Colombo-based think tank Arutha Research has dismissed concerns that Sri Lanka faces a looming debt servicing cliff in 2028, when capital repayments on restructured foreign loans resume.
Arutha Research Director of Debt Research, Umesh Moramudali, told the Debt and Tax Dialogue forum yesterday that the country’s repayment obligations in 2028 would rise by only about $1 billion compared to 2026 and 2027, countering widespread fears of a sudden repayment shock.
In 2028, Sri Lanka will begin capital repayments on bilateral loans to Japan, India’s EXIM Bank, and China’s EXIM Bank, while bullet payments on new macro-linked bonds will also fall due. Yet, annual servicing costs will remain broadly in line with earlier years: $2.12 billion in 2026 and $2.09 billion in 2027, versus a projected $3 billion in 2028.
“This is a manageable increase, not a cliff,” Moramudali stressed. He argued that Sri Lanka’s debt trajectory is improving faster than International Monetary Fund (IMF) baseline forecasts. The IMF projects the debt-to-GDP ratio to fall to 96.8% by 2030, but Arutha Research estimates it could decline to 85–87% by 2032, well below the Fund’s benchmark.
Slides presented at the forum highlighted progress on all four IMF debt benchmarks: falling debt ratios, gross financing needs under 13% of GDP, foreign currency debt service capped below 4.5% of GDP, and a fully bridged $17.1 billion external financing gap through 2032.
Fiscal consolidation has supported this path. Government revenue rose to 13.5% of GDP in 2024, from just 8.4% in 2022, while the primary budget surplus reached 2.2% of GDP. “We have overperformed on our fiscal targets,” Moramudali said.
Debt restructuring agreements are already in place with all major bilateral creditors, including China, India, Japan, the UK, and private bondholders. Multilateral institutions such as the World Bank and ADB continue to be repaid in full.
However, Moramudali warned that successful debt management will depend on institutional reform. Responsibility for managing external borrowings is shifting from the Central Bank and Department of External Resources to a new Public Debt Management Office, due to be operational in 2026. “Debt management is not the Central Bank’s role. It requires a dedicated office with technical expertise,” he said, questioning whether the new office will have the capacity.
Since Sri Lanka’s default in 2022, all fresh financing has come from multilaterals, with no new bilateral loans. Meanwhile, China’s role is moving from lending to investment. Sinopec has signed a $3.7 billion MoU for a Hambantota refinery—potentially the country’s largest foreign direct investment—while Chinese firms are competing for ADB-backed infrastructure projects.
Moramudali cautioned that without stronger institutional safeguards, Sri Lanka risks repeating past mistakes in external borrowing, despite progress under the IMF program.
