s renewed efforts to develop its infrastructure following the long internal separatist conflict that ended in 2009. Despite significant improvements in physical infrastructure connectivity, Sri Lanka has made only limited headway in strengthening its trade and investment links with the rest of the region. Moreover, the country has seen a sharp decline in its overall exports-to-gross domestic product (GDP) ratio, which is worrying in view of the growing external debt financing of many large infrastructure projects through state-led investment initiatives. Thus, Sri Lanka needs to focus on two priority areas: engaging private investment in infrastructure by strengthening the country’s institutional and regulatory environment; and implementing a more strategic trade policy geared to enhance regional integration efforts.