FINANCIAL CHRONICLE – According to economist Ganeshan Wignaraja, Sri Lanka should contemplate initiating an 18th programme with the International Monetary Fund (IMF), as the current agreement is set to conclude in mid-2027, with substantial debt repayments scheduled to commence in 2028. He emphasized that the cumulative impacts of Cyclone Ditwah and ongoing conflicts in West Asia have transitioned what was once a contingency plan into a necessity, advocating for proactive planning during his address at the RCSS Strategic Dialogue – 4, which focused on “A Global Economy in the Shadow of Middle-East War: Implications for Sri Lanka’s Debt Recovery” held at the Regional Centre for Strategic Studies (RCSS) in Colombo.
This dialogue convened a diverse group of current and former policymakers, diplomats, defense experts, academics, think-tank representatives, civil society members, and media personnel. Dr. Wignaraja serves as a visiting Senior Research Fellow at ODI Global in London and as a Professorial Fellow at Gateway House in Mumbai.
In his presentation, Wignaraja referenced the IMF’s World Economic Outlook from April 2026, which forecasts a slowdown in global growth to 3.1% for that year, highlighting significant downside risks such as extended conflicts, geopolitical fragmentation, and renewed trade tensions that particularly affect emerging and developing economies. He indicated that Sri Lanka’s vulnerabilities must be viewed within this challenging external context.
Transitioning from being regarded by the IMF as a post-2022 ‘Poster Child’ for economic stabilization aided by IMF support, Sri Lanka has faced compounded shocks from Cyclone Ditwah and the recent Middle East conflict. These events have led to increased prices for oil, gas, and fertilizers, disrupted remittances, and impacted the airline and tourism sectors. Moreover, exports, particularly tea, have contracted, with roughly 20% of tea exports directed toward the Middle East. Nonetheless, Wignaraja pointed out that the ongoing conflict could also offer Sri Lanka long-term opportunities.
As Gulf nations lose their status as safe havens, Sri Lanka has the potential to establish itself as a hub for maritime trade, aviation, finance, and professional services in the Indian Ocean, provided it develops the appropriate regulatory framework, governance, and infrastructure. The realization of this opportunity hinges on timely decisions and reforms, he stated.
Dr. Wignaraja outlined two near-term scenarios for Sri Lanka’s economy. In the most favorable scenario, the Strait of Hormuz remains accessible, oil prices stabilize between $78 and $90 per barrel, inflation remains contained, and growth rates are maintained between 2.7% and 4%, creating a challenging yet manageable fiscal environment. Conversely, in a more probable moderate scenario, ongoing disruptions could push oil prices above $100 per barrel, inflation could rise to between 5.6% and 6.3%, growth may decelerate to between 2.4% and 3.5%, poverty could increase significantly, and public finances would face growing pressure. He noted that Sri Lanka appears to be leaning towards the moderate scenario, while the potential for a prolonged Middle East conflict presents an even more severe outcome.
During the subsequent discussion, some participants remarked that the strategies proposed for Sri Lanka’s recovery and sustainable growth are not novel; rather, the persistent challenge has been the failure to implement these strategies due to various political and economic factors. Others questioned whether the IMF’s framework has exacerbated Sri Lanka’s challenges and whether alternative solutions might exist. Additionally, there was speculation on whether, without the disruptions from Cyclone Ditwah and the Middle East conflict, Sri Lanka had undertaken sufficient reforms in recent years to avoid returning to the IMF.
It was suggested that Sri Lanka, along with other South Asian countries similarly dependent on the Middle East, must reassess its economic resilience in light of the potential for conflict and supply chain disruptions. In response, Dr. Wignaraja asserted that the IMF is not the issue; rather, in 2022, when reserves were nearly depleted and no alternatives were available, it represented the sole lifeline. The IMF serves as a global lender of last resort for nations facing acute balance of payments crises, though this entails policy conditions. Without the IMF’s support, the people of Sri Lanka would have confronted dire economic instability and uncertainty.
Wignaraja highlighted that the deeper issue lies domestically, citing a persistent culture of non-implementation, weak state capabilities, and a lack of strategic decision-making, which have resulted in unexecuted economic reforms. He noted that alternative financing mechanisms, such as climate finance, which could only mobilize around $500 million, fall drastically short of meeting Sri Lanka’s debt obligations. Without access to international capital markets, no viable development financing options exist outside of another IMF programme. He also pointed to governance failures, including a recent cyber breach at the Treasury and a bank fraud case, which have undermined investor confidence and creditor trust, raising concerns that external investors may hesitate to commit capital to Sri Lanka under the current circumstances.
