Features
Domestic Debt Restructuring – An Alternate View
by Romesh Bandaranaike, Ph.D.
There have been substantial and wide spread criticisms of the recently instituted Domestic Debt Restructuring (DDR) scheme carried out by Central Bank of Sri Lanka (CBSL), to reduce the Sri Lanka Government’s requirements for funding. In this article I argue that the scheme, as structured and carried out by CBSL, is appropriate, given the ground realities in the country, and that the critics have ignored a number of factors which forced CBSL to design the scheme as it did. I then suggest additional steps the Government could take to further improve its financial position in connection with past Bond issues.
The DDR Scheme
Faced with massive shortfalls in revenue, the Government recently carried out a “restructuring” of the debts it owed on Sri Lanka Rupee denominated Treasury Bills and Bonds in an effort to substantially improve Government finances, including the funds needed to service these Bills/Bonds. The two key elements of the DDR are a) Converting all Treasury Bills presently owned by CBSL to longer term Treasury Bonds, thereby substantially delaying the payment dates on these Bills; and b) Effectively “forcing” the Employees Provident Fund (EPF) and other superannuation funds to exchange most of the Bonds they hold for 12 year Bonds with somewhat lower interest payments.
They did this by threatening to increase the tax rates that EPF pays on its annual income to 30% from the present 14%, if they did not accept the Bond exchange. Since such an increase was financially worse for EPF compared with the Bond exchange, EPF opted for the latter.
CBSL estimates that the scheme would reduce the Gross Financing Needs (GFN) of the Government by 1.5%, 1% by the CBSL Bill-Bond exchange and 0.5% by the EPF Bond exchange.
The Criticisms
The principal criticisms of the DDR, from the public, Trade Unions, Economic Think Tanks, and numerous “Experts,” is that the entire burden of the DDR is being placed on the backs of the retirement savings of “poor workers” who are the members of EPF.
CBSL has justified the proposed increase in the tax rates for EPF and other superannuation funds to 30% from the present 14% on the basis that the banks have to pay the higher tax rate of 30% plus VAT. Dr. Wijewardena, a former CBSL Deputy Governor, has written several articles criticizing CBSL for not presenting the correct picture in this regard and not disclosing full information on the impacts of the restructuring on EPF members’ returns. Dr. W’s main argument is that, in the case of the banks, the tax rate applies to “net interest”, whereas, in the case of the EPF, it applies to “gross interest.” For the banks, net interest is interest earnings on its loans less the interest it pays to depositors.
In the case of EPF, Dr. W points out that EPF is not allowed to subtract the interest it pays to EPF account holders to determine its income and tax liability, and that CBSL comparison of bank and EPF tax rates is therefore misleading. In a subsequent article by Dr. W, he criticizes CBSL/EPF for not fully disclosing the cost to EPF holders of accepting the proposed DDR compared with an increase in EPF’s tax rate to 30% and the justification for accepting the Bond exchange rather than the tax increase to 30%. He goes on to add that CBSL has a conflict of interest as both the developer of Government policy and as the administrator of EPF.
My Responses to the Criticisms
The criticism that the entire burden of the DDR is on the backs of workers is factually incorrect. As stated above, two-third of the 1.5% reduction in GFN (1%) is being achieved by exchanging the Treasury Bills held by CBSL for long term Bonds. Only 0.5% of the reduction is from the exchange of Bonds held by the EPF and other superannuation funds. In other words, 67% of the restructuring cost is borne by CBSL (in effect by all citizens), while only 33% is borne by EPF account holders. Furthermore, only workers in the formal private sector contribute to the EPF/ETF, while workers in the informal private sector (e.g. farmers, fishermen, small transporters, traders and construction workers) and Government employees do not.
As a result, only about 25-30% of the workers in the country have EPF accounts. Therefore, 70-75% of workers in the country will not suffer any burden due to the EPF bond restructuring. Finally, the workers with EPF accounts also include middle and senior management of companies who cannot be called “poor workers” as referred to in the various criticisms of the present DDR scheme. It is true that this category may only be a very small percentage of those holding EPF accounts. However, their account balances are likely to be very much higher than other EPF members and the impact of the restructuring on them will be proportional to these balances.
It would be ideal if the EPF could release statistics in this regard which will allow an assessment of this element. For example, the fraction of the total EPF funds held by those with EPF balances of over Rs 5 million (say), since such persons cannot be classified as “poor workers.” Workers who have balances in EPF/ETF, built up as a result of deductions from their salaries and additional higher contributions from their employers, at least have a retirement fund they can turn to, even if it is somewhat less because of the DDR. It could conceivably be argued that the 70-75% of workers who do not have such balances, mostly working in the informal sector, are worse off or poorer than those with EPF balances. This would be a justification for placing the burden of part of the DDR on EPF account holders rather than on other, even “poorer”, workers.
