Features
Options for Foreign Debt Management in Sri Lanka: Can we escape from IMF/ISB Debt Trap?

by Luxman Siriwardena,
Managing Director,
Veemansa Innitiative,
Think Tank and Advocacy Group
The setback due to the pandemic has aggravated some of the perennial macro-economic and sectoral problems in Sri Lanka. For example, borrowing and accumulating external debts has been a practice of successive governments since 1978, which was the year of partial liberalization of the economy. During the early periods, when Sri Lanka was considered a low-income country, we were entitled to substantial grant aid as well as concessionary finances.
This relatively low interest facilities and lenient conditionalities provided incentives for the governments to keep borrowing for many development projects, from bi-lateral and multi-lateral lending agencies, irrespective of inflated costs of many of these projects. In most of these cases, financial benefits also have spilled over to Sri Lankan politicians, bureaucrats, and technocrats. Notwithstanding such leakages, these foreign funded projects increased the availability of more sophisticated infrastructure and utilities in sectors such as, electricity, highways, drinking and irrigation water, as well as the Colombo port and airports. In addition, education, agriculture and health were the prime targets of both Sri Lankan policy makers and donors/lenders.
There was a period when Sri Lanka was termed as “a Donor Darling” (see figure).
Sri Lanka became a darling of the Western donors primarily due its subservience to the West under Jayawardena-Premadasa regime). However, since we attained lower-middle income country status, concessionary funding has not been available and therefore, most borrowings have been at commercial or near commercial lending rates. In this context, the country has accumulated over US$ 34.7bn debt1 up to 2019. These borrowings have been for development projects, import of consumption items and direct budgetary support to meet current expenditure, including debt servicing. The current debt situation.
At the moment, one of the most critical challenges for the Rajapaksa administration is managing or preferably reducing Sri Lanka’s debt while meeting the current level of foreign exchange requirements and hopefully implementing necessary development projects.
While the selected development projects are generally presented to the multilateral donors; World Bank and ADB as well as bilateral lending institutions such as JICA, US-AID and similar institutions in China and European countries, seeking loan financing, the rates of lending are equal or closer to the market rates. Since 2007, borrowing through International Sovereign Bonds (ISBs), which became a common practice, has now emerged as the most serious challenge for the current government to ensure sustainability or reduction foreign debt.
The focus of this article is to discuss alternative methods of managing the debt in spite of the COVID-19 pandemic that has pushed almost the entire world (other than China) into a recession.
In this context, conventional economic policy pandits, academics and consultants recommend that the emerging economies such as Sri Lanka should seek the refuge in International Monetary Fund (IMF) Programmes. Based on the IMF guarantees the countries in foreign debt crisis will be eligible for further assistance from other multilateral and bilateral lenders, while qualifying for accessing the International Sovereign Bond Market. According to this prescription, without the support and blessing of the IMF, we have no way of securing sufficient funding for re-payment of maturing debt, balance of payment requirements or development programmes.
Since the election of the new government all our well-known economists, and many so-called experts have been promoting the above policy prescription as Sri Lanka is, according their assessment, at the verge of a default and economic collapse. Most if not, all these pandits were expecting the government will continue to proceed with the borrowing from the international markets subscribing to Samurai or Panda bonds. Surprisingly our conventional economic advisors are increasingly becoming impatient and critical of the Government for not negotiating with the IMF to enter into a programme which will be entitled and receive loan facility and more importantly in turn qualify for raising finance through ISBs. Does this process lead to a reduction of debt or payback of loans? Of course not, nor reduction of debt burden or the severity of the debt problem.
As an IMF programme is likely to impose conditionalities to meet the Fund’s debt sustainability parameters, the readers may perhaps understand that, this approach is not even to reduce the severity of the debt problem but for reducing the burden over the next few years by extending maturities probably through some form of ‘Grace Period’. The bottom line will be that Sri Lanka will continue to have challenging debt dynamics which I would like to call it as ‘IMF/ISB DEBT TRAP’ as long as we fail to achieve substantial increase of exports and FDI. In other words, we will merely be postponing and aggravating the debt problem unless we can accelerate growth by increasing production of tradable goods and services which will earn or save foreign exchange.
