Sri Lanka’s crisis has already produced the images that define a collapse: fuel queues snaking through Colombo, cooking gas shortages, protesters occupying the presidential residence, a head of state boarding a plane and fleeing. Then the cameras turned away and the story shifted into another language — that of spreadsheets, IMF reviews, restructuring terms and primary balances. The country moved from street revolt to programme discipline. Yet the most important chapter is still to come. It will unfold not in a single dramatic moment, but in the quieter years after the final IMF tranche has been disbursed, when the country must live with the permanent politics of scarcity that the crisis has made visible.

From Protest Squares to Programme Documents

The speed of Sri Lanka’s transition from uprising to adjustment was striking. The “Aragalaya” protest movement, centred around Galle Face Green, brought down a president and shattered the aura of invincibility surrounding the Rajapaksa family. But it did not produce a coherent economic alternative. Into that vacuum stepped the familiar trio of actors: the IMF, bilateral lenders and bondholders. For a government facing empty reserves and cascading arrears, there was little choice but to accept an externally structured path back to solvency.

That path is organised around familiar pillars: fiscal consolidation, tighter monetary policy and a sweeping restructuring of public debt. Success is defined in terms that make sense to technocrats and creditors — declining inflation, a stabilised exchange rate, rising reserves, lower debt ratios over a decade. For households that remember the crisis as weeks without kerosene or medicine, such metrics are distant abstractions. The experience of pain is immediate; the promise of stability sits somewhere in the middle distance.

The Arithmetic of a Defaulted State

Behind the politics lies an unforgiving ledger. By the time Sri Lanka defaulted, its public debt had climbed well above levels deemed sustainable, with a dangerous composition: a large share denominated in foreign currency, substantial exposure to commercial bond markets and a growing pile of bilateral loans from both traditional and newer partners, notably China. Tourism, once a key source of foreign exchange, had been battered first by security shocks and then by the pandemic. Tax cuts drained revenue just as the state needed it most.

The IMF’s debt-sustainability analysis sketched a narrow corridor back to solvency. It rests on higher revenue, lower interest costs after restructuring and an eventual recovery in growth. Small deviations in any of those variables — a missed tax target, a weaker global economy, a new external shock to fuel or food prices — quickly widen the gap between projections and reality. Debt sustainability is not a stable destination; it is a moving target, constantly buffeted by politics at home and price movements abroad.

The table simplifies what is, in practice, a far messier process. Every line item implies choices about who pays and when, and every missed assumption has to be compensated for somewhere else in the system.

Restructuring as a Theatre of Power

Debt restructuring is often described as a technical exercise in present values and haircut percentages. In reality, it is a theatre in which different classes of creditors attempt to shift losses onto one another and onto domestic constituencies. Sri Lanka’s cast of characters is unusually diverse: international bondholders seeking to preserve as much value as possible; bilateral creditors from the Paris Club and from China, each wary of setting precedents for other distressed borrowers; and domestic holders of rupee debt, including banks and pension funds.

Balancing these interests is not a tidy optimisation problem. Deep restructurings of domestic debt can damage the local banking system and erode retirement savings. Generous treatment of external creditors invites backlash at home and questions about fairness. Pressure to treat all external lenders “comparably” collides with very different political relationships, especially when some loans are tied to infrastructure assets with strategic significance. The government’s task is to orchestrate a deal that satisfies the IMF’s numerical test without detonating its own political base.

China, India and the Geometry of Influence

Sri Lanka’s position in the Indian Ocean ensures that its debt story is never just about cash flows. It sits within a triangle of influence defined by Beijing, New Delhi and the Western-led financial institutions. Chinese loans financed high-profile projects, from ports to highways, becoming central to debates about “debt traps” even when the empirical record was more nuanced than the slogans. India, by contrast, played the role of emergency stabiliser during the worst months of the crisis, providing fuel, credit lines and diplomatic cover.

The IMF, meanwhile, offers the policy template and the credibility signal that other lenders use as a benchmark. For Colombo, navigating this geometry is both constraint and leverage. A workable restructuring requires some degree of alignment among powers that are strategic rivals. At the same time, Sri Lanka can point to its role in sea lanes, ports and regional security to argue that its stability is a shared interest, not a niche concern.

