PAKISTAN READER

Arafaath Rahby Arafaath Rahby is a Senior Project Officer at the National Peace Council of Sri Lanka.

The second quarter of 2026 gave Sri Lanka an unplanned but revealing test of how far its recovery has come. As President Anura Kumara Dissanayake's National People's Power (NPP) government  passed the eighteen-month mark in office, the widening US-Iran war and the effective closure of the Strait of Hormuz presented Colombo with its most serious external shock since 2022. What stood out through April, May and June was not the shock itself but the country's capacity to absorb it; disciplined crisis management at home, continued international confidence in the reform  programme, a widely praised humanitarian response at sea, and steady progress on reconciliation  and debt recovery. Sri Lanka closed the quarter with its global peace ranking climbing sharply, its  IMF programme intact and even eased in the country's favour, and its diplomatic standing with both  India and China reinforced - signs, taken together, that the country is consolidating rather than  losing the ground recovered since the 2022 crisis. 

1. Crisis Management: A tested government holds the line
The quarter's central story was how effectively the government managed an external energy shock  that could easily have unravelled years of hard-won stability. With global oil prices spiking past USD  100 a barrel and the Strait of Hormuz effectively closed, the Dissanayake administration moved  early and decisively: a QR-code fuel rationing system, a temporary four-day working week for state  institutions, and a coordinated public communication campaign kept the country's fuel reserves  from running out and avoided the disorderly queues and social unrest that had marked the 2022  crisis. Unlike four years ago, this time the state had the institutional capacity, the public trust and  the fiscal space to respond in an organised, planned manner - a marked contrast that many Sri  Lankans and outside observers noted. The IMF itself commended the authorities for prompt action  that "helped preserve macroeconomic and social stability" during the shock, and for having built,  through the reform programme, the fiscal space to fund a relief package covering fuel, electricity  and fertiliser subsidies as well as cash transfers to vulnerable households without derailing the  country's finances. 

2. Global reputation enhanced: Humanitarian rescue at Sea 
Sri Lanka's response to the human cost of the distant war produced one of the quarter's proudest  moments. When the Iranian naval vessel IRINS Dena came under attack just outside Sri Lankan  waters after seeking safe harbour, the Sri Lankan Navy moved swiftly to rescue more than thirty  survivors, later taking custody of the bodies of those who had perished, and subsequently extended  protection to a second Iranian vessel, IRINS Bushehr, carrying over two hundred sailors. Foreign  Minister Vijitha Herath explained that the response was grounded in humanitarian principle,  international law and Sri Lanka's UNCLOS obligations to assist those in peril at sea. The episode  drew rare, near-unanimous praise across the political spectrum and reinforced Sri Lanka's  decades-long tradition - dating back to its 1971 initiative at the UN General Assembly to have the  Indian Ocean declared a Zone of Peace - of principled, rules-based engagement even amid great power rivalry. For a small island nation navigating a dangerous neighbourhood, the episode was a  quiet but significant demonstration of moral leadership and diplomatic maturity.

This standing was reflected in harder numbers by the end of the quarter: Sri Lanka climbed fourteen  places to rank 67th out of 163 countries in the 2026 Global Peace Index, one of the most significant  improvements recorded worldwide at a time when global peacefulness overall was reported to be  declining. The rise reflects the country's continuing recovery from nearly three decades of war, its  strengthened political stability, and its improved public security - concrete, independently verified  evidence that Sri Lanka is on the right trajectory. 

3. Economic recovery: The IMF Programme stays on track
Sri Lanka's economic managers used the quarter to demonstrate that the country's four-year, USD  3 billion IMF Extended Fund Facility remains firmly on course despite the external shock. Staff-level  agreement on the combined Fifth and Sixth Reviews, reached in early April, was followed by the IMF  Executive Board's approval on 27 May of a further disbursement of roughly USD 695 million, taking  total support since 2023 to about USD 2.4 billion - a vote of confidence from the Fund in the  government's stewardship. Notably, rather than insisting on rigid austerity, the IMF itself endorsed  fiscal easing in 2026 as the appropriate response to the shock, explicitly crediting the space  created by years of disciplined reform for allowing the government to protect vulnerable  households while still committing to return to its 2.3 per cent of GDP primary balance target in  2027. A further IMF staff visit in late June reaffirmed that the recovery remained intact, praising the  authorities' demonstrated institutional capacity to respond quickly to emerging challenges and  their targeted support for the most vulnerable, while noting that recent global commodity price  declines could ease pressures further in the months ahead. 

