COLOMBO, October 07 — Sri Lanka’s economic recovery, following the 2022 crisis, has brought a modicum of stability, but domestic strains and great-power rivalry threaten its sustainability. The country turned a political corner in September 2024 when the National People’s Power (NPP) coalition, led by President Anura Kumara Dissanayake, won 159 of 225 parliamentary seats. This victory followed the ouster of former president Gotabaya Rajapaksa during the 2022 Aragalaya protests and two years of political uncertainty.
Dissanayake’s government pledged to implement reforms, including combating corruption, overhauling taxation, repealing the Prevention of Terrorism Act and Online Safety Act, establishing independent accountability mechanisms, and abolishing the executive presidency. However, beyond adhering to IMF terms and tightening some anti-corruption regulations, much of the broader reform agenda remains stalled due to reform implementation risks, tensions between the JVP’s organizational and political character, and sensitive civil-military relations.
The NPP’s continuation of an IMF bailout, initiated under former president Ranil Wickremesinghe in May 2023, has been central to the post-2022 social contract, though the current loan cycle ends in 2027 and national elections are due in 2029. On March 4, 2026, the USS Charlotte, a U.S. Navy submarine, sank the Iranian frigate IRIS Dena 19 nautical miles off Sri Lanka’s southwest Galle coast, killing 104 crew members. The Sri Lanka Navy rescued 32 Iranian sailors.
President Dissanayake declared Sri Lanka’s stance one of neutrality, but opposition leader Sajith Premadasa of the United National Party condemned this as passivity and a ‘death blow to sovereignty,’ urging condemnation of U.S., Israeli, and Iranian actions. Former foreign minister G.
L. Peiris accused the government of insulting Iran, a friendly nation. The opposition also criticized the government’s delayed response to the frigate’s request to enter territorial waters and lack of awareness of the USS Charlotte’s movements.
Sri Lanka’s foreign policy of neutrality aims to preserve space for economic recovery, but the IRIS Dena incident illustrates how international turbulence tests this posture. The country’s external relations are shaped by reliance on IMF funding supported by an Indian backstop, drawing it closer to India and the West, while Chinese capital and finance—both for infrastructure and through illicit networks—continue to influence domestic and international politics.
Dissanayake’s core challenge is to maintain the stability consolidated since 2024 amid mounting domestic and international pressures that could unsettle the NPP’s moderation and its calibrated foreign policy.
