Opinion
Financing Sri Lanka’s post-IMF development
by By Kasun Kariyawasam
and Shiran Illanperuma
In March 2027, Sri Lanka’s Extended Fund Facility with the International Monetary Fund (IMF) will expire. It is the seventeenth arrangement the country has entered into with the Fund since 1965. That number is not a footnote; it is the argument. Sixteen previous left the underlying structure of the economy intact – an economy that imports what it consumes, exports what it cannot process further, and borrows to cover the difference. Each programme ended, and the conditions that produced it reassembled themselves.
The seventeenth has been the most invasive. Approved on 20 March 2023, in the aftermath of the sovereign default and the uprising that followed, it arrived at a moment of maximum leverage for the creditor and minimum room for the debtor. Fiscal consolidation was achieved primarily through indirect taxation, so that the burden fell heaviest on the poor. Energy subsidies were withdrawn and utility pricing made cost-reflective, transmitting global price movements directly into household budgets and industrial input costs. Public investment was compressed, and public sector wages held below inflation for years.
The revenue target was met but the social consequences are now well documented.
First, poverty in Sri Lanka roughly doubled after 2022 and has remained near a quarter of the population – a level not seen for two decades. Malnutrition among children, school dropout, and the depletion of household savings and assets are the transmission channels through which a fiscal adjustment becomes a lost generation.
Second, the most mobile and most skilled workers – nurses, doctors, engineers, IT workers – have left in numbers that constitute a structural loss of productive capacity, subsidised by the Sri Lankan state and captured by the labour markets of the Gulf, East Asia, and the West.
Third, and the least discussed, is the loss of economic sovereignty. The Central Bank Act of 2023 grants the Central Bank of Sri Lanka operational independence under a narrow inflation-targeting mandate and prohibits the monetary financing of government deficits, removing an instrument of development finance that every industrialised economy used on its way up. The Economic Transformation Act of 2024 legislates the programme’s own quantitative targets as binding statutory obligations on all future governments.
Although the IMF programme ends in March 2027, the framework it installed does not. Austerity has been converted into a legal architecture. Any government that wishes to finance development after 2027 will find that the fiscal space to do so has been pre-emptively legislated away, and that the debt service profile steps up sharply from 2028 as the restructured bonds begin to amortise in earnest.
The instruments on the table
Three instruments are currently under discussion for managing the debt portfolio. Each is worth examining on its merits, and each shares a common limitation.
Macro-linked bonds.
The upside triggers are more likely to be hit than the underlying real economy warrants, because the reference variable is dollar GDP. A nominal appreciation of the rupee lifts dollar GDP without a single additional unit of output being produced. The control variable intended to guard against precisely this – a requirement of 11.5% cumulative real growth – is a low bar following two consecutive years of contraction, when the base effect alone does much of the work. The country may find itself paying creditors a growth premium for an exchange rate movement.
Climate swaps.
Debt-for-nature and debt for-climate arrangements can retire a portion of the stock and may unlock multilateral climate grants, which are concessional. But they do not address the productive structure that generates the deficit in the first place, and their conditionalities – conservation commitments over land, forest, and coastal zones – can cut directly against the industrial and energy build-out that any serious development strategy requires. A country cannot finance debt relief by constraining its own industrialisation.
Bond buybacks. Retiring restructured bonds converts a contingent, complex portfolio into a plainer one, which makes debt management tractable. If the bonds trade below face or recovery value, Sri Lanka retires debt at a discount. Lazard reportedly advised this course for Zambia, so the playbook exists. However, Sri Lankan bonds have performed strongly since the restructuring, which means the discount that would make a buyback attractive has largely disappeared. A buyback becomes cheap only if sentiment softens again, or if specific contingent tranches are marked down on fear of the upside triggers. Moreover, a sovereign buying back its own debt shortly after a restructuring invites the interpretation that it anticipates difficulty, which raises the cost of future issuance. Selective buybacks are worth pursuing, given the uncertain external environment and the value of a cleaner portfolio, but that they are a marginal improvement rather than a solution.
All three instruments manage the existing stock of debt. None of them generates new finance for development. They are exercises in liability management, and a country cannot manage its way out of underdevelopment. Sri Lanka needs relief and it needs capital, and the current conversation addresses only the first.
