By Asoka S. Seneviratne –

“Recovery is not just about paying debts — it is about rebuilding trust, restoring dignity, and reclaiming control over our nation’s future.”

In the aftermath of its most severe economic crisis in decades, Sri Lanka stands at a critical juncture. The nation’s path to recovery—marked by (i) mounting debt, (ii) dwindling foreign reserves, and (iii) fractured public trust—demands not only economic reforms but also a comprehensive shift in governance. On June 16, 2025, President Anura Kumara Dissanayake outlined a bold and uncompromising vision for national renewal at the “Sri Lanka’s Road to Recovery: Debt and Governance” conference in Colombo. With the participation of International Monetary Fund (IMF) officials, development partners, and domestic stakeholders, the forum marked a turning point in the country’s efforts to transition from dependency and crisis management to resilience and self-reliance.

Central to this vision is the commitment to complete the IMF’s Extended Fund Facility (EFF) program by 2028—intended to be Sri Lanka’s final engagement with the Fund. The President emphasized the importance of building a self-reliant economy capable of meeting its external debt obligations without recurring bailouts. However, beyond fiscal targets, the recovery agenda reflects a deeper political and institutional transformation: a shift toward transparent governance, the restructuring of bloated state enterprises, energy pricing reforms, and the safeguarding of vulnerable populations through targeted social protection. This new approach signifies not merely an economic correction, but a decisive break from the entrenched practices that led to collapse. As Sri Lanka attempts to turn the page, the road to recovery is as much about rebuilding public trust as it is about repaying debt. Based on the above, together with the content of my article “Sri Lanka’s Growth Slowdown: A Policy Response To The World Bank’s Economic Outlook (2025–2027“ with Colombo Telegraph on June 18, 2025, this article provides an assessment of Sri Lanka’s Road to Recovery: Debt and Governance by the President.

Building a Self-Reliant Economy: From Bailouts to Sovereignty

The call to build a self-reliant economy—one capable of servicing its external debt independently without recurring bailouts—represents both a fiscal imperative and a philosophical shift in Sri Lanka’s post-crisis development agenda. Theoretically, economic self-reliance refers to (i) a nation’s ability to sustain its growth, (ii) development, and (iii) debt obligations without perpetual dependence on external financial aid or emergency interventions. It rests on the principles of (i) macroeconomic stability, (ii) productive self-sufficiency, and (iii) institutional resilience. In practice, however, achieving such autonomy in a globalized economy requires a nuanced and carefully sequenced reform strategy that balances fiscal discipline with growth stimulation.

From a macroeconomic standpoint, debt sustainability depends on a country’s ability to generate sufficient primary fiscal surpluses and (ii) maintain external account stability, primarily through export earnings, foreign investment inflows, and prudent public spending. A self-reliant economy must therefore diversify its production base, improve value addition, and reduce the structural trade deficit that has historically necessitated foreign borrowing. Practically, this means strengthening sectors such as manufacturing, services, and agri-industry, while diminishing reliance on volatile remittances and imports for basic goods.

At the policy level, this objective requires three key strategies: first, public sector reforms to reduce waste and enhance revenue collection (primarily through progressive taxation); second, monetary stability to protect the currency and keep inflation in check; and third, strong governance mechanisms to ensure transparency and restore investor confidence. The economic crisis of 2022–2023 underscored the consequences of prolonged fiscal mismanagement and patronage-based governance, which led to a cycle of debt and dependency. Breaking this cycle necessitates depoliticizing economic institutions and empowering technocratic leadership.

Furthermore, debt independence does not mean isolation. It implies strategic integration into the global economy on terms that strengthen domestic capabilities rather than undermine them. Accessing concessional financing, promoting exports under trade agreements like RCEP, and fostering diaspora and FDI inflows all support long-term self-reliance, provided they are guided by national interest, not short-term political expediency.

Ultimately, building a self-reliant economy is about regaining economic sovereignty. It is about creating a system where Sri Lanka can meet its international obligations while investing in domestic priorities, without turning to the IMF or creditors for rescue every decade. For a country that has endured repeated debt crises, this transition is not only necessary—it is non-negotiable.

