Analysis by Ruwan Weerakoon
(Lanka-e-News -13 Nov 2026, 10.30 P.M.)Sri Lanka's economic collapse was not a sudden accident. It was the result of decades of overspending and heavy borrowing, followed by political decisions that turned a vulnerable economy into a bankrupt one.
In April 2022, the country defaulted on US$51bn of external debt, its first sovereign default, after running out of foreign currency for imports. Long queues for fuel and cooking gas, power cuts and shortages of medicine became daily life, and inflation peaked at almost 70%. (ifre) (ft)
Several weaknesses fed one another:
Persistent deficits. The government spent more than it earned, and the country imported more than it exported.
Costly dollar borrowing. Loans financed projects that earned few dollars in return.
The 2019 tax cuts. They cut state revenue sharply just before COVID-19 struck.
The pandemic. Tourism and remittances, two key sources of foreign currency, collapsed.
Money printing. Financing the deficit through the central bank fuelled inflation.
Defending the rupee artificially. Reserves were burned until they nearly vanished.
The fertiliser ban and the delay in approaching the IMF. Both deepened the crisis.
Who was responsible has become one of the most politically charged questions in the country.
In November 2023, a five-judge Supreme Court bench ruled 4-1 that former President Gotabaya Rajapaksa, former Prime Minister Mahinda Rajapaksa, former Finance Minister Basil Rajapaksa and other top officials were responsible for the crisis and had violated citizens' fundamental rights. The court said the officials could not escape responsibility by calling their decisions "policy decisions." (The Print) (ft)
The ruling was a declaration, not a criminal conviction. The only financial order was 150,000 rupees in legal costs to each petitioner. (Al Jazeera)
The wider picture is more complicated. Deficits and heavy borrowing built up under many governments over decades, and COVID-19 and global shocks were real. Supporters of the family argue these shocks were the main cause and that prosecutions are politically motivated. Critics reply that the family held many top government positions, leaving few checks on decisions like the tax cuts and the late approach to the IMF. (Goulburn Post)
Separately, corruption cases involving family members are moving through the courts. They have gained momentum since President Anura Kumara Dissanayake won the 2024 election on an anti-corruption platform. They include Yoshitha Rajapaksa's arrest in June 2026, after which he was granted bail, and Shiranthi Rajapaksa's detention in October 2026. All of these matters are pending, and everyone involved is presumed innocent until a court rules. (Sri Lanka ex-leader's son arrested over corruption +2)
From the bottom, the numbers are encouraging:
The economy grew 5% in 2025. (hirunews)
Inflation was about 5.5% in May 2026, and the rupee traded near 309 to the dollar. (statisticsoftheworld)
The IMF completed its fifth and sixth reviews in May 2026, bringing total IMF support disbursed to $2.4 billion. (adaderana) (ft)
Debt restructuring is reportedly nearing completion. (newsfirst)
Growth is now expected to slow to 3% in 2026, down from a 4% forecast made before the conflict. (ft)
Cyclone reconstruction and rising energy costs led the IMF to allow a lower primary surplus target of 1.4% of GDP for 2026, with the stricter 2.3% returning in 2027. (ifre)
The IMF warns that debt sustainability risks remain elevated. (newsfirst)
Fitch rated Sri Lanka CCC+ in January 2026, still deep in sub-investment-grade territory. (gfmag)
The right path, if it holds
The policy direction is broadly what economists recommend: higher tax collection, cost-reflective energy pricing, an independent central bank and debt restructuring. The weak link is political will. As one analyst put it, cost-recovery electricity pricing is only as strong as the political will behind it. (themorning)
The bigger test comes when the IMF leaves. With one review left before the programme closes in early 2027, it has not restored Sri Lanka's financial independence. The question is whether the discipline now imposed from outside becomes the country's own habit. (ifre)
Some already have, but cautiously.
Foreign direct investment reached US$1.057bn in 2025, a 72% increase from 2024 and the first time above $1bn since the crisis. About US$450 million of realised FDI arrived in the first half of 2026, and the Board of Investment is confident it will meet its US$1.5bn target. The BOI has also cut the minimum investment threshold to $250,000 from $3 million. (Daily Mirror - Print Edition +2)
Yet the caution shows. Investors have preferred supporting local operations through debt, and Sri Lanka has not yet attracted large anchor investors. A BOI board member named policy inconsistency and labour laws as key brakes on investment. The BOI chairman has said that without concessions, Sri Lanka needs hard reforms to compete for FDI. (Daily Mirror - Print Edition +2)
Investors will watch six things: consistent policy, secure contracts, currency stability, credit rating upgrades, reliable energy and fair anti-corruption enforcement.
Optimistic: Reforms hold, ratings improve, exports and tourism grow, investment deepens beyond reinvestment, and growth reaches 4–5%.
Base case: A slow, uneven recovery of 3–4%, limited by debt repayments and energy costs.
Risky: Political pressure brings tax cuts and subsidies, another shock hits, and the vulnerabilities of 2022 return.
The verdict
Sri Lanka has stabilised, but stabilisation is not transformation. The collapse came from structural weaknesses made far worse by political decisions that the nation's highest court has criticised. The recovery is real, yet it rests on IMF discipline that must now become the country's own.
If governments keep policy steady, protect institutional independence and let courts decide corruption cases fairly, the island can rebuild trust at home and abroad. If not, history may repeat itself.
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by (2026-11-13 17:11:19)
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