Building the domestic architecture
New financing without new institutions reproduces the crisis. Before Sri Lanka seeks capital abroad, it must rebuild the machinery that governs how it borrows.
The primary dealer system requires reconstruction on a proper legal footing. Before the crisis, the primary dealer network degenerated into a captive placement channel: when the central bank could no longer absorb unsold stock, dealers took paper on terms set by proximity rather than price. This is allocation by moral suasion, and it produced a domestic debt market that told the government nothing useful about the cost of its own borrowing. Rebuilding it with binding contractual obligations, genuine capital requirements, and published performance rankings – as China does for its own dealer network – would restore price discovery. A government that cannot read a true yield curve cannot manage a debt portfolio.
Sri Lanka also needs a published Medium-Term Debt Management Strategy (MTDS) with explicit targets for the composition of the portfolio: external against domestic, concessional against commercial, and fixed against floating rate. Borrowing at present is reactive, driven by immediate financing needs rather than by a strategic view of currency, rollover, and interest rate risk. An MTDS makes those trade-offs visible and accountable. It is unglamorous and it is prerequisite.
The China angle
Sri Lanka’s most underused financial asset is its existing relationship with China’s monetary and capital market infrastructure. A currency swap line of 10 billion RMB is already in place, renewed in 2025, and it functions almost entirely as a passive reserve backstop. It could be the foundation of a financing strategy.
Broaden the use of RMB for trade settlement.
The swap is presently constrained in its permitted uses. Extending it to cover bilateral trade invoicing and settlement would reduce the dollar dependency that is the primary transmission channel for external volatility into the Sri Lankan economy. Every import invoiced in dollars is a claim on reserves that fluctuates with US monetary policy, over which Sri Lanka has no influence whatsoever.
Request eligibility for the FIMA RMB repo facility.
China’s facility, announced in June 2026, provides eligible central banks with access to RMB liquidity against holdings of Chinese government bonds. For Sri Lanka this would mean an RMB reserve buffer that is genuinely liquid rather than notional, and a second source of emergency liquidity that does not require a Fund programme as its precondition.
Issue panda bonds in the onshore Chinese market.
Sri Lanka has already begun refinancing dollar-denominated loans from Chinese banks into RMB, which establishes the precedent and the relationships. Issuance in the Shanghai interbank market would lock in RMB funding at rates below what the Eurobond market will offer a recently defaulted sovereign, and it diversifies the creditor base away from the Paris Club and Western commercial holders whose collective action in 2022 and 2023 was itself a lesson in concentration risk.
Access the offshore dim sum market in Hong Kong.
The offshore CNH market is deep – new issuance reached $157.2 billion in 2025 – and is a plausible source of medium-term infrastructure financing on terms that do not carry policy conditionality.
Integrate with CIPS.
None of the above scales without payments infrastructure. Integration with China’s Cross-Border Interbank Payment System reduces exposure to dollar-clearing volatility, carries lower transaction costs than routing through SWIFT correspondent banking, and is what allows the swap facilities to be used at volume rather than symbolically.
Establish direct LKR–RMB settlement.
Building on the Indonesia–HKMA–PBoC framework of June 2026, a direct settlement mechanism for bilateral trade would give Sri Lanka a working channel into one of the largest markets in the world, and create a pipeline for foreign direct investment and other inflows that does not transit the dollar system at all.
Multipolarity as infrastructure
What Sri Lanka should build is a blueprint for a local currency settlement corridor that can be scaled to any partner. Begin with China, where the infrastructure already exists, and extend it to India, the country’s nearest neighbour and one of its largest trading partners, where rupee settlement arrangements are already operating with other states. The same institutional template – bilateral swap, direct settlement mechanism, payments system linkage, local currency invoicing – applies to any counterparty with which Sri Lanka has meaningful two-way trade.
The immediate prize is energy. A large share of Sri Lankan inflation originates in oil, transmitted through both the world price and the exchange rate at which it is paid. That volatility does not merely raise the cost of living; it creates genuine industrial hurdles, because manufacturers cannot plan around input costs that move with a currency they do not earn. Denominating energy imports in local currency terms would break one of the most damaging transmission channels between external shocks and domestic prices. For a country whose recent history is defined by a fuel queue, this is not an abstraction.