In response to Dr. W’s criticisms that EPF and bank tax rates are not comparable the way CBSL has done; each year, EPF determines a percentage it will pay/accrue to the account of each EPF account holder based on the earnings by the EPF that year. This percentage is not an interest similar to that paid by banks to its depositors and is not a cost that is deductible by EPF to calculate its tax liability each year. It is simply a percentage decided by the EPF administrators to allocate the profits after tax earned by the EPF during the year. Calling this percentage an “interest” is a misnomer. Account holders in EPF are akin to shareholders in banks and not depositors.
The amounts credited by EPF to a member’s account each year, based on EPF’s earnings during the year, is not a cost incurred by EPF in generating these earnings. It is something closer to a dividend paid by a bank to its shareholders in the form of additional shares. If EPF is allowed to determine its tax liabilities by subtracting these accrued amounts, banks should be able to deduct dividend costs in determining their tax liabilities. Dr. W’s criticism of the non-comparability of bank and EPF tax rates cannot be sustained.
Dr. W uses CBSL/EPF’s own numbers on the differences in returns under the two scenarios EPF has been offered and simply multiplies it by the total EPF Bond holding value to arrive at the cost to EPF of accepting the Bond exchange. This is something that could have readily been done by anyone and Dr. W’s implication that CBSL/EPF is hiding/not fully disclosing something in its statement cannot be sustained.
The CBSL/EPF analysis is simply to show that the return to EPF is better under the scenario where it accepts the DDR option, compared to rejecting the DDR option and being subject to a 30% tax rate. This information is more than sufficient for EPF to recommend to its Board that it should accept the DDR. Dr. W than goes into the past history of taxation rates applicable to the EPF and points out that as originally envisaged EPF earnings were to be tax exempt.
He shows calculations of the losses to EPF holders of the present DDR, compared with a situation if EPF earnings were tax exempt. This is a straw man put up by Dr. W to be knocked down as part of his criticism of CBSL/EPF. It is the tax rates that are applicable to EPF today, before the DDR, that are relevant and it would have been nonsensical for CBSL to show calculations based on what if the tax rates were those that existed many years ago.
With respect to the criticism that CBSL has a conflict of interest in both being the administrator of EPF and the policy advisor recommending the DDR, I do not see any conflict. CBSL, as advisor to the Government, has made the DDR proposal which allows EPF to choose between two options, accept the proposed DDR Bond exchange or reject it and be subject to a 30% tax rate. As the administrator of the EPF, CBSL has simply analysed these two options and clearly shown that the EPF is better off accepting the Bond exchange compared with rejecting it and being subject to a 30% tax rate.
Other Relevant Issues
It is telling that none of those criticizing the present process have offered any viable alternative DDR arrangement to achieve the same objectives as the present exercise. In saying this, I am ignoring the suggestions by some parties who say there would be no need for the exercise if “The money stolen by the Rajapaksa’s is recovered” or “The large corruption in Government is reduced,” and so on. Such actions, even if they were possible, are not alternatives, because they cannot be achieved in the short or medium term, which is one of the key objectives of the DDR. Verite Research did, some time ago before the announcement of the present DDR, present some analysis on a possible DDR which included sharing the cut across all Bond holders, but, for the reasons I refer to below, this is not a viable arrangement.
CBSL in its original presentation to the Cabinet, and subsequently to the public, argued that it would be prudent to exclude the Banks from the DDR exercise, because these institutions were already under stress as a result of COVID related business failures and because the banks would also be taking a hit from the future restructuring of USD Bonds, some of which are held by them.
CBSL was of the view that such an exclusion was essential to ensure financial system stability. None of those criticizing the present DDR arrangements have objected to this and I concur with that view. Even if the banks are able to bear the burden of some restructuring of the domestic bonds they hold, bank stability is also dependent on public perception, and excluding them from the DDR has certainly had a positive impact on such perception.
There are two unstated conditions applicable to the DDR exercise which have received no mention in the ongoing discussions. First, the DDR should be concluded in a short time frame since it will be a pre-condition to the restructuring of foreign currency debt. Second, it must be carried out in a legally valid manner. A Government Bond is a legal contract between the Government and the holder of the Bond.
The Government is legally obligated to pay the interest coupon and the principal of the Bond on specified dates according to this legal contract. The Government has no legal authority to change the conditions of this Bond. It could, of course, pass a new law in Parliament giving itself the authority to make changes to existing Bonds. In doing so, however, if all Bond holders are not treated equally (in particular, if the bank holdings of Bonds are excluded), there are bound to be legal challenges in the Courts to any such changes, and the changes may well be struck down by the Courts.
Even if such changes are not struck down, this process can take considerable time to be determined and would not be achievable in the time frame required for the DDR process to be concluded as discussed previously. The present DDR has finessed the issue of different treatments of Bond holders by making it “voluntary”, albeit by holding a gun to the head of the EPF and superannuation funds in the manner detailed earlier. This is draconian, but effective.
