News

Verité Research Executive Director Dr. Nishan de Mel

• Verité Research Chief warns Sri Lanka poised to repeat past mistakes amid cyclone recovery funding push
• Argues IMF RFI financing effective rate exceeds 6% and time-based surcharges add further 2.75% after three years
• IMF Executive Board decides on $ 200 m RFI today

Economic think tank Verité Research has cautioned that Sri Lanka’s move to seek emergency financing from the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI) could prove costly in the current debt context, urging policymakers to weigh alternative funding options for post-cyclone recovery.

In a detailed analysis shared on ‘X,’ Verité Research Executive Director Dr. Nishan de Mel, a critic of Sri Lanka’s handling of debt repayments during the COVID-19 crisis and the subsequent debt restructuring process, said IMF borrowing has become relatively expensive for Sri Lanka due to effective interest rates that factor in surcharges, Special Drawing Rights (SDR) valuation, and exchange rate movements. He warned against what he described as “knee-jerk” financing decisions in response to Cyclone Ditwah-related spending needs.

According to Dr. de Mel, the effective cost of IMF RFI financing currently could exceed an effective rate of 6% in US dollar terms and over 11% in rupee terms, once exchange rate effects and SDR-linked costs are taken into account. 

He also pointed to IMF time-based surcharges, which add a further 2.75% after three years, raising the long-term cost of such borrowing.

Verité argued that these costs could exceed those of alternative financing options available to the Government. Dr. de Mel noted that domestic borrowing in rupees at current three-year Bond yields of around 9% would be cheaper than the effective rupee cost of an RFI loan, while domestic US dollar borrowing could also offer a lower-cost option.

As an alternative, Verité suggested issuing a domestic US dollar Bond specifically for cyclone recovery, potentially through a yield-capped second-price auction. Dr. de Mel said Sri Lankans, including the diaspora, are already lending US dollars to local banks at rates of around 5%, indicating available market appetite at lower yields.

He further said Sri Lanka could explore issuing an Environmental, Social and Governance (ESG)-linked International Sovereign Bond (ISB), backed by cyclone recovery spending key performance indicators and underwritten by a multilateral development bank, which could reduce borrowing costs further.

However, Verité’s preferred option was for Sri Lanka to pursue non-debt or concessional financing. Dr. de Mel proposed that the Government seek disaster recovery grants amounting to around 1% of GDP, or approximately $ 1 billion, from a consortium of multilateral development banks and bilateral partners, instead of relying on additional debt.

He also called for legal adjustments to allow expanded spending capacity, suggesting that Parliament move a resolution under Section 16 of the Public Finance Management Act of 2024 to temporarily lift the 13% of GDP limit on primary expenditure for 2026 to accommodate cyclone-related recovery needs.

“There is no immediate liquidity constraint and recovery spending will take time,” Dr. de Mel said, adding that professional evaluation-based decision-making on debt management was critical to avoid repeating past mistakes.

The analysis comes as the Government expressed confidence on Wednesday that Sri Lanka would secure around $ 200 million from the IMF under the RFI to meet urgent foreign exchange needs following Cyclone Ditwah, while keeping its broader debt restructuring program on track.

Dr.Anil Jayantha Fernando

Addressing a special media briefing, Finance and Planning Deputy Minister Dr. Anil Jayantha Fernando said the request for IMF support was justified under the Fund’s rules given the extraordinary circumstances created by the disaster. The facility was being sought to address immediate financing pressures without destabilising the ongoing IMF-supported reform framework.

The RFI request amounts to SDR 150.5 million (approx. $ 200 million), or about 26% of Sri Lanka’s IMF quota, and is currently under consideration by the IMF Executive Board, which is scheduled to meet today (19).

Sri Lanka had initially been expecting an Extended Fund Facility (EFF) disbursement of about $ 347 million in December following the Fifth Review. However, the foreign exchange pressures triggered by Cyclone Ditwah prompted the Government to seek immediate relief through the RFI. Dr. Fernando said the EFF disbursement is now likely to be delayed until early next year, as a new Rs. 500 billion Supplementary Estimate was submitted for IMF review.

