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At a time when the global aviation industry is facing a storm due to the war in the Middle East region, SriLankan Airlines (SLA) has been further stifled by the absence of permanent leadership.

The national carrier has been without a full-time CEO for almost a year, while its post of Chairmanship too has become vacant with the resignation of Sarath Ganegoda last month. The resignation came hot on the heels of exits by those heading the Board of Investment, the Ceylon Electricity Board, Airport and Aviation Services Ltd., and the Sri Lanka Transport Board, among others.

Due to the conflict in Iran, the aviation industry is facing its worst crisis since COVID-19. The crisis, resulting in airspace closures and threats to energy supplies in the Strait of Hormuz, has caused jet fuel prices to soar by up to 195%. As a result, airlines worldwide are facing soaring operational costs, and the SLA too has not been spared from the calamity. Navigating such a turbulent environment requires decisive and firm leadership at the top, which the crisis-ridden state entity has been deprived of.

The Government is in the process of finalising the selection of a CEO, and the final selection is expected to be presented for Cabinet approval. It is reported that after receiving over 200 applications, the Government has narrowed the final shortlist to four applicants – three foreigners and one local candidate.

The previous CEO of the airline was Richard Nuttall – a British national who steered the airline from 2022 before stepping down last year to assume the role of President of Philippine Airlines. Nuttall played a key role in managing the operations of the national airline amidst serious operational and financial challenges, coinciding with the COVID-19 pandemic as well as the 2022 economic crisis. Experts in the aviation industry criticised the Government for not renewing the contract of Nuttall, as his presence would have been hugely beneficial during the anticipated transformation and reform of the airline.

The circumstances that led to the exit of Ganegoda from the Chairmanship of the airline have not been officially disclosed. It was reported that he stepped down having completed his assigned responsibilities, including performance improvements. A key achievement was securing a 16% haircut in the restructuring of SLA Bonds. However, during his tenure, Ganegoda was subject to allegations of conflict of interest because of his employment as Executive Director with diversified blue chip Hayleys PLC, which has extensive interests in aviation.

There was also an incident of the newly acquired Airbus A330-200 aircraft being showcased via a low-altitude flyover from Colombo Port City to Panadura in 2025, with the objective of creating a feel-good cheer among gullible islanders as well as a grandiose media hype.

With regard to filling the vacant Chairmanship, reports have indicated that the Government is considering 84-year-old Peter Hill – who served as CEO of the SLA when it was under the control of Emirates. Whoever the eventual appointee may be, the interest of the national carrier would be best served by appointing a commercial administrator with proven credentials instead of appointing pilots, as some ignorant administrations did in the past.

The next SLA Chairman does not necessarily need to have prior experience in the aviation industry; however, he or she should ideally be an upright individual who exercises a firm and fair leadership style.

As it nears completion of eighteen months in power, the National People’s Power (NPP) Government of President Anura Kumara Dissanayake has kept Sri Lanka’s fragile economic recovery on track but is struggling to live up to bold promises of ‘system change’. Dissanayake’s election in September 2024 was made possible by Sri Lanka’s 2022 economic collapse and the subsequent popular uprising that toppled the president and ruling family. The two-thirds parliamentary majority the NPP won later in 2024 created a rare opening to address longstanding governance challenges, whether the protection of top officials involved in serious crimes, the concentration of powers in the presidency or the ethnic fault lines underlying the country’s civil war. So far, however, the Government has made little progress on key reforms. To show that it is willing to do politics differently and regain momentum, the NPP should reinforce its anti-impunity campaign to include investigation of wartime atrocities, strengthen independent oversight of the state and do more to protect the economically vulnerable.

Dissanayake’s and the NPP’s 2024 campaign platform was extremely ambitious. It promised to bring relief from economic austerity, end deeply entrenched corruption and impunity for crimes by the politically connected, restore the rule of law, put an end to ethnically divisive politics, and adopt a new constitution that reduces the concentration of power in the executive. Previous governments had promised much of the same, without ever delivering. But the NPP’s outsider status and limited involvement in past administrations made them, for many voters, more credible agents of systemic change.

