SL Pivots from Stabilisation to Transformative Reform 🔄

The Government, elected in 2024, inherited a country in deep crisis, with public debt at 115% of GDP and external debt consuming 46% of export earnings, following the 2022 default. The initial year focused pragmatically on stabilisation, maintaining the IMF program, and restoring fiscal discipline. • However, stabilisation alone is deemed insufficient given the risk of renewed debt distress post-2028 and "regressive conditionalities." The Rupee has depreciated by approximately 6% since Dec 2024 despite favourable external conditions, and 2025 foreign reserves are projected to remain below the $7 Bn target. • The next phase demands a strategic pivot toward "people- and environment-centred development." The 2027 Budget is targeted to reassert national priorities, including food and energy sovereignty, industrial revitalisation, and promotion of value-added exports. • This shift will require progressive taxation, Central Bank reform for developmental financing, and key governance reforms, such as abolishing the Executive Presidency. • Long-term fiscal concerns remain high: Debt-to-GDP is projected to be around 95%, and a second debt restructuring may be unavoidable, as debt servicing will consume nearly 30% of Government revenue by the end of the IMF program. • Reasons for optimism include the strength of democracy, strategic Indian Ocean positioning, and a literate populace capable of supporting a knowledge-based economy.