Core Fiscal Austerity Measures or the IMF Program

Regarding debt & governance, the foundation is that Sri Lanka is expected to fulfill the following key fiscal austerity measures embedded in the IMF frameworks for Sri Lanka or under the 2023–2028 Extended Fund Facility:

A. Tax Increases

* VAT raised from 8% to 15%

* Broader tax base: more people and companies brought into the tax net

* Personal income tax thresholds lowered, increasing tax burden on middle-income earners

B. Public Sector Rationalization

* Freeze on new public sector hiring

* Wage bill containment (no significant salary hikes)

* Possible restructuring or closure of loss-making SOEs (State-Owned Enterprises)

C. Subsidy Reforms

* Gradual removal of fuel and electricity subsidies

* Introduction of cost-reflective pricing in utilities (electricity, fuel, water)

D. Spending Cuts

* Reduction in non-essential capital expenditure

* Limiting government recurrent expenditure to reduce the fiscal deficit

E. Social Spending Targeting

* Shift from universal subsidies to targeted social protection (e.g., Aswesuma program)

* Protecting only the most vulnerable rather than entire population

F. Debt Restructuring

* Commitment to primary fiscal surpluses to ensure debt sustainability

* Limits on new borrowing unless concessional or grant-based

G. Improved Fiscal Governance

* Creation of a new public financial management law

* Stronger anti-corruption frameworks and procurement reform

These measures are designed to reduce fiscal deficits, stabilize public debt, and rebuild macroeconomic stability, but they often result in short-term social hardship and public resistance. Indeed, this is a critical issue but there is limited space given the weak economy in many ways. How to make it strong is explained as below.

Completing the IMF Program—And Making It Sri Lanka’s Last

As part of his vision to build a self-reliant economy, President Anura Kumara Dissanayake made a resolute pledge: to complete the current International Monetary Fund (IMF) Extended Fund Facility (EFF) program by 2028 and ensure that it becomes Sri Lanka’s last IMF arrangement. This promise holds both symbolic and structural significance. Symbolically, it represents a break from decades of cyclical dependency on external bailouts. Structurally, it indicates a shift toward economic governance that prioritizes long-term sustainability over short-term political survival.

It must be noted that the IMF’s 48-month EFF program—approved in 2023 to address Sri Lanka’s debt and balance of payments crisis—provides not only financial support but also a blueprint for macroeconomic reform. It includes benchmarks for  (i) fiscal consolidation, (ii) public sector restructuring, (iii) domestic revenue mobilization,  (iv) inflation control, and (v) debt transparency. These macroeconomic reforms are meant to correct deep-rooted economic imbalances that led to the country’s default in 2022 and to restore confidence among international creditors and investors. In short, the will make the current weak economy stronger in many ways.

Completing the program, however, goes beyond ticking off targets in a technocratic checklist. It requires profound institutional and behavioral changes. Historically, Sri Lanka has failed to fully implement IMF agreements or sustain reforms beyond the program period. This time, the objective is not only to meet conditions but to embed reform into the DNA of the state. That means:

* Enshrining fiscal discipline through independent oversight bodies and rule-based budgeting

* Reforming loss-making state-owned enterprises (SOEs) to reduce fiscal drag

* Ensuring central bank independence to safeguard monetary credibility

* Protecting social safety nets amid fiscal tightening, to maintain political legitimacy

The government has also signaled that the IMF program must catalyze—not constrain—domestic policy space. This includes exploring home-grown industrial strategies, targeted subsidies in productive sectors, and medium-term infrastructure investments that generate returns. The challenge lies in balancing this developmental vision with the fiscal austerity embedded in IMF frameworks. For the program to be effective and final, it must leave Sri Lanka not just more solvent, but stronger.

International observers have welcomed the President’s commitment but remain cautious. As reported in Reuters, Financial Times, and AP News, debt restructuring talks with bilateral and private creditors are progressing, but their success is contingent on political stability and reform credibility. Domestically, the public’s patience is thin, and the cost of living remains high. A failure to deliver tangible outcomes—such as job creation, inflation control, and essential service delivery—could jeopardize both the program and the broader reform agenda. In other words, the above may stand for a stronger economy.

