Col R Hariharan
Sri Lanka Perspectives December
2025 | South Asia Security Trends, January 2026 |https://www.security-risks.com
The year 2025 will be
remembered in Sri Lanka for Cyclone Ditwah, which struck the Sri Lanka
coast towards the end of November. The heavy rain and landslides during the
cyclone presents a grim picture: 644 people losing their lives, 18 injured,
while 183 people were missing. The World Bank has estimated initial damage from
the disaster at around $4.1 billion.
During the years 2023-24, the
nation was preoccupied with recovering from economic bankruptcy and it coloured
the political narrative for nearly two years. Recovering from the after-effect
of Cyclone Ditwah is likely to dominate the political narrative during the
years 2025-26, particularly if the overdue provincial council elections are
held.
The year 2025 will also be the
year AKD surprised everyone, showing rare maturity and pragmatism in continuing
with the debt restructuring largely designed by his predecessor Ranil
Wickremesinghe to satisfy the norms of the IMF. So, it was not surprising that
the IMF approved $ 206 million Rapid Financing Instrument (RFI). Sri Lanka has
formally assured the IMF that it will preserve fiscal discipline. UN
development partners have promised $ 35 million Humanitarian Priorities Plan
(HPP) for nearly 1.2 million victims of Cyclone Ditwah. By
December, the government has received $ 20 million of funds,
mostly channelled through the UN by its development partners.
Most of the disaster relief
efforts of President Anura Kumara Dissanayake government were covered in last
month’s Sri Lanka Perspectives. India’s massive disaster relief Operation Sagar
Bandhu launched in the wake of the cyclone continued during the month of
December 2025 too. It culminated with the visit of India’s External Affairs
Minister S Jaishankar to Colombo on December 23. During the visit, he announced
an assistance package of $ 450 million including $ 100 million as an outright
grant. Before the year ended, India has announced a doubling of financial
commitment to three housing projects, benefitting over 1550 families in the
Northern and Southern Provinces. India’s real time response, as Kishantha
Prashantha Cooray in his FT article says was a “substantive reaffirmation of a
Sri Lanka–India partnership built on the bedrock of strategic reliability.”
China’s presence during 2025
Not to be outdone by India,
China was ready for “disaster diplomacy” with the arrival of a 11-member
delegation led by Wang Junzheng, Member of the 20th Central Committee of the
CPC and Secretary of the CPC Committee of the Xizang (Tibet) Autonomous Region
on December 23. The 11-member delegation met with President Dissanayake to
discuss deepening mutual understanding and regional collaboration and visited
Galle. A week earlier, the National People's Congress delegation led by Wang
Dongming, Vice Chairman of the Standing Committee of the
NPC, from December 16. Its purpose was to reaffirm
commitment to high-quality Belt and Road Initiative cooperation and to
enhance exchanges between the legislative bodies of both countries. The
delegation met with President Dissanayake and Prime Minister Harini
Amarasuriya. Similarly, a Guangdong Trade and Industry Delegation visited
around November 21. It was led by Zhuang Lecong, Deputy Director General of
Industry and IT of Guangdong Province. They held discussions with the Sri Lanka
Export Development Board (EDB) to invite Chinese investment and provide more
opportunities for Sri Lankan SMEs to participate in international trade fairs
in China.
It is to be noted, by
the end of 2025, China's activity in Sri Lanka has shifted from the
high-interest loan model of the past toward equity-based
investments and strategic stabilization. During his Beijing visit in
January 2025, President Dissanayake reaffirmed the "Strategic Cooperative
Partnership." In an attempt to balance ties between China and India,
he emphasized an "independent non-aligned foreign policy,"
During the year, Sri Lanka
lifted its one-year moratorium on foreign research vessels. This has allowed
Chinese so-called ‘scientific vessels’ to dock. The spy ships are required to
adhere to new "standard operating procedures" (SOPs) to ensure
transparency.
In early 2025, Sri Lanka
successfully finalized its external debt restructuring. China, as the
largest bilateral creditor, participated in "parallel" negotiations,
agreed to extend repayment periods and lower interest rate. The Central
Bank of Sri Lanka (CBSL) and the People’s Bank of China renewed a
major currency swap agreement in January 2025, providing a vital
liquidity buffer for Sri Lanka's recovering foreign reserves.
As of 2025, China has
surpassed India as Sri Lanka’s largest source of imports, accounting for
roughly 23.7% of the country's total import bill. Sri Lankan imports
from China were mainly nitrogenous fertilizers, refined petroleum and electronics.
