By: Staff Writer
January 06, Colombo (LNW): Foreign investor participation in Sri Lanka’s Government securities staged a strong recovery in 2025, marking a sharp reversal from the steep pullback seen a year earlier, even as the country’s overall domestic debt stock continued to expand. The rebound came alongside a clear shift in the Government’s borrowing strategy toward longer-term instruments, supported by gradually improving market confidence.
According to the latest data released by the Central Bank of Sri Lanka (CBSL), foreign holdings of rupee-denominated Government securities more than doubled during 2025. As at 1 January 2026, foreign investors held Rs. 141.36 billion worth of Government securities, up from Rs. 68.5 billion at the beginning of the year. This represents an increase of Rs. 72.86 billion, or 106.36%, underscoring renewed overseas interest in Sri Lanka’s domestic debt market.
The turnaround is particularly notable when viewed against developments in 2024. During that year, foreign holdings contracted by Rs. 48.9 billion, or 41.65%, falling from Rs. 117.4 billion at end-2023. The sharp decline reflected heightened uncertainty and cautious sentiment among foreign investors. The strong rebound in 2025 suggests a reassessment of risk as macroeconomic conditions stabilized and yields remained attractive.
Meanwhile, the total outstanding stock of Government securities continued to rise, though at a much slower pace than in the previous year. Total domestic Government debt increased by Rs. 458 billion in 2025 to reach Rs. 18.75 trillion as at 1 January 2026, representing a growth rate of 2.5%. This was a significant moderation compared to 2024, when the outstanding stock surged by Rs. 2.17 trillion, or 13.47%, from Rs. 16.12 trillion at end-2023.
A closer look at the composition of Government securities reveals a pronounced shift in borrowing preferences. Treasury Bills outstanding declined sharply during 2025, falling by Rs. 933 billion, or 22.92%, to Rs. 3.14 trillion. This reduction points to a deliberate effort to scale back reliance on short-term funding, which typically carries higher rollover risks.
In contrast, Treasury Bonds outstanding expanded notably, rising by Rs. 1.39 trillion, or 9.77%, to Rs. 15.61 trillion by the start of 2026. The increased issuance of longer-tenor bonds reflects a strategy aimed at lengthening the maturity profile of Government debt and improving debt sustainability over the medium term.
This trend builds on developments in 2024, when Treasury Bills remained largely flat, declining marginally by Rs. 7 billion, while Treasury Bonds grew strongly by Rs. 2.18 trillion, or 18.09%, from Rs. 12.04 trillion at end-2023.
Overall, the 2025 data highlight two key themes: a decisive return of foreign investors to Sri Lanka’s Government securities market and a continued policy emphasis on longer-term debt instruments. Together, these developments signal improving confidence and a more measured approach to domestic debt management.