By the time of local elections in early May 2025, these high hopes had faded somewhat: the NPP’s share of the vote fell to 43%, placing it well ahead of its rivals but far short of its 61% share in the parliamentary vote the previous November. The reduced support stemmed partly from the sweeping nature of the new Government’s promises of a reset in governance. Lack of experience in State office fed optimism that the NPP could break with traditional politics. But it also hindered the Government in managing the machinery of state and arguably contributed to the authorities’ poor preparation for and slow response to November’s devastating Cyclone Ditwah. The party’s rhetoric about ‘clean’ governance has, in turn, allowed critics who see it as self-righteous to seize on any misstep as proof of its supposed hypocrisy and dishonesty. NPP responses to such accusations have often sounded arrogant and defensive.

The economy

On the economy, the NPP has sustained the fragile recovery, but only by abandoning key electoral promises. Facing the realities of a weak fiscal position and an uncharitable global financial system, Dissanayake and the NPP shifted gears, embracing the reforms prescribed by the International Monetary Fund (IMF) as part of a 2023 bailout, which they had earlier criticised. Their pragmatism has won praise from the IMF and other creditors, helping ensure economic stability in the short term. Sticking so closely to the IMF program, however, has left them with little money to address the needs of millions of newly impoverished Sri Lankans. With a debt burden that remains, even after successful restructuring, one of the highest of any middle- or low-income country, Sri Lanka remains dangerously vulnerable to external shocks, such as storms supercharged by climate change and now the Middle East war.

Governance and fighting corruption

As wfor the NPP’s signature issue of fighting corruption and restoring the rule of law, newly invigorated police and anti-corruption agencies have produced a notable increase in arrests and investigations. Previously unencumbered by the corrupt relationships that have plagued parties with long histories in power, the NPP must now prove itself capable of answering accusations about its own procurement deals. To fulfil its pledges to hold accountable those responsible for the 2019 Easter bombings and political killings during previous administrations, the NPP Government will also need to face down powerful sections of the national security apparatus, particularly following February’s arrest of the former intelligence chief.

Should it extend its anti-impunity campaign to military atrocities during the civil war, the challenge will be even greater, given the military’s political clout and its prestige among the Sinhalese majority population. Tamil families of the forcibly disappeared and other rights activists in the north continue to face harassment and surveillance by the military and counter-terrorism police. A key test of Dissanayake’s leadership will be whether, building on speeches denouncing war and stressing the need to prevent ethnic or religious conflict, he can take the first step toward accountability for wartime abuses. Legal and constitutional reforms designed to meet Tamil and Muslim aspirations will require distancing the NPP from the long history of Sinhala nationalism of its main constituent party, the Janatha Vimukthi Peramuna (People’s Liberation Front), while still managing the expectations of the NPP’s predominantly Sinhala and Buddhist voter base.

Reinvigorating reforms

With its continued popularity and large parliamentary majority, the NPP is better placed than preceding governments to take on these challenges. But if it wishes to reinvigorate its reform project and preserve its credibility as an agent of change, the NPP should tone down the moralising and instead move to strengthen the independence of the police and oversight bodies to the point where they can hold the incumbent Government and ruling party to account. To reinforce its anti-impunity drive, and build trust with Tamils and Muslims, the government should provide backing for exhuming mass graves and pursuing any criminal prosecutions that might follow. It should either withdraw or amend its draft anti-terrorism legislation to remove the threat it poses to democratic norms, while ending intimidation of rights activists by counter-terrorism police.

To share the burden of economic recovery more fairly, the NPP should push for wealth taxes, while preparing a case with its international creditors for greater debt relief. Foreign powers could in turn do more to support governance reforms as well as renegotiate debt payments to create more fiscal space for the Government as it deals with post-cyclone rebuilding and the effects of the Middle East war.

Dissanayake and the NPP are learning how hard system change can be. Still, with careful doses of political courage, a bit of luck and support from abroad, they have the chance to move Sri Lanka further away from its violent and unstable past.

Fitch Ratings has said that Sri Lanka’s recovery remains fragile despite improved macroeconomic fundamentals, with the Middle East energy shock now testing the gains achieved through stabilisation and reforms.

In its latest Sri Lanka update on credit development, Fitch said growth is expected to slow, inflation to rise and the fiscal deficit to widen in 2026, even as the economy builds on stronger fundamentals following the 2022 crisis. GDP growth is forecast to ease to 3.7% from 5% in 2025, while inflation is expected to increase to 6% after deflation of 0.5% in 2025.

Fitch said Sri Lanka’s ‘CCC+’ rating remains constrained by high Government debt and elevated interest burdens despite the 2024 restructuring, while warning that external shocks, particularly from higher energy prices, could weigh on growth, inflation and external balances. It noted that while macroeconomic stabilisation has improved resilience compared to 2022, the economy remains exposed to energy price shocks and external risks.