Cost of raising funds through International Sovereign Bonds
A sovereign bond is defined as a debt instrument issued by a national government to raise generally foreign currency requirements in case of countries such as Sri Lanka. Sovereign bonds are denominated in foreign currencies such as USD, the Euro, Japanese Yen and Chinese Yuan. The successful issue of ISBs require several steps engaging highly professional individuals and institutions including global banking giants. Under each of these steps many upfront costs are to be incurred by the government. A typical bond issue involves, fees (commissions) and other expenses. Three large components of the fees, according to a World Bank document are for the lead-managers, rating costs and legal expenses. Interestingly those transaction costs are paid at time of issuance (upfront). In spite of the competition among the banks there is little transparency specially with regard to bond issues of countries like Sri Lanka. Another major expense is often for obtaining a rating for each bond which is generally similar to the fee for the lead-managers. There are also expenses for legal counsel, marketing especially road shows, fiscal and paying agents and advisors. Cost will also depend on which markets are targeted for the road shows undertaken in major cities in developed market economies.
Throughout the Sri Lankan history of issuing ISBs people have only learned about the total value of the bond issues and subscribed but not the direct and indirect costs that have been incurred in the process, for example, officials of the Central Bank, Ministry of Finance, etc. will be travelling to several capitals in the world for negotiations, road shows and other associated events etc. incurring scarce foreign exchange of Sri Lanka. Of course it should have provided very tempting incentive for this approach
Some economists who are faithful followers of IMF policy prescriptions prefers to identify the IMF/ISB Debt Trap as the symptom not the cause of the problem. According to them the debt trap was caused by poor fiscal outcomes over many years and IMF/ISB debt was incurred to meet deficit financing.
In this article, the most pertinent and decisive issue to raise is, what should be the alternative policy recommendations of our learned economists. As we all are well aware if Sri Lanka qualifies to receive assistance from the IMF, such funding will be for as balance of payment support subject to certain conditionality which are likely to include; removal or reduction of subsidies, removal of import controls, non-strategic assets privatization, etc. and many such measures of government interventions.
Many, if not all these adjustments will be painful to the ordinary citizens and therefore, make it difficult to sell politically. If Sri Lanka for that matter, any other country in our predicament is not willing to go through an IMF austerity programme with its stringent conditionalities, what options are available for them. Let’s discuss what appears to be the economic management strategy of the current government. With the lockdown of the world economies and disruption of global value-chains, Sri Lankan government was compelled to ‘Close the Economy’ to some degree. Subsequently, the government policy makers seem to be implementing a fairly well-managed import administration scheme and associated measures to ensure enhanced foreign exchange savings. Current import management scheme has selectively targeted non-essential ‘big-ticket’ items.
In order to prevent further deterioration of the debt situation the government seems to be minimizing new borrowings for implementation of numerous development projects with commercial characteristics. Both acceding to IMF austerity programme, as well as, controls imposed by the government will have contractionary impact on the local economy. Of course, second option will reduce the confidence of capital markets, foreign equity investors and even some local enterprises. Generally, IMF programs are sold to a government in-need of balance of payment support on the basis that agreement with the Fund would pave way for the country to achieve a higher sovereign rating and confidence of the investors in ISBs.
Pertinent question here is, as learned economists, professionals and advisors, are they in a position to develop an alternative development strategy for Sri Lanka in order to overcome the current difficulties reducing the severity of the debt burden created primarily through borrowings from ISBs. It appears that the, current administration is developing a strategy that will cause less pain to the people than under an IMF program and have more positive outcomes in terms of output, employment and incomes.
Unfortunately, however, in the past, we have rarely seen Sri Lankan policy makers or even academics develop alternative concepts or strategies instead of repeating what they have learned as classical, neo-classical or Keynesian schools and reinforced by the training programs conducted by multilateral or bilateral lending agencies.
In conclusion, let me quote once again from my recently published article;
“Whatever the reasons are, instead of thinking independently on their own most of our economists parrot their mentors in the west for short-term gains like easy recognition and self-fulfillment PROMOTING THE SAME FORMULA AGRAVATING the vicious circle and perpetuating the misery of our people. Irony is that when a solution is needed the only thing some of our experts are capable of recommending is to seek refuge in borrowing from multilateral or bilateral lending agencies. Most Sri Lankans need to be reminded that, Sri Lanka has already gone under 16-IMF Programs and have reached the current predicament. This reminds us the famous saying attributed to Einstein that “insanity is doing the same thing over and over again and expecting different outcomes’’.
