On May 9, 2022, Sri Lanka’s embattled Prime Minister Mahinda Rajapaksa (who was also a former President) resigned in the face of massive anti-Government protests, called Aragalaya.
His brother, President Gotabaya Rajapaksa, attempted to stay on but had to resign and flee the country two months later. The ouster of the seemingly invincible Rajapaksa dynasty was a revolution like no other in South Asia, until similar “people’s power” protests led to the ouster of Bangladeshi Premier and strongwoman Sheikh Hasina in 2024.
Yet as Bangladesh struggles to determine a democratic path forward, the Interim Government (IG) led by Nobel Prize winner Muhammad Yunus could perhaps learn valuable lessons in political, economic, and social cohesion from Sri Lanka. In a word, Sri Lanka has defied the odds and emerged significantly stronger from the dark days of the 2022 revolution. Faced with widespread food, fuel, and medicine shortages, commentators were quick to judge the country as a failing State.
The economy was hobbled by a US$ 35 billion debt burden and the hastily installed interim President Ranil Wickremesinghe, a wily political figure tainted by his association with the Rajapaksas, faced the daunting task of building economic and political stability in the face of deep public anger and scepticism.
In retrospect, Sri Lanka’s political class and the international community — in particular, the International Monetary Fund (IMF) and bilateral donors such as India — got three things right to steady the ship and build conditions for economic recovery. These have implications for other countries emerging from political and economic crises as well.
The foundational lesson is that any IG has to be short-term in tenure and set a timetable for elections. At some moments, it appeared that President Wickremesinghe would hesitate and stall the electoral process. However, he relented because the signal from the street was that the public preferred early elections.
At the Presidential Elections held last September, Wickremasinghe was handily defeated by Anura Kumara Dissanayake, who despite his Marxist revolutionary credentials has continued to implement reforms, and complied with IMF conditions in exchange for financial support.
The support of the IMF and Sri Lanka’s bilateral creditors such as India was critical in ensuring that Sri Lanka’s dangerous descent was reversed. In a recent article published in Sri Lankan media, the IMF’s staff team writes that in the two years since the program was introduced, “much needed reforms were undertaken with significant gains.”
The economy has rebounded strongly and quickly — it grew five percent in 2024 and in only 18 months recovered just under half of the output lost from the peak in 2018 to the nadir in 2022. This is an impressive achievement, which demonstrates that strong national ownership of difficult economic reforms, when combined with timely international support, can deliver positive results. At a time when multilateralism is under threat, the international support for Sri Lanka shows that the system, despite its many flaws, still has the ability to deliver.
Difficult process
The final lesson from Sri Lanka has been its success in negotiating a difficult process of debt restructuring with bilateral official and private creditors. This was never going to be easy as the bruising experience of several low-income African nations has shown. China and private creditors have often held up the restructuring process and groupings such as the G20 have been helpless bystanders. In Sri Lanka’s case, it helped that the country was placed in a different category of a middle-income, emerging nation, which provided the incentive for private creditors to reach an agreement on outstanding International Sovereign Bonds (ISBs) of around US$ 12 billion. China was also motivated to show flexibility due to the competitive presence of rival India, which had provided a much needed Line of Credit in the immediate aftermath of the revolution.
I hasten to add that Sri Lanka is by no means fully recovered from the 2022 crisis. The Government needs to do much more in terms of building sustained economic growth, combatting corruption, and in healing the North-South wounds from the devastating civil war. While Sri Lankans appear pleased with the performance of the current Government, their continued support is contingent upon the expansion of economic opportunities.
The ball is now firmly in the hands of President Dissanayake to move beyond the recovery phase with ambitious reforms. However, for the moment, Sri Lanka can take a well-deserved victory lap, and I hope Bangladesh is taking notes.
The writer has worked as a journalist in India, Singapore, and Indonesia with a special focus on Asian economics and technology news. He has also served in senior roles in the public and private sectors at the IMF, Monetary Authority of Singapore (MAS) and Standard Chartered Bank (SCB).
He is an Associate Fellow in the Asia Pacific program of Chatham House, where his research interests include Asian financial and economic integration, the interplay between technology and public policy, global governance and sustainability.
He has written two books on Asia. The first, ‘Resurgent Indonesia — From Crisis to Confidence’, was published in 2018 and charts the remarkable democratic rise of Indonesia from the ashes of the Asian financial crisis.
The other book — ‘Has Asia Lost It? Dynamic Past, Turbulent Future’ was published in February 2021 and takes a sceptical view of developing Asia’s ability to navigate the headwinds of de-globalisation and the Covid-19 pandemic. He now lives in Washington D.C.
– Forbes
