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Debt Vs. Equity – A Case for More FDI and Private Ownership

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By Chandu Epitawala

Since the unprecedented crisis in the country in 2022, many people (experts as well as laymen) have weighed in on what ails Sri Lanka in terms of its governance and macroeconomic failings and missteps which eventually led to the collapse of the economy, the currency and default on its debt. Many have also commented/highlighted the brain drain or migration of trained/skilled minds that is taking place or even accelerating. I like to dwell on a slightly different aspect/cause or focus on the same issue of the economy and its remedies purely from a Finance standpoint which I find not discussed widely enough in media and public/private fora.

As any student of Finance will tell you, studying for a Degree in Finance will lead you to three main career paths. Regular Banking (mostly specializing in Debt), Asset or Fund Management and Merchant Banking or Corporate Finance. I will attempt to look at Sri Lanka’s economic crisis and its possible solutions more from the vantage point of the Merchant Banker or purely from a financing point of view.

What are the essential or fundamental elements of a Country (or a Company) for it to efficiently or competitively function and thrive in a globalized economy? (Sri Lanka, in general, and the government entities/SOEs in particular, sadly lacks all these elements in varying degrees.)

A set of Physical Assets (investment)

A group of People (human capital/Expertise/Know How)

A governance/management Structure – Entrepreneurial Drive/Spirit

A Plan/Skill/Ability to sell/export/market the output (goods or services)

I will mainly focus on the challenge of how to put together the essential Public Infrastructure Assets (or restructure existing set of Assets/SOEs) to revive economic activity and fuel growth, as that’s the one which requires the bulk of financing. When one refers to Finance, what does that entail?

A set of Public Assets required to run a Country efficiently generally includes highly capital-intensive public infrastructure such as Roads/Highways, Sea Ports, Airports, Bridges, Power Generating/Distribution infrastructure, Irrigation Infrastructure, and Storage/Logistics Infrastructure etc. etc. I like to highlight the fact that this type of infrastructure requires some Government (State and Local) involvement, at least at the initial stage as investment (finance) required are quite high, involves macro/national or strategic planning, land acquisition, very long gestation period etc. However, the principles of financing such Projects are no different to Corporate Finance. In fact, at the country level, one may have even better options, such as borrowing at concessional rates or getting equity participation from multilateral agencies (Ex. IFC etc.)

As any Accounting, Banking, or Economics student would point out, at the simplest/elementary level, a set of Assets (which gets recorded in a Balance Sheet) can be financed only in one of two ways; Equity/Own Capital or Debt/Borrowed Capital. (However, many hybrid combinations and sophisticated variations are available, but that goes beyond the scope of this Note). Following is the basic equation of a Company Balance Sheet.

TOTAL ASSETS = DEBT (Borrowed Capital) + EQUITY CAPITAL (Ownership)

At the national or macro level, Sri Lankan capital accumulation/formation or total Savings (individual and corporate) in the Banking system is around 17% of the GDP. For Sri Lanka to achieve an 8% real annual growth rate, the Country needs around 30% of GDP in capital investment (including private investments in factories, housing, etc.) every year, including in Public Infrastructure, mostly undertaken by the Government. This leaves a significant 13% or so of GDP (nearly $6-8 billion every year) gap/shortfall in Financing required to fuel the annual growth required to provide adequate employment opportunities etc. This capital can only come from outside the Country or from the Savings of foreigners or citizens of other countries. Either we can borrow (Debt Financing) this Capital or try to attract Equity (FDI). From a macro perspective, it would be highly unwise to borrow in entirety such amounts from foreign sources even if can. The way to get out of our current predicament of unsustainable levels of government debt is aggressively canvassing for equity capital (foreign or local) in exchange for ownership transfer of government-owned Assets, thereby rebalancing the macro-level Capital Mix or Structure.

In Finance, there’s an important concept called the Optimal Capital Structure (where the Weighted Average Cost of Capital is the lowest). Any balance sheet must have the right mixture/balance of Debt and Equity to balance the above equation. It is not desirable to have too much Debt (borrowed capital) or Equity (own capital).

