Nepal is in turmoil. On 9-10 September 2025, youth-led anti-corruption protests escalated after a sweeping social media ban. At least 19 people were killed, a nationwide curfew was declared, and Prime Minister K. P. Sharma Oli resigned. Kathmandu airport shut down temporarily, forcing flight diversions, and the government rolled back the ban as it lost control of the streets.
Sri Lanka knows this terrain all too well. In 2022, the country faced an unprecedented socio-economic collapse: fuel queues, daily power cuts, sovereign default, and protests that toppled the political leadership. Within months, Sri Lanka entered an IMF stabilisation programme. Reviews through 2024-25 confirm “strong performance,” with inflation now under control and tourism recovering, though debt restructuring remains ongoing.
This analysis compares the two crises, maps their causes and effects, and isolates the lessons Sri Lanka must internalise.
Political Dynamics: Street Pressure as a Reset Mechanism
Both Nepal and Sri Lanka saw legitimacy collapse under street pressure.
- Nepal (2025): The trigger was state censorship through a blanket social media ban, which protesters framed as an attack on freedoms amid corruption and stagnation. The backlash was swift: curfew, casualties, and the prime minister’s resignation.
- Sri Lanka (2022): The trigger was economic collapse; shortages, hyperinflation, and failed governance. The result was mass mobilisation, occupation of state buildings, and the exit of political leaders.
Lesson: Both cases prove that in South Asia, when governance breaks down, the street becomes the reset mechanism. Leadership survival depends less on coercion than on legitimacy, transparency, and responsiveness.
Economic Frameworks: Peg vs Float
- Nepal: Runs a hard peg- 1 INR = 1.6 NPR since 1993. It imports Indian monetary credibility, stabilising inflation but limiting policy flexibility. The peg requires strict external management.
- Sri Lanka: Adopted a float under IMF supervision. Reforms included raising taxes, adjusting utility prices, and tightening monetary policy. While this brings volatility, it allows adjustment and gradual reserve rebuilding.
Lesson: Pegs offer temporary stability, but without institutional credibility they crumble. Sri Lanka’s float, backed by IMF monitoring, gives more resilience if reforms continue.
External Buffers: Remittances vs Tourism
- Nepal: Remittances form 20–25% of GDP, making them the main external buffer. Even during crises, migrant labour income stabilises households and sustains the currency peg. Import bans in 2022–23 also helped preserve reserves.
- Sri Lanka: Relies more on tourism, which rebounded sharply in 2024 (2 million arrivals, +38% year-on-year). Remittances also stabilised after policy corrections, but tourism remains the key growth driver.
Lesson: Sri Lanka cannot depend on one leg. It must diversify its external buffers—remittances, tourism, exports, and FDI rather than leaning on tourism alone.
Real-Economy Linkages
- Aviation: Nepal’s airport shutdown disrupted regional travel. Sri Lanka could benefit in the short term as an alternative South Asian destination, provided it maintains reliability and accessibility.
- Trade and Finance: India is the common anchor. The Reserve Bank of India is considering rupee-credit lines to neighbours, including Nepal and Sri Lanka. This could reduce dollar dependence and soften external shocks.
Lesson: Sri Lanka should aggressively position itself to access regional liquidity mechanisms and promote itself as a stable hub for travel, logistics, and investment.
Governance: The Core Variable
Ultimately, both crises point to governance failure:
- Sri Lanka: 2019 tax cuts, the 2021 fertiliser ban, and IMF delay amplified fragility. Corrective steps; tax reform, stronger revenue administration, and anti-corruption drives are now in progress.
- Nepal: The social media ban epitomised elite impunity and disregard for democratic norms. Corruption, patronage, and opacity remain the root of unrest.
Lesson: Macroeconomic fixes can buy time, but without institutional reform, the cycle of unrest will repeat. Governance, not just economics determines resilience.
Near-Term Spillovers for Sri Lanka
- Tourism Substitution: Adventure travellers avoiding Nepal may shift to Sri Lanka. This requires targeted campaigns and simplified visa procedures.
- Investor Perception: Regional instability could hurt sentiment. Sri Lanka must counter by highlighting IMF milestones and its 2024 tourism rebound.
- Aviation Risk: Flight diversions may affect schedules. Colombo should prepare carriers with contingency support.
Medium-Term Lessons
- Avoid policing speech in times of crisis. Transparency beats censorship.
- Institutionalise fiscal rules to prevent policy shocks.
- Diversify buffers beyond tourism.
- Deepen regional financing options, including rupee credit.
Conclusion
Nepal’s 2025 crisis is political first, economic second. Sri Lanka’s 2022 crisis was economic first, political second. The common denominator is governance. For Sri Lanka, the path forward is clear; complete debt restructuring, stay disciplined with reforms, and avoid the temptation of information controls. If it succeeds, Sri Lanka can position itself as South Asia’s relative safe harbour, a reputation with tangible value for investment and tourism alike.
To read “From Crisis to Cautious Recovery: The Socio-Economic Turning Point in Sri Lanka“, Click Here.