Sri Lanka is trying to increase its exports to China, focusing on Ceylon
Tea, activated carbon, and seafood. In 2025, Sri Lanka signed new
protocols to facilitate the export of more agricultural products to the Chinese
market, though no progress towards signing a comprehensive Free Trade
Agreement.
During the year 2025, China’s
two mega projects in Sri Lanka - the Sinopec refinery and
the Port City Special Economic Zone (SEZ) - reached critical
operational milestones. The $3.7 Billion Sinopec Refinery project located in
Hambantota, is the single largest foreign direct investment (FDI) in Sri
Lanka’s history. The project was fast-tracked during the state visit of
President Dissanayake in January 2025.
The Sinopec refinery is
designed as a greenfield project to process 200,000 barrels per day. The 100
percent Chinese funded venture included an integrated petrochemical complex and
a crude oil storage terminal with direct pipeline connectivity to the Hambantota
Port operated by China Merchants Port Holdings. Sinopec hopes to locally market
up to 40 percent of oil production when the project is completed in three
years.
As of 2025, China has
surpassed India as Sri Lanka’s largest source of imports, accounting for
roughly 23.7% of the country's total import bill. Sri Lankan imports
from China were mainly nitrogenous fertilizers, refined petroleum and electronics.
Sri Lanka is trying to increase its exports to China, focusing on Ceylon
Tea, activated carbon, and seafood. In 2025, Sri Lanka signed new
protocols to facilitate the export of more agricultural products to the Chinese
market. However, there was no progress in the decade-long negotiations to sign
a comprehensive Free Trade Agreement.
So far, so good
The year 2025 has seen
surprising positive growth in many sectors of the country. Tourism sector
crossed a historic milestone with the arrival of 2,333,797th tourist for
2025,surpassing the record of 2,333,796 visitors set in 2018. This has buoyed
SL’s tourism authorities, who have set an ambitious revenue target of US $
4.5 billion for 2026, aiming to attract 2.7 million visitors. The focus will
now be on high-spending demographics and untapped geographical markets.
Marine traffic is another
marker of the country's economic health. Total container volumes
handled by the Colombo Port rose 7.1% year-on-year (YoY) to 6.92 million
20-foot Equivalent Units (TEUs) in the first 10 months of 2025. supported
by a strong expansion in domestic container traffic, even as transhipment
activity continued to account for the bulk of throughput and remain central to
Colombo’s regional hub role. Transhipment container volumes increased 5.1%
YoY to 5.52 million TEUs during the Jan–Oct period, up from 5.25 mil TEUs a
year earlier.
Sri Lanka Customs’ revenue
collection surpassed Rs. 2.49 trillion as on December 26, marking a historic
milestone in the Govt’s fiscal performance. Customs exceeded its original
annual revenue target of Rs. 2,115 billion in early Nov 2025. The Finance Ministry’s
revised target of Rs. 2,231 billion, was also surpassed by 26 December, with
total collections reaching Rs. 2,497 billion.
Apparel industry has delivered
a healthy growth of 5.42% during the first 11 months of 2025. Its cumulative
exports have reached $ 4,571.99 million in the period.
Brickbats
Ethnic reconciliation: Unfortunately,
AKD has not done enough in 2025 on this count. I can dust up my recommendation
in 2023 and say the least AKD can do is to implement the recommendations of the
LLRC report in full. It requires neither amending or revising the constitution.
As I said at the end of 2023, “it will reassure not only the people,
but also the international community that Sri Lanka is serious about ethnic
reconciliation.” But AKD is unlikely to do it in 2026 as he appears to be a
little confused as Rajapaksas might revive the ethnic scare
to recoup Sinhala ethnic support during the next elections.
Crime and punishment: While
the long arm of law still could not find former minister John Fernando, for
misuse of a bus, the CID has booked former minister Douglas Devananda, leader
of the Eelam Peoples Democratic Party. He is now remanded until January 9,
2026. The CID arrested him after his personal firearm provided by the Sri Lanka
Army in 2001 when he was a minister reportedly fell into the hands of
members of an organized criminal gang. The pistol was found concealed in a
forested area near a culvert in Weliweriya. The CID has also launched an
investigation into 19 more firearms issued by the Sri Lanka Army to Devananda.
[Col R Hariharan VSM, a retired MI
specialist on South Asia and terrorism, served as the head of intelligence of
the Indian Peace Keeping Force in Sri Lanka 1987-90. He is associated with the
Chennai Centre for China Studies. Blog site: https://col.hariharan.net Email: haridirect@gmail.com,]
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