Signs are that the current administration is deviating from the orthodoxy and searching for innovative and pragmatic development path.
(Article is based on a key-note address delivered by the writer at the 08th International Research Conference conducted by the department of Economics and Statistics, University of Peradeniya)
Features
Shame! Ragging raises its cowardly head again

Ragging at Sabaragamuwa university has resulted in the loss of another student’s life and there is another incident of barbaric attack on an anti-rag student of J’pura university by some students from the same university. Whether the bullies are backed by political parties or not, they show their undeveloped and conformist minds that need urgent refinement; if they are connected to political parties and student unions, the latter show only their vulgarity and duplicity when they wax eloquent about modern education, culture, decadent politics, human rights, corruption and all that jazz. That this barbarous practice continues in broad daylight and under the very nose of university and law enforcement authorities is deplorable and puzzling to say the least. It is ironic that the best minds, the superstars in academia, the leading lights in education and the guardians of all that is progressive have become helpless spectators of this bullying happening in their universities. The ignominious records of rag victims in our country are a crying shame as all those perpetrators have been from that somewhat musty and largely conservative ‘cream of intelligence’ as they are called at all inauguration ceremonies where their egos are pampered.
Ragging in our universities is a sure sign of the backwardness of our culture and education, in comparison with that of civilized societies. The brutal practice of ragging shows that education in our country, both in schools and universities, has a lot of room for improvement about making the undergraduate population sensitive and sensible, more than ‘educated’. Of course, we can understand torture if it is something which happens in the underworld or in any place where the new recruits must be brutaliesed before they are admitted to their circles, but how can one understand when it happens in the highest seats of academia? Professor O. A. Ileperuma has, in his article “Ragging and loss of life” published in The Island of 5 May 2025, stated that some academics turn a blind eye to ragging perhaps “because they themselves were raggers in the past and see nothing harmful in such sordid instances of ragging”. This is pathetic and may perhaps prove some of the accusations that have been made ad nauseum about the lack of a wholesome education in our university system, which is said to be obsessed with mass producing ‘employable graduates’.
As they say, desperate times call for desperate measures. As far as the ragging culture in our universities is concerned, desperate measures are long overdue. In the highest institutes of learning where knowledge is produced and all the progressive and advanced ideas are supposed to be generated, there has been unfathomable brutality, crudeness and conventionality in the name of an acquired beastliness which they call ‘ragging’ to give it a quasi-academic smell when all it amounts to is lack of refinement which can be linked to numerous reasons.
Most of the culprits are the victims of a system which esteems hierarchy where it is accepted that superiority is synonymous with repressive power and inferiority is another term for meekness and passive acceptance of all commands coming from above. It is a mentality which is based on the warped logic that superiority is absurd if the seniors have no right to snub the juniors. Those who have tasted humiliation in one form or another for long due to reasons inherent in society can grow up to be vengeful. Most of these diehard raggers often show signs of this mentality in the way they behave the minute they have been automatically lifted to their pathetic superiority after one year in the university where they enjoy a mistaken sense of immunity from the law. The widely publicised idea of ‘freedom’ associated with universities and their relative aloofness from the rest of society and the aura they have acquired have made them safe havens for the raggers if the unmitigated brutality in ragging over the long years is any indication. The question is why (oh why?) these learned bullies despise civilised behaviour so much in their enclaves of power merely on the strength of one year’s seniority. If it is their one year’s accumulated knowledge which makes them feel superior to the newcomers in an aggressive way, surely, such knowledge is questionable, which must intrigue educationists, psychologists, sociologists and all academics interested in the role of education in character building.
Raggers have been saying ad nauseam that ragging is given to make the new entrants tough enough for academic work. As we know their methods include using foul language, humiliation, intimidation, physical and psychological abuse, torture, beating and forcing rigorous exercises even leading to death. The resultant trauma has led some to commit suicide. All this is done to help the new students with a proven capacity for hard work in the academic field!
