Uncertainty Over IMF, GSP+ and US Tariffs Push Sri Lanka Toward a Dire Crossroads
Fire Beneath the Ashes: Hidden Tensions Threaten SJB–UNP Unity
Will Milco Be Handed Back to India?
New War
In last week’s Inside Politics column, we revealed the impending special tariff agreement between the United States and Bangladesh. Our disclosure, which no other media outlet had reported, suggested that Bangladesh would secure a tax concession similar to the one India obtained under Donald Trump’s administration, set at 18%. This rate was notably lower than the 20% verbal agreement Sri Lanka had reached.
On Monday, our revelation proved accurate as Bangladesh and the US formally signed the tariff agreement at 19%. The distinctive feature of this deal is that Trump granted Bangladesh zero tax on select garment items—an advantage no other country in the region enjoys. Given Bangladesh’s position as a leading apparel exporter, this concession poses a significant threat to other garment-exporting nations in South Asia.
Sri Lanka, meanwhile, had verbally negotiated a 20% tariff with the US, down from an initial 40%. The government hailed this reduction as a major achievement. However, the new Bangladesh-US agreement, which includes zero-tariff allowances on certain garment exports, now presents a serious challenge to Sri Lanka’s apparel industry. Despite this, Sri Lanka has yet to finalize its verbal agreement with US authorities.
Reports suggest the Sri Lankan government became aware of the impending Bangladesh-US deal last week and has since been scrambling to formalize its own 20% agreement. Officials are now focusing on securing the same zero-tax concession granted to Bangladesh. Competing against Bangladesh’s 0% tariff with Sri Lanka’s 20% rate will be a daunting task for local exporters. As a first step, both parties are expected to issue a joint statement, with Sri Lanka agreeing to all conditions set by the US.
Is Sri Lanka with Iran?
Against this backdrop, Sri Lanka is facing yet another major challenge due to the escalating war tensions between the United States and Iran. Over the past period, the United States has taken steps to impose special sanctions on every country that conducts dealings with Iran. Accordingly, it is learnt that, as an initial step in the discussions scheduled to be held between Sri Lanka and the United States regarding tariffs, the American side has proposed that Sri Lanka should make an official declaration suspending all transactions with Iran. However, under the current circumstances, there is a serious question as to whether this can actually be done. The best example of this is the Iranian Independence Day celebration held last week.
Last week, the Iranian Embassy in Sri Lanka organized this celebration in a very grand manner. For the event, they selected the ITC Ratnadipa luxury hotel located at Galle Face. Accordingly, officials of the Iranian Embassy took steps to invite leading figures of the government and the opposition, as well as a number of selected dignitaries. Representing the government, Minister Nalinda Jayatissa attended the event. In addition to political representatives, it was also observed that a large number of heads of security institutions and government officials had received invitations.
Iran Ambassador’s speech
At this event, the attention of many was drawn to the speech delivered by the Iranian Ambassador. In his speech, responding to the policy followed by the United States toward his country and the military operation being prepared targeting Iran, the Iranian Ambassador strongly condemned American actions and delivered a controversial address. It did not take long for many to realize that this was a provocative and inflammatory speech that no one had clearly expected, and one that was likely to anger the United States. Accordingly, everyone was watching to see what kind of response would be made by the government representative who spoke after the Iranian Ambassador, namely by Nalinda Jayatissa. In other words, whether Nalinda, in his speech, would take Iran’s side or whether he would take the side of the United States.
Iran is goooood…!
However, on this occasion, Nalinda delivered his speech in English and proceeded to extend special thanks to Iran. Referring to the Uma Oya project provided to Sri Lanka by Iran in recent times, Nalinda expressed special appreciation and stated that through this project Sri Lanka’s irrigation sector had made a major leap forward. He also said that Sri Lanka imports fertilizer from Iran in large quantities, and pointed out that this too has given significant strength to Sri Lanka’s agricultural economy. In addition, Nalinda stated that Iran purchases a large portion of Sri Lanka’s tea, and said that this has brought substantial benefits to Sri Lanka’s economy.
