Dissanayake said Washington had sought permission for the aircraft to land at Mattala Rajapaksa International Airport between March 4 and March 8.

The planes were reportedly carrying anti-ship missiles and were to arrive from a U.S. base in Djibouti.“We turned down the request to maintain Sri Lanka’s neutrality,” Dissanayake said, adding that the decision was met with approval from lawmakers.

The president said Sri Lanka also rejected a separate request from Iran for three naval vessels to make a goodwill visit between March 9 and March 13 after participating in an Indian naval exercise.

“We were considering this request. Had we said ‘yes’ to Iran, we would have had to say ‘yes’ to the U.S. as well,” he said, indicating Colombo’s effort to avoid alignment with either side.

The decisions come amid heightened tensions following military action by the United States and Israel against Iran in late February, which has disrupted energy flows and unsettled global markets.

Sri Lanka’s navy was also involved in rescue operations linked to the conflict. Authorities said 32 Iranian crew members were rescued from the vessel IRIS Dena after it was torpedoed on March 4, in an incident that reportedly caused significant casualties.

A second vessel, IRIS Booshehr, and its crew were assisted after encountering technical difficulties near Sri Lankan waters.

The developments coincide with a visit by Sergio Gor, who met Dissanayake on Thursday as part of ongoing diplomatic engagement.

Sri Lanka, still recovering from a financial crisis that peaked in 2022, is facing renewed economic pressure due to energy supply disruptions linked to the regional conflict, underscoring the challenges of maintaining a neutral stance.

In Pakistan’s Punjab province, KSrelief has taken significant steps to address the aftermath of devastating floods by distributing over 61 tons of food aid. This essential aid has reached 4,550 individuals residing in areas severely affected by the floods. The provision of food assistance plays a pivotal role in ensuring the well-being and sustenance of affected communities during times of crisis.

Similarly, in Sudan, KSrelief has taken swift action to alleviate the suffering of displaced individuals. Through the distribution of more than 34 tons of food aid, 5,217 displaced people have received critical support. This assistance is instrumental in meeting the immediate nutritional needs of those affected by conflicts and displacement, providing them with essential sustenance during challenging times.

In Sri Lanka, KSrelief has collaborated with the Al-Basar International Foundation to launch a project aimed at combatting blindness. This joint initiative seeks to address eye health issues and provide necessary medical interventions to those in need. The project, scheduled to run from September 11 to 17, underscores the Kingdom’s commitment to improving healthcare and enhancing the quality of life for individuals facing visual impairments.

These projects form part of a broader array of relief and humanitarian initiatives facilitated by KSrelief, the humanitarian arm of the Kingdom of Saudi Arabia. Through its endeavors, KSrelief continues to extend support and assistance to vulnerable populations worldwide, embodying the Kingdom’s dedication to providing relief and alleviating human suffering.

The launch of these projects in Sudan, Sri Lanka, and Pakistan further exemplifies the Kingdom’s unwavering commitment to humanitarian causes. By addressing immediate needs, such as food aid in flood-affected regions and medical interventions for eye health, KSrelief aims to restore hope and resilience in communities grappling with adverse circumstances.

As KSrelief continues to implement these projects, it remains steadfast in its mission to provide timely and effective assistance to those in need, irrespective of geographic boundaries. The Kingdom’s dedication to humanitarian efforts underscores its commitment to global solidarity and the pursuit of a more compassionate and inclusive world.

Weerasinghe said he would like to see private sector interest rates come down further and at a faster pace, adding that the domestic debt restructuring is the most important focus for the debt-laden country in the near-term.

“We would firstly like to see yields drop in line with policy rates and, from there, decline further. We are waiting to see this reaction from markets,” he said.

“Given the downward inflation trajectory we see room to further loosen policy rates.”

Hit by a severe foreign exchange shortage last year, Sri Lanka’s economy crumpled, pushing the central bank to raise interest rates to record levels to counter rampant inflation and currency pressure.

The country secured a $2.9 billion rescue package from the International Monetary Fund (IMF) in March.

In the last two months Sri Lanka has slashed policy rates by 450 basis points, signalling a focus on growth after the crisis-hit economy contracted by 7.8% last year.

Sri Lanka is on track to post a stronger performance this year than the 3% contraction projected by the IMF, Weerasinghe said.

“Sri Lanka has managed to do better than expected before and we are hopeful that Sri Lanka will once again perform better than the projections.”