The update is as follows:

High debt, improving fundamentals: Sri Lanka’s ‘CCC+’ rating is constrained by elevated general Government indebtedness and a high interest/revenue ratio even after the sovereign’s 2024 debt restructuring. Sustained reform momentum is supporting a solid economic recovery, low inflation, a substantial positive fiscal adjustment, and improvements in external finances. Prolonged energy supply and price disruptions could pose downside risks to credit metrics, but the country is in a better position to manage pressures than in the 2022 energy shock.

GDP growth to slow: The economy remained robust in 2025 with GDP growth of 5.0%, in line with 2024, supported by the ongoing cyclical recovery from the 2022 shock. Fitch forecasts growth to ease to 3.7% in 2026 as the inflationary impact of the energy shock and related fuel conservation measures weigh on growth in 1H26. Fitch expects CPI inflation of 6% in 2026 after deflation of 0.5% in 2025, led by primary and secondary impacts of higher energy inputs and base effects.

Risks from energy shock: Sri Lanka is highly exposed to the energy shock from the Middle East conflicts as a net energy importer with a reliance on imports and remittances from the Gulf. A downside scenario of a prolonged closure of the Strait of Hormuz with oil averaging $ 100 per barrel in 2026 would bring substantial risks for GDP growth, inflation and external finances. However, macro-stabilisation policies in recent years have improved resilience, with a starting point of solid GDP growth, low inflation, and primary fiscal and current account surpluses.

IMF program on track: The IMF program and broader multilateral financing continues to underpin Sri Lanka’s external financing profile. Sri Lanka reached a staff-level agreement with the IMF and concluded the fifth and sixth review tranches, which should provide about $ 700 million in financing by end-May. This comes on top of a $ 206 million Rapid Financing Instrument disbursement from the IMF in December. Moreover, Fitch expects support from other multilaterals, including the Asian Development Bank ($ 1.2 billion) and World Bank in 2026.

Current account risks contained: Fitch forecasts the current account to return to a deficit of 0.7% of GDP in 2026 after a 1.6% of GDP surplus in 2025. This is driven by larger imports from higher energy costs and materials for reconstruction following Cyclone Ditwah. Remittances have been a major source of inflows, surging nearly 23% in 2025. Fitch expects remittance flows to be steady in 2026. A prolonged conflict in the Middle East could dampen remittances, but reconstruction in Gulf countries following the conflict could boost remittances.

Foreign reserves steady: Fitch expects foreign reserves to remain relatively steady despite the return to a current account deficit as multilateral inflows provide a solid external financing backstop. Its baseline scenario forecasts FX reserves to rise slightly to $ 7.3 billion (2.9 months of current external payments) in 2026 from $ 6.8 billion in 2025.

Improved fiscal balance: Surging revenue collection drove a large improvement in the central Government fiscal deficit to an estimated 2.3% of GDP in 2025 from 6.8% in 2024. Revenue rose sharply to 16.7% of GDP in 2025 from 13.6% in 2024 buoyed by auto import duties and the economic recovery. Fitch forecasts the fiscal deficit to widen to 4% of GDP in 2026 as expenditures rise on the energy shock and cyclone response, with revenues easing as growth slows. Still, Sri Lanka is able to adhere to the 2.3% of GDP primary surplus target in our baseline.

Government debt falling gradually: Debt remains high despite the sharp fiscal adjustment and debt restructuring, though we expect gradual debt reduction over the medium term. Fitch forecasts gross general Government debt/GDP to reach about 93% in 2027. Risks to the debt outlook remain high over the medium term, particularly after 2027.

Over the past few weeks, the way businesses look at the external environment has started to shift.

There has been no single moment that marks the change, so the shifts have not been seen dramatically. But decisions are being made a little more carefully. Timelines are being revisited. Assumptions that once felt stable are now being questioned.

The conflict in the Middle East sits at the centre of this shift. Not because it is geographically close, but because of how quickly its effects move through systems that economies like Sri Lanka depend on.

Energy markets respond first. Then shipping routes adjust. Costs begin to move. And slowly, the impact starts to register across sectors that, at first glance, seem far removed from the conflict itself.

From global events to local consequences

It was in this context that DFCC Bank convened a discussion with Advocata Institute Chairman and JB Securities CEO Murtaza Jafferjee to examine how these developments are likely to transmit into the Sri Lankan economy.

The focus was not on geopolitics as an abstract subject. It was on how global events translate into local consequences.

