Colombo
South Asia's largest transhipment port defaulted in 2022, recovered to 5% growth by 2024, but faces its 16th IMF cycle — starfish regeneration economics.
Sri Lanka has entered 16 IMF programmes. About half ended prematurely. Colombo, the commercial capital and largest city with roughly 750,000 in the municipality and 5.6 million in the metropolitan area, is where each cycle of borrowing, crisis, and structural adjustment physically manifests. Wikipedia leads with colonial history — Portuguese, Dutch, British — and the city's natural harbour. What it undersells is that Colombo is South Asia's largest transhipment port and the site of one of the most dramatic sovereign debt collapses of the 21st century.
In 2022, Sri Lanka defaulted. Tax revenue had fallen to 7% of GDP — the second lowest in all emerging markets. Foreign reserves were depleted. Fuel queues stretched for kilometres. Power outages lasted hours. Inflation spiked. Protesters stormed the presidential palace. The IMF approved a $3 billion Extended Fund Facility conditioned on raising VAT from 8% to 18%, income tax to 30%, and achieving a tax-to-GDP ratio of 15% by 2025.
The recovery has been faster than projected. GDP grew 5% in 2024, exceeding the IMF's 4.5% forecast. Foreign reserves doubled to $6.1 billion. The primary surplus reached 2.2% of GDP — nearly triple the IMF's target. In December 2024, a landmark debt restructuring covering $25 billion achieved 98% bondholder participation. Debt-to-GDP declined to 104.6%, projected below 97% by 2029. But poverty remains at 24.5% — twice the 2019 level — and food prices have more than doubled since 2021. Emigration applications are rising.
Meanwhile, a 269-hectare land reclamation called Colombo Port City — financed by $1.4 billion from China — sits mostly empty, its special economic zone framework still mired in regulatory uncertainty. Significant debt repayments resume in 2028.
The biological parallel is the starfish. Starfish can regenerate entire limbs from catastrophic damage, regrowing what was lost through a slow, metabolically expensive process. Colombo regenerates the same way after each crisis — slowly rebuilding reserves, restructuring debt, restoring confidence. But starfish regeneration works because the body plan remains intact. The question for Colombo is whether 16 IMF programmes have finally altered the underlying structure, or whether the same body plan will produce the same crisis again.