An IMF team is expected to visit Sri Lanka next month to renegotiate a staff-level agreement in line with the revised fiscal position, while safeguarding social protection commitments, which the Deputy Minister said have taken on added urgency in the wake of the disaster. 

The Ministry of Health has suspended the official responsibilities of Dr. Rukshan Bellana, the Acting Deputy Director of the Colombo National Hospital, according to an official letter dated 18 December 2025.

The letter states that initial investigations conducted by the Ministry found that Dr. Bellana, while functioning as a government medical officer in a senior role, had issued comments to the media without prior approval. These statements are said to have led to controversy and caused public concern.The Ministry further noted that disciplinary proceedings will be initiated in due course in connection with the matter.

President Anura Kumara Dissanayake, in his capacity as Minister of Finance, Planning and Economic Development, is scheduled to attend Parliament today (19) to participate in the debate on a supplementary estimate amounting to Rs. 500 billion.The proposed allocation is set to be taken up for discussion during today’s parliamentary proceedings, with lawmakers expected to examine the need for additional expenditure and its implications for public finances.

The President’s participation underscores the significance of the debate, as the supplementary estimate represents a substantial adjustment to the government’s financial framework.

Cyclone Ditwah has laid bare the fragility of Sri Lanka’s MSME sector, raising concerns that rebuilding may prove harder than the initial clean-up. Fresh data from the Industrial Disaster Support Centre show that tens of thousands of businesses have sought assistance, underscoring the breadth of the impact.

Micro and small enterprises dominate the affected pool, reflecting their exposure to flooding, power outages and transport disruptions. While some firms have resumed activity, many are operating below capacity, struggling with damaged equipment, depleted inventories and weakened demand.

The recovery challenge is not just financial. Delays in restoring utilities, supply-chain interruptions and labour displacement are slowing restarts, particularly for enterprises outside major urban centres. Medium-sized firms, though better capitalised, also face rising repair costs and uncertain cash flows.

Officials say relief schemes will be prioritised using IDSC data, but business groups argue that speed is critical. Without rapid disbursement of funds and flexible credit terms, the risk of closures and job losses will rise. The cyclone, they warn, could become a turning point for the MSME sector either accelerating reform and resilience, or deepening long-standing structural weaknesses.

Sri Lanka’s Health Ministry has reported that 93 pharmaceutical products have failed mandatory quality testing during 2025, raising renewed concerns over the safety of medicines in circulation.

Data released by the Medical Supplies Division show that imported drugs accounted for the majority of the failures. Of the total, 42 medicines were manufactured in India, while 25 were produced locally. The remaining substandard products originated from several other countries, including China, Pakistan, Japan and Bangladesh.

Health officials said that affected drugs have either been withdrawn from use, placed on hold, or permanently discontinued, depending on the severity of the quality issues identified.

The Ministry noted that drug quality failures have been a persistent problem over the years. Since 2017, around 600 medicines have failed quality assessments. The highest annual figure was recorded in 2019, when 96 products did not meet required standards. In comparison, 86 failures were reported in 2022, followed by 83 cases in 2024.Concerns over pharmaceutical safety intensified in 2023 after reports linked certain medicines to serious complications and deaths, triggering widespread public debate and calls for tighter regulation.

Nearly two years later, the issue has again drawn attention following reports of two recent deaths allegedly associated with complications involving the anaesthesia-related drug Ondansetron. Authorities have stressed that investigations into these incidents are ongoing and that no final conclusions have yet been reached.

Sri Lanka’s recovery from Cyclone Ditwah has opened a critical debate over how the country should finance large-scale reconstruction at a time of tight public finances. With damaged railways, roads and utilities demanding urgent attention, regulators and policymakers are increasingly looking to the capital market specifically infrastructure bondsas a way to bridge widening funding gaps.