Accordingly, through Nalinda’s speech, great thanks were extended to Iran, and there was no indication whatsoever of suspending dealings with Iran. As such, the response given by Nalinda was in no way one that aligned with the strong pressure being exerted by the United States to halt dealings with Iran.
Nevertheless, we believe that this response from Sri Lanka has reached the United States through various channels. Accordingly, the most immediate outcome may be that the upcoming tariff-related discussions with the United States will not be easy for Sri Lanka. If, during these discussions, Sri Lanka continues to maintain such a firm stance, it cannot be prevented that a serious crisis could arise with regard to our export markets. On the other hand, under the prevailing circumstances, it is also unavoidable that a serious debate will arise as to whether it is possible to grant everything that is being demanded by the United States.
Three War Fronts
The past few weeks have turned into a period during which international delegations have been visiting Sri Lanka from time to time. Although no detailed information about some of these groups has been reported publicly, information available to us indicates that several decisive delegations have arrived in Sri Lanka over the past two to three weeks, and that a number of extremely important discussions have taken place during this time.
The first decisive delegation was a group of special representatives from the International Monetary Fund who visited Sri Lanka. A large amount of information that was not reported by any media outlet regarding these discussions was covered by us last week through the inside politics column. As a next step in these discussions, the Managing Director of the IMF, Ms. Kristalina Georgieva, is scheduled to visit Sri Lanka on the 16th of this month. The significance of Georgieva’s visit lies in the fact that it is taking place against the backdrop of discussions between IMF representatives and Sri Lanka ending without any agreement.
Fifth Tranche
Meanwhile, the fifth tranche of the loan granted to Sri Lanka was due to be received in December last year. However, as the government had failed to meet several conditions set by the IMF, the Fund decided to temporarily postpone the release of this tranche. To date, the IMF has not issued any statement regarding a date for the release of this fifth tranche or a date on which a staff-level agreement related to it would be reached.
However, according to the latest information available to us, during IMF Managing Director Kristalina Georgieva’s visit to Sri Lanka, plans are in place to hold discussions regarding both the fifth and sixth tranches, and to move toward the relevant staff-level agreements. Nevertheless, under the current circumstances, it appears unlikely that these discussions can be concluded even by June–July. The reason for this is the government’s failure thus far to fully implement the economic reform targets set by the IMF. Accordingly, it is likely that the IMF plans to drag these discussions out until June–July, with the intention of taking decisions after observing how the government proceeds with each reform.
Will GSP Be Lost?
Amid such a crisis, another decisive delegation arrived in Sri Lanka last week without much publicity. This was a high-level delegation from the European Commission. Although many were unaware, we have learned that the discussions held between this European Commission delegation and government leaders were extremely decisive. The reason is that, at a time when Sri Lanka’s apparel industry is facing a very serious risk due to the tariff issue that has emerged with the United States, representatives of the European Commission have also held discussions with government leaders that directly affect Sri Lanka’s apparel sector. This is because, after the United States, the European Commission is Sri Lanka’s largest importer of apparel.
A major relief for Sri Lanka in this regard has been the GSP Plus concession granted by the European Commission. Through this, the Commission has provided massive tariff concessions for a large number of Sri Lankan products, including apparel. Generally, this concession is granted once every three years by the European Commission, and the current concession is due to expire soon. Accordingly, the European Commission delegation visited Sri Lanka to hold discussions on extending this concession for a further three years.
GSP & domestic governance
Generally, the GSP Plus concession granted by the European Commission is directly linked to the democratic governance structure of the recipient country, or in other words, to the extent to which that country protects human rights. During the period of the Mahinda Rajapaksa government, the European Commission moved to abolish the GSP Plus concession on the grounds of serious allegations of human rights violations in Sri Lanka. However, the subsequent ‘Yahapalana’ government pledged to protect the human rights of the people and took steps to restore this concession to Sri Lanka.