As per CBSL statistics presented in connection with the original DDR proposal, the total outstanding amount of Treasury Bonds at that time was Rs. 8,700 billion. Of this amount Rs 1,644 billion is held by “Others”, after excluding the banks and EPF and superannuation funds being subject to the DDR. Even if the banks are excluded from the DDR to ensure “financial system stability” reasons mentioned previously, it would have been ideal if the “Others” holding the Rs 1,644 billion in outstanding Bonds were subject to some “restructuring”, in the form of cuts in coupon rates and/or face value, or an extension of the tenor of these Bonds.
If this was done, the benefit of these cuts could have been passed on in the form of a reduction in the burden passed onto EPF and superannuation funds. However, such an unequal treatment where some Bond holders (the banks) are excluded, even if the necessary legislation is passed, would certainly have resulted in legal challenges which would, at the least, have delayed the process as I have pointed out earlier, or even been found unconstitutional by the Courts.
Further Actions in Respect of Bonds
Very high yield rate Bonds (over 20% yield) were issued by the Government during the period prior to the announcement of the DDR (April 8, 2022 to March 13, 2023) as a consequence of severe financial shortages faced by the Government. Bidders for these Bonds added a premium to the bid yield rates, expecting a future restructuring of these Bonds as part of the DDR they knew was coming. By being excluded from the DDR, these Bond holders have enjoyed a “windfall profit.” It is not possible to specifically target these Bonds for a cut in coupons or face value, because many of the original holders may have sold some of these Bonds and have already earned the windfall profits.
[The buyers of the Bonds would only receive a “normal” profit in the form of coupon payments and final redemption.] Furthermore, in the case of individual Bond holders, their windfall profit would be in the form of a capital gain, which only attracts a tax rate of 10%. Corporates/ banks in the same situation would be paying a tax of 30% on their capital gains. I propose that the Government should “claw back” some of these profits by imposing a special windfall tax rate of 50% applicable to all profits derived from these Bonds. If the original purchaser has not sold the Bonds, the coupon interest and the capital gains on final face value redemption should also be taxed at 50%.
There would be some complications in structuring this tax, since some high yield Bonds may have changed hands within the period that high yield Bonds were still being issued, which means that the initial purchaser would only have made a small capital gain and the next buyer would still be enjoying the high coupon rate or subsequently selling the Bond for a large capital gain. A proper structuring of the 50% windfall tax can ensure that the taxes fall on those making the windfall profits. A tax of the type proposed will clearly be borne by the wealthy, who would have been the purchasers of these Bonds, and go some way towards balancing the burden imposed on less wealthy parties as a result of the DDR.
To place this suggestion in perspective, between April 8, 2022 and March 13, 2023 all Bonds issued by CBSL had yield rates in excess of 20%. The total face value of such Bonds was Rs 1,233 billion. The weighted average yield on these Bonds was 27.89% and the weighted average coupons in these Bonds was 19.09%. The latest four-year Bond yield rate is approximately 15% and this is likely to drop further.
As a result, any seller today of an average high yield Bond would make a significant capital gain on the sale and would need to pay substantial taxes to the Government at the proposed 50% windfall tax rate. As per CBSL statistics in the original CBSL presentation to the Cabinet, approximately 63.5% of all Bonds at that time were held by the banks and the “Other” category. If this percentage is also applicable to the high yield Bonds referred to above, the banks and the “Other” category would be holding Rs 777 billion of these Bonds.
Advocata has recently analysed EPF’s Bond portfolio prior to the DDR Bond exchange and concluded that EPF’s share of high yield Bonds was proportionately much less than for other Bond holders. Therefore, banks and “Others” would probably be holding even more than the above mentioned Rs 777 billion in such high yield Bonds which, in turn, will mean that a 50% windfall tax on the profits from these Bonds will result in substantial tax revenues for the Government.
An aside at this point is that for some unclear reason there is no withholding tax (WHT) applied to the interest earnings on Bonds as in the case of interest earnings from deposits in banks and finance companies. I have made inquiries as to why this is so from several senior Government officials and have not received any explanation for the practice.
It may well be that some Bond holders do not even have income tax files and that they are evading all taxes payable on Bond interest. Since Bond holders are all likely to be at the highest tax bracket given the minimum sizes of Bond investments, I suggest that a WHT of 30% be applied to all Bond interest payments. Holders are free to file tax returns and seek a refund if they have been taxed in excess of their liability due to such a WHT. I have been told there is some complication in applying WHT to Bond interest held by foreigners. If that is indeed the case, foreign holdings of Bonds could be excluded.
Conclusions
The economy of the country is in dire straits as a result primarily of bad/foolish policies of recent past Governments (including those by CBSL under its previous two Governors and Monetary Boards at that time) coupled with the endemic corruption inherent in the system. The present Governor of CBSL and his professional colleagues are facing very difficult conditions and are striving to get the country’s finances back on track.