 The Securities and Exchange Commission (SEC) has confirmed discussions with the Ministry of Finance on mobilising long-term capital through infrastructure bonds to support post-cyclone rebuilding. The urgency is stark. Restoring damaged railway tracks alone is estimated to cost around Rs. 200 billion, a figure that far exceeds the Government’s immediate fiscal capacity. Against a backdrop of debt restructuring and constrained budgets, traditional Treasury funding is no longer sufficient.

Infrastructure bonds offer clear advantages. By tapping institutional investors such as pension funds, insurance companies and long-term savers, the State can spread reconstruction costs over time while avoiding heavy short-term budget pressure. Well-structured bonds can also improve transparency by linking funds to specific projects, reassuring investors that proceeds are ring-fenced for rebuilding efforts.

However, the approach is not without risks. Issuing large volumes of bonds could increase contingent liabilities if projects fail to generate expected economic returns. Poorly designed instruments may crowd out private sector credit or push up domestic interest rates. Investor appetite will also depend on confidence in governance, project selection and repayment capacity areas where Sri Lanka’s recent economic history has made markets cautious.

Beyond bonds, the SEC is examining broader capital market reforms to support development financing. One proposal under consideration is the listing of well-managed State-owned enterprises on the Colombo Stock Exchange (CSE), which could unlock equity capital while improving transparency and accountability. Yet such listings require strong political commitment and corporate governance reforms to succeed.

The cyclone has also highlighted structural weaknesses in Sri Lanka’s capital market. Fewer than 1% of citizens currently hold stock market accounts, and market capitalisation remains around 20% of GDP—far below regional peers. Without expanding investor participation and deepening the market, infrastructure bonds alone may struggle to attract sufficient demand.

As Sri Lanka charts its recovery path, infrastructure bonds could become a vital tool in turning disaster into an opportunity for modernisation. But success will hinge on credible frameworks, disciplined execution and restoring investor trust without which the cost of rebuilding could rise even further.

Sri Lanka’s national digital payment platform, GovPay, has surpassed Rs. 2 billion in cumulative transaction value by the end of 2025, marking a major milestone in the country’s digital transformation drive.According to the Ministry of Digital Economy, the pace of growth has accelerated sharply, with the most recent Rs. 1 billion in transactions completed within a 45-day period. Since its launch on 7 February 2025, the platform has facilitated more than 69,000 digital payments linked to 3,372 government services provided by 215 state institutions.

A notable contributor to this growth has been the online traffic fine payment system, which was introduced on 10 April 2025. The service has already generated over Rs. 66 million through more than 50,000 transactions, reflecting strong public adoption.The traffic fine payment facility is currently available across the Western, Southern, Northern, North Western and North Central provinces, as well as on expressways. Authorities plan to extend the service islandwide by January 2026, starting with the Central Province.

At present, all local government bodies in the Northern Province and all Divisional Secretariats in the Southern Province are integrated into the GovPay system. The government has set a target to bring all local government institutions onto the platform by 2026.Several institutions, including the Kotelawala Defence University, Sri Lanka Police, the Department of Technical Education and Training, the University of Moratuwa and the Sri Lanka Atomic Energy Board, were among the leading contributors to GovPay transactions in 2025.

Beyond routine payments, GovPay also played a role in emergency response efforts. During disaster conditions in November 2025, the platform was used to collect nearly Rs. 14 million for the ‘Rebuild Sri Lanka Disaster Relief Fund.’The GovPay initiative is overseen by the Ministry of Digital Economy and jointly operated by the Information and Communication Technology Agency (ICTA) and LankaPay. Officials describe it as a critical step toward achieving Sri Lanka’s goal of building a USD 15 billion digital economy by 2030.

