This article examines whether Sri Lanka faces the risk of once again moving towards a situation similar to the 2022 economic crisis. The 2022 crisis was not the result of a single cause, but a multidimensional crisis created by the combined effects of fiscal weaknesses, foreign exchange shortages, debt burdens, policy mistakes, and the weakening of the productive economy. Although foreign exchange reserves, the exchange rate, and the fiscal position have now stabilized to some extent, that stability remains fragile.

The continuity of the IMF programme, debt sustainability, investor confidence, and policy discipline are decisive factors in this regard. At the same time, poverty, the quality of employment, pressures on the SME sector, price levels, and income inequalities remain serious socio-economic challenges. Therefore, while it may not be accurate to say that the 2022 crisis will immediately recur, abandoning the reform path and failing to correct structural weaknesses could once again push Sri Lanka towards a crisis-prone path.

Recently, the Chief Executive Officer of the Advocata Institute issued an important warning regarding Sri Lanka’s economic future. That statement also received wide attention across various media platforms. His central argument was that if Sri Lanka moves away from the current path of economic reforms, there is a risk that a situation similar to the severe economic crisis experienced in 2022 could re-emerge.

This statement cannot be dismissed merely as a political or ideological remark. It is an important warning that deserves deeper consideration in relation to the country’s economic stability, policy continuity, and the future of the reform process. Therefore, the purpose of this note is to examine the strength and validity of that statement through selected macroeconomic indicators and structural economic factors.

A particularly important point to remember is that the 2022 economic crisis was not caused by a single factor or a single policy mistake. It was a complex economic crisis created by the accumulation of fiscal imbalances, excessive debt, foreign exchange shortages, weak export and investment growth, the decline of the productive economy, policy uncertainty, and weak institutional governance over many years.

Therefore, in assessing whether Sri Lanka could once again move towards such a situation, it is not sufficient to rely on a single indicator or a short-term trend. Instead, it is essential to consider a broad macroeconomic range, including the fiscal position, foreign exchange reserves, debt sustainability, investment and export performance, unemployment, poverty levels, the condition of small and medium-sized enterprises, price levels, interest rates, and the overall path of economic growth.

Our main question should not be whether the 2022 crisis will return tomorrow. The more important question is whether the fundamental structural weaknesses that caused that crisis have truly been corrected, or whether they have only been temporarily managed. Sri Lanka’s economic future will be determined by the answer to this question.

1. Foreign Exchange Reserves

By early 2022, Sri Lanka’s usable foreign exchange reserves had fallen to extremely low levels, making even payments for fuel, medicine, and other essential imports a serious challenge.

At present, foreign exchange reserves have recovered significantly, providing a stronger protective buffer compared with the situation in 2022. However, this stability could once again be weakened by a breakdown in the continuity of the IMF programme, a slowdown in foreign direct investment flows, a decline in tourism earnings or remittances, or disruptions to the debt restructuring process.

2. Exchange Rate Stability

In 2022, the rapid depreciation of the rupee was a major factor that increased import prices, production costs, and the cost of living.

Today, the exchange rate shows relative stability, but that stability depends on foreign exchange inflows, market confidence, and policy credibility. Therefore, if the IMF programme is disrupted, foreign exchange earnings decline, or investor confidence weakens, the rupee could once again come under severe pressure.

3. Fiscal Position

Among the root causes of the 2022 crisis were the collapse of government revenue, dependence on excessive borrowing, and the long-term weakening of fiscal discipline.

Under the IMF programme, the fiscal position has been strengthened to some extent through increased tax revenue and expenditure control. However, reversing tax reforms for political popularity, failing to reform loss-making state-owned enterprises, or losing control over public expenditure could once again widen fiscal imbalances.

4. Debt Sustainability

In 2022, Sri Lanka was forced to suspend external debt servicing for the first time in its history.

Although the debt restructuring process has now made considerable progress, debt sustainability depends on continuous economic growth, maintaining a primary budget surplus, and policy discipline. If these conditions weaken, concerns over debt stability could re-emerge.

5. Employment Conditions

Although the official unemployment rate appears to be under some control, problems relating to the quality of the labour market remain unresolved.

