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The Disbursement of US$ 200 million in response to Sri Lanka’s   appeal for IMF emergency financing in the aftermath of Cyclone Ditwah  with the approval of  the IMF  executive board highlights a deeper policy dilemma: whether speed should trump cost in managing disaster recovery.

The Government insists that the Rapid Financing Instrument (RFI) is essential to ease immediate foreign exchange pressures. Yet economists caution that the country may be locking itself into an expensive solution when cheaper, less risky options remain available.

At the centre of the debate is the changing nature of IMF lending. Once considered a low-cost safety net, IMF credit has become significantly more expensive for heavily indebted countries. Factoring in SDR-linked interest rates, exchange rate depreciation, and time-based surcharges, analysts estimate that Sri Lanka’s RFI borrowing could carry double-digit costs in local currency terms.

This matters because Sri Lanka is still restructuring billions of dollars in external debt. Adding high-cost emergency loans even relatively small ones could complicate negotiations with creditors and weaken fiscal credibility. Critics argue that disaster financing should reduce long-term vulnerability, not quietly add to it.

Verité Research has pointed out that domestic markets may already be offering cheaper solutions. Sri Lankan banks attract US dollar deposits at around 5%, signalling investor confidence and unused capacity. A targeted domestic dollar bond for cyclone recovery could mobilise these funds transparently while keeping interest costs below IMF-adjusted rates.

Another underexplored avenue is concessional and grant-based financing. Global development banks and climate-focused funds routinely provide disaster assistance, especially to countries facing climate-related shocks. Sri Lanka’s vulnerability to extreme weather strengthens its case for grants rather than loans yet this route requires diplomatic coordination and strategic patience.

The Government argues that the RFI is justified under IMF rules and does not disrupt the ongoing reform programme. However, the timing has raised eyebrows. The emergency request comes just as a larger EFF disbursement has been delayed due to revised fiscal estimates linked to cyclone spending. Critics fear that reliance on IMF stopgap funding could mask deeper fiscal planning weaknesses.

Supporters counter that emergencies demand swift action and that IMF backing reassures markets. Still, economists warn that credibility built on costly borrowing is fragile. With recovery spending expected to roll out gradually, Sri Lanka arguably has time to design smarter financing structures that balance urgency with affordability.

Ultimately, the cyclone has exposed not only infrastructure weaknesses but also gaps in disaster financing strategy. Whether Sri Lanka emerges more resilient or more indebted will depend on choices made now, under pressure but with lasting consequences.

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 Government Analyst’s Department says there is no confirmation that former Speaker and Member of Parliament Ashoka Ranwala had consumed alcohol at the time of the road accident involving him.

The department stated that tests conducted on his blood and urine samples did not establish evidence of alcohol consumption.

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

Under the “Rata Ekaṭa” (Nation United) national operation aimed at eradicating illicit drugs from the country, more than 47,000 people have been arrested in islandwide raids linked to drug-related offences.

According to the Police Media Division, operations carried out from October 30 up to yesterday resulted in the arrest of 47,703 suspects across Sri Lanka.

During these raids, police seized large quantities of narcotics in the possession of the suspects, including 276 kg and 374 g of heroin, 1,002 kg and 923 g of crystal meth (ICE), 1,411 kg and 936 g of cannabis, along with hashish and other illicit drugs.

Authorities further stated that detention orders have been obtained for 1,081 suspects to facilitate extended investigations. Meanwhile, 1,130 individuals have been referred for rehabilitation, and investigations into illegal assets have been launched against 47 suspects.

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.

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.