However, there are some pertinent questions to be asked. Is this method of building resilience of potential academics backed by research? Should this ‘programme’ be conducted by senior students (who are apparently mentally unsound)? Aren’t there better qualified people to conduct a civilised programme which would help make the newcomers ready to face the trials of academic life? Do they believe that no refined programme can be as ‘effective’ as their ragging? Why should they spend their valuable time doing it when it can be done by experts in a more organised and civilised manner? Have they ever been cultured enough to discuss this so-called ‘personality development’ programme with the relevant authorities and academics, with any reliable evidence to prove its effectiveness?
As we know, these raggers who are self-appointed ‘experts’ in character building of sorts expect total submission from the juniors they try to brutalise, and those who dare resist this bullying are viciously suppressed. To what extent does this compulsory compliance expected from the new students at the beginning of their academic career help them to be better undergrads?
How much more brutality in ragging is to be endured by the new university entrants for “desperate measures” to be called for?
by Susantha Hewa
Features
80th Anniversary of Second World War

One of the most important dates in World War II, is May 9, 1945, when the Soviet red flag with the hammer and sickle emblem was raised over the Reichstag building, the German parliament. This confirmed Germany’s unconditional surrender to the Soviet Union. Since then, 80 years have passed upto May 9, 2025. It is very timely to look back on the past 80 years of history, and to briefly discuss some of the current issues and the future.
Beginning and End of the 2nd World War
World War II began on September 1, 1939, when Nazi Germany attacked Poland. Within a year of the war, the world’s imperialist powers had divided into two camps. Germany was on one side, targeting Europe, Italy Africa, and Japan Asia, while Great Britain, the United States, and France were on the other side of the war.
Within a short time from the start of the war, Germany had conquered many countries in Europe, and on June 22, 1941, Nazi Germany attacked the Soviet Union. The Soviet Union joined the anti- Nazi Allies and launched the “Great Patriotic War” to defend the world’s first socialist state, and progressive forces around the world acted in a way that supported the Soviet Union.
Three major battles known as the Battles of Moscow, Stalingrad, and Kursk turned the tide of World War II, shattering Hitler’s dream of capturing Moscow in a few months (4 months) through Operation “Barbarossa” and celebrating the victory from Red Square. By the beginning of 1945, the entire Soviet Union had been liberated from Nazi Germany, and by March 1945, the Soviet Red Army had surrounded Berlin from the east, south, and north, and then surrounded the entire city, surrendering the German forces, ending the European War of World War II on May 9.
World War II was a major war in which 61 countries, representing 89% of the world’s population participated, and the total number of deaths in this war was 50 million, of which 25-30 million were Soviet citizens. The Soviet Red Army, which ended the Great War for the Liberation of Europe on May 9, 1945, entered the Battle of Manchuria three months later on August 9, 1945, and defeated imperialist Japan. By then, the United States had dropped atomic bombs on Hiroshima and Nagasaki (on August 6 and 9). Thus, the Soviet Union played the major role in defeating the fascist military coalition, including Nazi Germany, during World War II.
Post-World War order
Negotiations, to shape the post-war world order, began while World War II was still ongoing. In talks held in Washington in January-February 1942, in Canada in 1943, later in Moscow, and in Tehran, Iran in November-December 1943, the Soviet Union, the United States, Great Britain, and China agreed to establish an international organisation with the aim of preserving world peace. Later, the Soviet, American and British leaders who met in Yalta in Crimea agreed on the structure of the United Nations, the Security Council, and the veto power, and the United Nations Charter, signed by 50 countries in San Francisco in 1945, came into force on October 24, 1945.
Rise of Socialist world and collapse of colonialism
With the Soviet victory in World War II, the world underwent unprecedented changes. Although Mongolia was the only socialist state other than the Soviet Union at the start of World War II, after that war, Czechoslovakia, Poland, Romania, Bulgaria, Hungary, Yugoslavia, and Albania in Eastern Europe also became socialist countries. The Democratic Republic of Vietnam was established in 1945, and in 1947 a socialist state was established in East Germany under the name of the German Democratic Republic. The Chinese Revolution triumphed in 1949, and the Cuban Revolution triumphed in 1959. Thus, the socialist system established in a single country by the October Revolution in 1917 developed into a world system against the backdrop of the unique victory of the Soviet Union in World War II.