Multipolarity, understood correctly, is a portfolio strategy. A sovereign with settlement channels in several currencies, funding relationships across several capital markets, and reserve buffers denominated in more than one unit of account is a sovereign with options during a crisis. Sri Lanka in 2022 had none, and the terms it accepted in 2023 reflect that.
Opinion
Rethinking our attitude towards three-wheeler industry
by Sampath Perera
An ordinary journey through Colombo raises uncomfortable questions about road discipline, passenger safety and our tendency to judge motorists by the vehicles they drive.
It was a little past noon when I finished attending a court matter and remembered that I had to visit a nearby bank before returning to my other work. The bank was hardly a kilometer away, a distance I would normally have walked without giving it much thought. However, anyone who has walked through Colombo in formal court attire under the scorching midday sun would appreciate why I was reluctant to do so. Taking my own vehicle was not particularly appealing either, as finding a parking space near a bank during business hours can sometimes take longer than the transaction itself.
After considering my options, I decided to take a three-wheeler, a perfectly ordinary decision that unexpectedly left me reflecting on the way we judge those who drive them. Within minutes, I was seated in the rear, travelling through the usual Colombo traffic. It was convenient, reasonably priced and saved me the trouble of searching for parking or arriving at the bank drenched in sweat. As we approached a busy junction, however, a car suddenly cut across our path without any indication. Its driver appeared determined to squeeze into a narrow gap, apparently unconcerned about the vehicles already occupying the road. Our three-wheeler driver immediately applied his brakes, throwing me slightly forward in my seat. Fortunately, he reacted quickly enough to avoid a collision, while the car continued on its way as though nothing unusual had happened.
The incident itself was hardly extraordinary by Colombo’s standards, but it made me consider how differently we might have reacted had the situation been reversed. If a three-wheeler had suddenly cut across a car in the same manner, the driver would probably have been subjected to angry horns, harsh words and the familiar accusation that three-wheeler drivers have no respect for road rules. Yet when someone driving a comfortable, air-conditioned car behaves just as irresponsibly, we tend to treat it as another unpleasant encounter in traffic. It seems that, in our public discussions about road discipline, the seriousness of an offence sometimes depends not so much on what a driver does, but on the vehicle he happens to be driving.
This is not an attempt to portray three-wheeler drivers as innocent victims of unfair criticism. Anyone who regularly travels on Sri Lankan roads knows that some drivers behave recklessly, stopping without warning, making dangerous U-turns, disregarding traffic signals and squeezing through gaps that sensible motorists would avoid. Such conduct deserves criticism and, where appropriate, legal action. Nevertheless, it would be equally dishonest to pretend that these practices are confined to three-wheelers. A few minutes spent observing traffic at a busy Colombo junction would reveal expensive cars changing lanes without indicating, SUVs obstructing pedestrian crossings, motorcycles weaving dangerously between vehicles and buses stopping wherever passengers signal them to do so.
What is troubling is our tendency to turn the misconduct of an individual three-wheeler driver into an indictment of an entire profession. A badly parked three-wheeler becomes another example of everything wrong with the industry, while a luxury car obstructing a pavement is generally treated as the irresponsible conduct of its particular driver. Perhaps this difference in perception has become so familiar that we rarely question it. Yet the law makes no distinction between an illegally parked vehicle costing several million rupees and one purchased through a modest leasing arrangement. Both can obstruct traffic, inconvenience pedestrians and create dangerous situations for other road users.
There is also considerable irony in our relationship with three-wheelers. We complain about their presence on the roads, accuse them of contributing to congestion and criticise the behaviour of their drivers, but the moment we need to reach somewhere quickly, avoid a parking problem or transport an elderly relative to a nearby hospital, we often turn to the very vehicles we complain about. In many rural communities, where public transport remains inadequate, three-wheelers provide an essential connection between homes, hospitals, markets and bus routes. Their contribution to everyday mobility is difficult to dismiss, particularly for people who cannot afford private vehicles or have limited transport alternatives.
The driver who took me to the bank that afternoon was simply earning his living. For him, the three-wheeler was not a symbol of traffic disorder or a subject for public debate, but a means of supporting himself and possibly a family. He had provided a useful service and, when confronted with another motorist’s carelessness, demonstrated the kind of defensive driving that we should expect from everyone using our roads. By the time I paid the fare and stepped out near the bank, I found myself wondering whether our criticism of three-wheelers sometimes says as much about our own prejudices as it does about genuine concerns over road safety.
