The Role of Sri Lanka in Enhancing Connectivity between South Asia and Southeast Asia

Dushni Weerakoon, Nipuni Perera
JEL codes: 
ADBI Working Papers Series

Improving physical connectivity between South and Southeast Asia has long been
recognized as a key element in promoting greater trade and investment linkages within
the region. As an island economy, Sri Lanka’s regional connectivity has been mainly
through its main sea port in Colombo, a transshipment hub port for South Asia.
Investments to expand capacity at Colombo port are underway 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.