Over the past five months Sri Lanka’s economy has stabilised with inflation dwindling to 6.3% in July, from a high of 69% last September, and on track to hit the central bank’s target band of 4%-6%.

Sri Lanka’s economic stability is also dependent on the upcoming budget, which is likely to be presented to parliament in November.

“Sri Lanka has to ensure that fiscal consolidation and other measures outlined in the IMF program are taken forward in a strong budget. That is very important for Sri Lanka’s recovery to be sustainable,” Weerasinghe said.

Sri Lanka Foreign Minister Ali Sabry said his country was seeking Japanese investment in sectors such as power, infrastructure and dedicated investment zones, as well as in the green and digital economies.

The South Asian island nation is working to restructure its massive debt to continue a $2.9 billion bailout from the International Monetary Fund, after its worst financial crisis in more than seven decades last year triggered default and the resignation of its president.

“We are confident that Sri Lanka’s economic recovery, which has made a promising start, and future growth prospects will provide us with greater opportunities to enhance the Japan-Sri Lanka relationship,” Sabry told a news conference.

He was joined by Japanese Foreign Minister Yoshimasa Hayashi, who is in Colombo as part of a multi-country diplomatic tour including India, South Africa, Uganda, Ethiopia and the Maldives.

“I conveyed my expectations for further progress in the debt restructuring process and stressed the importance of a transparent and comparable debt restructuring that involves all creditor countries,” Hayashi said.

He did not respond publicly to Sabry’s investment invitation.

Japan’s historically vibrant relations with Sri Lanka cooled after the island unilaterally suspended a $2 billion light railway project in 2020.

Ties improved in recent months after President Ranil Wickremesinghe appealed to Japan to help Sri Lanka weather the crisis, caused by economic mismanagement by successive governments, deep tax cuts and then the COVID-19 pandemic.

Wickremesinghe received Cabinet approval this month to reactivate the light rail project.

Lying along key shipping routes in the Indian Ocean, Sri Lanka has become a hot spot for influence between India and Japan on the one side and China on the other.

Japan is Sri Lanka’s biggest bilateral lender after China, with about $2.7 billion in outstanding loans, according to finance ministry data. India is the third key creditor.

New Delhi will also help develop a port and an economic hub at Trincomalee, a city on Sri Lanka’s northeastern coast.

The announcements were made by the leaders of the two countries as Sri Lankan President Ranil Wickremesinghe held talks with Indian Prime Minister Narendra Modi in New Delhi on Friday morning.

India’s support of nearly $4 billion between January and July last year was critical for Sri Lanka after it almost ran out of dollars and sank into a financial crisis that left it struggling to fund essential imports including fuel and medicine.

Modi said on Friday that the two leaders “adopted a vision document for our Economic Partnership” to strengthen maritime, air, energy and people-to-people connectivity, to accelerate mutual cooperation in tourism, power, trade, higher education, and skill development.

Modi also said the two sides would work quickly to connect their electricity grids and study the feasibility of building a petroleum pipeline and a land bridge between the countries, which are about 50 km (31 miles) apart at one point.

The projects to connect the power grids through undersea cables and the oil pipeline are expected to cost around $4 billion in total, according to officials on both sides. Few details were released on the agreements on renewables.

Wickremesinghe said that “constructing a multi-product petroleum pipeline from the southern part of India to Sri Lanka will ensure an affordable and reliable supply of energy to Sri Lanka.”

The two countries also will soon restart negotiations on a more expansive trade deal known as the Economic and Technological Cooperation Agreement.

Wickremesinghe also said that he had updated Modi about the reform measures being taken by his government to resolve the island’s financial crisis, and expressed appreciation for the support provided by India for the “most challenging period in modern history”.

Sri Lanka defaulted on its foreign debt last May and India is part of a common platform established with Japan and other Paris Club members to help the island restructure its debt.

India remains a key creditor to the island with $1.9 billion in outstanding debt.

While New Delhi has traditionally had strong ties with its southern neighbour, the small island nation has become a jousting ground between India and China due to its strategic location in the Indian Ocean.

The two-day visit to New Delhi is Wickremesinghe’s first since he took over as the president a year ago after his predecessor was forced out of office following widespread protests against the economic crisis.

Strategically important energy, power and port projects will be discussed during his meeting with Indian Prime Minister Narendra Modi on Friday, officials from both countries said.