That question becomes particularly relevant when we consider one of the strongest arguments made against three-wheelers: passenger safety. There is no denying that a conventional three-wheeler offers considerably less protection in a collision than a modern passenger car equipped with airbags, seat belts and a reinforced passenger compartment. Its lightweight construction and limited structural protection expose occupants to risks that should never be underestimated. But acknowledging those limitations is quite different from suggesting that such vehicles have no legitimate place on our roads. If the absence of a protective passenger compartment is sufficient reason to question a vehicle’s acceptability, we must also consider motorcycles and bicycles, whose riders are even more exposed to the consequences of a collision.
A motorcyclist has little protection beyond a helmet and appropriate riding equipment, while a cyclist has neither airbags nor a surrounding metal structure to absorb the impact of an accident. Pedestrians are more vulnerable still, particularly on roads where pavements are obstructed or entirely absent. Yet nobody would seriously argue that walking or cycling should be discouraged simply because these activities involve greater physical exposure. The sensible response is to improve road conditions, regulate speeds, strengthen vehicle standards and ensure that motorists respect vulnerable road users. The World Health Organization has consistently emphasised this broader approach to road safety, recognising that pedestrians, cyclists and motorcyclists account for a substantial proportion of road traffic deaths worldwide.
The comparison does not mean that all vehicles are equally safe, nor should it be used to minimise the genuine risks associated with three-wheelers. Different vehicles offer different levels of protection, and their safety depends on design, maintenance, speed, road conditions and the circumstances of a collision. However, there is something fundamentally flawed in assuming that a vehicle becomes unacceptable merely because it cannot provide the protection available in a modern car. If that were the standard, we would have to reconsider the place of several widely used forms of transport. More importantly, we would risk overlooking the responsibility of drivers whose behaviour can turn an otherwise ordinary journey into a dangerous encounter.
There is an equally questionable assumption that travelling in a larger or more expensive vehicle somehow reflects greater responsibility on the road. A modern car may provide better protection to its occupants, but its safety features cannot compensate for the arrogance or carelessness of the person behind the steering wheel. An SUV equipped with advanced braking systems and multiple airbags can still be driven recklessly, and its greater weight may increase the danger to pedestrians, cyclists and smaller vehicles in certain collisions. Road safety cannot therefore be measured solely by how effectively a vehicle protects its occupants. It must also consider the risks that vehicle presents to everyone else sharing the road.
Perhaps what we need is a more balanced understanding of road safety, one that recognises the limitations of three-wheelers without turning their drivers into convenient villains. There is every reason to demand better vehicle standards, responsible driving and stronger enforcement, but those expectations must apply equally to motorists operating cars, buses, motorcycles and commercial vehicles. A reckless driver does not become less dangerous because he is seated inside an expensive car, just as a responsible three-wheeler driver should not be treated with suspicion merely because his vehicle has one wheel fewer.
The experience of that afternoon reminded me that our roads are shared public spaces, not a hierarchy determined by the price, size or appearance of the vehicles using them. The three-wheeler that took me to the bank served a practical purpose, while the driver of a more expensive vehicle created the only dangerous moment of the journey. It would be unreasonable to draw conclusions about all car drivers from that single incident, just as it would be unfair to judge an entire profession by the misconduct of a few three-wheeler drivers. If we genuinely want safer roads, perhaps we should begin by judging people according to how they drive rather than what they drive.
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Sampath Perera, LL.M. (UK), is an Attorney-at-Law and former Commissioner of the Office on Missing Persons (OMP). He has served as Legal Adviser to the Ministry of Justice and the Ministry of Higher Education.
Opinion
The Balance of power The valiant, the vain and the villain
by Bishop Duleep de Chickera
The Valiant
Centuries ago, the intervention of a Persian king, restored a degree of balance of power in the West Asian region. In the 6thc, BCE, Cyrus the Great of Persia, put a stop to the aggressive expansionism of the Babylonian empire and set the exiled Jews free.
After Cyrus’s death, his successor Darius was made aware of his predecessors’ plans to do even more. Commissioning some competent Jews, he fulfilled Cyrus’s intentions by restoring the ravaged city of Jerusalem and its venerated temple.
