---
title: "Sri Lanka’s Neutrality Held After a Torpedo. Its Reforms Haven’t"
description: "GDP grew about 5% in 2024 and 2025 and reserves top $6.9bn, but Dissanayake hasn’t touched the executive presidency or anti-terror law."
author: "Luis Goa"
published: 2026-10-06T12:00:00Z
modified: 2026-10-07T09:50:13Z
url: https://rews.cc/a/sri-lanka-s-neutrality-held-after-a-torpedo-its-reforms-have-3c6299
language: en
tags: ["economy", "politics", "iran", "china", "imf", "asia"]
publisher: "Rews (https://rews.cc)"
---

# Sri Lanka’s Neutrality Held After a Torpedo. Its Reforms Haven’t

*GDP grew about 5% in 2024 and 2025 and reserves top $6.9bn, but Dissanayake hasn’t touched the executive presidency or anti-terror law.*

By Luis Goa · October 6, 2026 · https://rews.cc/a/sri-lanka-s-neutrality-held-after-a-torpedo-its-reforms-have-3c6299

## In brief

- US submarine USS Charlotte sank Iran’s IRIS Dena off Galle on March 4, 2026, killing 87–104 and rescuing 32
- President Dissanayake told parliament Sri Lanka denied basing and port-call requests from both the US and Iran
- Sri Lanka’s GDP grew about 5% in both 2024 and 2025; reserves stood at $6.9bn by end-August 2026, per the IMF
- Cyclone Ditwah killed over 600 and caused an estimated $4.1bn in damage across Sri Lanka in Nov-Dec 2025
- A new counterterrorism bill sent to parliament Oct 6 retains year-long detention powers, Human Rights Watch says

Two Mark-48 torpedoes, fired by the Los Angeles-class attack submarine USS Charlotte 19 nautical miles off Galle on March 4, did more than sink an Iranian frigate. They forced a left-wing government that had spent a year governing almost entirely on an economic-recovery platform to explain, in public, where it actually stands between Washington, Tehran and Beijing.

The sinking of the Mowj-class frigate IRIS Dena was, by the Pentagon’s own account, the first time a US submarine has sunk an enemy warship by torpedo since World War II, as [ABC News reported](https://abcnews.com/Politics/us-sinks-iranian-ship-torpedo-indian-ocean-1st/story?id=130752053). Dena was returning from the International Fleet Review 2026, a naval exercise hosted by India, under exercise rules that reportedly barred participants from carrying live torpedoes or anti-ship missiles — it could not fire back. Sri Lanka’s navy recovered 87 bodies and rescued 32 survivors in the hours after, according to [the Associated Press](https://www.pbs.org/newshour/world/sri-lanka-recovers-87-bodies-from-iranian-warship-sunk-off-its-coast-by-u-s-submarine); a later tally, cited by the Carnegie Endowment’s review of the incident’s aftermath, put the dead at 104, with the same 32 rescued. The gap between an early body count and a final one is routine in the first days after a sinking; this one was never publicly reconciled.

[![Video shows US submarine torpedo Iran's IRIS Dena ship](https://i.ytimg.com/vi/n75knHddlOk/hqdefault.jpg)](https://www.youtube.com/watch?v=n75knHddlOk)

Pentagon periscope footage of the March 4 torpedo strike on the IRIS Dena, shown at Defense Secretary Pete Hegseth’s briefing announcing the attack. Video: FOX 11 Los Angeles · YouTube

President Anura Kumara Dissanayake, who heads the Marxist-Leninist Janatha Vimukthi Peramuna inside the ruling National People’s Power coalition, told parliament on March 20 what had actually crossed his desk that week. On February 26, the United States asked to move two missile-armed aircraft from its base in Djibouti to Sri Lanka’s civilian Mattala airport. The same day, Iran asked permission for three naval vessels to make a goodwill port call in Colombo between March 9 and 13 — a window that opened five days after Dena was already sunk. “With two requests before us, the decision was clear,” Dissanayake said, [according to Al Jazeera’s account of the speech](https://www.aljazeera.com/news/2026/3/20/sri-lanka-says-it-denied-us-request-to-land-two-aircraft-at-mattala-airport). “Had we said yes to Iran, we would have had to say yes to the US, as well.” Sri Lanka denied both requests.