I can understand trade unions, workers and other similar entities objecting to the implementation of policies which directly impact them, irrespective of whether such policies are needed to solve the country’s issues. But, why is it that so called “experts” and think tanks do not recognize the ground realities of what is practically achievable and support the efforts of CBSL rather than criticizing these efforts in print and at discussion forums?
(The author is an economist with wide experience in policy formulation and implementation in the Ministry of Finance and has worked at CEO level in both public and private sectors.
A new Era of Dance in Sri Lanka
Kapila Palihawadana, an internationally renowned dancer and choreographer staged his new dance production, Riddhi-Ma, on 28 March 2025 at the Elphinstone theatre, which was filled with Sri Lankan theatregoers, foreign diplomats and students of dance. Kapila appeared on stage with his charismatic persona signifying the performance to be unravelled on stage. I was anxiously waiting to see nATANDA dancers. He briefly introduced the narrative and the thematic background to the production to be witnessed. According to him, Kapila has been inspired by the Sri Lankan southern traditional dance (Low Country) and the mythologies related to Riddhi Yâgaya (Riddi Ritual) and the black magic to produce a ‘contemporary ballet’.
Riddhi Yâgaya also known as Rata Yakuma is one of the elaborative exorcism rituals performed in the southern dance tradition in Sri Lanka. It is particularly performed in Matara and Bentara areas where this ritual is performed in order to curb the barrenness and the expectation of fertility for young women (Fargnoli & Seneviratne 2021). Kapila’s contemporary ballet production had intermingled both character, Riddi Bisaw (Princes Riddhi) and the story of Kalu Kumaraya (Black Prince), who possesses young women and caught in the evil gaze (yaksa disti) while cursing upon them to be ill (De Munck, 1990).
Kapila weaves a tapestry of ritual dance elements with the ballet movements to create visually stunning images on stage. Over one and a half hours of duration, Kapila’s dancers mesmerized the audience through their virtuosic bodily competencies in Western ballet, Sri Lankan dance, especially the symbolic elements of low country dance and the spontaneity of movements. It is human bodily virtuosity and the rhythmic structures, which galvanised our senses throughout the performance. From very low phases of bodily movements to high speed acceleration, Kapila managed to visualise the human body as an elevated sublimity.
Contemporary Ballet
Figure 2 – (L) Umesha Kapilarathna performs en pointe, and (R) Narmada Nekethani performs with Jeewaka Randeepa, Riddhi-Ma, at Elphinstone Theatre, Maradana, 28th March 2025. Source:
Malshan Witharana
The dance production Riddhi-Ma was choreographed in several segments accompanied by a flow of various music arrangements and sound elements within which the dance narrative was laid through. In other words, Kapila as a choreographer, overcomes the modernist deadlock in his contemporary dance work that the majority of Sri Lankan dance choreographers have very often succumbed to. These images of bodies of female dancers commensurate the narrative of women’s fate and her vulnerability in being possessed by the Black Demon and how she overcomes and emancipates from the oppression. In this sense, Kapila’s dancers have showcased their ability to use the bodies not much as an object which is trained to perform a particular tradition but to present bodily fluidity which can be transformed into any form. Kapila’s performers possess formlessness, fluid fragility through which they break and overcome their bodily regimentations.
It was such a highly sophisticated ‘contemporary ballet’ performed at a Sri Lankan theatre with utmost rigour and precision. Bodies of all male and female dancers were highly trained and refined through classical ballet and contemporary dance. In addition, they demonstrated their abilities in performing other forms of dance. Their bodies were trained to achieve skilful execution of complex ballet movements, especially key elements of traditional ballet namely, improvisation, partnering, interpretation and off-balance and the local dance repertoires. Yet, these key ballet elements are not necessarily a part of contemporary ballet training (Marttinen, 2016). However, it is important for the dance students to learn these key elements of traditional ballet and use them in the contemporary dance settings. In this sense, Kapila’s dancers have achieved such vigour and somatic precision through assiduous practice of the body to create the magic on stage.
Pas de deux
Among others, a particular dance sequence attracted my attention the most. In the traditional ballet lexicon, it is a ‘pas de deux’ which is performed by the ‘same race male and female dancers,’ which can be called ‘a duet’. As Lutts argues, ‘Many contemporary choreographers are challenging social structures and norms within ballet by messing with the structure of the pas de deux (Lutts, 2019). Pas de Deux is a dance typically done by male and female dancers. In this case, Kapila has selected a male and a female dancer whose gender hierarchies appeared to be diminished through the choreographic work. In the traditional pas de deux, the male appears as the backdrop of the female dancer or the main anchorage of the female body, where the female body is presented with the support of the male body. Kapila has consciously been able to change this hierarchical division between the traditional ballet and the contemporary dance by presenting the female dominance in the act of dance.
