By: Staff Writer
November 20, Colombo (LNW): Sri Lanka is navigating a fragile recovery from its sovereign-default crisis, but deep-rooted vulnerabilities and emerging policy inconsistencies under the NPP government continue to cast doubt over long-term stability. By the end of 2024, Sri Lanka’s total public debt had climbed to nearly US$108 billion, including over US$40 billion in external debt. By 2025, the country faced an annual repayment requirement of more than US$3 billion, including restructured international sovereign bonds and bilateral obligations.
Although the country has made substantial progress, debt restructuring remains only partially complete. The IMF’s fourth review of Sri Lanka’s Extended Fund Facility, concluded in July 2025, confirmed that the external debt restructuring process is “nearly complete,” enabling the release of a new tranche of funding. However, analysts note that debt treatment has covered only part of the government’s total liabilities, leaving a significant portion of domestic debt and its associated risks untouched.
The Central Bank projects that under a successful restructuring baseline, Sri Lanka’s debt-servicing burden could fall to around 22 percent of GDP by 2026, with external repayments contained below 5 percent of GDP. However, under a scenario without comprehensive treatment, total debt-servicing could balloon to nearly 38 percent of GDP. This illustrates the country’s precarious dependence on continued creditor cooperation and steadfast reform implementation.
Despite the President’s budget-speech assurance that Sri Lanka can service its debts in the present financial environment, concerns remain. The NPP government faces growing criticism over policy inconsistency, particularly amid cabinet disagreements and politically driven decisions that risk undermining investor confidence. Some fear that populist policy choices may derail fiscal consolidation just as the country begins to stabilise.
The government’s goal of achieving full debt-servicing capability by 2028 hinges on strict adherence to IMF-aligned reforms, increased revenue collection, and strong governance. Any deviation whether due to political pressure or economic shock could jeopardise progress made so far.
As Sri Lanka inches toward the final stages of its debt restructuring, the path ahead remains narrow. The country has achieved meaningful milestones, but its recovery depends on policy coherence, disciplined execution, and maintaining public and investor confidence. Without these, Sri Lanka risks slipping back into a renewed cycle of instability
