Sri Lanka: chasing system change

1. At a Glance

• Core theme: Two years after President Anura Kumara Dissanayake was elected, his National People's Power (NPP) government has restored macroeconomic stability and brought in a different political culture. Its key promises of structural reform remain unfulfilled [1].
• "System change" was the defining demand of the 2022 Janata Aragalaya ("people's struggle"). The test now is whether that protest demand can become lasting political transformation [1].
• The economic side is anchored in the IMF Extended Fund Facility (EFF), about US$3 billion (SDR 2.3 billion), approved on 20 March 2023 [2].
• Why it matters for UPSC: It touches India's Neighbourhood First policy, debt crises in South Asia, IMF conditionality, how protest movements change regimes, and governance reform. It maps to GS-II (IR) and GS-III (economy).

2. Why in the News

• 2 October 2026: The Hindu published an analysis marking two years of the Dissanayake government and assessing its progress on "system change" [1].
• 10–23 September 2026: An IMF staff team led by Evan Papageorgiou visited Sri Lanka for talks on the Seventh Review of the EFF and the 2026 Article IV Consultation. It met President and Finance Minister Dissanayake [2].
• 9 April 2026: IMF and Sri Lanka reached a staff-level agreement (SLA) on the combined Fifth and Sixth Reviews. After Board approval, this unlocks about US$700 million [3].

3. Background & Evolution

• 2022, the crisis and the uprising:
• A mass uprising in summer 2022 was unified by the chant "Gota go home", demanding that President Gotabaya Rajapaksa resign [1].
• Protesters blamed him for the country's bankruptcy, the endless queues and acute shortages [1].

• Their anger extended to the Rajapaksa clan and the whole political class. Their posters demanded "system change" [1].

• 2022, the transition:

• The Rajapaksas "grudgingly" left office. Ranil Wickremesinghe took charge, elected in an urgent parliamentary vote with the Rajapaksas' party backing him [1].
• After this, the protests fizzled out [1].

• Reactions were split. Some saw an experienced crisis manager. Others saw a continuation of Rajapaksa rule "in a suit" [1].

• 1 September 2022: IMF staff-level agreement on an EFF arrangement with Sri Lanka [7].

• 20 March 2023: The IMF Executive Board approved the EFF, SDR 2.3 billion (~US$3 billion) [2].
• About 2024: Dissanayake was elected President. The article, dated October 2026, refers to "two years after Dissanayake's election" [1].
• 26 November 2024: SLA on the Third Review. The review was completed by early March 2025, when the IMF held a press briefing on it [5][6].
• 9 October 2025: SLA on the Fifth Review [4].
• 9 April 2026: SLA on the combined Fifth and Sixth Reviews, about US$700 million [3].
• September 2026: Staff visit on the Seventh Review and the Article IV consultation [2].

4. Core Static Facts

Item	Fact
Janata Aragalaya	"People's struggle": the 2022 mass uprising in Sri Lanka [1]
Signature slogan	"Gota go home" [1]
Core demand	"System change" [1]
President who resigned (2022)	Gotabaya Rajapaksa [1]
Successor (2022)	Ranil Wickremesinghe, chosen by parliamentary vote [1]
Current President	Anura Kumara Dissanayake, who also holds the Finance Minister post [2]
Ruling formation	National People's Power (NPP) [1]
IMF instrument	Extended Fund Facility (EFF) [2]
EFF size	SDR 2.3 billion (~US$3 billion) [2]
EFF Board approval	20 March 2023 [2]
EFF staff-level agreement	1 September 2022 [7]
Combined 5th + 6th Review SLA	9 April 2026, about US$700 million [3]
Ongoing	Seventh Review and 2026 Article IV Consultation [2]
IMF mission chief (2026)	Evan Papageorgiou [2]

• Definitions:
• EFF: IMF lending for medium-term balance-of-payments problems that have structural roots. It comes with periodic reviews.
• Staff-level agreement (SLA): The staff team's deal with a country. It is not final until the IMF Executive Board approves it [3].
• Article IV Consultation: The IMF's regular (usually annual) health check of a member's economy. It is separate from programme reviews [2].