The sequence was choreographed around a powerful depiction of the possession of the Gara Yakâ over a young woman, whose vulnerability and the powerful resurrection from the possession was performed by two young dancers. The female dancer, a ballerina, was in a leotard and a tight while wearing a pair of pointe shoes (toe shoes). Pointe shoes help the dancers to swirl on one spot (fouettés), on the pointed toes of one leg, which is the indication of the ballet dancer’s ability to perform en pointe (The Kennedy Centre 2020).
The stunning imagery was created throughout this sequence by the female and the male dancers intertwining their flexible bodies upon each other, throwing their bodies vertically and horizontally while maintaining balance and imbalance together. The ballerina’s right leg is bent and her toes are directed towards the floor while performing the en pointe with her ankle. Throughout the sequence she holds the Gara Yakâ mask while performing with the partner.
The male dancer behind the ballerina maintains a posture while depicting low country hand gestures combining and blurring the boundaries between Sri Lankan dance and the Western ballet (see figure 3). In this sequence, the male dancer maintains the balance of the body while lifting the female dancer’s body in the air signifying some classical elements of ballet.
Haptic sense
Figure 3: Narmada Nekathani performs with the Gara Yaka mask while indicating her right leg as en pointe. Male dancer, Jeewaka Randeepa’s hand gestures signify the low country pose. Riddhi-Ma, Dance Theatre at Elphinstone Theatre, 28th March 2025. Source: Malshan Witharana.
One significant element of this contemporary ballet production is the costume design. The selection of colour palette, containing black, red and while combining with other corresponding colours and also the costumes which break the traditional rules and norms are compelling. I have discussed in a recent publication how clothes connect with the performer’s body and operate as an embodied haptic perception to connect with the spectators (Liyanage, 2025). In this production, the costumes operate in two different ways: First it signifies sculpted bodies creating an embodied, empathic experience.
Secondly, designs of costumes work as a mode of three dimensional haptic sense. Kapila gives his dancers fully covered clothing, while they generate classical ballet and Sinhalese ritual dance movements. The covered bodies create another dimension to clothing over bodies. In doing so, Kapila attempts to create sculpted bodies on stage by blurring the boundaries of gender oriented clothing and its usage in Sri Lankan dance.
Sri Lankan female body on stage, particularly in dance has been presented as an object of male desire. I have elsewhere cited that the lâsya or the feminine gestures of the dance repertoire has been the marker of the quality of dance against the tândava tradition (Liyanage, 2025). The theatregoers visit the theatre to appreciate the lâsya bodies of female dancers and if the dancer meets this threshold, then she becomes the versatile dancer. Kandyan dancers such as Vajira and Chithrasena’s dance works are explored and analysed with this lâsya and tândava criteria. Vajira for instance becomes the icon of the lâsya in the Kandyan tradition. It is not my intention here to further discuss the discourse of lâsya and tândava here.
But Kapila’s contemporary ballet overcomes this duality of male-female aesthetic categorization of lâsya and tândava which has been a historical categorization of dance bodies in Sri Lanka (Sanjeewa 2021).
Figure 4: Riddhi-Ma’s costumes creates sculpted bodies combining the performer and the audience through empathic projection. Dancers, Sithija Sithimina and Senuri Nimsara appear in Riddhi-Ma, at Elphinstone Theatre, 28th March 2025, Source, Malshan Witharana.
Conclusion
Dance imagination in the Sri Lankan creative industry exploits the female body as an object. The colonial mind set of the dance body as a histrionic, gendered, exotic and aesthetic object is still embedded in the majority of dance productions produced in the current cultural industry. Moreover, dance is still understood as a ‘language’ similar to music where the narratives are shared in symbolic movements. Yet, Kapila has shown us that dance exists beyond language or lingual structures where it creates humans to experience alternative existence and expression. In this sense, dance is intrinsically a mode of ‘being’, a kinaesthetic connection where its phenomenality operates beyond the rationality of our daily life.
At this juncture, Kapila and his dance ensemble have marked a significant milestone by eradicating the archetypical and stereotypes in Sri Lankan dance. Kapila’s intervention with Riddi Ma is way ahead of our contemporary reality of Sri Lankan dance which will undoubtedly lead to a new era of dance theatre in Sri Lanka.
References
De Munck, V. C. (1990). Choosing metaphor. A case study of Sri Lankan exorcism. Anthropos, 317-328. Fargnoli, A., & Seneviratne, D. (2021). Exploring Rata Yakuma: Weaving dance/movement therapy and a
Sri Lankan healing ritual. Creative Arts in Education and Therapy (CAET), 230-244.
Liyanage, S. 2025. “Arts and Culture in the Post-War Sri Lanka: Body as Protest in Post-Political Aragalaya (Porattam).” In Reflections on the Continuing Crises of Post-War Sri Lanka, edited by Gamini Keerawella and Amal Jayawardane, 245–78. Colombo: Institute for International Studies (IIS) Sri Lanka.
