Macro-financial risk 2026-04-26 10 minute read

Sri Lanka After AKD: Post-IMF Debt Sustainability and the NPP Supermajority Through 2026

Anura Kumara Dissanayake won the September 21, 2024 presidential runoff with 42.3 percent and the JVP-led National People's Power coalition swept 159 of 225 parliamentary seats on November 14, 2024. The Eurobond exchange closed in December 2024, IMF EFF reviews are on track, GDP rebounded 5.5 percent in 2024, and CPI sat at 1.6 percent year on year by December 2024. The question for 2026 is whether the new sovereign curve, the China bilateral residual, and a politically untested fiscal anchor can hold.

Sri Lanka exited its 2022 default through a sequence that pairs the strongest electoral mandate in the country's post-independence history with the most front-loaded IMF Extended Fund Facility in South Asian memory. President Anura Kumara Dissanayake (AKD), elected on September 21, 2024 in a second-round count after no candidate cleared 50 percent on first preferences, took office with 42.3 percent of valid votes. His National People's Power (NPP) coalition then converted that mandate into 159 of 225 parliamentary seats on November 14, 2024, a two-thirds supermajority that no Sri Lankan government has held since 1977. The Central Bank of Sri Lanka concluded the international sovereign bond exchange in December 2024 at a 27.0 percent nominal haircut, the IMF disbursed the fourth review tranche by Q1 2025, GDP grew 5.5 percent in 2024 against minus 7.3 percent in 2022, and headline CPI fell to 1.6 percent year on year by end-2024. The China bilateral residual, the export concentration in tea and apparel, and the politics of fiscal discipline under a left coalition define the 2026 risk set.

September and November 2024: the cleanest mandate in 47 years #

The September 21, 2024 presidential election was the first Sri Lankan vote where no candidate cleared 50 percent of first preferences and the count proceeded to second-round preference redistribution under the 1981 contingent vote rules. Anura Kumara Dissanayake of the National People's Power (NPP) coalition, the political vehicle assembled around the Janatha Vimukthi Peramuna (JVP), led the first count with 42.3 percent against Sajith Premadasa of the Samagi Jana Balawegaya at 32.8 percent and incumbent Ranil Wickremesinghe at 17.3 percent. After redistribution of second preferences, AKD crossed the threshold and the Election Commission declared him president on September 22, 2024, the first second-round count in the country's electoral history.

The November 14, 2024 parliamentary election converted the presidential mandate into legislative dominance. The NPP took 159 of 225 seats on a 6.86 million vote share against the SJB's 40 seats and the New Democratic Front's 5 seats, the worst showing for the United National Party tradition since 1956. The two-thirds supermajority gives constitutional amendment power and clears the parliamentary risk to the Public Financial Management Act and the Economic Transformation Act of 2024, the two laws that codify the IMF program's fiscal anchors into domestic statute. No post-1977 Sri Lankan government has held both the executive and a two-thirds House without coalition arithmetic, the closest precedent being the United National Party landslide of 1977 under J. R. Jayewardene.

Candidate or party	Sept 21 2024 first count, percent	Nov 14 2024 seats won	Vote share parliamentary, percent
AKD, NPP	42.3	159	61.6
Sajith Premadasa, SJB	32.8	40	17.7
Ranil Wickremesinghe, NDF independent	17.3	5	4.5
Namal Rajapaksa, SLPP	2.6	3	3.1
Other candidates and parties	5.0	18	13.1

September and November 2024 election results (Election Commission of Sri Lanka, official gazette)

The IMF EFF and the December 2024 Eurobond exchange #

The 48 month Extended Fund Facility approved by the IMF Executive Board on March 20, 2023 in the amount of SDR 2.286 billion, equivalent to roughly USD 3.0 billion, was the seventeenth Sri Lanka program in the Fund's history and the first against an outright sovereign default. Four reviews completed on schedule by Q1 2025 disbursed cumulative funding above USD 1.6 billion. The First Review in December 2023, the Second in June 2024, the Third in November 2024 conducted in dialogue with the incoming AKD administration, and the Fourth in March 2025 each cleared every quantitative performance criterion on primary balance, net international reserves, and net credit to government. The November 2024 review was the operationally critical one. AKD campaigned on renegotiation but his Treasury team confirmed continuity on program parameters within two weeks of inauguration, after a Washington visit in October.

