Dr. Ganeshan Wignaraja has cautioned that Sri Lanka should consider an 18th IMF programme. He said, with the current programme ending in mid-2027 and significant debt repayments due from 2028, the compounding effects of Cyclone ‘Ditwah’ and the Middle-East War’ have made what was once a contingency, increasingly inevitable, and that planning for it is the responsible course of action.

Dr. Wignaraja, Visiting Senior Research Fellow at ODI Global, London (formerly Overseas Development Institute), London and Professorial Fellow at Gateway House, Mumbai, made these observations when he addressed the RCSS Strategic Dialogue – 4 on the theme “A Global Economy in the Shadow of Middle-East War: Implications for Sri Lanka’s Debt Recovery” on 4 May 2026 at the Regional Centre for Strategic Studies (RCSS) in Colombo. The dialogue brought together senior serving and retired policy makers diplomats, defence, academic, think-tank, civil society and media representatives.

Executive Director of the RCSS, Amb. (Retd.) Ravinatha Aryasinha who moderated the session, noted that beyond assessing the immediate effects of the multiple crisis caused by the war in the Middle-East, the discussion was intended to take a futuristic view and critically project both internal and external measures that could be actively pursued to overcome Sri Lanka’s current predicament, which would provide lessons to other comparable regional and ‘Global South’ countries as well.

Dr. Wignaraja opened his presentation by drawing on the IMF’s April 2026 World Economic Outlook, which projects global growth slowing to 3.1% in 2026, with downside risks dominating: prolonged conflict, geopolitical fragmentation, and renewed trade tensions bearing down hardest on emerging and developing economies. It is against this external environment, he said, that Sri Lanka’s vulnerabilities must be understood. From being treated by the IMF as a post – 2022 ‘Poster Child’ of IMF aided economic stabilization and the post-budget optimism built in late 2025, the compounding shocks of Cyclone ‘Ditwah’, and the ramifications of the recent Middle East War had simultaneously hit Sri Lanka through rising oil-gas-fertilizer prices, disrupted remittances, airline and tourism disruptions. It had also resulted in a contraction of exports in general and particularly tea, of which approximately 20% go to the Middle East. Despite this, he also noted that the War also presents Sri Lanka some long-term opportunities. As Gulf states lose their safe-haven status, Sri Lanka could, if it builds the right regulatory, governance, and infrastructure environment, position itself as an Indian Ocean hub for maritime trade, aviation, finance, and professional services. Whether that opportunity is seized or not, he said, depends on decisions and reforms that should taken now.

Two near-term scenarios were outlined by Dr. Wignaraja. In the best case, the Strait of Hormuz remains open, oil prices hold in the $78–90 per barrel range, inflation remains low, and growth is sustained between 2.7% and 4% – a difficult but manageable fiscal position. In the more likely moderate case, persistent disruption pushes oil above $100 per barrel, inflation rises to the 5.6–6.3% range, growth slows to between 2.4% and 3.5%, poverty rises notably, and public finances come under increasing strain. Sri Lanka, he said, appears to be trending toward the moderate scenario, noting however that there remains the risk of a third scenario of a prolonged Middle East War which could be much worse.

During the dialogue that followed, some participants noted that the prescriptions for Sri Lanka’s recovery and enabling sustainable growth are not new, but that the persistent challenge across governments, has been one of non-implementation and the various political economy reasons given for it. Further some questioned whether the IMF model and its responsiveness to the evolving developments compounded the problems faced by Sri Lanka and whether there might be alternate avenues to address some of these issue. Also had Ditwah not struck and the Middle-East war not taken place, whether Sri Lanka had done enough reforms in the intervening years to avoid going back to the IMF was also raised. The suggestion was also made, that besides the peculiar circumstances Sri Lanka is placed due defaulting, other South Asian countries too were caught in a similar ‘dependency trap’ on the Middle-East region where the possibility of conflict and blocking of choke points could well have been anticipated, and hence the need to build greater economic resilience to meet such challenges demands serious re-examination.

In response, Dr. Wignaraja indicated that the IMF is not the problem, and in 2022, with reserves effectively exhausted and no alternative available, it was the only lifeline available. The IMF is a global lender of last resort for countries in an acute balance of payments crisis but this comes with policy conditionalities. Without it, the Sri Lankan people would have faced severe economic insecurity and crisis with no prospects. The deeper failure, he argued, is domestic, with a persistent culture of non-implementation, weak state capacity, and the absence of strategic decision-making have meant that known economic reforms consistently go unexecuted. He also noted that alternative financing instruments, such as climate finance, which could mobilise at best $500 million, fall critically short of Sri Lanka’s debt obligations, and without access to international capital markets, no real development financing exists outside another IMF programme. He also pointed to governance failures, including the recent Treasury cyber breach and a bank fraud case, as actively undermining investor confidence and creditor trust, and raised concern at the possibility that external actors could refrain from committing capital to Sri Lanka under current conditions.