Sri Lanka will get back GSP from the EU. The country first got the facility after the Asian tsunami disaster in December 2004 but it was then withdrawn in 2010 because of human rights violations issues.

With this restoration, Sri Lanka’s balance of payments and debt servicing issues could be resolved by increasing exports.

The EU remains Sri Lanka’s main export market, with more than 30 per cent of the country’s annual merchandise sold to Europe. The EU is the biggest single market for Sri Lanka’s apparel exports.

However Sri Lanka’s exports may not expand rapidly because of manufacturers’ inability to immediately enhance their production capacity.

Structural limitations, such as labor shortages, are also a barrier. A factor in the shortage of labor is the low wages paid by companies.

Increasing production capacity, above all, depends on attracting investment. Sri Lanka’s foreign direct investment halved in 2016 from the previous year. The fall was a result of international financial volatility and investors looking for more profitable production facilities.

Whereas Sri Lanka’s competitors, such as Bangladesh and Vietnam, are embarking on large-scale economic reform agendas, Sri Lanka’s relative reticence restricts its potential for growth.

In 2015, Vietnam, Pakistan and Cambodia had higher EU export earnings than Sri Lanka.