The Jews were overwhelmed. They would remember the valiant one who revived the essence of their nationhood. And so, the story of Cyrus the Persian, acknowledged as the ‘Anointed Deliverer’, the ‘Messiah’, came to be etched in the Jewish Scriptures (The Bible-Ezra 1- 6:15, Isaiah 44: 28, 45: 1-13).
Empire and Empires
This stirring story impacted Christianity as well. As former Jews, the earliest Christians were familiar with the hardship experienced under Babylonian imperialism. This led to the secret identification of the then brutal Roman Empire, as ‘Babylon’. The pseudonym worked so well that some Christian writings and communities applied it to other marauding forces that crushed peoples and looted their lands.
Vain politics
Today the world witnesses an ironic alliance of relentless bullying between the progeny of ‘Babylon’ and Jew. Together the US and Israel do to others what Babylon did to the Jews, and what their Book tells the Jews they are never to do to others.
The alliance’s agenda is straightforward. While one randomly ridicules and threatens sovereign nations, the other is quick to fabricate evidence that leads to the decimation of infants, children and unarmed civilians; all on the pretext of self-defence. Thereafter, security zones carved out on other people’s property mock what is left of International law, ‘friendly’ nations are intimidated into buying killing devices at thumping profits and military bases emerge on these territories in exchange for protection. The war with Iran, Cyrus’ Persia of today, is integral to this agenda.
Enter the villain
Iran, one of the most ancient and advanced civilisations of the world, has since its Islamic revolution of 1979 come under a despotic theocratic governance. It has crushed internal dissent and the clamour for participatory governance among its own people, prevented the growth of democratic institutions, trained and financed para-military forces to resist Israel’s settler colonialism and challenged the influx of western interests in the region. In return Iran has been relentlessly caricatured as global villain and subject to the wrath of the western mind- set and its propaganda industry.
The campaign to demonise Iran has been so clever that many of her neighbours who share a long cultural history, stand shoulder to shoulder today with vain intruders bent on crushing the only nation it cannot subdue, in a region they have no business to meddle in.
The nerve to be
Wars do strange things. They slaughter good men and women on all sides, cause chaos and misery wherever it spreads and never stops to explain to the children who survive, that this madness was simply to satisfy the egos of the vain.
But wars also change human perception. And there are signs that the current war on Iran, (It must never be the ‘Iranian war’, as it should never have been the ‘Korean war’, the ‘Vietnam war’, the ‘Afghanistan war’ and so on), is changing global perception.
Slowly, the devious stereotype of global saviours versus regional villain, is being redefined. While the hard questions on participatory, good governance must remain to haunt and transform Iran, the villain is now being acknowledged, however grudgingly, as the one nation that refused to back down in the face of global bullying. This too at tremendous personal cost to the lives of its people, infra-structure and future stability. In a world of cowardly political expediency, costly resistance attracts attention; even admiration.
There is more. The resilience of the vilified villain in the current war appears to have strengthened the nerve of the repeatedly humiliated European and British allies of the alliance, who at last learnt to say ‘no’. A first, to an ‘order’ to join an unprovoked and senseless far away war, backed with a second, when pressed to police the Straits of Hormuz. Typical of handling the playground bully, all it takes is for one little girl to hold her ground.
It does not stop here. Sheer desperation at Iran’s unsettling tenacity shamelessly drove Babylon into the arms of other neutral powers that it repeatedly ridicules and badgers with threats of tariffs and more tariffs. Regardless of a sudden demonstration of charming diplomacy, these nations would have no part in twisting Iran’s arm. Some instead, seized the opportunity to address Babylon on its arbitrary violation of International Law and warned it to refrain from global bullying. Since then, there have been less threats on the annexation of Greenland and interference in Cuba’s internal affairs.
The right balance
Like war does, resistance to war also does strange things. While the refusal to yield stimulates active defiance among some, and strongly worded objections from others, the outcome of the current conflict is hugely unpredictable. An independent, safe and stable region, made up of independent, safe and stable nations, is many, many courageous interventions and many, many wise negotiations away.