Democracy in a Permanent Adjustment Cycle

Adjustment fatigue in Sri Lanka is not an abstract concept. It is lived experience. Households have endured inflation spikes, currency collapse, shortages and sharp increases in the cost of fuel and electricity. The IMF programme moves from the dramatic phase of crisis management into the slower grind of structural reform: overhauling tax systems, changing state-owned enterprises, retargeting subsidies. Each of these touches entrenched interests and everyday survival.

Elections compress this long horizon into short cycles. Opposition parties frame IMF conditions as an externally imposed straightjacket. Incumbents warn that any deviation will jeopardise disbursements and trigger renewed turmoil. Voters are asked to choose not just between parties, but between competing narratives about how much sacrifice is necessary and for how long. A democracy already scarred by executive overreach now has to manage a decade-long argument about who bears the weight of adjustment.

The Social State Under Fiscal Siege

Much of Sri Lanka’s post-independence social compact has been built around relatively broad subsidies and public provision. Fuel, electricity and some food items were kept artificially cheap. The IMF-supported reform path aims to narrow these benefits to the poorest households, on the argument that blanket subsidies are costly and regressive. In principle, this makes sense. In practice, implementing targeted transfers in a low-trust environment is fiendishly difficult.

Building accurate beneficiary lists, verifying incomes, and adjusting benefits as prices and circumstances change all demand administrative capacity that has been weakened by years of under-investment and crisis. Errors are inevitable. For families whose budgets have no slack, a missed payment or a bureaucratic glitch is not a rounding error; it is a threat to food and medicine. If the transition from broad relief to targeted support is mishandled, the legitimacy cost for the programme may be greater than any fiscal gain.

Ports, Assets and the Anxiety Over Sovereignty

In a country where the leasing of Hambantota port to a Chinese-linked company became a global symbol of “debt-for-equity” fears, any discussion of asset sales or concessions is politically charged. The current adjustment path includes an expectation that state-owned enterprises will be restructured, and in some cases privatised or opened to strategic investors. Gulf funds, Indian companies and other regional players have shown interest in ports, energy infrastructure and real estate.

The government insists that it will avoid fire sales and retain control over critical infrastructure. Citizens, however, are acutely aware that decisions taken during moments of fiscal desperation can lock in relationships for decades. The line between sensible asset recycling and perceived loss of sovereignty is thin, and often drawn not in legal contracts but in public perception.

What Happens When the Programme Clock Stops?

IMF arrangements are temporary by design. The obligations they shape are not. When the final review is completed and the last disbursement lands in the central bank’s account, Sri Lanka will still need to roll over debt, maintain primary surpluses, manage external shocks and persuade investors that it will not slide back into old habits. The end of the programme is not the end of the story; it is the moment when external supervision recedes and domestic politics retake centre stage.

Two futures suggest themselves. In the first, fiscal discipline erodes with each electoral cycle, revenue measures are reversed under pressure, and new borrowing quietly accumulates until another crisis forces a fresh round of rescue and restructuring. In the second, painful lessons are institutionalised into rules and norms — about how budgets are written, how much risk can be taken, and how gains and losses are shared. Neither outcome is predetermined. Both will be shaped by how parties choose to campaign, govern and negotiate the limits of the possible.

The Debt Democracy Question

Sri Lanka sits at the leading edge of a broader Global South dilemma: can democracies in heavily indebted, externally constrained economies make long-term choices without either collapsing into serial crises or drifting toward more authoritarian forms of control? Debt does not cast ballots, but it narrows the menu of options available to those who do. When a large share of fiscal space is pre-committed to creditors, arguments about tax, spending and welfare are conducted inside a shrinking box.

There is a pessimistic answer, in which voters tire of being told that there is no alternative and either embrace leaders who promise easy solutions or resign themselves to disengagement while technocrats and creditors quietly decide. There is also a more hopeful answer, in which parties begin to compete on credible plans to manage scarcity fairly, rather than on fantasies of its disappearance. Sri Lanka’s post-programme decade will be a test case. The outcome will matter not only for an island nation in the Indian Ocean, but for every democracy trying to govern under the weight of a balance sheet it did not fully choose.