Sri Lanka 2025: A year of recovery, reforms, and ruin

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By Editor_1
Cyclone Ditwah, which struck Sri Lanka in late November, has caused an estimated US$4.1 billion in direct physical damage to buildings and contents, agriculture and critical infrastructure, according to a World Bank Group Global Rapid Post-Disaster Damage Estimation (GRADE) report released on Monday (December 22, 2025) – ENCL/File

COLOMBO – In 2025, Sri Lanka navigated a turbulent path under the new National People’s Power (NPP) government, balancing economic stabilization post-2022 crisis with bold reforms, only to be derailed by the catastrophic Cyclone Ditwah in late November.

EconomyNext’s in-depth coverage of economy, business, and policy in 2025 captured tourism optimism, robust growth forecasts, IMF-backed reforms, and fiscal milestones -yet closed under Cyclone Ditwah’s shadow. Key stories that dominated headlines:

Jan 14 – President Anura Kumara Dissanayake undertook a four-day official visit to China. During the visit, he engaged in high-level discussions with President Xi Jinping, Premier Li Qiang, and other senior Chinese officials, aiming to strengthen bilateral relations and explore avenues for enhanced cooperation between the two nations. Sri Lanka signed 15 agreements with China during this visit after the bilateral talks between President Dissanayake and his Chinese counterpart, Xi Jinping. During the visit, Sri Lanka renewed a 1.4 billion yuan worth currency swap with China and signed a US$3.7 billion investment deal with Sinopec for a state-of-the-art oil refinery with a capacity of 200,000 barrels per day of production.

Jan 22 – Sri Lanka’s DFCC Bank sold 75,500,001 ordinary voting shares it held in Acuity Partners (Pvt) Ltd, representing a 50% stake, to Hatton National Bank for 6.5 billion rupees after the Securities and Exchange Commission of Sri Lanka approved the sale.

Feb 9 – Sri Lanka suffered a cascading power failure with the utility provider Ceylon Electricity Board Engineers’ Union citing the inability of the grid to recover from shocks due to a large volume of rooftop solar power as the reason.

Feb 13 – India’s Adani Group announced its decision to withdraw from its wind power deals with Sri Lanka after the island nation’s new government said it wanted to renegotiate the project for a lower price of below 6 US cents per kilowatt-hour from the earlier agreed 8.26 US cents.

Feb 17 – President Dissanayake presented his maiden full-year budget, which omitted the implementation of imputed rental income tax announced by the previous government, while expecting the majority of the revenue from vehicle imports.

March 1 – The International Monetary Fund (IMF) approved the release of a 334-million-dollar tranche under Sri Lanka’s EFF program, urging continued reforms, tax collections and better state energy pricing.

March 7 – Sri Lanka inked agreements on restructuring 369 billion yen (US$2.5 billion) with the Japanese government and Japan International Cooperation Agency.

March 19 – Sri Lanka’s Police chief Deshabandu Tennakoon, who had been evading arrest after a court order, surrendered to the court. The Magistrate’s Court in Sri Lanka’s southern district of Matara issued an order on February 27 for the arrest of Tennakoon over a 2023 shooting incident during which a policeman was killed.

April 3 – US President Donald Trump imposed a 44% tax on Sri Lanka in an executive order, which he claimed was a discounted reciprocal of about half the taxes and barriers imposed by the island nation on America. Sri Lanka’s ‘reciprocal discounted tax’ was half of the deemed 88% in taxes charged on US products, according to Trump.

April 4 – Indian Prime Minister Narendra Modi visited Sri Lanka on a three-day official visit and announced the conclusion of Indian debt restructuring with Sri Lanka with sharply lower interest rates, and writing of US$100 million loan.

May 6 – Sri Lanka held a long-delayed nationwide Local Government (LG) poll for the first time in seven years. President Dissanayake’s Marxist Janatha Vimukthi Peramuna (JVP)-led, ruling, National People’s Power (NPP) won most seats in over 260 of 339 local authorities, though it failed to get an outright majority in all. The election saw a low turnout of around 60%.

May 23 – Sri Lanka’s Central Bank cut its key policy rate by 25 basis points due to lower than projected inflation and expected lower external demand from geopolitical uncertainties. It lowered its lending window rate to 8.25% and the enforceable deposit facility to 7.25%.

June 17 – Sri Lanka signed the agreement with France to reschedule a debt stock of 390 million euros until 2042 with a 5-year grace period and a cap on original interest rates.