Beneath the headline figures, the underlying strength of the economy's external buffers was clear.  Workers' remittances surged 23.2 per cent in the first half of the year to USD 4.60 billion, a powerful  vote of confidence from the Sri Lankan diaspora and a testament to improved formal banking  channels since the crisis years. Gross official reserves, supported by the People's Bank of China  currency swap facility, stood at a healthy USD 6.45 billion at the end of June. Tourism, while softer  in June amid the regional disruption caused by the Middle East war, still delivered over 1.15 million  arrivals in the first half of the year, with India remaining the largest and most loyal source market.  Garment exporters, meanwhile, found new momentum from the liberalised UK rules of origin under  its Developing Countries Trading Scheme, in force since January, opening fresh opportunities for  one of the country's most important export sectors. 

4. External relations: Deepening trust with India, Steady ties with China 
Sri Lanka's foreign policy through the quarter reflected the growing confidence of a government that  has built productive relationships with both of its major partners. India once again demonstrated its  role as Sri Lanka's most reliable neighbour, extending energy assistance to Colombo and Dhaka in  April as the regional fuel crisis deepened, while President Dissanayake used the occasion in June to  reaffirm his commitment to deepening the bilateral partnership further - continuity in a relationship  that has anchored Sri Lanka's recovery since 2022. China, for its part, continued to provide  important financial ballast through its currency swap arrangement, underpinning reserve stability at  a critical moment. That Colombo could draw support from both Delhi and Beijing simultaneously,  without friction between the two relationships, speaks to the sophistication of Sri Lanka's  independent, non-aligned foreign policy under the current administration.

5. Reconciliation and governance: Building an inclusive Sri Lanka 
The quarter also saw the government press ahead with its reconciliation agenda. President  Dissanayake continued his sustained personal outreach to the North and East, including a Thai Pongal visit to Jaffna where he launched a national housing project and announced plans to  upgrade Palaly Airport and expedite operations at Kankesanthurai Port - concrete investments in a  region long neglected by previous administrations. Around the May 18-19 anniversary of the war's  end and again at Vesak, the President and Prime Minister Harini Amarasuriya used their public  messages to emphasise reconciliation, coexistence and justice for all communities, language that  a National Peace Council symposium the same month - attended by both a government minister  and Opposition Leader Sajith Premadasa - suggested was resonating across the political divide.  The government also continued to advance its signature anti-corruption agenda, with courts and  investigative agencies making renewed progress on long-stalled cases, including the 2019 Easter Sunday bombings and historic procurement scandals, underscoring a genuine commitment to the  accountability that voters demanded in 2024. On 11 June, the Election Commission committed to  moving ahead with long-delayed local and provincial council elections, a step welcomed as further  evidence of the country's deepening democratic consolidation. 

Recovery from Cyclone Ditwah, which struck in late November 2025, also continued through the  quarter, with the government's Presidential Task Force - led by the Prime Minister and drawing on  cabinet ministers, provincial officials and civil society representatives - coordinating rebuilding  efforts, cleanup grants and rental support for displaced families, alongside significant international  solidarity from India, the Maldives and other South Asian neighbours that underscored the strength  of the country's regional relationships in a time of need. 

To Conclude: Sri Lanka in the Second Quarter (Apr-Jun 2026)
Taken together, the second quarter of 2026 offered strong evidence that Sri Lanka's recovery is not  only holding but deepening under the NPP government. A serious external energy shock was met  with organised, disciplined crisis management rather than the disorder of 2022. The IMF continued  to back the country's reform trajectory with fresh disbursements and flexibility. A humanitarian  rescue at sea burnished Sri Lanka's international reputation, and the country's leap up the Global  Peace Index offered independent confirmation of its growing stability. Relationships with both India  and China remained productive, remittances hit new highs, and the government kept faith with its  reconciliation and anti-corruption commitments even under pressure. With the Seventh IMF  Review due in the autumn and local and provincial elections now moving forward, Sri Lanka enters  the second half of 2026 with real grounds for confidence that the country, under President  Dissanayake's leadership, is on a durable path from crisis to recovery to renewed strength.

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