The first signal is energy

The starting point, as expected, was energy.

Oil remains the most immediate channel through which global instability reaches smaller, import-dependent economies. Price movements feed directly into transport, electricity, and production costs, and from there into inflation expectations and broader economic sentiment. But price is only the first layer.

Disruptions in energy supply rarely exist in isolation. They extend into logistics, where shipping delays and rising insurance costs begin to complicate supply chains. What initially appears as a pricing issue gradually becomes an operational one, forcing businesses to adjust procurement cycles, manage uncertainty around delivery timelines, and absorb costs that are not always predictable.

How pressure moves through the system

Modern conflicts do not move in a straight line. They spread across interconnected systems. Pressure in one area feeds into another, creating a layered impact that builds over time.

For Sri Lanka, this plays out across several fronts.

The immediate effects are visible. Energy prices fluctuate. Freight costs adjust. Airline routes shift.

Beyond that, the economic impact begins to take shape. Import bills expand. Exchange rate pressures re-emerge. Inflation risks that had begun to stabilise start to return to the conversation.

Then comes the structural layer. Tourism demand becomes more sensitive to global uncertainty. Remittance flows, particularly from the Middle East, face potential volatility depending on labour market conditions in those economies.

And finally, there is behaviour.

Businesses delay expansion. Investment decisions are revisited. Consumers become more cautious. Markets begin to respond not just to what is happening, but to what might happen next.

It is this cumulative effect, rather than any single shock, that defines the current environment.

Stronger, but still exposed

Sri Lanka enters this phase from a stronger position than it has in recent years.

External balances have improved. Foreign exchange reserves have stabilised. Tourism has recovered steadily, and remittances continue to provide a degree of support. These factors create a buffer that did not previously exist.

But the structure of the economy remains externally connected.

Dependence on imported energy, global trade routes, and foreign inflows means that global disruptions continue to transmit relatively quickly into domestic conditions. Recovery has improved the starting point, but it has not altered the underlying channels through which pressure moves.

The real constraint: Uncertainty

The more persistent constraint, however, is not cost. It is uncertainty.

There is no clear resolution path to the conflict. Multiple scenarios remain possible, each with different economic implications. In such an environment, businesses are not simply responding to higher costs. They are operating without a stable baseline.

Procurement decisions become more complex. Pricing strategies must balance cost pressures with demand sensitivity. Investment is approached more cautiously, with greater emphasis on flexibility and risk.

A shift in mindset

This changes the posture required at both a national and institutional level.

The focus moves from recovery and expansion towards managing exposure and maintaining stability. It requires a more deliberate approach to financial discipline, including closer management of foreign exchange risk, working capital cycles, and supplier relationships.

The role of financial institutions

In this environment, the role of financial institutions becomes more defined.

DFCC Bank’s engagement through this discussion reflects a broader responsibility, one that extends beyond providing capital. It involves helping businesses interpret global developments, translate them into financial decisions, and adapt to changing conditions with greater clarity.

This includes supporting clients in managing foreign exchange exposure, structuring trade finance solutions that reflect evolving supply chains, and ensuring that liquidity remains aligned with shifting cost structures.

It also involves directing capital with greater precision, supporting sectors that demonstrate adaptability while maintaining a disciplined approach to risk.

Not a shock, but a tightening

The outlook, at this stage, does not point to a sudden external shock.

What is more likely is a gradual tightening of conditions.

Energy costs may trend upwards. Import bills may increase. Tourism momentum may soften at the margins. Remittance growth may moderate. Investor sentiment may become more cautious.

Individually, these shifts are manageable. Together, they influence the pace and quality of recovery.

The advantage of moving early

One of the clearer takeaways from the discussion is the importance of timing.

In uncertain environments, waiting for clarity is rarely neutral. It reduces flexibility and narrows the range of available responses.

Businesses that adjust early, managing exposure, securing liquidity, and revisiting operational assumptions, are better positioned to absorb external pressure. Those that delay often find themselves reacting under less favourable conditions.

A test of preparedness

For Sri Lanka, the challenge is not one of proximity to the conflict, but of exposure to its effects.

Managing that exposure requires a clear understanding of how risks move, how they accumulate, and how they can be addressed before they become constraints. It also requires institutions that can convert global uncertainty into practical, local action.

The conflict may remain distant. Its consequences will not. And in a moment like this, preparedness is not defined by prediction, but by the ability to respond with clarity when conditions begin to shift.