5. Multi-Dimensional Analysis

Economic

• The NPP government is credited with restoring macroeconomic stability [1]. It has done so while staying inside the IMF programme, with reviews moving forward through 2024–26 [3][5].
• Disbursements depend on reviews. The Fifth Review agreed in October 2025 was later merged into a combined Fifth and Sixth Review in April 2026, which suggests the timeline was re-sequenced [3][4].
• The tension: IMF-mandated fiscal consolidation sits uneasily with the redistributive expectations of the Aragalaya's base.

Governance / Ethical

• Credit for a "different political culture" [1]. The 2022 protests targeted dynastic politics (the Rajapaksa clan) and the entire political class [1].
• The gap is that structural reform promises remain unfulfilled [1]. This raises the question of whether protest movements can institutionalise their demands.
• Concentration of power: The President also holds the Finance portfolio [2].

Historical / Political

• The 2022 sequence of uprising, resignation and parliamentary succession shows that a constitutional route was kept intact even during mass unrest [1].
• The Wickremesinghe interregnum was seen by critics as continuity, not change [1]. The NPP's rise is the electoral expression of the Aragalaya mood.

Geopolitical / Strategic (India lens)

• A stable Sri Lanka matters for India's Neighbourhood First and SAGAR policies, for Indian Ocean security, and for limiting rival influence in Sri Lanka's debt and infrastructure.
• Sri Lanka's reliance on the IMF and on multilateral and creditor coordination shapes how much room it has to balance between India and China.

Social

• The crisis was felt mainly through shortages and queues [1]. Its legitimacy rests on everyday economic relief, not just macro indicators.
• Disenchantment with the political class across communities was the Aragalaya's unifying feature [1].

6. Recent Developments (last 12–18 months)

• 9 October 2025: IMF–Sri Lanka SLA on the Fifth Review of the EFF [4].
• 19 March 2026: IMF issued a statement on Sri Lanka [8].
• 9 April 2026: SLA on the combined Fifth and Sixth Reviews, about US$700 million on Board approval [3].
• 10–23 September 2026: IMF mission led by Evan Papageorgiou for the Seventh Review and 2026 Article IV. Discussions are to "continue in the near term" [2].
• 2 October 2026: The Hindu two-year assessment of the NPP government: stability restored, structural reform pending [1].

7. Prelims Hooks

• "Janata Aragalaya" means "people's struggle", the 2022 Sri Lankan uprising [1].
• The unifying chant of the 2022 protests was "Gota go home" [1].
• The key demand of the Aragalaya was "system change" [1].
• Ranil Wickremesinghe became President in 2022 through a parliamentary vote, not a popular election, backed by the Rajapaksas' party [1].
• Sri Lanka's IMF programme is an Extended Fund Facility (EFF), not a Stand-By Arrangement [2].
• EFF size is SDR 2.3 billion (~US$3 billion) [2].
• The IMF Executive Board approved Sri Lanka's EFF on 20 March 2023 [2].
• The staff-level agreement on Sri Lanka's EFF was reached on 1 September 2022 [7].
• The combined Fifth and Sixth Reviews SLA (April 2026) unlocks about US$700 million [3].
• Anura Kumara Dissanayake is both President and Finance Minister of Sri Lanka [2].
• The Seventh Review and the 2026 Article IV Consultation were discussed during the September 2026 IMF mission [2].
• The ruling formation is the National People's Power (NPP) [1].

8. Fixing the Economy Is Not the Same as Changing the System

• The IMF programme gives a checklist for the economy, not for politics
• The NPP is praised for bringing back macroeconomic stability (steady prices, a steady currency, a budget under control) [1].
• Most of that work follows targets set in the IMF Extended Fund Facility (EFF). Growth, low inflation, more foreign reserves and better tax revenue are what each review checks [9].