The Permanent Mission of Sri Lanka to the United Nations in New York marked seven decades of the country’s UN membership on December 11 through a range of events that emphasized Sri Lanka’s continued dedication to global cooperation and principled multilateralism.Under the leadership of Sri Lanka’s Permanent Representative to the UN, Ambassador Jayantha Jayasuriya, Sri Lanka joined 15 other Member States at UN Headquarters to observe the milestone. The group included Albania, Austria, Bulgaria, Cambodia, Finland, Hungary, Ireland, Italy, Jordan, Lao PDR, Libya, Nepal, Portugal, Romania and Spain.

A high-level discussion held as part of the commemoration brought together ambassadors from the 16 countries along with a panel of political analysts to examine the achievements of the multilateral system, the challenges it faces, and its future direction. The discussion was streamed live on UN WebTV.

Addressing the gathering, Ambassador Jayasuriya noted that while the United Nations celebrates its 80th anniversary this year, such milestones also provide an opportunity for reflection. He stressed the importance of strengthening and improving the organization without undermining its founding principles, in order to advance a more just, equitable and prosperous global order.

As part of the joint observance, the ambassadors unveiled a commemorative stamp representing unity, cooperation and the equal standing of all Member States within the UN framework.

Earlier in June 2025, during UN Open Source Week, Sri Lanka’s Mission partnered with the Permanent Mission of Italy and Wikimedia to host an “Edit-A-Thon,” underscoring the value of open, accurate information in safeguarding the institutional history of the United Nations. Ambassador Jayasuriya said the initiative aimed to enrich the UN’s historical record while amplifying diverse perspectives, including those of youth, vulnerable communities and the Global South.

In October 2025, the Mission also organized a fellowship event to recognize Sri Lankan nationals who have served across the UN system. Ambassador Jayasuriya paid tribute to their contributions, highlighting the legacy built by Sri Lankans who have distinguished themselves as diplomats, jurists, scholars, peacekeepers and international civil servants.

Through these commemorative activities, Sri Lanka reaffirmed its enduring support for the United Nations and its commitment to working closely with other Member States to strengthen multilateralism and advance shared global objectives in the years ahead.

While Sri Lanka’s Rs. 10 billion 5G spectrum auction has been hailed as a regulatory success, the outcome has also sparked discussion about competition and investment appetite in the telecom sector. With only two operators Dialog Axiata and SLT-Mobitel participating, the auction underscored both the strengths and constraints of the local market.

Regulators emphasise that the process followed international best practice, allocating spectrum in the critical 3.5 GHz and 27 GHz bands through a transparent clock-auction framework. However, the absence of additional bidders reflects high capital requirements, existing market consolidation and the long payback periods associated with 5G investments.

Industry analysts note that operators now face the challenge of translating spectrum ownership into commercial success. Rolling out 5G networks will require substantial spending on infrastructure, fibre backhaul and compatible devices, even as consumer affordability remains a key concern.

The Government is betting that clear rules on infrastructure sharing and policy certainty will help mitigate these challenges, enabling faster deployment and broader coverage. Whether the limited bidding signals caution or simply market maturity will become clearer as operators move from licences to live services.

Sri Lanka has taken a decisive step toward next-generation connectivity after the Government raised around Rs. 10 billion through its first commercial 5G spectrum auction, clearing the path for the launch of advanced mobile services. Dialog Axiata PLC and SLT-Mobitel, a subsidiary of Sri Lanka Telecom PLC, emerged as the sole bidders, securing long-term licences in a process officials describe as a milestone for the country’s digital economy.

The spectrum licences were formally awarded at a ceremony attended by Digital Economy Deputy Minister Eng. Eranga Weeraratne and Telecommunications Regulatory Commission of Sri Lanka (TRCSL) Director-General Air Vice Marshal (Retd.) Bandula Herath. The auction followed the issuance of the Final Notice of Assignment in October, concluding years of regulatory groundwork aimed at preparing the market for 5G deployment.