Debt in itself is not a bad thing as long as one knows the following;

How much to borrow (as a % of the Balance Sheet and certainty/riskiness of Turnover/Income)

On what terms (rate, repayment schedule, collateral required etc.)

How or Where to deploy the funds (in productive activity that gives a better return etc.)

Equity (FDI) is usually better (especially in the SL context, where we have borrowed too much on unfavourable terms and are now unable to repay). It should be welcomed, but ownership of those Assets will not be held by locals (ownership of the existing set of Assets need to be handed over to the investor/new owner), which in Sri Lanka appears to be a controversial and divisive topic due to lack of proper understanding of basics of Finance. In other words, purely from a Financing standpoint, it would have been much better if Sri Lanka (or any other country in our situation) were to get $3 Bn in FDI in exchange for ownership in a Sri Lankan SOE than the EFF Facility (debt or borrowing) from the IMF. The bulk of the foreign reserves of the country should be equity (FDI, Remittances, Tourism Receipts and Export Proceeds) and not borrowed dollars/euros. That would have warranted lighting firecrackers and celebrations. (Admittedly, IMF Program, with its monitoring mechanism, sends other important positive signals to the international community of lenders and investors and governments)

I want to state here a wise quote apparently made by the late Mr Upali Wijewardena; ” the ownership of a set of Assets is not important. What is important is having access to or the users of those Assets”. This rationale/logic would apply equally to corporates or individuals. The reason is ownership comes with investing/blocking a sum of money (which always has opportunities elsewhere or opportunity cost), and if Sri Lankan taxpayers (or anyone else for that matter) can have access/users to a business, service, infrastructure without doing the investment ourselves/utilizing our own equity funds, why not? Do we care who owns a business/set of assets?

I would take Hambantota Port (HIP) as an example which drew much condemnation and protest from sections of the Sri Lankan public against Foreign Investment/Ownership to illustrate the point. There should be no argument that the Chinese Investor has far better worldwide connections/network, port/logistics management expertise and deep pockets to continuously invest and improve the HIP and surrounding infrastructure than Sri Lanka Ports Authority or GoSL. The GoSL oversees the Security of the Port, Customs duties, and Immigration.

Only the commercial aspects are handled by the Chinese investor. SL exporters and importers have access to or are the users of a modern, efficient Harbour. I do not see any reason for Sri Lankans to complain (other than on the terms of the Sale, which is a done deal). From a Finance standpoint, it’s essentially a Debt Equity swap. SLPA (or GoSL) balance sheet, Debt came down, and ownership or management control on a lease was transferred to the Chinese party for 99 years. That Asset (or set of assets) cannot be removed from our sovereign soil and thus comes forever under the SL Ports regulator. What’s more, any income/profits derived from an efficient operation can be taxed, and the SLPA/GoSL charges fees/levies.

Many other examples, such as Sri Lanka Telecom (SLT) and Lanka Indian Oil Company, can be given from our own country. Numerous examples can be given from all over the world, especially India, Malaysia etc. Remember, unlike when loans are taken when foreign equity is committed to the country, the periodic forex outflow from the country is part of the dividends paid out to the owning/controlling entity, and that is only when the business is profitable/thriving.

Ownership of Assets/Businesses change hands all the time on a daily basis (Ex. The Stock Markets) in the real world, and that is nothing to fear. Companies regularly make in-house or outsourced decisions/choices. Individuals are often called upon to make own, hire/lease/rent choices. In fact, anyone who understands the basics of Finance should welcome equity financing (as opposed to excessive debt financing) and welcome more and more FDI giving up government or private ownership (along with risks, challenges such as finding export markets/clients, maintenance/upkeep and other headaches) and enjoy the benefits (users and access) of efficiently run, thriving business operations (Power, Energy, Ports, Telecom, or whatever) by foreigners or even aliens functioning from our soil and servicing our people and paying their due taxes and fees.