To ensure that this IMF program is Sri Lanka’s last, the country must transition from a culture of emergency firefighting to one characterized by resilient, forward-looking governance. This entails insulating economic decision-making from political cycles, strengthening data integrity and fiscal forecasting, and aligning international commitments with a national development agenda.

If successful, this transformation will not only restore economic stability but also national dignity. No longer will Sri Lanka be seen as a nation perpetually teetering on the edge of default, but (i) as a country that learned from crisis, (ii) restructured its economy, and (iii) regained control over its future. Completing the IMF EFF is therefore not an end in itself—it is the beginning of an era where Sri Lanka stands on its own feet, confidently engaging with the world on equal terms.

Reclaiming National Sovereignty through Structural Reform

At the heart of President Anura Kumara Dissanayake’s economic recovery agenda lies a deeper mission: to restore Sri Lanka’s national sovereignty. This is not merely a political slogan but a commitment to reclaim economic self-determination after years of policy subservience to external lenders. The President emphasized that three key reforms—(i) public sector restructuring, (ii) energy pricing, and (iii) targeted social protection—are essential building blocks of this sovereign revival.

(a) Public Sector Restructuring: Efficiency Over Patronage

Sri Lanka’s bloated public sector has long been both a symbol of national pride and a burden on the state. With over 1.5 million employees and hundreds of loss-making state-owned enterprises (SOEs), the public sector consumes a disproportionate share of tax revenue while delivering limited value. Reforms in this area are crucial not to shrink the state, but to modernize it—(i) eliminating redundant institutions, (ii) digitalizing services, and (iii) introducing performance-based management. A leaner, more professional public administration frees up fiscal space, improves service delivery, and reduces the need for foreign borrowing to fund deficits. In essence, a sovereign nation must have the capacity to govern itself efficiently, without mortgaging its future for bureaucratic excess.

(b) Energy Pricing: From Populism to Sustainability

Subsidized energy has often been employed as a political tool in Sri Lanka. Still, this populist approach has weakened institutions such as the Ceylon Electricity Board and the Ceylon Petroleum Corporation. The resulting fiscal losses have exacerbated debt, devalued the rupee, and heightened dependence on foreign credit. The President’s plan calls for rationalizing energy pricing—tying prices to global market trends while providing targeted support to the poorest. This shift is not about burdening citizens but about liberating the country from energy-sector bailouts. When a country formulates energy policy based on economic principles rather than political expediency, it enhances its sovereignty by ensuring long-term energy security and fiscal independence.

(c) Social Protection: A Shield for the Vulnerable, Not a Blanket for All

True sovereignty cannot exist in a nation where large segments of the population live in a state of insecurity. At the same time, untargeted welfare has proven economically unsustainable. The government now aims to shift from universal subsidies to targeted social protection, utilizing digital registries and means-testing to identify those who genuinely need assistance. This ensures that limited resources reach the most vulnerable—including the elderly, low-income families, and single mothers—while reducing leakage and dependency. In doing so, Sri Lanka moves toward a welfare system that empowers rather than entraps, making the economy more inclusive and the state more accountable.

Together, these reforms are not merely technical adjustments—they are instruments of sovereign renewal. A nation that governs its finances wisely, prices its resources realistically, and effectively protects its people is a nation that stands tall, independent in decision-making, and resilient in the face of global pressures.

2028: A Destination of Regained Dignity and National Control

For Sri Lanka, 2028 is more than a policy deadline; it is a national goalpost—a moment to reclaim lost dignity, restore economic control, and redefine the country’s place in the world. After years of financial mismanagement, political instability, and widespread public suffering, the government is now navigating a challenging yet necessary path. Under President Anura Kumara Dissanayake’s leadership, Sri Lanka has committed to completing the current IMF program and laying the groundwork for a future where we no longer live under the shadow of debt and foreign dependency.