• "System change" was a demand about who holds power and how they are held to account. The IMF review does not measure that. So a government can pass every review and still not deliver what the protesters asked for [1].

• A tool for governance reform already exists, but it is still mostly a report

• Sri Lanka published an IMF Governance Diagnostic (an IMF study of where corruption and weak institutions cost the economy). It was the first country in Asia to do this exercise [12].
• A diagnostic only finds the problems. Fixing them needs new laws, independent agencies and prosecutions. The Hindu assessment says these structural promises are still not met [1].

• For Mains, this is the gap to name. The tool is ready, but turning it into action is a political choice, and the IMF cannot make it.

• One person holds both top jobs, so checks become weaker

• Dissanayake is both President and Finance Minister [2].
• So the person who sets economic policy also leads the talks with the IMF that review it. No separate minister answers to Parliament for the budget.
• A movement that rose against too much power in one family now faces the same question about one office.

9. The Case That "Stability First" Was the Right Order

• The strongest defence of the government
• In 2022, Sri Lanka could not pay for fuel or food imports, and people stood in queues for days [1].
• Breaking away from the IMF programme to push fast political reform could have brought those shortages back. The people who suffer most from shortages are the poor, who were the Aragalaya's base.

• The government also faced a disaster it did not cause (see the next section). Two years is short for rebuilding institutions.

• What this argument gets right

• Stability really was restored, and every review has moved ahead [1][3]. A government that rose from protest could easily have chosen populist spending. This one did not.

• Where it falls short

• Many structural reforms cost the budget almost nothing: anti-corruption laws, a more transparent way to make public deals, independent oversight bodies. The IMF does not block them.
• So "the economy came first" cannot fully explain why those reforms are still pending [1].
• The risk is that legitimacy wears away. People voted for change, and if they get only austerity (cuts in spending and higher taxes), they may stop trusting that change through elections works.

10. How One Cyclone Showed the Recovery Is Still Fragile

• The note's "re-sequenced reviews" had a specific cause
• Cyclone Ditwah hit Sri Lanka on 28 November 2025 [10].

• After it, the Fifth Review of the EFF was put on hold and talks were pushed to early 2026 [10]. That is why the Fifth and Sixth Reviews were later combined into one [3].

• Emergency money had to come from outside the main programme

• The IMF gave SDR 150.5 million (about US$206 million) under its Rapid Financing Instrument (RFI). The RFI is quick emergency IMF money with few conditions, used after shocks such as disasters [10].

• This shows the economy had almost no buffer of its own. One storm was enough to send Sri Lanka back to the IMF for urgent help.

• The Board finished the combined review in May 2026 [9]

• Money flows only after the Board approves, not at the staff-level agreement [3]. So aid for the recovery reached Sri Lanka about six months after the cyclone.
• Lesson for India's neighbourhood policy: small island economies under IMF programmes cannot absorb climate shocks alone. This gives India a reason to act as first responder in the region.

11. Why Debt Relief Does Not Mean the Debt Problem Is Over

• The restructuring happened in stages over several years
• Sri Lanka began restructuring its debt in 2022. Restructuring means changing the terms of loans, such as a longer time to repay or a lower amount [11].
• Domestic debt was finished in 2023. International sovereign bonds (loans raised from global investors) were mostly done by December 2024. Debt owed to other governments was still in progress [11].

• Each group of creditors had to be handled separately. That is why the IMF studied Sri Lanka as an example of a "complex" restructuring [11].

• The risk of not paying back is still rated high

• Even with restructuring nearly complete, the IMF says the risk to debt sustainability (the ability to keep paying debts without another crisis) remains high [12].
• The IMF wants a medium-term revenue strategy (a multi-year plan for raising tax income) so that revenue does not depend on one-off tax hikes [12].
• So taxes are likely to stay high for years. Higher taxes press on the same middle and working classes who joined the Aragalaya.