If Sri Lanka were to fully open up the country and create the necessary conditions, such as maintaining the rule of law and policy consistency, to attract/welcome foreign equity capital (FDI) and foreign human talent/know-how/expertise ( Entrepreneurial, Managerial, Technical and Creative) like had been aggressively done and still being pursued in Dubai and Singapore and many other places like Panama, Malaysia, Thailand etc., Sri Lanka can not only come out of this crisis but also somewhat mitigate or even reverse the ill effects from the brain drain that is taking place. I

t would be a grave mistake to assume we Lankans have all the requisite talent/expertise to run globally competitive businesses or can do everything better. Believe it or not, though those who are born and bred in Sri Lanka may be eager to migrate to the West looking for greener pastures, there are many in the West (and in other countries) with specific skills/talent/expertise we badly need, and with capital we lack who would consider moving here (or merely investing here) on a long term basis if the right conditions as mentioned above are created and available. Again, nothing for locals to fear as such opening up only would create vibrant, thriving businesses and an economy which in turn creates many employment and other opportunities for locals from which locals will gradually learn and acquire the know-how/expertise over time, not to mention the potentially large tax revenues for the government.

To reiterate, from an economic and financial point of view and indeed a commonsense point of view, Ownership/Control is unimportant. Enjoy the access and users while allowing the government to foster competition, regulate and tax these entities/businesses and pass on the benefits or redistribute such revenues to the public/masses by enhancing and expanding free health care and education, welfare programs and the like.

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Your six-year-old needs a tablet like a fish needs a smartphone

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THE GREAT DIGITAL RETHINK — PART II

Nordic countries handed tablets to toddlers and called it early childhood education. Now they’re taking the tablets back, handing out pencils, and hoping nobody noticed. Meanwhile, the Global South is still signing the tablet contracts. Someone should probably warn them.

The Tablet Arrives in Preschool

It is 2013, a government minister stands in a preschool in Stockholm, handing a shiny tablet to a four-year-old. Press cameras click. A press release announces that Sweden is building the digital classrooms of the future. The child, who until recently had been learning to hold a crayon, now swipes confidently at a screen. Innovation! Progress! The future!

Fast forward to 2023, the same Swedish government, or at least its successors, announces that preschools were wrong to make digital devices mandatory. Children’s reading comprehension is declining. Books are going back on the shelves. Pencils are making a comeback. The preschool tablets are being quietly wheeled into storage, and nobody wants to talk about the press release.

What Finland Actually Did — And Is Now Undoing

Finland has long held a special place in the global education imagination. When PISA scores are published and Finland sits at or near the top, education ministers from Seoul to São Paulo take note and wonder what they are doing wrong. Finland is the benchmark. Finland is the proof that good education is possible.

Which makes it all the more significant that Finland, in 2025, passed legislation banning mobile phones from classrooms. Not just recommending restraint. Not just issuing guidelines. Banning them, with teachers empowered to confiscate devices that disrupt learning. The law covers both primary and secondary schools. It came after years of evidence that children were distracted, and that Finland’s own PISA scores had been falling.

But the phone ban is only part of the story. The deeper shift in Finnish primary education has been a quiet reassertion of analogue fundamentals. Early literacy is being treated again as a craft that requires time, patience, practice and, crucially, a pencil.

Sweden gave tablets to toddlers. Then took them back. The pencils were in a drawer the whole time.

Sweden’s Spectacular U-Turn

Sweden’s reversal is arguably the most dramatic in recent educational history, because Sweden had gone further than most in embracing early-years digitalisation. The country had not merely allowed devices in preschool, it had in places mandated them, treating digital interaction as a developmental right alongside physical play and social learning. There was a logic to it, however misplaced: if the future is digital, surely children should encounter that future as early as possible.

The problem is that young children are not miniature adults navigating a digital workplace. They are human beings in the early stages of acquiring language, developing fine-motor-skills, building concentration and learning to regulate their own attention. These are not processes that are enhanced by a swipeable screen. Research on early childhood development is consistent on this point: young children learn language through conversation, storytelling, and physical manipulation of objects. They learn to write by writing, by the slow, muscular, tactile process of forming letters with a hand.