Many people have moved into low-income informal employment, while the shortage of employment opportunities among educated youth remains significant. In addition, the migration of skilled and educated workers has placed pressure on the country’s human capital and long-term productive capacity.

6. Poverty and Living Standards

With the 2022 crisis, poverty increased significantly. Although inflation has declined, the cost of living still remains a heavy burden for many families.

A large number of households continue to struggle to meet expenses related to food, transport, education, and health. Therefore, it is still difficult to say that the benefits of macroeconomic stability have adequately reached lower- and middle-income groups.

7. Small and Medium-Sized Enterprises

SMEs, which are a central source of employment and income generation in Sri Lanka, were severely affected by the crisis.

High interest rates, energy costs, raw material prices, and weak consumer demand forced many enterprises to close down, downsize, or become burdened with debt. The pace of economic recovery will depend heavily on the revival of this sector.

8. Weakness of the Productive Economy

A deeper structural cause of the 2022 crisis was the limited base of Sri Lanka’s productive economy.

Even today, the country remains heavily dependent on tourism earnings, remittances, and the services sector. High value-added industries, technology exports, knowledge-based services, and innovation-driven sectors have not grown at the expected pace. Without a structural transformation of the economy, long-term stability cannot be guaranteed.

9. Income and Distributional Inequalities

Although some economic groups recovered quickly after the crisis, a large section of the population has still not escaped economic pressure.

The gap between urban and rural areas, as well as between high- and low-income groups, appears to have widened. If the benefits of economic growth are not distributed more broadly, macroeconomic stability will not translate into social and political stability.

10. Price Levels and Inflation

Inflation has declined, but people are still facing price levels that have already risen and become entrenched.

A decline in inflation does not mean a decline in prices. If income growth does not keep pace with price levels, the real purchasing power and living standards of households will remain weak.

11. Interest Rates and Investment

Although interest rates have declined, private investment and new business activity have not yet grown at the expected pace.

Investment decisions are influenced not only by interest rates, but also by policy stability, legal clarity, the protection of property rights, market expectations, and investor confidence. Therefore, sustained investment growth requires broader institutional and policy stability.

12. What Could Happen If IMF Conditions Are Not Implemented?

The IMF programme is not merely a loan facility. It is a key foundation of the confidence that the international financial community places in Sri Lanka’s economic policies.

programme breaks down:

*  IMF disbursements could be suspended.

*  Support from development partners, including the World Bank and the Asian Development Bank, could weaken.

*  Confidence among creditors and international markets could deteriorate.

*  Foreign direct investment could slow down.

*  Pressure on the rupee could increase.

*  Interest rates could rise.

*  Inflation could accelerate again.

*  Fiscal crises could re-emerge.

* Economic growth could slow down.

*  Jobs, incomes, and living standards could be adversely affected.

This does not mean that Sri Lanka would return to the 2022 situation overnight. However, it could gradually weaken the protective buffers required for economic stability and significantly increase the risk of the country being drawn back into a crisis-prone path.

by Prof. Ranjith Bandara, PhD (Qld.,)

The US Government has gifted 10 Bell 206, Sea Ranger Helicopters to the SLAF for Training and Humanitarian Assistance and Disaster Relief (HADR) purposes. The full specifications are as follows.

Contractor:

Bell Helicopter Textron
Date Deployed: First flight: 1961; Operational: 1968
Propulsion: One Allison 250-C20BJ turbofan engine
Length: Fuselage – 31 feet (9.44 meters); Rotors turning – 39 feet (11.9 meters)
Height: 10 feet (3.04 meters)
Rotor Diameter: 35 feet 4 inches (10.78 meters)
Weight: 1595 pounds (725kg) empty, 3200 pounds (1455 kg) maximum take-off
Airspeed: 138 miles (222 km) per hour maximum; 117 miles (188 km) per hour cruising
Ceiling: 18,900 feet (5,761 meters)
Range: 368 nautical miles (420 statute miles, 676 km)
Crew: One pilot, four students

While they are good for training, I have my serious doubts whether these helicopters are ideal for HADR. As they have only a single engine and They can’t even operate into high rise helipads in hospitals and hotels in Colombo. The law requires twin engine helicopters! What happens if there is an engine failure while operating over the sea or in a mountainous area? There will be hell to pay!