In his first trip to India since he took over as the president a year ago after his predecessor was forced to quit following widespread protests, Wickremesinghe also will update New Delhi on progress made to stabilize the island’s crisis-hit economy.

India’s support was critical for Sri Lanka last year after it almost ran out of dollars and sank into a financial crisis that left it struggling to fund essential imports including fuel and medicine.

India provided about $4 billion in rapid assistance between January and July 2022, including credit lines, a currency-swap arrangement and deferred import payments, and sent a warship carrying essential drugs for the island’s 22 million people.

While New Delhi has traditionally had strong ties with its southern neighbour, the small island nation has become a jousting ground between India and China due to its strategic location in the Indian Ocean.

An Indian official, speaking anonymously because he is not authorised to speak to journalists, said an agreement for development projects in the northeastern coastal city of Trincomalee will be announced during the visit, along with another agreement for renewable energy projects.

In October, Wickremesinghe unveiled a blueprint for Trincomalee including a proposal to work with India to develop a strategic port, a new industrial zone and an energy hub, according to details released by his office.

Additionally, the two nations will produce a joint statement for supporting Sri Lanka’s dairy sector.

Improving connectivity between the two countries will also figure prominently during the bilateral talks, officials on both sides said.

The two sides have had preliminary discussions for an undersea cable which would connect their power grids and a fuel pipeline from southern India’s mainland to northern Sri Lanka – projects that could together cost at least $4 billion, according to officials on both sides.

Colombo will focus on grid connectivity with India, port development and renewable energy projects, largely in the northern part of the island, Foreign Minister Ali Sabry had told reporters.

Progress on debt restructuring will also be discussed, Sri Lanka’s Cabinet spokesman and Transport Minister Bandula Gunawardena said on Tuesday, as India is a key creditor to the island with $1.9 billion in outstanding debt.

Sri Lanka defaulted on its foreign debt last May and India is part of a common platform established with Japan and other Paris Club members to help the island restructure its debt.

In the energy sector, India’s state-run NTPC (NTPC.NS) is working on a 100-megawatt solar power plant in Trincomalee district.

The Sri Lankan government also approved two wind power plants on its northwest coast by India’s Adani Green Energy Ltd (ADNA.NS) in February with a total investment of $442 million.

The legislation was passed without a vote in the 225-member parliament.

“The bill is passed with amendments,” Sri Lanka parliament Speaker Mahinda Yapa Abeywardena told lawmakers after more than two dozen pages of amendments were included into the draft legislation during the morning session.

Sri Lanka’s economy nosedived into the worst financial crisis in more than seventy years after a severe foreign exchange crunch last year forced the island to default on its foreign debt, which led to soaring inflation and a rapid depreciation in its currency.

But the country’s fortunes improved after it locked down a $2.9 billion programme with the IMF in March, which included introducing fresh anti-corruption legislation to strengthen governance and bring it in line with the United Nations Convention Against Corruption.

This is the first time an IMF program has been linked to such a measure in Asia.

The Anti-Corruption Bill increases the powers and resources allocated to Sri Lanka’s Bribery and Corruption Commission, which is mandated with carrying out major investigations. It can now conduct joint investigations with local and international counterparts.

The new bill also makes it mandatory for electoral candidates to declare their assets, which will be published ahead of elections, and expands bribery offences to include private sector stakeholders.

“We welcome the law, but the proof of the pudding will be in the eating,” said Sankhitha Gunaratne, Deputy Executive Director, Transparency International Sri Lanka (TISL).

“A lot of it will depend on enforcement of the law, whether law enforcement authorities will be empowered to be free of political interference and also not have to self-censor, to act without fear or favour during investigations.”

The Central Bank of Sri Lanka (CBSL) cut its standing deposit facility rate and standing lending facility rate to 11% and 12%, respectively, from 13% and 14% previously.

The island nation plunged into crisis last year as its foreign exchange reserves ran out, food and energy prices spiralled and protesting mobs forced the ouster of the then president of the South Asian country.

President Ranil Wickremesinghe took the reins in July and negotiated a $2.9 billion bailout from the International Monetary Fund (IMF) in March.

The island nation is now on a path to recovery after facing its worst financial crisis in more than seven decades last year. A $2.9 billion bailout from the IMF in March helped tame inflation in the country as dollar inflows improved.

The cabinet on Wednesday gave approval for President Ranil Wickremesinghe to decide on the appropriate time frame to reactivate the $2.2 billion project with Japan, the country’s media ministry said on Wednesday.