Lutts, A. (2019). Storytelling in Contemporary Ballet.
Samarasinghe, S. G. (1977). A Methodology for the Collection of the Sinhala Ritual. Asian Folklore Studies, 105-130.
Sanjeewa, W. (2021). Historical Perspective of Gender Typed Participation in the Performing Arts in Sri Lanka During the Pre-Colonial, The Colonial Era, and the Post-Colonial Eras. International Journal of Social Science And Human Research, 4(5), 989-997.
The Kennedy Centre. 2020. “Pointe Shoes Dancing on the Tips of the Toes.” Kennedy-Center.org. 2020 https://www.kennedy-center.org/education/resources-for-educators/classroom-resources/media- and-interactives/media/dance/pointe-shoes/..
Acknowledgements
The author wishes to thank Himansi Dehigama for proofreading this article.
About the author:
Saumya Liyanage (PhD) is a film and theatre actor and professor in drama and theatre, currently working at the Department of Theatre Ballet and Modern Dance, Faculty of Dance and Drama, University of the Visual and Performing Arts (UVPA), Colombo. He is the former Dean of the Faculty of Graduate Studies and is currently holding the director position of the Social Reconciliation Centre, UVPA Colombo.
Chinese Naval Entry and End of Post-War Unipolarity
The ascendancy of China as an emerging superpower is one of the most striking shifts in the global distribution of economic and political power in the 21st century. With its strategic rise, China has assumed a more proactive diplomatic and economic role in the Indian Ocean, signalling its emergence as a global superpower. This new leadership role is exemplified by initiatives such as the Belt and Road Initiative (BRI) and the establishment of the Asian Infrastructure Investment Bank (AIIB). The Economist noted that “China’s decision to fund a new multilateral bank rather than give more to existing ones reflects its exasperation with the glacial pace of global economic governance reform” (The Economist, 11 November 2014). Thus far, China’s ascent to global superpower status has been largely peaceful.
In 2025, in terms of Navy fleet strength, China became the world’s largest Navy, with a fleet of 754 ships, thanks to its ambitious naval modernisation programme. In May 2024, the People’s Liberation Army Navy (PLAN) further strengthened its capabilities by commissioning the Fujian, its latest aircraft carrier. Equipped with an advanced electromagnetic catapult system, the Fujian can launch larger and heavier aircraft, marking a significant upgrade over its predecessors.
Driven by export-led growth, China sought to reinvest its trade surplus, redefining the Indian Ocean region not just as a market but as a key hub for infrastructure investment. Notably, over 80 percent of China’s oil imports from the Persian Gulf transit to the Straits of Malacca before reaching its industrial centres. These factors underscore the Indian Ocean’s critical role in China’s economic and naval strategic trajectories.
China’s port construction projects along the Indian Ocean littoral, often associated with the Belt and Road Initiative (BRI), exemplify its deepening geopolitical and economic engagement in the region. These initiatives encompass multipurpose berth development, deep-sea port construction, and supporting infrastructure projects aimed at enhancing maritime connectivity and trade. Key projects include the development of Gwadar Port in Pakistan, a strategic asset for China’s access to the Arabian Sea; Hambantota Port in Sri Lanka, which became a focal point of debt diplomacy concerns; the Payra deep-sea port in Bangladesh; as well as port and road infrastructure development in Myanmar’s Yunnan and Kyaukphyu regions and Cambodia’s Koh Kong.
While these projects were promoted as avenues for economic growth and regional connectivity, they also triggered geopolitical tensions and domestic opposition in several host countries. Concerns over excessive debt burdens, lack of transparency, and potential dual-use (civilian and military) implications of port facilities led to scrutiny from both local and external stakeholders, including India and Western powers. As a result, some projects faced significant pushback, delays, and, in certain cases, suspension or cancellation. This opposition underscores the complex interplay between economic cooperation, strategic interests, and sovereignty concerns in China’s Indian Ocean engagements.
China’s expanding economic, diplomatic, and naval footprint in the Indian Ocean has fundamentally altered the region’s strategic landscape, signalling the end of early post-Cold War unipolarity. Through the Belt and Road Initiative (BRI) initiatives, China has entrenched itself economically, financing. Diplomatically, Beijing has deepened its engagement with littoral states through bilateral agreements, security partnerships, and regional forums, challenging traditional Western and Indian influence.
China’s expanding naval deployments in the Indian Ocean, including its military base in Djibouti, and growing security cooperation with regional states, mark the end of unchallenged US dominance in the region. The Indian Ocean is now a contested space, where China’s presence compels strategic recalibrations by India, the United States, and other regional actors. The evolving security landscape in the Indian Ocean—marked by intensifying competition, shifting alliances, and the rise of a multipolar order—has significant implications for Sri Lanka’s geopolitical future.