Nevertheless, over the past period, the main condition repeatedly put forward by the European Commission has been the repeal of the Prevention of Terrorism Act, which restricts public rights. The European Commission has pointed out that this law severely violates human rights and has requested several successive governments to repeal it. Responding to this demand, the current ‘Malima’ government has drafted a new anti-terrorism law, but at present there is growing opposition to it within the country. The opposition, civil society organizations, and many other groups point out that this new law is even more dangerous and violates human rights more severely than the existing Prevention of Terrorism Act.
EU Discussion
Accordingly, inside politics has learned that European Commission representatives discussed this situation very seriously during their meetings with the government. In doing so, they reportedly conveyed a very clear message to both the government and the opposition, stating that if this new anti-terrorism law is implemented, a situation would arise in which the GSP Plus concession could not be granted to Sri Lanka. It is also understood that the European Commission delegation informed the government about the framework within which the new anti-terrorism law should be drafted, and also communicated the amendments that should be included. However, we do not have further details on how the government responded to the criteria set out by the European Commission.
Nevertheless, we believe that, in the face of the crisis with the United States, the government will not create another confrontation with the European Commission and thereby lose the GSP Plus concession granted to Sri Lanka. Accordingly, it can be seen that the government is facing a serious situation in which it must try to protect both the beard and the rice porridge at the same time. In other words, the government is now compelled to confront simultaneously three major issues: the tariff dispute with the United States, the problem of obtaining loan tranches from the IMF, and the issue of extending the GSP Plus concession with the European Commission.
Policy Reversal?
The government is currently facing three major “litmus tests” on its policies. At the same time, debate has intensified over the JVP’s stance, with many accusing the party of abandoning its leftist roots and shifting toward more right-leaning positions. Critics argue that the government has failed to deliver on its promises and is now struggling to face the public. Some even describe JVP Secretary Tilvin Silva’s recent visit to India as a betrayal of the party’s long-held policies.
Tilvin’s trip to India had originally been scheduled before the Dithwa cyclone, but was postponed due to the disaster and other circumstances. Concerns grew after the Inside Politics column reported on the planned visit, highlighting the JVP’s historic anti-India stance and suggesting a dramatic shift in direction. Many had expected the left-leaning Malimawa faction to align more closely with China. In line with this expectation, President, Tilvin Silva and Bimal Ratnayake previously toured China, where discussions focused on strengthening ties between Sri Lanka’s leadership, the JVP, and the Chinese Communist Party.
However, tensions between Sri Lanka and China have recently escalated after Sri Lanka denied entry to a Chinese research vessel. This decision strained relations with Beijing, leading to the suspension of a $3.9 billion refinery project in Hambantota, the freezing of promised grants, and a decline in Chinese tourist arrivals.
Against this backdrop, Tilvin Silva’s visit to India last week drew significant attention. The JVP’s hostility toward India has been well known since 1987, when the party launched a violent campaign against the Indo-Lanka Accord, which introduced provincial councils. The unrest extended into 1988–89, resulting in more than 60,000 deaths. Despite this history of animosity, many observers believe that Tilvin Silva’s visit marked a formal end to the JVP’s anti-India stance.
Note by Jaishankar
The Indian Council for Cultural Relations (ICCR) organized Tilvin’s Indian tour. To everyone’s surprise, the first Indian dignitary Tilvin met was Foreign Minister S. Jaishankar, one of the highest-ranking political leaders after the Prime Minister and President, and among the top ministers. Typically, Jaishankar meets first-ranking foreign dignitaries, yet he chose to meet Tilvin, who is not a top-ranking figure in the Sri Lankan government. Many observers believe the reason lies in the widely acknowledged Pelawatta factor—international communities recognize that Pelawatta guides the Sri Lankan government, and Tilvin is its chief.
This factor was confirmed by Tilvin himself during a televised discussion. When asked whether the government is directed by Pelawatta, he replied directly: “The government is controlled by Pelawatta, and decisions concerning the masses are finalized after discussions there.”