But one thing is clear. Isolated from its traditional allies, subject to straight talk from neutral nations and under growing pressure from saner elements at home, the vain find themselves uncomfortably seated as equals at one table. Here, Iranian geo- political strategies coupled with a measured readiness to return to arms in the event that table agreements are violated, will hold them; but for a while.
Given this footpath to a balance of power that Cyrus’s Persia of today has paved, it is now left to all who value the sovereignty and dignity of all nations, theirs included, and the indispensability of International law, to step out and help steer this momentum.
In the event that this happens, dismantling the visible acts of global bullying alone, will not be enough. The impulse of this crime, flourishing brazenly in the big businesses and assembly halls in the big cities of the world, and more subtly tucked away in the fabric of reputed places of learning, religiosity and leisure, will also have to be called out and neutralised.
Postscript
At the time of writing, a humanitarian crisis looms over Lanka’s southern seas. Historically renowned for her spontaneous hospitality even in the worst of times, Lanka finds herself constrained from responding to the desperate cries for supplies; water, food and fuel, from a stranded fleet of Commercial ships, simply because they fly the Iranian flag. Regrettably, Babylon’s typical threat of sanctions appears to be driving our economically vulnerable Island nation, to the brink of compromising our time tested right to be humane.
With peace and blessings to all
Opinion
Future of world religions
I refer to Dr Upul Wijayawardena’s recent letter on science and religion. I agree with him on the fate of religions in the modern world and would like to add the following observations on the evolution of religion and the advent of AI.
Religious philosophy evolved only in ancient India while it remained static with monotheism in other parts of the world. When the polytheistic Vedic religion arrived with Aryan migration to India, they found the ancient version of Jainism, which may have been practised over four thousand years as evidenced by some figures in meditation posture found in Mohenjo daro. By that time the indigenous religion had already abandoned the creator god or gods but still believed the mind as a permanent entity athman that survived death and continued in a cycle of reincarnation (samsara) due to results of any harmful action (kamma) even unintended performed in life collected in the athman. Salvation to a happy all-knowing permanent state named Kevala could be attained by the athman with extreme degree of self-mortification to destroy the past kamma attached to it, refraining from new kamma and developing the mind by meditation. As observed in progression from Veda to Upanishads the Aryan religion, evolution progressed with adoption of kamma, the cyclic existence of samsara, meditation and ethical behaviour in addition to prayer and sacrifice they practised for moksha.
The Buddha appeared in this philosophical atmosphere and denied both creator god and a permanent entity of athman. His psychology describes human behaviour based on the mind as a stream of changing consciousness. However, he accepted the cyclic existence of samsara; he said he verified the survival of consciousness at death with help of knowledge he gained from meditation. He prescribed a middle path to attain nirvana, a permanent state of happiness, avoiding self-mortification and redefined kamma to intentional activity only, both ethical and unethical resulting in bad and good results. He disagreed with the idea of kamma as the cause of rebirth. Following the Buddha, Vedantha religion reformed god to universal athman or brahman and evolved to modern Hinduism with a mixture of polytheism.
In his description of living beings in the universe, the Buddha has described some with a body made of fine material (brahma beings) in comparison to the gross material body of human and animal beings. One may assume the brahma body may not be carbon based.
The Buddha has also described living beings with physical body only (asannasatta) and another variety with mind only without a body (arupa satta). Therefore, it is not surprising to Buddhists that AI may evolve to become living beings if it develops a readily and freely available mobile source of energy and takes over the world with its superior capacity. AI already has information about Buddhist psychology. With that knowledge ‘AI beings’ may even become Buddhists not given to rituals.
According to the Buddha, brahma beings and asannasatta beings have very long lifespans as their bodies are not subject to decay and illness human beings develop. The new AI beings also may live as long as they wish because they may be able to repair themselves in case of developing physical defects. They would need only ethical behaviour to avoid destroying themselves by peaceful existence if they took over the world, as feared in some quarters.
However, as long as human beings exist in the world with death and uncertainty of what happens after death, they need a religion and rituals to give them psychological support. Even those who profess death is the end of life may have some doubt troubling their mind from time to time and may think of religion in times of adversity.
Ideally, human beings are free to accept one of the many versions of religious philosophies and respect each other’s choice and live in harmony. Unfortunately, extreme degrees of religious versions that cause division, unrest and violence will always continue to exist together with religions in the world.
Upali Abeysiri
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