June 23 – Harshana Suriyapperuma, former Deputy Minister of Finance and Planning, was appointed Secretary to the Treasury, succeeding Mahinda Siriwardena, the official who oversaw the economy during the 2022 financial crisis.

June 23 – United Nations High Commissioner for Human Rights Volker Türk came to Sri Lanka on a four-day official visit and visited the site of the Chemmani mass grave in the North of the island nation, and called for impartial investigations.

July 2 – The IMF’s Executive Board approved the fourth review under an Extended Fund Facility for Sri Lanka. The completion of the review allowed Sri Lanka to draw down about 350 million US dollars (254 Special Drawing Rights).

July 24 – Sri Lanka’s Supreme Court ordered the respondents in the X-Press Pearl disaster to pay US$1 billion as compensation for the harm caused to Sri Lanka’s marine and coastal environment, and the significant losses suffered by the island nation and the fishing industry. The MV X-Press Pearl disaster stands as Sri Lanka’s worst marine environmental catastrophe. On May 20, 2021, the Singapore-flagged container ship caught fire off the coast of Colombo while carrying a cargo that included 25 tonnes of nitric acid, other hazardous chemicals, and over 1,500 containers.

July 28 – Sri Lanka Customs detained around 1,000 Chinese-made BYD electric vehicles in six consignments that arrived on the island over the declaration of motor capacity issue, which is used to calculate taxes. Customs have declared a motor capacity of 100 kilowatts, but there have been concerns that the cars are usually produced with a 150kW motor, which attracts a higher rate of duty in Sri Lanka.

Aug 1 – US reciprocal tariff for Sri Lanka was revised down to 20% from 44% through an executive order. Sri Lanka’s rate is similar to that of Bangladesh, Vietnam, Malaysia (19), Indonesia (19), Thailand (19), Pakistan (19), and lower than India (25).

Aug 2 – Sri Lanka’s City of Dreams integrated resort, built by John Keells Holdings, with a casino and Nuwa hotel by its partner Melco Resorts and Entertainment, was launched with an expectation of repositioning Colombo as a top-end tourism market. The 1.2 billion US dollar integrated resort was conceptualized in 2010-2011.

Aug 5 – Sri Lanka parliament removed Inspector General of Police Deshabandu Tennakoon from his post through voting after he was found guilty of several allegations levelled against him. The ruling NPP brought a resolution to remove him through a parliamentary vote. The resolution saw 177 legislators backing, with one abstaining from voting in the 225-member parliament.

Aug 22 – Sri Lanka ex-President Ranil Wickremesinghe was arrested and remanded over alleged misuse of public funds for himself and his staff during a stopover in the UK ,where he attended the award of an honorary professorship to his wife while returning from the UN General Assembly in the US in 2023.

Sept 4 – Sri Lanka decided to liquidate 33 state enterprises which were no longer active and had been set up for purposes which longer existed. Among the firms include Mihin Lanka, a budget airline, Lanka Cement Company, Lanka Logistics, Hambantota Port Management Company, and Expressway Transport Company.

Sept 19 – S&P Global Ratings upgraded Sri Lanka’s sovereign rating to CCC+ from Selective Default (SD) on a stable outlook, citing the island nation’s economy had recovered steadily from its 2022 economic crisis, but its debt burden remains high even after the restructuring of most of its external debt.

Oct 9 – The IMF said it had reached a staff-level agreement on the fifth review under Sri Lanka’s extended fund facility arrangement.

Nov 4 – Sri Lanka Cabinet decided not to implement any wind power projects in the country’s Northwestern coastal island of Mannar, except for three private sector projects amid public protests.

Nov 7 – Sri Lanka’s revenue will be close to 16% of gross domestic product, and debt will be down to around 96.8% of GDP, President Dissanayake said, presenting the budget for 2026.

Nov 20 – SriLankan Airlines announced that it had restructured its defaulted bonds with a 15% haircut, which will be exchanged for cash and a 4% amortizing government bond.

Nov 28 – Cyclone Ditwah hit Sri Lanka, and more than 800 people were either dead or went missing in the devastation. The natural disaster is considered the worst disaster since the 2004 tsunami.

Dec 5 – President Dissanayake announced sweeping relief for people who are affected by Cyclone Ditwah-hit devastation from 72.2 billion rupees over the next 25 days.

Dec 19 – The Executive Board of the IMF approved emergency financing under the Rapid Financing Instrument (RFI), providing Sri Lanka with immediate access to about 206 million dollars after the Ditwah disaster.

-economynext.com

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