Sri Lanka Enabling Environment Snapshot

Period covered by the report: October 2025 – March 2026.

Sri Lanka continues to navigate a period of political transition, economic recovery, and social tension following the aftermath of its severe financial crisis. The political landscape is shaped by ongoing governance challenges and heightened public scrutiny of accountability. The ruling National People’s Power (NPP) government, led by President Anura Kumara Dissanayake and came into power in 2024, faces criticism of failing to deliver on its post-election promises, particularly in the areas of economic relief, legislative and structural reforms including eradication of political influence in the public sector. 

In February 2026, the long-running investigation into the 2019 Easter Sunday bombings led to a high-profile arrest of former State Intelligence Service chief Suresh Sallay under the Prevention of Terrorism Act (PTA). The development drew varied reactions across political and civil society actors, with some warning against politicising national security. Meanwhile, discussions on governance and public sector reforms have persisted, with several initiatives for legislative reforms under consideration, including the amendments to the OSA, the proposed “Protection of the State from Terrorism Act” (PSTA) to repeal and replace the PTA, and the draft Public Procurement Bill, among others. The government has also engaged on governance and human rights issues, including the 27th EU-Sri Lanka Joint Commission Meeting in February 2026, where officials discussed policy reforms and cooperation on governance, trade, human rights, and rule of law with the European Union. 

During the reporting period, Sri Lanka’s economic outlook also showed signs of gradual stabilisation while remaining fragile as the country continues its recovery from the 2022 financial crisis. The reform programme supported by the International Monetary Fund under the Extended Fund Facility (EFF) continues to play a central role in shaping economic policy, particularly following the staff-level agreement reached between IMF and Sri Lanka in October 2025 on the fifth review of the programme. The government introduced the 2026 national budget, prioritising fiscal discipline, institutional reforms, and revenue mobilisation in line with IMF programme targets, although measures such as taxation and subsidy reforms sparked domestic debate over their social impact. 

However, economic risks emerged following Cyclone Ditwah in November 2025, which disrupted Sri Lanka’s fragile recovery and prompted the government to seek additional emergency financial support from the IMF, resulting in the approval of US$206 million in December 2025. This had a severe humanitarian impact, causing widespread damage, displacement, and significant loss of life. The disaster exposed gaps in preparedness and response, including delays in early warning systems and unequal access to critical information. In response, civil society actors played a vital role in providing emergency relief, supporting affected communities, and advocating for more inclusive and effective disaster response mechanisms. The crisis also prompted increased engagement between the government and civil society in recovery and rebuilding efforts