Sri Lanka could save between US$300 million and US$400 million over the next decade by buying back part of its Macro-Linked Bonds (MLBs) before the market reprices them, SJB MP Dr. Harsha de Silva has warned, raising fresh questions over whether the Government is moving quickly enough to manage the country’s restructured debt.
The warning comes as Sri Lanka’s stronger-than-expected economic growth increases the potential cost of MLBs. Issued as part of the 2024 sovereign debt restructuring, the instruments link repayments to economic performance, allowing bondholders to receive higher returns when growth exceeds the IMF baseline.
Dr. de Silva told Parliament that if the Public Debt Management Office (PDMO) takes no action, total payments on the MLBs could rise from about US$6.2 billion to US$7.4 billion during the next decade.
His argument is straightforward: the Government should buy back a portion of the bonds while they remain relatively affordable rather than wait until stronger growth causes investors to demand a higher price.
“If we wait, the market is going to reprice these Bonds,” he warned, arguing that Sri Lanka must “play the market before the market plays us.”
The proposed operation would not require a new legal mechanism. Dr. de Silva pointed to the 2018 Liability Management Act, which he said provides the necessary legal framework. He estimated the potential saving at roughly twice the value of the US$200 million Asian Development Bank loan currently before Parliament.
The proposal nevertheless exposes a difficult legacy of the restructuring. Dr. de Silva acknowledged that the MLB terms were unfavourable but defended the 2024 agreement as necessary to pull Sri Lanka out of sovereign default. The challenge now, he said, is to actively manage the liabilities created by that settlement.
The PDMO’s perceived delay in deciding how Sri Lanka will eventually return to international capital markets therefore becomes more significant. A decision to repurchase debt is ultimately a market-timing exercise, and postponement could increase the eventual cost.
The broader debt picture also remains fragile despite headline improvements. Public debt stood at around 98% of GDP at end-2025 and is expected to decline to approximately 93%. But Dr. de Silva argued that much of the reduction—from 121% in 2022—occurred through measures taken before the present Government assumed office.
He also challenged the quality of the fiscal improvement. Only 76% of capital expenditure was implemented in 2025 and just 26% between January and August this year. Underspending, he argued, cannot be confused with fiscal discipline because it can weaken future growth.
Meanwhile, interest payments are expected to absorb around 41% of Government revenue this year, while external repayments could rise to approximately US$4 billion annually by 2030.
That makes the MLB issue more than a technical debt-management question. It is a test of whether Sri Lanka can use its improving economic position to reduce future liabilities—or allow stronger growth itself to become an additional debt burden.