By 2023, Swedish education authorities had seen enough. Reading comprehension scores were down. Handwriting was deteriorating. Teachers were reporting that children were arriving in primary school unable to hold a pen properly. The policy reversed. Books came back. Cursive writing was reintroduced. The national curriculum was amended. And Sweden became, instead, a cautionary tale about what happens when you swap crayons for touchscreens before children have learned what crayons are for.

Australia: Banning Phones at Lunch

Australia’s approach to primary school digitalisation has been somewhat less ideologically charged than Scandinavia’s, and accordingly its reversal has been more pragmatic than philosophical. Australian states and territories arrived at phone bans largely through the accumulating pressure of parent complaints, teacher frustration and growing evidence that smartphones were damaging the social fabric of school life, not just in classrooms, but in playgrounds.

Queensland’s ‘away for the day’ policy, introduced in Term 1 of 2024, was notable precisely because it extended beyond lesson time to cover break times as well. This was a direct acknowledgement that the problem was not simply digital distraction during learning, it was the way that always-on connectivity was transforming childhood itself. Children who spend every break time on a phone are not playing, not resolving social conflicts face to face, not developing the unstructured social skills that primary school has always, if accidentally, taught.

The cyberbullying dimension added particular urgency in Australia, where research showed that many incidents of online harassment between primary-school children were occurring during school hours, facilitated by the phones sitting in their pockets. Banning the phone at the school gate did not solve the problem of online cruelty, but it did remove the school day as a venue for it.

The Science of the Pencil

The cognitive argument for handwriting in primary education is, it turns out, and far more interesting than the popular ‘screens bad, pencils good’ slogan suggests. The research on note-taking in university students, the finding that handwritten notes produce better conceptual understanding than typed notes, has a more fundamental parallel in primary education.

When a young child learns to write by hand, they are not merely practising a motor skill. They are encoding letters through physical movement, which activates memory systems that visual recognition alone does not reach. Studies in developmental psychology suggest that children who learn to write letters by hand recognise them faster and more accurately than those who learn through typing or tracing on screens. The hand, it appears, teaches the brain in ways the finger-swipe does not.

This does not mean that digital tools have no place in primary education, nobody sensible is arguing that children should graduate from primary school unable to use a keyboard. The question is sequencing and proportion. The emerging consensus, hard-won through a decade of failed experiments, is that foundational literacy and numeracy need to be established through analogue means before digital tools are introduced as supplements. Screens can follow pencils. Pencils, it turns out, cannot follow screens without catching up on what was missed.

The hand teaches the brain in ways the finger-swipe does not. And it took a decade of falling scores to rediscover this.

The Rest of the World Is Still Buying Tablets

Here is the uncomfortable part. While Finland legislates, Sweden reverses course and Australia bans phones from playgrounds, a large portion of the world’s primary schools are doing the opposite. Governments across South and Southeast Asia, Sub-Saharan Africa and Latin America are actively expanding device programmes in primary schools. Tablets are being distributed. Interactive whiteboards are being installed. AI tutoring apps are being piloted. The logic is identical to the logic Finland and Sweden followed 15 years ago: modernise, digitalise, equip children for the future.

The vendors selling these systems are not telling ministers about the Swedish U-turn. The development banks financing device programmes are not adjusting their models to reflect the OECD’s inverted-U curve. The international consultants advising education ministries are largely still working from a playbook written in 2010.

The lesson of the Nordic reversal is not that screens are evil, it is that screens at the wrong stage, in the wrong proportion, without the right pedagogical framework, undermine the very foundations they are supposed to build on. That lesson is available. The question is whether anyone is listening.

What Primary Schools Actually Need

Literacy and numeracy are not enhanced by early device saturation. They are built through reading aloud, through writing by hand, through mathematical reasoning with physical objects, and through the irreplaceable medium of a skilled teacher who knows their students.

Technology in primary education works best when it supplements a strong foundation, not when it substitutes for one that has not yet been built. Sweden and Finland did not fail because they used technology. They failed because they used it too extensively, and without asking what it was actually for. That question — what is this for? — is the one that every primary school system in the world should be asking before it signs another tablet contract.