Spectrum was allocated in two globally significant frequency ranges: the 3.5 GHz band, widely regarded as the backbone for wide-area 5G mobile broadband, and the 27 GHz millimetre-wave band, designed for ultra-high-capacity, short-range use cases. Licences have been granted for a 10-year period under a clock-auction mechanism, which authorities say ensured transparency and market-based price discovery.

Addressing the event, Deputy Minister Weeraratne said the auction marked the largest spectrum sale by value in Sri Lanka’s history and demonstrated confidence in the country’s digital trajectory. He noted that operators are expected to move swiftly from spectrum assignment to network rollout, enabling commercial 5G services in the near term.

Beyond faster mobile internet, the Government views 5G as a platform technology with broad economic implications. Officials say it will support Industry 4.0 applications such as smart manufacturing, precision agriculture and intelligent logistics, while enabling low-latency services critical for telemedicine, connected transport and advanced enterprise solutions. The technology is also expected to accelerate adoption of artificial intelligence, the Internet of Things and cloud-based services across both public and private sectors.

The Government is also moving to finalise enforceable rules on active and passive infrastructure sharing, with technical assistance from the World Bank and the Asian Development Bank. Policymakers argue that shared access to towers, fibre and related assets is essential to reduce duplication, lower costs and speed up nationwide 4G and 5G coverage.

With satellite-based internet services expanding rapidly worldwide, authorities believe a robust 5G ecosystem will help local operators remain competitive by offering high speeds, low latency and large bandwidth at affordable prices. The auction, officials say, highlights what coordinated action between the Government, regulator and private sector can achieve as Sri Lanka pushes ahead with its digital economy agenda

Sri Lanka’s vehicle import surge delivered a short-term fiscal jackpot in 2025, but the policy choices that enabled it now threaten to destabilise the country’s emerging automobile manufacturing base. Analysis by Parliament’s Public Finance Committee (PFC) shows that nearly Rs. 600 billion of the roughly Rs. 1 trillion increase in total tax revenue last year stemmed from vehicle imports overshooting official targets by more than Rs. 200 billion. While the inflow eased budget pressures, the momentum is fading, and industry leaders warn the aftershocks could be severe.

The government’s decision to reopen vehicle imports and layer new taxes was designed to bolster revenues as pent-up demand returned. Yet the same move has exposed local assemblers to intensified competition without transitional protection. Over the past few years, Sri Lanka quietly built a domestic assembly ecosystem, with 17 operational plants producing motorcars, SUVs and electric three-wheelers, and a further 17 investors preparing to enter the market. The sector supports more than 15,000 direct and indirect jobs and has been positioned as a cornerstone of industrialisation.

That progress is now at risk. Imported vehicles enjoy powerful cost advantages global economies of scale, mature production processes and integrated supply chains allowing them to land at prices domestic assemblers struggle to match. Local assembly, by contrast, bears higher labour and input costs that are ultimately passed on to consumers. Without a tax regime that recognises value addition at home, industry executives argue that investment plans will stall and existing operations could downsize.

The debate is not limited to conventional vehicles. Sri Lanka is weighing pathways to cleaner mobility, including electric vehicles and the longer-term promise of hydrogen fuel cell vehicles (FCVs). FCVs offer fast refuelling and extended range, but global hydrogen infrastructure remains nascent and production costs are high. Developing such technology locally would require substantial policy backing, infrastructure investment and patient capital conditions that are difficult to meet if the domestic industry is weakened.

Ironically, the country’s auto component manufacturing segment is gaining traction. Sri Lankan firms have earned a reputation for quality, embedding themselves in regional supply chains. The ambition is to lift component exports from about US$800 million to US$2 billion within five years and generate an additional 45,000 jobs. This opportunity hinges on a stable automotive ecosystem at home.

As import-led revenues cool in 2026, policymakers face a trade-off: rely on volatile tax windfalls or recalibrate policy to protect local assembly while still meeting fiscal goals. The choices made now will determine whether Sri Lanka converts a temporary boom into durable industrial growthor watches it unwind.