**Two requests, one sinking** The sequence Dissanayake laid out to parliament on March 20, 2026

| From | To | How |
| --- | --- | --- |
| United States *(Feb 26: land 2 armed jets at Mattala)* | Sri Lanka *(Declared neutrality)* | requests basing |
| Iran *(Feb 26: port call for 3 ships, Mar 9–13)* | Sri Lanka *(Declared neutrality)* | requests port call |
| Sri Lanka *(Declared neutrality)* | United States *(Feb 26: land 2 armed jets at Mattala)* | denied |
| Sri Lanka *(Declared neutrality)* | Iran *(Feb 26: port call for 3 ships, Mar 9–13)* | request still pending |
| USS Charlotte *(Los Angeles-class submarine)* | IRIS Dena *(Transiting Galle coast, unarmed)* | 2 torpedoes, Mar 4 |

Based on [President Dissanayake's March 20, 2026 statement to parliament](https://www.aljazeera.com/news/2026/3/20/sri-lanka-says-it-denied-us-request-to-land-two-aircraft-at-mattala-airport)

Opposition leaders read the same sequence differently. Sajith Premadasa of the United National Party called the sinking “a death blow to Sri Lanka’s sovereignty” and pressed Dissanayake to condemn American and Israeli action against Iran. Former foreign minister G. L. Peiris went further: Colombo, he said, had “insulted Iran, which is a friendly nation where Sri Lanka is concerned.” The sharper charge was that the government’s handling of a separate, real-time Iranian appeal as the ship came under threat — not the pending February 26 port-call request — cost an 11-hour delay that left the frigate exposed.

> Certain parties are saying that we have signed agreements with the US, and that’s why we delayed entertaining the Iranian vessel. It was said in Parliament that an 11-hour delay on our part sacrificed the Iranian vessel. That’s outrageous, inhumane.

The frigate affair matters less for what it changed in Colombo’s foreign policy — the neutrality line held — than for what it revealed about how thin Sri Lanka’s room for geopolitical improvisation has become. The same squeeze, between a declared non-alignment and the pull of larger creditors and patrons, runs through the economic side of the NPP’s first two years in office, a period the [Carnegie Endowment’s review this month](https://carnegieendowment.org/research/2026/10/sri-lankas-economic-and-geopolitical-balancing-act) frames as real but narrow recovery, with almost everything else on the party’s 2024 platform stalled.

The recovery numbers are genuine. GDP grew roughly 5 percent in both 2024 and 2025, beating [the World Bank’s own 4.4 percent forecast](https://www.worldbank.org/en/news/press-release/2025/04/23/sri-lanka-s-economy-outpaces-growth-projections-more-efforts-needed-to-reduce-poverty-boost-medium-term-growth) for 2024. Quarterly growth ran at 4.2 percent in the second quarter of 2026 — the eleventh consecutive quarter of expansion, by [the IMF’s own count](https://www.imf.org/en/news/articles/2026/10/04/pr26318-sri-lanka-imf-reaches-sla-on-7th-review-under-the-eff) in its staff-level agreement on the program’s seventh review. Inflation, which was running at minus 1.5 percent in the last quarter of 2024, has swung to 8 percent year-on-year as of September 2026, a product partly of the cost-recovery fuel and electricity pricing the Fund has required as a condition of disbursement. Foreign direct investment totaled $1.04 billion in 2025 — $352 million in equity, $692 million in debt instruments — a modest sum next to what the country has had to absorb in damage.

Cyclone Ditwah, which struck between late November and early December 2025, killed or left missing more than 600 people and damaged or destroyed over 91,000 homes across all 25 of Sri Lanka’s districts. The World Bank put the total loss at $4.1 billion, or 4 percent of 2024 GDP; Colombo’s own preliminary estimate ran as high as $6 billion to $7 billion. The IMF folded part of its combined fifth-and-sixth-review disbursement — $695 million released in May — into cyclone recovery rather than opening a separate emergency facility, after [an IMF staff mission assessed the damage](https://www.imf.org/en/news/articles/2026/01/15/pr-26006-sri-lanka-imf-staff-visit-to-assess-impact-of-cyclone-ditwah) in January.