SERIES ROADMAP Part I: From Ed-Tech Enthusiasm to De-Digitalisation | Part II: Phones, Pens & Early Literacy (this article) | Part III: Attention, Algorithms & Adolescents | Part IV: Universities, AI & the Handwritten Exam | Part V: A Critical Theory of Educational De-Digitalisation

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT, Malabe. The views and opinions expressed in this article are personal.)

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Government is willing to address the past

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Minister Ratnayake

Minister Bimal Rathnayake has urged all Sri Lankan refugees in India to return to Sri Lanka, stating that provision has been made for their reintegration. He called on India to grant citizenship to those who wished to stay on in India, but added that the government would welcome them back with both hands if they chose Sri Lanka. He gave due credit to the Organisation for Eelam Refugees Rehabilitation (OfERR), an NGO led by S. C. Chandrahasan, the son of S. J. V. Chelvanayakam, widely regarded as the foremost advocate of a federal solution and a historic leader of the Federal Party. OfERR has for decades assisted refugees, particularly Sri Lankan Tamils in India, with documentation, advocacy and voluntary repatriation support. Given the slow pace of resettlement of Ditwah cyclone victims, the government will need to make adequate preparations for an influx of Indian returnees for which it will need all possible assistance. The minister’s acknowledgement indicates that the government appreciates the work of NGOs when they directly assist people.

The issue of Sri Lankan refugees in India is a legacy of the three-decade long war that induced mass migration of Tamil people to foreign countries. According to widely cited estimates, the Sri Lankan Tamil diaspora today exceeds one million and is often placed between 1 and 1.5 million globally, with large communities in Canada, the United Kingdom and Australia. India, particularly Tamil Nadu, continues to host a significant refugee population. Current figures indicate that approximately 58,000 to 60,000 Sri Lankan Tamil refugees live in camps in India, with a further 30,000 to 35,000 living outside camps, bringing the total to around 90,000. These numbers have declined over time but remain one of the most visible human legacies of the conflict.

The fact that the government has chosen to make this announcement at this time indicates that it is not attempting to gloss over the human rights issues of the past that continue into the present. Those who suffered victimisation during the war may be encouraged that their concerns remain on the national agenda and have not been forgotten. Apart from those who continue to be refugees in India, there are more than 14,000 complaints of missing persons still under investigation according to the Office on Missing Persons, which has received tens of thousands of complaints since its establishment. There are also unresolved issues of land taken over by the military as high security zones, though some land has been released, and prisoners held in long term detention under the Prevention of Terrorism Act, which the government has pledged to repeal and replace.

Sequenced Response

In addressing the issue of Sri Lankan Tamil refugees in India, the government is sending a message to the Tamil people that it is not going to gloss over the past. The indications are that the government is sequencing its responses to problems arising from the past. The government faces a range of urgent challenges, some inherited from previous governments, such as war era human rights concerns, and others that have arisen more recently after it took office. The most impactful of these crises are not of its own making. Global economic instability has affected Sri Lanka significantly. The Middle East war has contributed to a shortage of essential fuels and fertilizers worldwide. Sri Lanka is particularly vulnerable to rising fuel prices. Just months prior to these global pressures, Sri Lanka faced severe climate related shocks, including being hit by a cyclone that led to floods and landslides across multiple districts and caused loss of life and extensive damage to property and livelihoods.

From the beginning of its term, the government has been compelled to prioritise economic recovery and corruption linked to the economy, which were central to its electoral mandate. As the International Monetary Fund has emphasised, Sri Lanka must continue reforms to restore macroeconomic stability, reduce debt vulnerabilities and strengthen governance. The economic problems that the government must address are urgent and affect all communities, whether in the north or south, and across Sinhalese, Tamil and Muslim populations. These problems cannot be postponed. However, issues such as dealing with the past, holding provincial council elections and reforming the constitution are not experienced as equally urgent by the majority, even though they are of deep importance to minorities. Indeed, the provincial council system was designed to address the concerns of the minorities and a solution to their problems.