India views China’s growing economic, political, and strategic presence in the Indian Ocean region as a key strategic challenge. In response, India has pursued a range of strategic, political, and economic measures to counterbalance Chinese influence, particularly in countries like Sri Lanka through infrastructure investment, defense partnerships, and diplomatic engagements.
Other Extra-Regional powers
Japan and Australia have emerged as significant players in the post-Cold War strategic landscape of the Indian Ocean. During the early phases of the Cold War, Australia played a crucial role in Western ‘Collective Security Alliances’ (ANZUS and (SEATO). However, its direct engagement in Indian Ocean security remained limited, primarily supporting the British Royal Navy under Commonwealth obligations. Japan, meanwhile, refrained from deploying naval forces in the region after World War II, adhering to its pacifist constitution and post-war security policies. In recent decades, shifting strategic conditions have prompted both Japan and Australia to reassess their roles in the Indian Ocean, leading to greater defence cooperation and a more proactive regional presence.
In the post-Cold War era, Australia has progressively expanded its naval engagements in the Indian Ocean, driven by concerns over maritime security, protection of trade routes, and China’s growing influence. Through initiatives, such as the Quadrilateral Security Dialogue (Quad) and deeper defence partnerships with India and the United States, Australia has bolstered its strategic presence in the Indian Ocean region.
Recalibration of Japan’s approach
Japan, too, has recalibrated its approach to Indian Ocean security in response to geopolitical shifts. Recognising the Indian Ocean’s critical importance for its energy security and trade, Japan has strengthened its naval presence through port visits, joint exercises, and maritime security cooperation. The Japan Maritime Self-Defence Force (JMSDF) has taken on a more active role in anti-piracy operations, freedom of navigation operations (FONOPS), and strategic partnerships with Indian Ocean littoral states. This shift aligns with Japan’s broader strategy of contributing to regional stability while balancing its constitutional constraints on military force projection.
Japan’s proactive role in the Indian Ocean region is evident in its diplomatic and defence engagements. In January 2019, Japan sent its Foreign Minister, Taro Kono, and Chief of Staff, Joint Staff, Katsutoshi Kawano, to the Raisina Dialogue, a high-profile geopolitical conference in India. Japan’s National Security Strategy, released in December 2022, identifies China’s growing assertiveness as its greatest strategic challenge and underscores the need to deepen bilateral ties and multilateral defence cooperation in the Indian Ocean. It also emphasises the importance of securing stable access to sea-lanes, through which more than 80 percent of Japan’s oil imports pass. In recent years, Japan has expanded its port investment portfolio across the Indian Ocean, with major projects in Sri Lanka, Bangladesh, and Myanmar. In 2021, Japan participated for the first time in CARAT-Sri Lanka (Cooperation Afloat Readiness and Training), a bilateral naval exercise. Japan’s Maritime Self-Defence Force returned for the exercise in January 2023, held at Trincomalee Port and Mullikulam Base.
Japan’s strategic interests in the Indian Ocean have been most evident in its involvement in port infrastructure development projects. Sri Lanka, Bangladesh, and Myanmar are key countries where early Chinese-led port construction faced setbacks. Unlike India, which carries historical and political complexities in its relations with these countries, Japan is better positioned to compete with China. In December 2021, a Japanese company established a ship repair and rebuilding facility in Trincomalee, complementing the already well-established Tokyo Cement factory. When the Sri Lanka Ports Authority announced plans in mid-2022 to develop Trincomalee as an industrial port—inviting expressions of interest from investors to utilise port facilities and up to 2,400 hectares of surrounding land—Trincomalee regained strategic attention.
The Colombo Dockyard, in collaboration with Japan’s Onomichi Dockyard, has established a rapid response afloat service in Trincomalee, marking a significant development in Japan’s engagement with Sri Lanka’s maritime infrastructure. This initiative aligns with Japan’s broader strategic interests in the Bay of Bengal, a region of critical economic and security importance. A key Japanese concern appears to be limiting China’s ability to establish a permanent presence in Trincomalee. This initiative underscores the broader strategic competition in the Indian Ocean. Trincomalee, with its deep-water harbour, has long been regarded as a critical maritime asset. Japan’s involvement reflects its efforts to deepen economic and strategic engagement with Sri Lanka amid growing regional competition. The challenge before Sri Lanka is how to navigate this strategic contest while maximising its national interests.
Other Regional Powers
In analyzing the evolving naval security architecture of the post-Cold War Indian Ocean, particular attention should be given to the naval developments of regional powers such as Pakistan, Indonesia, and Malaysia. In 2012, Pakistan established the Naval Strategic Force Command (NSFC) to strengthen Pakistan’s policy of Credible Minimum Deterrence (CMD). The creation of the NSFC suggests a shift toward sea-based deterrence, complementing Pakistan’s broader military strategy. In December 2012, Pakistan conducted a series of cruise missile tests from naval platforms in the Arabian Sea. Given India’s expanding maritime capabilities, which Pakistan views as a significant threat, the Pakistan Navy may consider deploying tactical nuclear weapons on surface ships as part of its evolving deterrence strategy. Sri Lanka’s foreign policy cannot overlook this development.