Following his meeting with Jaishankar, Tilvin visited Prime Minister Modi’s home state of Gujarat, where he met the Chief Minister and toured several factories and industries. He then traveled to Kerala, a region known for its leftist political alignment. Both Sri Lankan and Indian media gave significant coverage to Tilvin’s visit. Notably, Jaishankar posted on X after their meeting, stating that Tilvin’s visit strengthened bilateral ties between the two nations. He emphasized that discussions focused on cooperation, Sri Lanka’s social welfare, and economic development. This statement is considered highly significant from the Indian side. However, Tilvin has yet to issue his own statement regarding his visit to India.
The Amul Protest
Although India had long maintained a certain distance, it began officially recognizing the JVP not just recently but even before the last presidential election. In a surprising move, Anura Kumara Dissanayake, who was preparing to contest as the JVP’s presidential candidate, received an official invitation from India. This recognition was crucial for Anura’s campaign, as it boosted his acceptance within the country, strengthened support among Tamil communities in the North, East, and plantation areas, and helped gain the trust of the business community.
At that time, Ranil’s government had taken steps to transfer 52% of shares in Milco, a profitable Sri Lankan enterprise, to India’s Amul company. This was done through a cabinet paper presented by then Agriculture Minister Mahinda Amaraweera. The strongest opposition to this transfer came from the JVP, led by Anura and Tilvin. However, during Anura’s visit to India, the Indian government deliberately arranged for him to tour Amul. Sri Lankan media and the opposition then accused the JVP of hypocrisy, claiming that while they protested Amul in Sri Lanka, Anura had gone to India and visited the company.
Upon returning to Sri Lanka, Anura clarified that although he toured Amul as planned by India, if he came to power, he would cancel the Milco agreement with Amul and return Milco to state ownership. True to this statement, after Anura assumed power, then Agriculture Minister Vijitha Herath presented the relevant cabinet paper, and steps were taken to re-nationalize Milco from Amul.
Will Milco Be Given Back to Amul?
During Tilvin’s recent visit to India, he first went to New Delhi and then travelled to Gujarat, where he undertook an observation tour of the Amul company. The Amul officials warmly welcomed him and provided a detailed explanation of the company’s operations. At the end of the tour, they invited Tilvin to leave a special note in the visitors’ book. Despite the strong opposition previously expressed in Sri Lanka against handing Milco over to Amul, Tilvin wrote a notable entry in the book regarding Milco.
He stated that Amul is a highly successful enterprise that protects the rights of dairy farmers, and that through Amul, farmers and the government together have contributed greatly to the development of the rural economy. He further noted that this stands as an excellent example for other countries as well. Finally, Tilvin wrote that Amul could be considered the best model of how a government and its people can jointly run a successful business.
Tilvin’s Note
Many observers believe that this note left by Tilvin is highly significant. It has raised questions as to whether it signals a possible move to once again hand over Sri Lanka’s Milco company to Amul. On the other hand, during Anura’s earlier visit to India, Sri Lankan social media heavily criticized him, accusing him of pretending to oppose India while actually touring there. But in Tilvin’s case, during his recent visit, there was no such criticism or attack on social media or elsewhere.
Another notable aspect is that although Tilvin is known as a strong critic of India, when he visited, the Indian media did not attack him either. In fact, there was no visible opposition to him anywhere. At the same time, Tilvin did not receive extensive coverage in Indian media. The only publicity he received was from India’s state-run broadcaster, Doordarshan, and even that was presented with great caution. This suggests that powerful parties may have carefully controlled the reporting of news related to Tilvin’s visit.
Anura – Modi – Macron
Following Tilvin’s visit to India, the President is scheduled to travel to New Delhi on the 19th and 20th to participate in a summit on Artificial Intelligence. French President Emmanuel Macron is also expected to attend. During this visit, the President is set to hold separate discussions with Indian Prime Minister Narendra Modi and French President Macron.
Reports suggest that the President’s visit will likely result in several new agreements with Prime Minister Modi. Although certain barriers had previously hindered agreements between India and Sri Lanka, Tilvin’s recent visit appears to have helped ease many of those obstacles. Consequently, it is anticipated that during the President’s visit, with the involvement of Presidential Advisor Hans Wijesuriya, Sri Lanka and India will reach a number of special agreements.