Unresolved grievances tend to reappear in new forms when not addressed through political processes. Therefore, they need to be addressed sooner rather than later, even if they are not the most immediate priorities for the government. It must not be forgotten that the ethnic conflict and the three decade long war it generated was the single most destructive blow to the country, greatly diminishing its prospects for rapid economic development. Prolonged conflict reduced investment, diverted public expenditure and weakened institutions. If Sri Lanka’s early leaders had been able to negotiate peacefully and resolve their differences, the country might have fulfilled predictions that it could become the “Switzerland of the East.”

Present Opportunity

The present government has a rare opportunity to address the issues of the past in a way that ensures long term peace and justice. It has a two thirds majority in parliament, giving it the constitutional space to undertake significant reforms. It has also demonstrated a more inclusive approach to ethnic and religious minorities than many earlier governments which either mobilized ethnic nationalism for its own purposes or feared it too much to take political risks to undertake necessary reforms. Public trust in the government, as noted by international observers, remains relatively strong. During her recent visit, IMF Director General Kristalina Georgieva stated that “there is a window of opportunity for Sri Lanka,” noting that public trust in the government provides a foundation for reform.

It also appears that decades of public education on democracy, human rights and coexistence have had positive effects. This education, carried out by civil society organisations over several decades, sometimes in support of government initiatives and more often in the face of government opposition, provides a foundation for political reform aimed at justice and reconciliation. Civil society initiatives, inter-ethnic dialogue and rights-based advocacy have contributed to shaping a more informed public about controversial issues such as power-sharing, federalism and accountability for war crimes. The government would do well to expand the appreciation it has deservedly given to OfERR to other NGOs that have dedicated themselves addressing the ethnic and religious mistrust in the country and creating greater social cohesion.

The challenge for the government is to engage in reconciliation without undue delay, even as other pressures continue to grow. Sequencing is necessary, but indefinite postponement carries risks. If this opportunity for conflict resolution is not taken, it may be a long time before another presents itself. Sri Lanka may then continue to underperform economically, remaining an ethnically divided polity, not in open warfare, but constrained by unresolved tensions. The government’s recent reference to Tamil refugees in India is therefore significant. It shows that even while prioritising urgent economic and global challenges, it has not forgotten the past. Sri Lanka has a government with both the mandate and the capacity to address that past in a manner that secures a more stable and just future for all its people.

By Jehan Perera

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Strategic diplomacy at Sea: Reading the signals from Hormuz

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The unfolding tensions and diplomatic manoeuvres around the Strait of Hormuz offer more than a snapshot of regional instability. They reveal a deeper transformation in global statecraft, one where influence is exercised through calibrated engagement rather than outright confrontation. This is strategic diplomacy in its modern form: restrained, calculated, and layered with competing interests.

At first glance, the current developments may appear as routine diplomatic exchanges aimed at preventing escalation. However, beneath the surface lies a complex web of signalling among major and middle powers. The United States seeks to maintain deterrence without triggering an open conflict. Iran aims to resist pressure while avoiding isolation. Meanwhile, China and India, two rising powers with expanding global interests are navigating the situation with careful precision.

China’s position is anchored in economic pragmatism. As a major importer of Gulf energy, Beijing has a direct stake in ensuring that the Strait of Hormuz remains open and stable. Any disruption would reverberate through its industrial base and global supply chains. Consequently, China advocates de-escalation and diplomatic resolution. Yet, this is not purely altruistic. Stability serves China’s long-term strategic ambitions, including the protection of its Belt and Road investments and maritime routes. At the same time, Beijing remains alert to India’s growing diplomatic footprint in the region. Should India deepen its engagement with Iran and other Gulf actors, it could gradually reshape the strategic balance in areas traditionally influenced by China.

India’s approach, in contrast, reflects a confident and increasingly sophisticated foreign policy. By engaging Iran directly, while maintaining working relationships with Western powers, New Delhi is positioning itself as a credible intermediary. This is not merely about energy security, though that remains a key driver. It is also about strategic autonomy the ability to act independently in a multipolar world. India’s diplomacy signals that it is no longer a passive player but an active shaper of regional outcomes. Its engagement with Iran, particularly in the context of connectivity and trade routes, underscores its intent to secure long-term strategic access while countering potential encirclement.