12. How Dissanayake Has Handled India, and Why It Is Sensitive at Home

• A government from a left-wing protest wave signed the first major defence pact with India
• In April 2025, India and Sri Lanka signed a five-year defence cooperation MoU. It is the first major pact to set up a framework for military ties [13].
• Seven pacts were signed in all. They include developing Trincomalee as an "energy hub" with the UAE, and linking the two power grids [13].

• In December 2024, Dissanayake said Sri Lanka would not let its territory be used against India [15].

• Actions have followed the words, at least once

• A planned naval exercise between Pakistan and Sri Lanka was shelved after India raised concerns [16].

• The defence pact is a political risk for him at home

• Opponents called it a "secret" deal. Dissanayake then said the defence agreement would be tabled in Parliament [14].
• Here, "system change" (open government) helps India. A pact debated in Parliament is harder for a future government to cancel.
• But it also means every Indian project will be argued over in public. India should expect openness, not quiet deals.

13. Anchors for Answers

• Data: IMF Rapid Financing Instrument of SDR 150.5 million (~US$206 million) after Cyclone Ditwah, in addition to the SDR 2.3 billion EFF [10][2]
• Data: The IMF says the risk to debt sustainability remains high even after restructuring [12]
• Report/Committee: IMF Governance Diagnostic for Sri Lanka. Sri Lanka was the first Asian country to undergo one [12]
• Report/Committee: IMF Working Paper 2025/175, "Sri Lanka's Sovereign Debt Restructuring: Lessons from Complex Processes" [11]
• Comparison: Sri Lanka restructured domestic debt (2023) before bonds (2024) and official debt. This step-by-step model is a reference for other debt-stressed countries [11]
• Scheme: India–Sri Lanka defence cooperation MoU (April 2025, five years) and the Trincomalee energy hub with the UAE. Both put Neighbourhood First into practice [13]

14. Mains Relevance

• GS-II:
• "India and its neighbourhood – relations"
• "Effect of policies and politics of developed and developing countries on India's interests"

• "Important international institutions" (IMF)

• GS-III: "Indian economy – mobilisation of resources, external sector". This covers comparative lessons on sovereign debt crises and IMF conditionality.

• GS-IV (optional angle): Probity in public life, and accountability of the political class.
• Possible question stems: 1. "Mass protest movements can topple regimes but rarely transform systems." Examine this in the context of Sri Lanka's Aragalaya and its political aftermath. 2. Discuss the role of IMF programmes in Sri Lanka's economic recovery. What lessons does Sri Lanka's debt crisis hold for India's neighbourhood policy? 3. How should India calibrate its engagement with a politically transformed Sri Lanka to secure its strategic interests in the Indian Ocean Region?

15. Related Topics to Study Next

• IMF lending instruments (EFF, SBA, RFI, ECF): Needed to tell Sri Lanka's programme apart from Pakistan's and Bangladesh's.
• Sovereign debt restructuring / G20 Common Framework: Sri Lanka is a test case for coordinating creditors, including China and India.
• India's Neighbourhood First and SAGAR/MAHASAGAR: The policy frame for India–Sri Lanka ties.
• 13th Amendment and the Tamil question: The long-running devolution issue in India–Sri Lanka relations.
• Hambantota port and debt-trap diplomacy: The strategic-competition context.
• Katchatheevu and fishermen's issue: A recurring bilateral flashpoint.
• Bangladesh 2024 and Nepal 2025 protest movements: Comparable youth- and protest-driven regime change in South Asia.
• India–Sri Lanka energy and connectivity projects: The economic integration agenda.

16. Common Errors / Trap Areas

• SLA vs Board approval: A staff-level agreement does not release money. Only Executive Board approval does [3].
• Dates: The EFF SLA was in 2022 (1 September) but Board approval was in 2023 (20 March) [2][7]. Don't mix them up.
• Wickremesinghe's route: He was elected by Parliament in 2022, not by popular vote [1].
• Aragalaya vs NPP: The Aragalaya was a diverse, leaderless set of fragments with "varied reactions" [1]. It was not an NPP-organised movement.
• Units: The EFF is denominated in SDR (2.3 billion). US$3 billion is only an approximation [2].