By: Staff Writer
August 25, Colombo (LNW): Sri Lanka and the United Kingdom formalised a US $90 million bilateral debt-restructuring agreement on 22 August 2025, marking a pivotal step toward economic stabilization.
Under the deal, Sri Lanka’s external obligation is restructured to include US $86,068,439.80 and JPY 582,940,944.31, providing much-needed fiscal relief
The accord was signed by Finance Ministry Secretary Dr. Harshana Suriyapperuma and British High Commissioner Andrew Patrick, underscoring the deepening bilateral relationship
This agreement plays a critical role in Sri Lanka’s broader recovery strategy following its historic 2022 default amid soaring inflation and shortages of basic necessities.
Restructuring debt with bilateral creditors such as the UK is a prerequisite for sustaining the nearly US $3 billion IMF bailout program, which remains central to further fiscal reforms and economic stabilization
Economic Implications:
The restructuring helps lower debt servicing pressures, freeing resources for public investment, social welfare, and growth initiatives. Multilateral analyses suggest that pursuing robust fiscal governance and accountability reforms could boost Sri Lanka’s GDP by over 7 percent and reduce the debt-to-GDP ratio by more than 6 percentage points over the next decade
That said, the broader debt landscape—including previous agreements with China, Japan, and successful sovereign bond exchanges—remains complex and underscores the urgency of continued restructuring efforts
Authoritarian Governance Concerns:
While the financial deal brings relief, it coincides with growing alarm over Sri Lanka’s governance trajectory. Critics argue that the current administration is consolidating power, with decisions increasingly centralized and authoritarian in tone.
Although not official, domestic observers note a shrinking civic space, weakened checks and balances, and a tilt toward more autocratic leadership—raising concerns that debt-financed “recovery” could come at the cost of democratic erosion.
Governance-linked debt instruments, such as those previously issued in 2024, were intended to incentivise fiscal transparency through conditional interest rate reductions—but they also highlight the fragility of relying on complex financial mechanisms amid weak institutions
The bilateral debt restructuring with the UK represents a valuable lifeline for Sri Lanka’s hard-pressed economy and strengthens its IMF-backed path to stability.
Yet, realising its full benefit hinges on embracing genuine reforms, preserving democratic norms, and avoiding the specter of creeping authoritarianism—a balance vital for both economic recovery and long-term institutional resilience.
