By: Staff Writer
February 24, Colombo (LNW): Sri Lanka’s debt crisis has been the most critical issue affecting its economy post the 2022 meltdown, with years of borrowing to finance development projects, cover fiscal deficits, and manage post-war reconstruction.
The current state of Sri Lanka’s debt repayments are still to be concluded and several measures need to be taken to alleviate the burden, and to manage its ongoing obligations, economic analyst company director and new Chairman at Union Bank, Dinesh Weerakkody said
While the road ahead remains challenging, Sri Lanka’s clear commitment to fiscal responsibility and economic growth prospects combined with international support, offers hope ,he added.
Sri Lanka is facing a significant debt service burden in the coming years, with payments in 2025 estimated at US $2.45 billion.
This amount comprises $1.37 billion in capital repayments and $1.08 billion in interest, according to Deputy Minister of Economic Development Ani Jayantha.
The financial obligations remain substantial in the following years as well. In 2026, the country must repay $1.19 billion in principal and $931 million in interest.
In 2027, the debt service includes $1.2 billion in principal and $893 million in interest, while in 2028, repayments rise to $2.13 billion, alongside $974 million in interest.
These figures, however, only reflect immediate debt commitments. Under the International Monetary Fund (IMF) program, projections from a June 2024 report indicate a much larger debt service obligation, rising from $7.18 billion in 2025 to an alarming $15.1 billion in the coming years.
Minister Jayantha noted in parliament that these projections would be revised periodically to reflect economic conditions and fiscal policies. The actual reserve collection under the IMF program is tied to a net international reserve target as a quantitative performance criterion, which Sri Lanka has so far managed to meet.
Net international reserves, defined as gross reserves minus reserve-related liabilities, remain a key concern. Sri Lanka’s central bank has historically borrowed heavily from multiple sources, including the IMF, India, and local banks, to support a fixed policy rate.
This was achieved through inflationary open market operations, which injected excess liquidity into the banking system.
Over the past two years, some progress has been made in repaying debts, including those owed to Bangladesh and portions of loans from the Reserve Bank of India and the IMF.
However, there have been calls for legislative action to restrict the central bank’s ability to borrow foreign exchange through swaps and subsequently lose them by maintaining a fixed policy rate.
Rising Risks and Economic Vulnerabilities
Sri Lanka’s debt service burden is exacerbated by structural economic vulnerabilities. The country has struggled with recurring balance of payment crises due to excessive reliance on external borrowing and currency mismatches in its debt profile.
At the peak of the crisis in 2024, the central bank’s net reserves plummeted to a negative $4.6 billion. A shift towards deflationary open market operations in recent months has helped reserves return to positive territory, but the overall debt sustainability remains fragile.