Indonesia also emerged as a significant player in the evolving naval security landscape of the Indian Ocean. In 2010, it launched a military modernisation programme aimed at achieving a ‘Minimum Essential Force’ (MEF) by 2024. As part of this initiative, Indonesia sought to build a modern Navy with 247 surface vessels and 12 submarines. One of the primary challenges faced by the Indonesian Navy (TNI-AL) is piracy. To enhance maritime security, Indonesia and Singapore signed the SURPIC Cooperation Arrangement in Bantam in May 2005, enabling real-time sea surveillance in the Singapore Strait for more effective naval patrols. In 2017, Indonesia introduced the Indonesian Ocean Policy (IOP) and subsequently incorporated blue economy strategies into its national development agenda, reinforcing its maritime vision. According to projections from the Global Firepower Index, published in 2025, the Indonesian Navy is ranked fourth in global ranking and second in Asia in terms of Navy fleet strength (Global Firepower, 2025).
In October 2012, the Royal Malaysian Navy (RMN) announced plans to build a second Scorpène simulator training facility at its base in Kota Kinabalu, in addition to submarine base in Sepanggar, Sabah, constructed in 2002. To enhance its naval capabilities, the RMN planned to procure 18 Littoral Mission Ships (LMS) for maritime surveillance and six Littoral Combat Ships (LCS) between 2019 and 2023. Malaysia and China finalised their first major defence deal during Prime Minister Najib Razak’s visit to Beijing in November 2016. During this visit, Malaysia’s Defence Ministry signed a contract to procure LMS from China, as reported by The Guardian. Despite this agreement, Malaysia continues to maintain amicable relations with both China and India, as does Indonesia.
The increasing presence of major naval powers, the rise of regional stakeholders, and the growing significance of trade routes and maritime security have transformed the Indian Ocean into a central pivot of both regional and global politics, with Sri Lanka positioned at its heart. (To be Continued)
by Gamini Keerawella
Sri Lankan Andrea Marr, now based in Australia, is in the spotlight again. She says she has teamed up with a fantastic bunch of Sri Lankan musicians, in Melbourne, and the band is called IntoGroove.
“The band has been going strong for many years and I have been a fan of this outfit for quite a few years; just love these guys, authentic R&B and funk.”
Although Andrea has her original blues band, The McNaMarr Project, and they do have a busy schedule, she went on to say that “when the opportunity came up to join these guys, I simply couldn’t refuse … they are too good.”
IntoGroove is Jude Nicholas (lead vocals), Peter Menezes (bass), Keith Pereira (drums), Blaise De Silva (keyboards) and and Steve Wright (guitar).
Andrea Marr: Powerhouse of the blues
“These guys are a fantastic band and I really want everyone to hear them.”
Andrea is a very talented artiste with many achievements to her credit, and a vocal coach, as well.
In fact, she did her second vocal coaching session at Australian Songwriters Conference early this year.
Her first student showcase for this year took place last Sunday, in Melbourne, and it brought into the spotlight the wonderful acts she has moulded, as teacher and mentor.
What makes Andrea extra special is that she has years of teaching experience and is able to do group vocal coaching for all styles, levels and genres.
In January, this year, she performed at the exclusive ‘Women In Blues’ showcase at Alfred’s On Beale Street (rock venue with live entertainment), in Memphis, in the USA, during the International Blues Challenge when bands from all over the world converge on Memphis for the ‘Olympics of the Blues.’
The McNaMarr Project with Andrea and Lindsay Marr in the
vocal spotlight
This was her fourth performance in the home of the blues; she has represented Australian Blues three times and, on this occasion, she went as ambassador for Blues Music Victoria, and The Melbourne Blues Appreciation Society’s ‘Women In Blues’ Coordinator.
Andrea was inducted into the Blues Music Victoria Hall of Fame in 2022 and released her 10th album which hit #1 on the Australian Blues Charts.
Known as ‘the pint-sized powerhouse of the blues’ for her high energy, soulful, original music, Andrea is also a huge fan of the late Elvis Presley and has checked out Graceland, in Memphis, Tennessee, USA, many times.
In Melbourne, the singer also plays a major role in helping Animal Rescue organisations find homes for abandoned cats.
Andrea Marr’s wish, at the moment, is that the Lankan audience, in Melbourne, would get behind this band, IntoGroove. They are world class, she added.
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Sun directly overhead Nainamadama, Sandalankawa, Kundasale, Mahiyanganaya and Kalmunanai at about 12:12 noon today [08]
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