The December 2024 international sovereign bond exchange closed the largest single creditor file. Sri Lanka swapped USD 12.55 billion of pre-default Eurobonds for a combination of macro-linked bonds, governance-linked bonds, and conventional fixed coupon bonds at a headline nominal haircut of 27.0 percent on principal and a present value reduction of roughly 40 percent at IMF discount rates. The macro-linked structure, the first of its kind for a sovereign at scale, ratchets coupons to GDP performance against IMF baseline, sharing upside with creditors. The exchange achieved a 98 percent participation rate with the Ad Hoc Bondholder Group, including BlackRock, Amundi, T. Rowe Price, and Wellington as anchor holders. The China bilateral residual remains the open file. The China Development Bank and the Export-Import Bank of China hold roughly USD 4.2 billion of pre-default exposure under a memorandum signed in October 2023. Final terms were not closed by April 2026, although the Paris Club bilateral file with Japan, India, France, and other OECD creditors closed in June 2024 at terms broadly comparable to the bondholder package.

Macro recovery: 5.5 percent growth, 1.6 percent CPI, and the LKR stabilization #

The Department of Census and Statistics confirmed real GDP growth of 5.5 percent in 2024, against minus 2.3 percent in 2023 and minus 7.3 percent in 2022, the deepest contraction in the country's post-independence record. The recovery is broad. Industry expanded 11.2 percent on a low base as power supply normalized after the 2022 fuel crisis, services rose 2.5 percent led by tourism, and agriculture grew 1.2 percent. Headline CPI printed 1.6 percent year on year in December 2024, against 4.0 percent in December 2023 and a peak of 69.8 percent in September 2022. The CBSL standing lending facility rate was cut from 11 percent at the end of 2023 to 8.25 percent by end-2024, with two further 25 basis point cuts in Q1 2025.

The exchange rate stabilized inside a narrow band. The USD-LKR rate moved from 295 in late 2024 to 290 by Q1 2025, against a peak above 360 in mid-2022. Gross official reserves at the Central Bank of Sri Lanka reached USD 6.1 billion by end-2024 against USD 1.9 billion at program inception in March 2023, equivalent to 3.4 months of import cover. The People's Bank of China renminbi swap of CNY 10 billion contributes USD 1.4 billion of the reserve stock. The current account swung to a surplus of 1.5 percent of GDP in 2024, driven by the tourism turn, remittance recovery to USD 6.7 billion against the USD 3.7 billion 2022 trough, and import compression from the 2022 to 2024 administrative controls under Section 20 of the Imports and Exports (Control) Act.

Indicator	2022 actual	2023 actual	2024 actual	2025 estimate	2026 IMF projection
Real GDP growth, percent	minus 7.3	minus 2.3	5.5	4.5	3.6
CPI year on year, percent end period	57.2	4.0	1.6	3.5	5.0
Primary fiscal balance, percent of GDP	minus 3.7	0.6	0.6	2.3	2.3
USD-LKR end period	363	324	295	290	295
Gross official reserves, USD billion	1.9	4.4	6.1	7.5	9.0
Current account balance, percent of GDP	minus 1.9	1.8	1.5	0.7	minus 0.5

Macro indicators trajectory 2022 to 2026 (Department of Census and Statistics, Central Bank of Sri Lanka, IMF Country Report)

Tea, apparel, tourism: the export base that funds debt service #

The 2024 export base showed the recovery profile that the IMF debt sustainability analysis assumes through 2026. The Sri Lanka Tea Board reported tea exports of USD 1.55 billion in 2024, the highest nominal value in the country's history and a 7.4 percent rise on 2023, on volumes of roughly 244 million kilograms. Average export prices recovered to USD 6.35 per kilogram, supported by Russian and Iraqi demand and the absence of the 2022 fertilizer ban dislocations. Apparel exports reached USD 5.2 billion in 2024 according to the Joint Apparel Association Forum, in line with 2019 levels. The 2025 risk vector is competitive displacement from Bangladesh, where the post-Yunus interim government's January 2025 wage settlement, taka depreciation, and partial restoration of EU GSP-Plus dialogue have re-anchored Bangladesh as the price leader in basic woven and knit categories. Sri Lanka holds technical leadership in lingerie and performance knits but the cotton woven volume tier is the contestable margin.

Tourism arrivals reached 2.05 million in 2024, the highest annual figure in the country's history, against 719 thousand in 2022. The Sri Lanka Tourism Development Authority reported gross tourism receipts of USD 3.2 billion. The market mix shifted, with India at 366 thousand arrivals as the top source, Russia at 209 thousand benefiting from the closure of Mediterranean alternatives during the Ukraine conflict, and China at 131 thousand recovering after the post-COVID reopening. The 2026 program assumption is 2.4 million arrivals and USD 4.0 billion in receipts. Migrant remittances rose to USD 6.7 billion in 2024 against USD 3.7 billion in the 2022 trough, with the GCC corridor accounting for roughly 60 percent of inflows.

