By: Staff Writer
December 22, Colombo (LNW): Sri Lanka has begun establishing a Public Debt Management Office (PDMO) to centralize and streamline the management of government borrowings and obligations of state enterprises and sub-national bodies. Officially launched on December 2, 2024, the PDMO is set to be fully operational by January 2026, replacing functions previously handled by multiple agencies, including the Central Bank, the Department of External Resources, and the Department of Treasury Operations.
The PDMO’s primary objectives are to enhance public debt transparency, improve accountability, and ensure sustainable borrowing practices. Its responsibilities include managing government debt, issuing loan guarantees, overseeing on-lending operations, and maintaining comprehensive records of public debt.
Additionally, state-owned enterprises (SOEs), local authorities, and provincial councils are now required to report quarterly outstanding debt and obtain written approval for borrowings.
Key tasks of the PDMO will involve preparing a medium-term debt management strategy, negotiating domestic and foreign loans, and publishing government securities auction calendars. The agency will also assess credit risks, manage debt-related cash flows, and oversee liability management operations.
As part of ongoing economic reforms, Sri Lanka has successfully restructured its domestic and foreign debts. Local bondholders received eight tranches of floating-rate rupee bonds worth LKR 155.7 billion, maturing between 2023 and 2043.
These bonds, primarily held by banks, avoided principal reductions and offer a coupon rate 50 basis points above the Central Bank’s Standing Lending Facility Rate (SLFR). The rate is calculated as a six-month historical average before the payment date. Foreign bondholders were also provided options to convert holdings into local-currency bonds, subject to limits.
Internationally, Sri Lanka has restructured $12.5 billion in sovereign bonds, most of which were accumulated during repeated currency crises between 2015 and 2019. These crises were driven by expansionary monetary policies that led to forex shortages and unsustainable debt levels.
The government’s efforts aim to reduce the debt-to-GDP ratio to 90% by 2028, down from pre-default levels, while bringing the interest-to-revenue ratio to 42%, a significant improvement despite remaining above the average for similarly rated economies.
Despite these gains, analysts warn that inconsistent monetary policies, such as those involving soft pegs and flexible exchange rates, could trigger recurrent inflation and currency crises. They liken Sri Lanka’s challenges to the United Kingdom’s economic difficulties in the 1970s, underscoring the need for robust monetary policy frameworks to achieve sustainable economic stability.
While debt restructuring marks progress, Sri Lanka must address deeper structural issues, including fiscal discipline and growth-oriented reforms. Ensuring monetary stability and avoiding policy conflicts will be crucial for fostering long-term resilience and preventing future crises.