Iran, for its part, views the situation through the lens of survival and strategic resilience. Years of sanctions and pressure have shaped a cautious but pragmatic diplomatic posture. Engagement with external actors, including India and China, provides Tehran with avenues to ease isolation and assert relevance. However, Iran’s trust deficit remains significant. Its diplomacy is transactional, focused on immediate gains rather than long-term alignment. The current environment offers opportunities for tactical advantage, but Iran is unlikely to make concessions that could compromise its core strategic objectives.

Even actors on the periphery, such as North Korea, are closely observing these developments. Pyongyang interprets global events through a narrow but consistent framework: regime survival through deterrence. The situation around Iran reinforces its belief that leverage, particularly military capability, is a prerequisite for meaningful negotiation. While North Korea is not directly involved, it draws lessons that may shape its own strategic calculations.

What emerges from these varied perspectives is a clear departure from traditional bloc-based geopolitics. The world is moving towards a more fluid and fragmented order, where alignments are temporary and issue-specific. States cooperate on certain matters while competing with others. This creates a dynamic but unpredictable environment, where misinterpretation and miscalculation remain constant risks.

It is within this evolving context that Sri Lanka’s strategic relevance becomes increasingly visible. The recent visit by the US Special Envoy for South and Central Asia, Sergio Gor, to the Colombo Port; is not a routine diplomatic courtesy call. It is a signal. Ports are no longer just commercial gateways; they are strategic assets embedded in global power competition. A visit of this nature underscores how Sri Lanka’s maritime infrastructure is being viewed through a geopolitical lens particularly in relation to sea lane security, logistics, and regional influence.

Such engagements reflect a broader reality: global powers are not only watching the Strait of Hormuz but are also positioning themselves along the wider Indian Ocean network that connects it. Colombo, situated along one of the busiest east–west shipping routes, becomes part of this extended strategic theatre. The presence and interest of external actors in Sri Lanka’s ports highlight an emerging pattern of influence without overt control a hallmark of modern strategic diplomacy.

For Sri Lanka, these developments are far from abstract. The island’s strategic location along major Indian Ocean shipping routes places it at the intersection of these global currents. The Strait of Hormuz is a vital artery for global energy flows, and any disruption would have immediate consequences for Sri Lanka’s economy, particularly in terms of fuel prices and supply stability.

Moreover, Sri Lanka must manage the competing interests of larger powers operating within its vicinity. India’s expanding regional role, China’s entrenched economic presence, and the growing attention from the United States all converge in the Indian Ocean. This requires a careful balancing act. Aligning too closely with any one power risks alienating others, while inaction could leave Sri Lanka vulnerable to external pressures.

The appropriate response lies in adopting a robust foreign policy that engages all major stakeholders while preserving national autonomy. This involves strengthening diplomatic channels, enhancing maritime security capabilities, and investing in strategic foresight. Sri Lanka must also recognise the growing importance of non-traditional security domains, including cyber threats and information warfare, which increasingly accompany geopolitical competition.

Equally important is the need for internal coherence. Effective diplomacy abroad must be supported by institutional strength at home. Policy consistency, professional expertise, and strategic clarity are essential if Sri Lanka is to navigate an increasingly complex international environment.

The situation in the Strait of Hormuz thus serves as both a warning and an opportunity. It highlights the fragility of global systems, but also underscores the potential for skilled diplomacy to manage tensions. For Sri Lanka, the challenge is not merely to observe these developments, but to position itself wisely within them.

In a world where power is no longer exercised solely through force, but through influence and presence, strategic diplomacy becomes not just an option, but a necessity. The nations that succeed will be those that understand this shift now and act with clarity, balance, and foresight.

Mahil Dole is a senior Sri Lankan police officer with over four decades of experience in law enforcement and intelligence. He previously served as Head of the Counter-Terrorism Division of the State Intelligence Service and has conducted extensive interviews with more than 100 suicide cadres linked to terrorist organisations. He is a graduate of the Asia-Pacific Centre for Security Studies (Hawaii).

By Mahil Dole
Senior Police Officer (Retd.), Former Head of Counter-Terrorism Division, State Intelligence Service, Sri Lanka

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