Six MPs Secret Meeting
Last week, the inside politics column revealed that the government has effectively sidelined provincial council elections. It pointed out that neither the opposition, nor Tamil parties in the North and East, nor even India (which introduced the provincial council system), have launched any campaign demanding that the elections be held. The paper also disclosed that the government has not yet appointed the 12 representatives required for the commission tasked with reviewing the matter.
Following this revelation, opposition MP Sujeewa Senasinghe held a press briefing, challenging the government to conduct the provincial council elections if it could. Soon after, Namal Rajapaksa also publicly urged the government to hold the elections immediately.
Meanwhile, six opposition MPs convened a special meeting at the residence of one MP in Colombo. This meeting, accompanied by a dinner gathering, concluded with a decision that all Tamil and Muslim parties from the North, East, and plantation areas should be brought together to launch a major campaign for provincial council elections. Accordingly, the six MPs resolved to begin a round of discussions with these parties during the upcoming parliamentary week.
They also decided that this struggle should not be limited to one party but should be carried forward collectively by all opposition parties. As part of this plan, the six MPs agreed to meet separately with opposition parliamentarians from different parties in the coming week to coordinate the campaign.
The Latest Conspiracy
In last week’s inside politics column, we revealed details about a small group of schemers working to disrupt the ongoing discussions between the Samagi Jana Balawegaya (SJB) and the United National Party (UNP). We specifically named Rajitha Senaratne and Ajith Mannapperuma, reporting how they conspired to break the SJB–UNP alliance and even issued public statements to that effect. However, due to internal opposition within the UNP, they have now been sidelined. The reason is that while a few individuals without any real public base or electoral strength opposed the alliance, the younger leaders of the UNP—who enjoy genuine public support—stood firmly with Sajith Premadasa and the SJB, insisting that the alliance must continue.
Since Rajitha and Mannapperuma failed to derail the alliance, a new front of the operation emerged last week. This time, the task was handed to a few former ministers, who were contracted to initiate discussions about presenting a common presidential candidate. According to inside politics, the first such meeting took place last Thursday at the residence of a former heavyweight of Ranil Wickremesinghe’s government.
We have full details about where the instructions to begin these talks came from, who attended, and what was discussed. While we are not disclosing those details at this moment, we will reveal them at a decisive stage. What we can say now is that although invitations were extended to several parties, the organizers did not receive the level of participation they had expected.
From what we understand, the purpose of proposing a common candidate is to draw individuals from the UNP, SJB, SLPP, and SLFP into a new arrangement, thereby undermining and ultimately breaking the alliance currently being built between the SJB and UNP.
SJB is to Relaunch
The Samagi Jana Balawegaya (SJB) is now preparing to relaunch its political activities with three major operations simultaneously. To lay the groundwork, SJB General Secretary Ranjith Madduma Bandara has spent the past several months traveling district by district, holding discussions with organizers and party members. As a result, the party has already planned two massive rallies, which will then be expanded into district-level programs across the country.
In addition, Sajith Premadasa is expected to take another step forward next week regarding the SJB–UNP alliance. He has already held discussions with UNP General Secretary Talatha, Deputy Leader Ruwan, Vice Chairman Naveen, National Organizer Sagala, and Deputy Leader Akila. Reports suggest that Sajith will meet with another special group in the coming week to continue talks on the alliance.
Another unexpected development is scheduled for Saturday, centered on the SJB–UNP alliance. For the first time, grassroots members of both parties will come together. This event is being organized by SJB MP S.M. Marikkar, the organizer for the Kolonnawa electorate. Marikkar has invited 600 SJB and UNP members from Kolonnawa to a special discussion, which will also include a luncheon gathering. Sajith Premadasa is expected to attend. Following this meeting, the SJB plans to launch a series of major programs aimed at uniting SJB and UNP supporters at the constituency level across the country.