Three twin engine versions would have been better.

How many helicopter pilots does the SLAF require anyway?

Will we be stuck with junk? Like two Russian KA -26’s during the Sirimavo Government and French Aerospatiale Dauphins SLAF acquired. which were not ‘tropicalised’, during the JRJ Government.

Will the Sea Ranger Spares support be available, free of charge?

I doubt it.

There will also be other Geopolitical strings attached. There is no such thing as a free lunch.

Guwan Seeya

Global warming policies were expected to drive a rapid shift toward a renewables-based energy system dominated by wind and solar. While growth in these sources did occur, it has not matched the pace that was widely anticipated. In the United States, the rise of cheap and abundant shale natural gas significantly reshaped the energy mix, displacing coal and limiting the relative share of wind and solar in electricity generation. In China and India, the situation has been different.

Coal remains dominant because it is widely available domestically, while natural gas is more limited or expensive to secure at scale. As a result, coal has retained its central role in both countries’ power systems. Solar and wind always provide intermittent, variable power. It was widely assumed that a cost-effective, utility-scale electricity storage solution would emerge to solve this problem, but that has not yet happened at the scale originally expected. In the pre-AI era, solar and wind were typically integrated into power systems alongside more reliable sources such as coal, natural gas, and nuclear energy.

For example, if the sun was shining on a Monday, electricity demand could be met largely by solar power during the day. At night, coal, natural gas, or nuclear plants would supply the required electricity. If the following Tuesday was cloudy or gloomy, generation would shift back toward coal, gas, or nuclear to maintain supply. AI introduces a new and more demanding challenge. AI data centers require continuous, high-quality, always-on electricity, which solar and wind alone struggle to guarantee without large-scale storage or back-up systems. In addition, they require very large amounts of power.

As a result, the AI industry is now actively searching for new and expanded sources of reliable electricity. One of the major challenges in powering AI systems is electricity transmission. High-voltage transmission lines are expensive, slow to build, and often face regulatory and land-use constraints. As a result, some companies are exploring more localized power solutions, sometimes referred to as microgrids. These are self-contained energy systems that can operate independently from the main electricity grid. Technologies such as small modular nuclear reactors are an example of such microgrids.

In such isolated systems, the focus is on highly reliable, always available power generated close to the point of use. In this context, solar and wind are expected to play a limited role because their output is variable and depends on weather conditions, making them less suited as primary sources in fully self-contained AI-focused microgrids. The pace of AI infrastructure development is extremely rapid in both the United States and China. AI systems are widely seen as transformative technologies that promise significant new wealth creation, which is driving aggressive and sustained investment. As a result, development is moving quickly, without waiting for long-term solutions such as large-scale energy storage to mature alongside renewable energy systems.

In this environment, electricity demand is rising faster than new infrastructure can be built. In the United States, this reinforces the role of natural gas as the dominant source of reliable power. In China and India, where coal remains more established and readily available, it is likely to continue playing a central role in meeting growing demand. In India, AI data centers have not yet been built at the scale seen in the United States and China. When India does reach that stage, it will need to supply large amounts of reliable electricity. India has placed strong emphasis on solar energy in particular and has had some success in meeting the needs of ordinary consumers through renewable expansion. However, the key question is what choices will be made when large-scale AI data centers begin to arrive.

Will India rely more on coal generation, which is relatively cheap, widely available, and highly reliable, or on solar power, which is intermittent, variable, and often more expensive when reliability is taken into account? My view is that India is more likely to turn to coal to meet this demand, given its existing infrastructure and the need for dependable electricity supply. Then there is an overall question. Solar and wind were already struggling in the pre-AI days to displace coal and natural gas at the system level, despite strong expectations that they would become dominant sources of electricity. Now that AI is here and electricity demand is rising rapidly, will they push solar and wind further behind in the energy mix? (The Statesman)

(The writer is an expert on energy and contributes regularly to publications in India and overseas.)

by SUNIL SHARAN