Geopolitics: Hambantota, Colombo Port City, and the India versus China balance #

Sri Lanka's debt restructuring carries an embedded geopolitical signal. The China bilateral residual is structurally different from the bondholder file because Hambantota Port and the Colombo Port City form physical Belt and Road anchors. The Hambantota lease to China Merchants Port at USD 1.12 billion in 2017 and the Colombo Port City special economic zone built on 269 hectares of reclaimed land remain politically sensitive. The AKD administration's stated policy is renegotiation of the operating frameworks within the existing lease, not abrogation, on the assessment that abrogation would trigger arbitration and unwind the December 2024 bondholder confidence reset. India provided USD 4.0 billion of credit lines, currency swap, and deferred payment support during the 2022 crisis and remains the largest creditor partner outside the Paris Club bloc. The Adani Group's West Container Terminal at Colombo Port and the Trincomalee oil tank farm project are the visible India anchor investments, both proceeding under their 2023 frameworks.

The strategic balance is being managed through institutional rather than ideological levers. The Economic and Technology Cooperation Agreement (ECTA) discussions with India resumed in February 2025 with a December 2025 target for substantive completion. United States engagement is concentrated through the IMF program, the Millennium Challenge Corporation compact under negotiation, and the INDOPACOM exercise calendar including the August 2024 Cooperation Afloat Readiness and Training (CARAT) deployment to Trincomalee. The Saudi Public Investment Fund and the Qatar Investment Authority signed memoranda in 2024 and 2025 covering port logistics, hospitality, and Islamic finance. Sri Lanka in 2026 sits in a fully multipolar capital and security architecture, with no single creditor or strategic partner above 25 percent of incremental flows, a sharp shift from the 2014 to 2019 period when Chinese flows dominated.

Implications for 2026: dollar bond re-rating, fiscal politics, and the China file #

The Sisyphus tradition scenario set distinguishes three outcomes for 2026 into the 2027 cycle. The base case at 60 percent probability sees the IMF Fifth and Sixth Reviews complete on schedule, the China bilateral file close at terms broadly comparable to the December 2024 bondholder package by Q3 2026, the 2026 primary surplus print at the 2.3 percent of GDP IMF target, and the macro-linked Eurobond complex trade tighter as the GDP performance ratchet activates the upside coupon at the 4.5 percent 2025 outturn. Sri Lanka would return to sustained primary issuance access by 2027, a year ahead of the initial IMF baseline. The upside case at 15 percent probability layers a tea price rally on Russian and Iranian demand, tourism above 2.6 million, and an India ECTA closure that brings concessional Indian credit.

The downside case at 25 percent probability runs through three triggers. Fiscal politics inside the NPP coalition would test the 2.3 percent primary surplus anchor if the JVP base demands faster welfare expansion or rollback of the Inland Revenue Act 2024 amendments. A China bilateral impasse would block the residual 12 percent of debt stock from clearing and reopen the comparable treatment principle that the bondholder exchange relied on. A regional shock in the Bay of Bengal, whether monsoon failure on rice and tea or a Bangladesh political reversal that resets the apparel equilibrium, would compress the export base. The policy package for the base case is narrow. Hold the primary surplus, close the China file, deliver the macro-linked coupon ratchet credibly, and preserve reserves above USD 8 billion. The political mandate is the strongest any Sri Lankan government has held in 47 years. Whether the JVP tradition can govern in coalition with itself, between its movement base and its program commitments, is the durable open question.

Sources #

Cite this brief

@misc{hossen2026srilankanpp2026,
  author = {Hossen, Md Deluair},
  title  = {Sri Lanka After AKD: Post-IMF Debt Sustainability and the NPP Supermajority Through 2026},
  year   = {2026},
  url    = {https://deluair.com/consultancy/insights/sri-lanka-npp-2026},
  note   = {Deluair Consultancy briefs}
}

Hossen, M. D. (2026). Sri Lanka After AKD: Post-IMF Debt Sustainability and the NPP Supermajority Through 2026. Deluair Consultancy briefs. https://deluair.com/consultancy/insights/sri-lanka-npp-2026

Hossen, Md Deluair. "Sri Lanka After AKD: Post-IMF Debt Sustainability and the NPP Supermajority Through 2026." Deluair Consultancy briefs, 2026-04-26. https://deluair.com/consultancy/insights/sri-lanka-npp-2026.

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