Another direct result of the victory in World War II was the collapse of the colonial system. National liberation struggles intensified in Asia, Africa and Latin America, and new independent countries emerged one after another on these continents. In the 25-30 years that followed the end of World War II, the colonial system almost completely collapsed. The United Nations, which began with 50 member states, now has 193 members.
With the end of World War II, working class struggles intensified. Communist parties were formed all over the world. Although the Sri Lankan working people’s movement was in a state of truce during World War II, the war ended in May 1945 and by August it had gone on a general strike. The 8-hour workday, wage boards, holiday systems and monthly salary systems were won through that struggle. The working class movement in this country was able to win many rights, including pension rights, overtime pay, and other rights, through the general strike held in 1946. Although the general strike of 1947 was suppressed, there is no doubt that the British government was shocked by this great struggle. In the elections held in 1947, leftist and progressive groups were elected to parliament in large numbers, and independence with Dominion status was achieved in 1948.
World is in turmoil
Until this era, which is 80 years after the end of World War II, the world has so far managed to prevent another world war. Although there have been no world wars, there have been several major conflicts around the world. The ongoing Middle East conflict over the forced displacement of the Palestinian people, the conflict created by Western powers around Iran, the Russia-Ukraine conflict, and the recently escalating Indo-Pakistan conflict are among them. The limited military operation launched by Russia to prevent the NATO organization reaching its borders, has transformed into a battle between Russia and the collective West. But the conflict now seems to have entered a certain path of resolution.
Several parties have launched trade wars that are destabilising the world, perhaps even escalating into a state of war. Thousands of trade sanctions have been imposed against Russia, and the US President has declared a trade war by imposing tariffs on dozens of countries around the world.
Meanwhile, the world has not yet been able to provide a satisfactory solution to the problem of global warming, which has threatened the existence of the entire human race.
The Bretton Woods Organizations (International Monetary Fund and World Bank), which were economic operating institutions established after World War II, have not only failed to lead the world’s economic development, but there is a strong allegation that the guidance of those institutions has exacerbated the economic problems of newly independent countries.
At this time of commemoration of the 80th anniversary of World War II, it is our responsibility to resolve the above problems facing the people of the world and to dedicate ourselves to the future of humanity.
Way forward
Accordingly, a futuristic, new economic order is emerging, and a multipolar world has been formed. The most important point to emphasise here is that the world order that was established after World War II, which encompasses various fields, is a system jointly developed by the great powers that won that war, and the reforms that need to be made in accordance with the demands to change this world order to suit the current reality must be identified collectively. No single country can change these world structures.
People are rallying all over the world for issues related to the survival of the entire human race, such as controlling global warming. New programmes that contribute to the economic development of most countries in the world have been or are being developed. The New Silk Road projects, the BRICS organisation, the New Development Bank, the Asian Infrastructure Investment Bank, and the Shanghai Cooperation Organization are such programs/new institutions. A global process has been launched to prevent a nuclear war and maintain world peace.
Many of the above-mentioned issues and problems have arisen through imperialist military and economic planning and operations, and therefore, the contradiction between imperialism and the people has become the main contradiction of this era. Therefore, it must be emphasized on the 80th anniversary of the Second World War that the way forward in the world will be through the people’s struggle against imperialism.
by Dr. G. Weerasinghe
General Secretary, Communist
Party of Sri Lanka
Features
New Mayors; 80th Anniversary of VE Day; Prince Harry missteps yet again

This week’s Cry is put together as the voting goes on for mayors of Municipal Councils. Cass is rather confused about this second tier of government, so she googled and here is what she got: “There are currently 29 municipal councils in Sri Lanka. These councils govern the largest cities and first tier municipalities in the country. The local government system also includes 36 urban councils and 276 Pradeshiya Sabhas.” Not that this has made matters clearer to Cass.
She believes that for a small country of 22 m people, we are too heavily governed from above, with a central government and then all these councils and sabhas below. Consider the number employed in them; most underworked and underworking. Another matter is that if you want a matter seen to, regarding property rates, etc., you are most often sent from this Sabha to that council.
This came about with the 13th Amendment to the Sri Lanka Constitution introduced on November 14, 1987, following the Indo-Sri Lanka Accord, which aimed to address the ethnic conflict by granting some autonomy to provincial councils. As Cass believes it was imposed on us by India after the threat expressed by India, instigated by Tamil Nadu, when Prabhakaran in his military childhood, was cornered and almost captured in Vadamarachchi.
