Sri Lanka Struggles to Avoid Repeat of Economic Collapse

Sri Lanka is currently struggling to prevent a repeat of the severe economic collapse it experienced four years ago, as a prolonged war in the Middle East disrupts global energy supplies and compounds the effects of a deadly cyclone that struck in November 2025.

Under the administration of President Anura Kumara Dissanayake, the government has implemented several emergency measures to manage the energy crisis. These include the rationing of fuel and an increase in fuel prices by one-third. Electricity costs have been raised by up to 40 percent since the onset of the Middle East conflict.

The energy shortage has led to further austerity measures. Authorities have ordered electricity-saving measures, which included a lights-out event in Colombo on April 2, 2026. To conserve reserves and reduce pumping costs, the government has also begun limiting the hours of water supply.

Economic Instability and Public Reaction

The current situation has triggered panic buying of fuel, evoking memories of the 2022 economic crisis. During that period, Sri Lanka’s economy collapsed after the government defaulted on US$46 billion in external debt, causing inflation to reach 70 percent.

The 2022 crisis led to widespread protests known as the Aragalaya, or struggle, which eventually toppled then-President Gotabaya Rajapaksa following accusations of corruption and mismanagement.

The Frontline Socialist Party (FSP), which helped lead the Aragalaya, has warned that the current administration may be facing an implosion. Duminda Nagamuwa, a politburo member of the FSP, stated that while the economic shock is currently being absorbed by the public due to the strength of the government’s mandate, a political response to the crisis is expected.

We believe that a response to this economic crisis will come politically. Because of the strength of the (government’s) mandate, this economic shock is still being absorbed by the people without exploding politically.

Duminda Nagamuwa, FSP politburo member

Political Context and Public Sentiment

President Dissanayake and his leftist JVP, also known as the People’s Liberation Front, secured a two-thirds majority in the November 2024 parliamentary elections. This followed his victory in the presidential election held two months prior.

Despite the mandate, some citizens express growing dissatisfaction. Wasantha Jayalath, a 55-year-old vendor at Colombo’s Pettah night market, reported that although he voted for Dissanayake in 2024 with hopes for improvement, he feels the current situation is worsening.

The current instability is the result of a combination of external shocks, specifically the disruption of global energy supplies caused by the conflict between the US, Israel, and Iran, and the internal fallout from Cyclone Ditwah in November 2025.