Sri Lanka’s micro, small and medium enterprise (MSME) sector is facing a prolonged and costly recovery after Cyclone Ditwah inflicted widespread damage on manufacturing and enterprise activity across the country. Newly released data from the Industry and Entrepreneurship Development Ministry reveal the scale of disruption and the mounting challenges confronting businesses that form the backbone of regional economies and employment.

According to assessments compiled by the Industrial Disaster Support Centre (IDSC), nearly 9,630 industrial and business entities under the Ministry’s purview have been directly affected by the cyclone. The damage has fallen disproportionately on smaller firms. Micro-scale enterprises alone account for about 12,300 reported cases, representing more than 40% of all submissions received. Small enterprises number close to 9,850, while medium-scale firms stand at around 6,640. Although large enterprises make up a relatively small share about 860 cases their losses carry wider supply-chain implications.

For MSMEs, the damage extends well beyond physical assets. Many businesses report destroyed machinery, damaged inventories, power disruptions and loss of access to transport links. For micro and small firms operating with limited buffers, even short interruptions translate into cash-flow crises, delayed wage payments and the risk of permanent closure.

Recovery timelines highlight the uneven path ahead. While around 44% of affected enterprises have managed to resume operations, often at reduced capacity, the remainder face significant delays. About a quarter of businesses expect to reopen within two weeks, while another 20% estimate it will take up to a month. Alarmingly, nearly 8% anticipate that restarting operations will take three months or longer, signalling deep structural damage and financing constraints.

Officials say the data will be used to prioritise relief measures, including emergency grants, concessional credit and technical assistance. However, industry representatives caution that access to finance remains a critical bottleneck. Many MSMEs lack collateral or formal credit histories, complicating loan approvals at a time when rapid liquidity support is essential.

The cyclone has also exposed long-standing vulnerabilities in the MSME sector limited insurance coverage, heavy dependence on local infrastructure and weak disaster preparedness. Without targeted support, there is concern that temporary disruptions could translate into permanent job losses, especially in rural and semi-urban areas where MSMEs are major employers.

As the Government rolls out relief programmes, policymakers face a delicate balancing act: delivering swift financial assistance while tailoring support to the real conditions on the ground. The speed and precision of this response will determine whether Sri Lanka’s battered MSME sector can recover—or whether Cyclone Ditwah leaves lasting scars on the country’s industrial base.

The Disaster Management Centre (DMC) reported that Ududumbara experienced the highest rainfall during the 24-hour period ending at 6.00 a.m. today (19), with nearly 201 millimetres recorded. The second-highest rainfall was measured in the Ududumbara Poththapitiya area, which received about 155 millimetres.

As a result of the continuous heavy rains, 34 major tanks and reservoirs across the country are currently spilling, the DMC said. In the Anuradhapura District, spillages have been reported from the Kala Wewa, Rajanganaya, Nachchaduwa and Angamuwa reservoirs.

Several reservoirs in the Kandy District, including Polgolla, Victoria, Randenigala and Rantembe, are also overflowing. In addition, the Deduru Oya reservoir in Kurunegala District and the Senanayake Samudraya in Ampara District have reached spill levels.

To manage rising water levels, two spill gates of the Kala Wewa have been opened by six feet each. At the Rajanganaya reservoir, four spill gates have been raised by five feet, while two others have been opened by four feet. Meanwhile, four spill gates at the Nachchaduwa tank have been opened by four feet, with three additional gates raised by two feet. Two spill gates at the Angamuwa reservoir have also been opened by two feet each.

The DMC further noted that landslides and related incidents have led to the complete closure of several roads in the Badulla, Matale, Kilinochchi, Kegalle and Anuradhapura districts. Flooding has also blocked sections of the Sungawila–Somawathiya Road in the Polonnaruwa District.

Authorities urge the public to remain vigilant and follow safety instructions issued by local officials as adverse weather conditions persist.