India rained parippu on the northern peninsular, demanded no arrests of LTTE; and it was rumoured Indian forces were poised on the southern and south eastern coasts of the subcontinent ready to sail to war to the island below them. PM Rajiv Gandhi came instead; Prez JRJ was constrained to meet, greet and honour him. One rating in a guard of honour which handsome Rajiv inspected, expressed the majority people’s opinion; “We don’t want you here!” After which guards of honour worldwide are kept strictly at a safe distance from the VVIP honoured.
To Cass the most important fact of the election progressing now and its outcome is that she hopes newly elected mayors will insist on the Municipal Councils’ employees doing the work allotted to them: mostly garbage collectors; sprayers against mosquitoes; PHIs inspecting kitchens of eating houses and those in charge of general cleanliness of cities keeping s clean.
Complaints are numerous that roads are dirty, garbage piled up and drains and small waterways clogged so water remains stagnant and thus the rapid spread of most debilitating chikungunya.
May 8 1945 – VE Day
This date marked Victory in Europe. “… after Britain and its allies formally accepted Nazi Germany’s surrender after almost six years of war. At 15.00, the then Prime Minister Winston Churchill announced World War Two in Europe had come to an end.” Allied Forces marched into Germany from west and South and the Russians entered from the north. Hitler committed suicide and the Nazi so far invincible forces were shattered, battered and splintered. It was Emperor Hirohito who surrendered Japan and himself on August 15, 1945, after the Hiroshima and Nagasaki bombings (Aug 6,9).
Thus, this year is the 80th anniversary of the end of World War II and Britain brought out its Palace Guards, forces and cheering crowds to celebrate the event, and more to pay homage to veterans still living and extend gratitude to those soldiers, sailors and airmen and women who laid down their lives to save their country. King Charles III was present in a special seating area which had other members of the royal family; politicians and veterans and their families, while some of those who had served in the war rode in open cars to the cheers of the spectators.
The Netherlands and Canada too mounted celebrations. Canada made it a point to pay allegiance to the British Monarch as their head, and Cass feels sure King Charles III reciprocated with acknowledgement. Commented on were video statements Cass heard that this reiteration was for the benefit of Prez Trump with his plans to annex Canada as the 51st State of the US.
Prince of groans and complaints
In the midst of this pageantry and show of British royal family’s unity was Prince Harry cutting a very poor figure of himself, most in an interview given to the BBC after he lost his British Court of Appeal challenge over his security arrangements. “The Duke of Essex, who attended both days of the hearing at the Royal Courts of Justice last month, was appealing a ruling dismissing his challenge to the level of police protection he receives in the UK” He was demanding armed security for himself and his family if and when they visit England. This was refused because of his own withdrawal from royal duties, opting not to be a working member of the British Royal Family; and moving to the US to live. Videos Cass watched tore him to pieces on several counts. He said he could not bring his wife and children to Britain. He said he wanted reconciliation but his father would not speak with him. Then the blunder of adding the sentiment that King Charles’ days on earth were numbered. “We don’t know how long he has to live.”
He was very annoyed with a compere of a British late-night show for referring to him as Harry with no Prince or Duke salutation. He and his wife are not allowed to use HRH by King Charles’ orders, but it was said Meghan loves using the title. Here is a straightforward case of wanting and not wanting something, of utter selfishness and gross grasping.
Local news in English
Cass bemoans the fact she is no longer able to watch MTV News First at 6.30 of a morning. MTV late news in English is at 9.00 pm but it was repeated the next morning. Served lots, I am sure. In Cass’ case the TV set is monopolised by the two helpers she has with her. They watch teledramas on various channels all through the late evening almost to midnight. Can she butt in? Never! They need entertainment. So, no local news for her these days until she goes to another TV channel for news in English – few available. She hopes TV One will resume its news relay in English at 6.30 am after the welcome chanting of pirith.
Cassandra wishes everyone and our much-loved country a continuation of the peace of Vesak. Oneness of the people as good persons was demonstrated in the crowds in Kandy recently. Mosques opened their doors wide to let in anyone and everyone come in and sleep. All races supplied food and water. Such unity was not seen before. A propitious sign for the future.
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