The idea of “regained dignity” is deeply personal for many Sri Lankans. The 2022 economic collapse was not just about empty fuel stations or power cuts—it was a national humiliation. We stood in queues not just for essentials, but for fundamental human rights. People lost jobs, savings, and hope. For a proud nation with a rich history and resilient people, this moment of helplessness cut deep. That is why 2028 represents more than economic numbers. It is about rising from the ashes of failure and proving to ourselves and the world that Sri Lanka can stand on its own feet again.

Regaining national control means that decisions about our economy, welfare, and development are made by our institutions, rather than being dictated by foreign lenders or conditional bailouts. It means never having to plead with external powers for emergency funds to pay salaries or import medicine. It means that our leaders are accountable to our people, not to foreign creditors. When we control our budget, energy sector, and public services, we regain sovereignty in the truest sense.

But this destination will not come easily. To get there, we must remain committed to reforms—cutting wasteful spending, restructuring failing state-owned enterprises, and investing wisely in people. We must reject quick fixes and political gimmicks in favor of honest, long-term planning. This also means protecting the most vulnerable during this transition, ensuring that the path to sovereignty is fair and inclusive, rather than one that leaves the poor behind.

Achieving success by 2028 will be a collective victory. It will signal to future generations that Sri Lanka faced its crisis with courage and emerged stronger. It will demonstrate that dignity does not come from aid, but from ability—from a nation’s capacity to govern itself wisely and care for its own. The road is long and the challenges are real, but for Sri Lanka, 2028 marks the dawn of a new era, where economic independence becomes the foundation for true freedom.

Summary

In the wake of its 2022 economic crisis, Sri Lanka is undergoing a profound transformation. At the heart of this transformation is a bold commitment: to complete the IMF’s Extended Fund Facility (EFF) program by 2028 and ensure that it is the country’s final reliance on external bailouts. This strategy, unveiled during the “Sri Lanka’s Road to Recovery: Debt and Governance” conference in 2025, marks a decisive break from past practices of fiscal mismanagement, populist subsidies, and institutional dysfunction.

The recovery framework focuses on three pillars: achieving debt sustainability, restoring governance, and building a self-reliant economy. Key IMF-backed fiscal austerity measures—ranging from tax increases and subsidy cuts to state-owned enterprise (SOE) restructuring and targeted welfare—form the foundation of macroeconomic stabilization. However, the true challenge lies not just in meeting numerical targets, but in embedding long-term reforms that depoliticize economic governance, promote transparency, and foster investor confidence.

Public sector modernization, sustainable energy pricing, and efficient social protection systems are being recast as instruments of national sovereignty and economic development. Notably, the recovery agenda emphasizes economic independence—not isolation—through strategic global engagement, export growth, and domestic capacity-building. By 2028, Sri Lanka aims to emerge as a fiscally responsible and economically resilient nation, no longer trapped in a cycle of debt and dependency. The above all goes together with my “Sri Lanka’s Growth Slowdown: A Policy Response to the World Bank’s Economic Outlook (2025–2027“ with CT on June 18, 2025.

Conclusion

Sri Lanka’s journey to 2028 is not merely about completing an IMF program—it is a quest to reclaim national dignity and economic control. President Anura Kumara Dissanayake’s recovery roadmap offers a rare convergence of fiscal discipline, institutional reform, and people-centered governance. It is a commitment to break free from a history of mismanagement and rebuild a future grounded in resilience, fairness, and sovereignty. All are pillars of the roadmap.

However, success will not be determined solely by foreign endorsements or improvements to the balance sheet. It will be measured by (i) the trust of the people, (ii) the strength of institutions, and (iii) the country’s ability to shape its destiny without fear of collapse. If Sri Lanka stays the course—resisting populist shortcuts and investing in long-term solutions—2028 will not only mark the end of a crisis but also the beginning of a new era: one in which Sri Lanka stands tall, governed by its values and guided by the collective will of its citizens.

*The writer, among many others, served as the Special Advisor to the office of the President of Namibia from 2006 to 2012 and worked as a Senior Consultant with the UNDP for 20 years. He also held the position of Senior Economist at the Central Bank of Sri Lanka from 1972 to 1993, asoka.seneviratne@gmail.com