In 2020, Sri Lanka suspended the light rail project meant to ease congestion in the capital Colombo, citing financial problems

The central bank expects the economy to resume growth this quarter after six quarters of contraction – faster than expected by many economists – while overseas remittances are surging and tourist numbers are rising.

While economists judge the country to be past the worst of the crisis, it’s problems are far from fixed. Food, healthcare and house rental costs are high and still increasing, the poverty rate has doubled in the last year and is seen rising further, while negotiations to reorganise the government’s crippling debt burden face some uncertainty.

“Stability is somewhat there but what it means is no extreme shortages, no fuel queues, and no 13-hour power cuts,” said Rehana Thowfeek, an economist at the Colombo-based Advocata Institute think tank.

“Inflation is tapering off but compared to pre-crisis levels, the cost of living is very high and incomes have not kept up. The bulk of Sri Lanka’s poor people are daily wage earners, and they are among the hardest hit.”

Sri Lanka sank into a financial crisis after the COVID-19 pandemic decimated tourism and remittances from citizens working abroad fell. The war in Ukraine pushed prices for imports, particularly fuel, sharply higher.

In March last year, thousands took to the streets to vent their anger at lengthy power cuts and spiralling prices, and to call for the Rajapaksa family that had dominated the country’s politics for much of the last 20 years to leave power.

After weeks of protests and a steady worsening of the crisis, President Gotabaya Rajapaksa fled overseas, formally stepping down on July 13. He was replaced as president by his prime minister, Ranil Wickremesinghe, who brought in reforms and negotiated a $2.9 billion bailout from the International Monetary Fund (IMF) in March.

While price increases are easing, they are still high. Power costs, which jumped 65% in February, remain difficult for low-income families despite a 14.2% reduction in July.

The key inflation index was at 12% in June and is expected to hit single digits in July after peaking at 70% in September and following a rebasing in February. But food, clothing, health care and housing costs remain elevated.

Food inflation hit a record high of 95% in September and although it has come down, June’s reading of 4.1% means prices are still rising. Clothing prices increased 44% on the year in June, housing 26% and medical 16%.

Rising costs are having a toll on poverty, which nearly doubled to 25% of the population last year and could jump to 27.4% this year, according to the World Bank. Last week, the multilateral lender to developing countries approved a $700 million loan for Sri Lanka, including $200 million for the poor.

lots To Do

In a new initiative to help the poor, the government has said it will roll out a direct cash transfer programme to about 2.3 million families later this month and pledged to spend $680 million a year on their welfare. But critics say the monthly handout of 2,500 rupees ($8) to 15,000 rupees, based on poverty levels, is inadequate.

Kamal Padmasiri, a board member of the state-run Welfare Benefits Board, estimated the requirement at 13,800 rupees per person per month but said the exchequer cannot pay the whole amount.

“We are in a default situation in Sri Lanka,” Padmasiri told Reuters. “Cash transfers will be given for three years and people need to develop and move forward during this time. The payments are not permanent … we cannot afford it.”

There have been some gains however.

A 30% rise in tourism revenues this year and a 76% jump in remittances have funnelled $3.2 billion into Sri Lanka’s coffers, helping reserves hit a 14-month high of $3.5 billion in May, and the currency appreciate by about 18% this year.

Sri Lanka still must rework a large chunk of its $36 billion foreign debt, which includes $12.5 billion in international sovereign bonds and $11.3 billion bilateral credit owed mostly to China, Japan and India.

Wickremesinghe has set a goal of finalising debt talks by September, which, if successful, would smoothen the release of a second tranche of IMF funding due by October.

But China, Sri Lanka’s largest bilateral lender with about $7.4 billion in outstanding bilateral and commercial loans, has so far declined to join a so-called common framework led by Japan and the Paris Club to renegotiate Sri Lanka’s debt. 

Also, despite the projection of growth starting in the July quarter, Sri Lanka’s export-driven economy is expected to contract by 2% in the full year, after shrinking 7.8% in 2022. Exports fell 11% this year until May, mostly driven by a 16.5% drop in garment sales to the European Union and the United States.

“We really need our exports to accelerate, we need genuine investors coming in, and we need to take forward market access through free-trade agreements and other measures,” said Shiran Fernando, chief economist at Sri Lanka’s largest industry body Ceylon Chamber of Commerce.

“The IMF programme will only keep us going for the next one-to-two years but beyond that we need stronger reforms around land, labour and loss-making state enterprises.”