Tourism absorbed a second shock, from the war itself. Arrivals were up 9.7 percent in January and 16.2 percent in February, year-on-year, according to the Sri Lanka Tourism Development Authority’s monthly reports — then the Iran war widened. March arrivals fell 19.8 percent to 183,979, April fell 22.3 percent to 135,643, and June was down 9.9 percent, as the conflict disrupted the Dubai, Doha and Abu Dhabi transit hubs that carry more than half of the country’s long-haul visitors.

Reserves depend on whose count and which month. Sri Lanka’s central bank reported [gross official reserves of $6.45 billion](https://www.cbsl.gov.lk/en/news/external-sector-performance-june-2026) at the end of June, down 6.2 percent on the month; the IMF’s account of the seventh review puts reserves at $6.9 billion at the end of August. Both figures sit inside a $3 billion, 48-month Extended Fund Facility approved in March 2023, of which $2.4 billion had been disbursed through the fifth-and-sixth reviews in May. Completing the seventh review would release a further $345 million, contingent on Colombo presenting a 2027 budget that meets the program’s parameters and on a financing-assurances review of its creditors. The eighth and final review is scheduled for March 2027, when the arrangement expires.

Almost nothing else on the NPP’s 2024 platform has moved at the same pace. Dissanayake ended state-funded perks for former presidents but has not touched the executive presidency he campaigned to abolish. The Prevention of Terrorism Act, in force since 1979, is still in force: its replacement, the Protection of the State from Terrorism Bill, was gazetted in September and sent to parliament on October 6, but [Human Rights Watch found](https://www.hrw.org/news/2026/10/05/sri-lanka-counterterrorism-bill-retains-abusive-powers) it still lets the defense secretary order a suspect held for up to a year without a magistrate able to overturn the order — extendable, in combination with other provisions, to two years total. Tax reform and judicial-independence measures remain, per Carnegie’s account, inside opaque committees with no visible output.

The other pressure sits outside the reform agenda entirely. India’s cumulative assistance since Sri Lanka’s 2022 default, which Carnegie’s analysis puts at $7.5 billion, functions as the informal backstop behind the IMF program and is spread across smaller, more dispersed projects than China’s. Chinese capital remains concentrated in large infrastructure — and, increasingly, in less welcome forms: Sri Lankan police detained more than 400 mostly Chinese nationals in raids between March and May over suspected online-fraud operations, and a July killing in Colombo Port City, in which a Chinese national was abducted and found dead, is being investigated for possible links to Chinese organized-crime networks.

The IMF’s own figures — eleven straight quarters of growth, reserves rebuilding, debt restructuring largely complete — are the strongest argument Dissanayake has for staying the reform course rather than accelerating it. Whether that argument survives a 2027 budget vote, a final program review, and an opposition that has found a foreign-policy grievance it knows how to use, is the next number worth watching.

## See also

- [IMF Executive Board Approves $3 Billion EFF for Sri Lanka](https://www.imf.org/en/news/articles/2023/03/20/pr2379-imf-executive-board-approves-under-the-new-eff-arrangement-for-sri-lanka) — imf.org · The 2023 program whose terms still bind Colombo's budget choices
- [CPA statement on the Protection of the State from Terrorism Bill](https://www.cpalanka.org/cpa-statement-on-protection-of-the-state-from-terrorism-bill-gazetted-in-september-2026/) — cpalanka.org · A Sri Lankan rights group's clause-by-clause objection to the PTA replacement
- [Sinking of IRIS Dena](https://en.wikipedia.org/wiki/Sinking_of_IRIS_Dena) — en.wikipedia.org · Consolidated timeline and sourcing for the March 4 attack
- [China's Criminal Footprint in Sri Lanka Has Regional Security Implications](https://southasiamonitor.org/geopolitics-and-strategic-affairs/chinas-criminal-footprint-sri-lanka-has-regional-security) — southasiamonitor.org · Background on the Chinese organised-crime networks mentioned
- [Cyclone Ditwah and the Politics of Recovery in Sri Lanka](https://www.isas.nus.edu.sg/papers/cyclone-ditwah-and-the-politics-of-recovery-in-sri-lanka) — isas.nus.edu.sg · Analysis of how the cyclone reshaped Sri Lanka's domestic politics